Building successful legal businesses in the post-Legal Services Act world

The Legal Services Act set the stage for fundamental reform of the provision and regulation of legal services in England and Wales, establishing the Legal Services Board as a single independent oversight regulator for the entire legal sector. The Act enables the creation of alternative business structures (ABSs), which will allow lawyers to form partnerships with non-lawyers and accept outside investment or operate under external ownership.

Lord Falconer of Thoroton, one of the key architects of the Act, has described its effect as a facilitator, rather than a creator of change in the increasingly consumer focused legal services market. The traditional partnership model is considered by many to be past its sell-by date and legal businesses transforming their client offering by taking advantage of the freedoms offered by the Act are likely to have a competitive edge.

Innovative businesses

Outside capital has the potential to transform the provision of legal services. Management consultant Alan Hodgart has argued that the Act will lead to greater specialisation within the profession and the reduction of inefficiencies through greater use of technology. Consolidation in the delivery of commoditised legal services will transform business models at the lower-value end of the market, making the sector an attractive prospect for outside investors.

At the higher-value end of the commercial market the potential for business growth is currently underrated by firms. Hodgart has challenged larger law firms to be creative in actively considering the impact an injection of capital would have on their business. Access to capital and the ability to consolidate will give international law firms a unique advantage in the global legal services marketplace.

The challenge for regulators in developing the framework within which these new businesses will operate is balancing the need for strong principles to avoid conflict and maintain the integrity of the profession while ensuring sufficient flexibility to promote innovation.

These policy discussions have been informed by a series of events hosted by the Law Society. Read more about the legal breakfast series.