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Opinion column: Ken McCracken

21 January 13

The profession's dominant business model is likely to lead to attrition of independent Scottish legal firms. Is there an alternative?

by Ken McCracken

The recent bout of recession-induced merger activity (other reasons cited for this are important, but the recession also matters) is changing the face of our profession. Aside from scaling back the supply side by reducing the number of lawyers and restricting opportunities for graduates, the acquisition of Scottish law firms by English firms could have the same outcome as the demise of Scottish PLCs in an earlier era.

If history is a guide, acquired firms will end up being controlled from outside Scotland, and the Scottish part will probably wither unless there is a compliance reason (separate jurisdiction), particular commercial opportunity (oil and gas; renewables), or political demand (independence?) that requires a Scottish presence. Otherwise economies of scale – always a reason for businesses to merge – will determine where work is done, favouring regional English centres or abroad at least as much as maintaining a substantial Scottish presence.

While this change is happening, in the new world of alternative business structures the Scottish Government, and the Society, want to promote Scotland as a location for commoditised legal services. Presumably the intention is to encourage the type of business that runs with few qualified lawyers overseeing and monitoring a large number of unqualified “advisers”.

What will happen to the rest of the Scottish legal profession and its Society as independent entities, if the larger Scottish firms become satellite offices and there is a rise in the commodity players whose incursion into the market at a local, or Scotland-wide, level, eradicates smaller firms?

The irony is that these outcomes are the inevitable consequence of the dominant paradigm in the law firm business model: the reasonably highly leveraged firm focused on technical specialisms and executing transactions. The need in a leveraged model to delegate encourages commoditisation, so that firms can manage transactions at the lowest level of competence while hoping that clients will bear a reasonably high fee. This model works well when a particular specialism is in demand, but it is not as robust when clients are hunting for ways to reduce costs and a range of specialists are offering the same service. In such an environment – like now – there is a tendency to start a race to the bottom: ultimately the winner is whoever can provide the service fastest and cheapest with enough insurance to keep clients reassured.

The focus on technical legal specialisms has evolved into sector expertise. This, along with competing claims about the advantages of being geographically restricted, or widespread, or even “global” in some sense, is intended to be more alluring for clients, but it is debatable how much it has changed the dominant paradigm of one or more specialists working in their silos, trying to leverage up their sector practice to generate more profit.

Is there any alternative? Maybe there is an opportunity to provide a more rounded, or “holistic”, service to privately owned enterprises that now dominate Scotland’s business sector. These tend to stay in Scotland simply because this is where their owners, and ultimate controllers, choose to live and do business.

These businesses, whatever the size or nature of their activities, face crucial decisions that are not immediately reducible to a series of technical problems to which there are proficient specialist answers that lead to transactions. In fact, clients might say “If only life were that simple”.

There is scope to improve the service to these clients. It first requires lawyers to crawl out of their specialist silos and start organising their legal knowledge and services around the clients’ needs, rather than around the technical likes or dislikes of the advisers.

Is it too much to expect that we can know enough tax, trusts, and business law, for example, to help the client articulate and anticipate the range of options that they face in life and in business? Is a team of lawyers, each with a partial specialism, the only way, or even the best way, of serving this client? Or is there scope for lawyers who advise the owners of private enterprise to learn the law that is relevant to the client?

Arguably, this is what being client-centric is all about. Technical knowledge and practical skills should be organised around the client’s needs, rather than every challenge being reduced to a “specialism”. If lawyers can cope with this change, it would seem a relatively short hop for this type of advisory business to provide a wider range of services such as accounting, property and asset management. The core of such a business would be that everyone is committed to a client-centric vision and ethos, and resists the temptation to return to their specialist silos.

A multi-disciplinary, client-centric advisory business, fanatically determined to understand and apply professional knowledge that suits the private enterprise client, rather than the specialist preferences of the lawyer? It might just work.

Ken McCracken is a partner with Wright, Johnston & Mackenzie LLP. He is joint managing director of FBS Global Ltd, a specialist consulting and training business spun out of WJM to help family businesses and family offices.

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