Recently, the ABA Journal published an article entitled, Does the UK Know Something We Don’t About Alternative Business Structures? In 2007 the UK passed the Legal Services Act, which allowed for ABS (alternative business structures); meaning non-lawyer ownership and investment in law firms. Recently, US companies, such as LegalZoom and Jacoby & Meyers, have begun setting up shop in the UK to take advantage of ABS. The following are the main points of the article:
- ABS Puts the Client Front and Center
The ABA article highlights that, thus far, ABS in the UK has done two remarkable things. First, it puts the needs of the customer front and center. “The U.K. reforms are about putting the customer at the heart of the relationship, and about prioritizing the needs of the customer. The reforms allow for people who have different skills and expertise to be brought together—people who typically aren’t brought together—in order to meet customer needs, and in order to improve access to justice and to legal services.” In reality, stating that these reforms have “improved access to justice” is likely a stretch. Per an investigation by The Guardian, the net effect of regulatory reform in the U.K. has actually reduced access to justice, as part of the reforms included substantial cut backs in government funded legal aid programs.
- ABS Increases Innovation
Second, the modernization of their regulatory rules has generally increased innovation and creativity in the legal industry, even if a firm doesn’t form an ABS. “While the discussion of U.K. regulations is often focused on nonlawyer ownership, MDPs and the creation of the ABS structure, the changes in our regulations are much more profound. Essentially, we’ve taken away the restrictions on competition in the legal services market, and in doing so we’ve fostered a general climate of innovation and creativity in the provision of legal services. As a result, whether they do it as an ABS or not, all lawyers need to re-engineer what they do and how they do it in order to compete in a very different environment.”
What this paragraph means is this: non-lawyer investment is allowed in U.K. law firms and legal services companies. Words like “innovation,” “competition,” and “climate of creativity” are all euphemisms for capital. None of those things occurs and/or results in anything useful without capital to fund it. In business, capital comes from one of three places: operating cash flow, debt, or investment. U.K. firms have access to all three. U.S. firms only have access to two (if one excludes lawyers from the investor class); and for practical purposes, many have access to none.
- ABS Firms Can Offer Services in the US
Even more interesting is the impact ABS in the UK might have on the U.S. legal market. The article hypothesizes that UK firms with an ABS model can offer services to clients in the US online and US regulators won’t have any way to prevent it. “Regulators in the U.S. may very well try to take action against a U.K.-based company providing legal services via the Internet to clients in the U.S., but there is little they can do to stop it. The regulators would not get a lot of support, and the FTC would quite happily eliminate the lawyers’ monopoly.” If this is true, U.S. lawyers are being sent to a knife fight with no knife and our hands tied behind our backs.
- US Firms Can Raise Capital in the UK
If the regulatory reform does not come to the U.S. soon, there may still be other options for innovative US firms and companies. “It is easy to imagine a U.S. legal service provider that comes to the U.K., raises investment capital in the U.K., puts money into technology and develops a more efficient business model, employs U.S. attorneys as registered foreign lawyers, and offers the entire package back to clients in the U.S.” And this may, in fact, be what both LegalZoom and the U.S. law firm of Jacoby and Meyers are doing or are preparing to do now.