What is Alternative Business Structure (ABS)?

What is Alternative Business Structure (ABS)? They what help to do; An alternative business structure could be a firm that has non-lawyers in its possession and management structure; this enables corporations to involve key those who bring further expertise and skills. The non-lawyer is often concerned through investment or as a partner or director.

Here is the article to explain, What is Alternative Business Structure (ABS)?

Before 2007, once the Legal Services Act stood passed, any thus solicitor doing business in a very legal capability for the general public had to try and do so in a very firm that solicitors in hand. Once the act stood passed, they came onto the scene and allowed each non-solicitors and solicitor to have legal service corporations. If you have obtained their license, you’ll offer legal services as a non-legal organization; this enables law corporations to manage by non-lawyers. ABS structures conjointly permit law corporations to supply over simply legal services. Law corporations created as ABS will have outside investors, which is one of the most important attracts of this feature.

Introduction to Alternative Business Structures (ABS);

Alternative Business Structures (ABS) has had and will continue to have, transformational implications in delivering legal services. ABSs entered the UK’s legal landscape through the Legal Services Act 2007 and officially began operating on 6 October 2011. In essence, ABSs have diluted ownership restrictions in favor of non-lawyers, allowing both non-lawyers and lawyers to manage the law firm business. This has similarly brought new entrants to the market and more external investment. This paper will critically assess the transformational impact ABSs have had in delivering legal services, examining both their positive and negative consequences. A case study will then undertake, with national law firm Irwin Mitchell’s decision to operate as an ABS discussed. What they are helping to do below are;

An ABS performance will work where:

• An established lawyer-owned firm needs to require a non-lawyer partner.
• An established house needs its non-lawyer to follow the manager to become a co-owner.
• A professional person needs to line up a house with a non-lawyer partner/owner, and.
• A non-legal enterprise sees legal services as complementary and sets up a standalone business.

Time for a change;

As Nick Hood has noted:

“When the Legal Services Act 2007 was enacted, it’s doubtful that its sponsors could have foreseen a Cyprus-based construction consulting firm embracing the concept to enhance its international credibility. Nor would they have anticipated it bringing together Bucks County Council & the Bucks Fire Authority as law services providers.”

And indeed, it has been an era of considerable change. This transformation has seen businesses as diverse as trucking giant Stobarts entering the legal market, stands licensed to set up a firm of solicitors under ‘One Legal Ltd’. For the Stobart Group, which already owns a claims management company, an insurance broker, and Stobart Barristers; this means they can effectively operate as a ‘one-stop shop’. As the Legal Director of the Stobart Group noted:

“[Stobart] can broker the insurance, then handle the claim, deal with the litigation, and provide an advocate”.

Report;

But of course, any evaluation of ABS’s must consider the underlying reason why they existed introduced. A 2001 Office of Fair Trading (OFT) report entitled ‘Competition in Professions’ provides the answer. This report formed the basis for a subsequent White Paper entitled ‘The Future of Legal Services’; itself leading to the Legal Services Act 2007 mentioned earlier. The 2001 OFT report provided that:

“Markets generally work best for consumers when there is unrestricted competition between existing suppliers and unrestricted potential competition from new suppliers and new forms of supply.”

As such, the chief reason ABSs existed introduced was to increase competition between existing ‘traditional’ law firm suppliers and encourage the introduction of new suppliers; both to benefit consumers in the forms of a greater degree of choice, potentially higher quality of service, and potentially a lower cost. Further, with new entrants to the market has come much external investment; “such as private equity or venture capital, to inject into legal businesses by outside investors”.

Example;

A well-publicized example of the colossal amounts of money existing injected into legal businesses by outside investors is that of private equity firm Duke Street Capital and national professional services firm Parabis Group. Duke Street Capital, which already invested £200 million into Parabis Group, invested a further £13 million in December 2014 to help fund the Group’s development of its ABS models. Parabis Group’s ABSs include Plexus Law, Cogent Law, Acumen, Casus Legal, and Greenwoods Solicitors.

Speaking of the impact of the numerous ABS licenses existing issued and to the extremely wide range of recipient businesses, Stephen Mayson has provided that:

“To pretend that these developments don’t matter, or won’t make any difference to the buying of legal services, is plain nonsense… This is not the time to resist, deny or challenge; it is time to reinvent the delivery of legal services. Not just changing a few of the moving parts, but fundamentally re-thinking what lawyers and law firms do”

A word of warning;

Evaluating Mayson’s comments; “undeniably, ABSs offer new ways of working for the lawyers who embrace them and new ways of accessing legal advice for the clients who choose them”. However, such developments and quest for reinvention mustn’t ride roughshod over professional ethics and principles. With non-lawyer owners and external investment comes the introduction of commercial norms, primarily the pursuit of profit above all else. Lord Neuberger has expressed concern over this issue, and speaking to the Association of Liberal Lawyers, stated that:

“Such a professional ethos cannot assume to be in the forefront of the minds of hard-nosed businessmen who want to maximize a return on their investment… An external investor in a legal business may well want the firm only to carry out the most remunerative work.”

Merits;

There is merit in his Lordship’s concerns. Although it would be too naïve to suggest that commercial factors have not entered the law; they have existed tempered by practitioners’ professional obligations, towards both clients and the court. However, one can readily envisage legal practitioners operating in an ABS existing subjected to ethical challenges; which play off the obligations mentioned above with their obligations towards their external owners.

As an indicative example, in the motor claims insurance sector, RBS roughly retains around a 30% market share. If RBS had 40% ownership of one particular ABS, a client, pursuing an insurance claim; may well find their solicitor is standing employed by the company who will have to ultimately pay out their claim.

As Lord Neuberger rightly, and further notes:

“The regulatory bodies will need to work hard to ensure that such pressures are minimized and neutralized. If they fail to do so and allow a culture of conflict to arise and one where that conflict is quietly resolved in the investors’ favor, we run the risk of losing a properly robust and independent legal profession.”

However, opposing this view, one must also recognize the great benefits that ruthless commerciality can bring the legal profession.

Research;

Indeed, very recent research published by the Legal Services Board in July 2015 shows that solicitors practicing in newly created ABS firms:

“Have higher levels of innovative activity of all types than other Solicitors. This is consistent with ABS Solicitors’ higher level of investment, staff engagement, and external involvement in innovation … ABS Solicitors are … more likely to introduce new legal services, with potential benefits for service users. They are also more likely to engage in strategic and organizational innovation.”

The findings of the research are perhaps not that astonishing given “the mood music [that ABSs] have created, encouraging innovation and change”. Asides from an innate commerciality and access capital to invest, from a real, practical perspective; ABSs also have the added advantage over their ‘traditional’ law firm competitors in being able to establish; their own bespoke IT systems, often from scratch, rather than inheriting or having to make do with out-dated systems that are no longer fit for purpose.

The advantages are obvious and numerous, including, for example, better communication between staff, improved service delivered to the customer, and more effective case management. Additionally, not existing confined to the “antediluvian working practices and petty partnership politics”; which have sadly characterized many ‘traditional’ law firms results in opportunities for ABSs to develop attractive, novel alternatives; working patterns, and remuneration packages developed in the commercial arena.

But, unfortunately, as Hood notes:

“One inescapable downside of bringing hard-headed commercial business attitudes and financial discipline to the cozy, coddled legal world is that investors will walk away from failing ventures without a trace of sentiment.”

Case study – Irwin Mitchell;

Irwin Mitchell was one of the first law firms to license by the SRA as an ABS. It has multiple licenses which cover a wide range of its business operations and indeed, most recently, has entered into a joint venture with insurer ensure and will form an ABS accordingly. Below, the reasons why Irwin Mitchell decided to apply for ABS status exist discussed; and the transformational impact it has had in delivering its legal services considered. This will ultimately explain why, as one of Irwin Mitchell’s practitioners has exclaimed, “becoming an ABS was right”.

As Irwin Mitchell’s Chief Executive John Pickering has provided:

“We decided that we wanted to become an alternative business structure because it would better suit our ability to grow our business and if need be and if we wanted to bring in external investment. It would also help fit with the development of our legal and related services,”

Two chief factors can derive from Pickering’s comments, business growth, and external investment. Focusing on the first factor, business growth, how have Irwin Mitchell used the ABS model, to achieve business growth, and how has this transformed their delivery of legal services?

According to Pickering, Irwin Mitchell sought “to restructure the business completely”. Achieving this, they eradicated strict delineations between practice areas; this being a defining feature of many ‘traditional’ law firms, and now operate through two practices, business legal services, and personal legal services. Each division stands headed by a separate chief executive. This move, Pickering notes, existed made “to be very client-focused and client-facing in terms of how we run the business”. This bold decision, it stands suggested, reflects commercial instinct; an instinct to streamline, drive down costs and simplify.

Other things;

Additionally, Irwin Mitchell took advantage of the diluted ownership restrictions to place non-lawyers in senior positions of ownership. Glyn Barker, former Vice-Chairman of PWC, and Mel Eggleston, Senior Partner at KPMG, existed made a chairman-designate and a Non-Executive Director, respectively. Accordingly, Irwin Mitchell was able to acquire the commercial insight and invaluable management expertise of two extremely experienced individuals; who were operating at the upper echelons of the ‘Big Four’. Vitally, they were able to put them in positions of real control and influence.

In Pickering’s own words, such hires reflect Irwin Mitchell’s “clear intention to take advantage of the opportunities we think will arise from becoming an ABS”. Moreover, it is interesting to note that accountancy firms, KPMG and PWC themselves being perfect examples, have gone through transformations from small, standalone accountancy practices to fully-fledged, diverse professional services organizations, offering many business services. The recruiting of Barker and Eggleston by Irwin Mitchell; therefore, arguably reflects “an envious nod to the success of accounting firms in becoming proper businesses”.

Ultimately, as a result of the changes Irwin Mitchell have made since becoming an ABS, and of course not existing confined to the traditional legal model, has resulted in what Pickering has provided is:

“A much more cohesive way of delivering our business. The management structure which underpins this, the divisional structure with all of its machinations behind that, enables us to run the business in a much more efficient and organized way.”

Merits or Pros or Advantages of Alternative Business Structure (ABS);

Merits or Pros or Advantages of ABS for Consumers;

There are many benefits to Alternative Business Structure (ABS) for the consumer. Someone looking for legal assistance who heads to an ABS-type firm will probably face lower legal costs. If a client needs help with a wide variety of things; they might be able to find all of the assistance they’re looking for in one place.

Beginning your business as an ABS could be the decision that gives you the edge over your competitors. Clients will likely appreciate the convenience of various services offered; and, you’ll have the ability to grow with more possibilities for investors.

Merits or Pros or Advantages of ABS for Law Firms;

Law firms can help from choosing to form an ABS for their practice in several ways. As previously said, the ability for ABS firms to offer various services is a huge draw. A firm can market itself as an all-encompassing assistance provider in a particular area when they’re able to protect more bases.

When a law enterprise forms as a typical business structure, like a skilled limited liability company or a corporate law firm, it must own by only lawful professionals. Corporate law firms may only have attorneys as investors. However, this is not the issue with ABS. Employees of the business who are not attorneys can own interest in the enterprise. This could lead to better worker retention and maybe even a better environment throughout the business.

Demerit or Cons or Disadvantages of Alternative Business Structure (ABS);

Demerit or Cons or Disadvantages of ABS for Consumers;

Some believe that the likely drawbacks of Alternative Business Structure (ABS) are too much to choose this structure. But many don’t find these drawbacks to be disadvantageous. Some worry that more ABS firms will drive out smaller enterprises and lead to fewer choices for consumers.

If a law firm stands business structure as an ABS; they could run into difficulty trying to expand or provide assistance overseas. Individual foreign nations do not yet accept ABS. This could be an issue for a client who wants to stick with a certain enterprise as they move overseas or travel.

Demerit or Cons or Disadvantages of ABS for Law Firms;

There are a few possible drawbacks that a law firm might face if they choose to form as an ABS. Some worry that, if a firm is run by non-attorneys, it is likely to have legal work handled by non-lawyers. This already happens in certain areas of the law. For example, much of the work involved in conveyance and deed of assignment matters manage by non-legal professionals. However, ABS companies reserved certain legal activities for only the lawful professionals employed there.

Conclusion;

In conclusion, Alternative Business Structure (ABS) has had a transformational impact in delivering legal services. Their introduction through the Legal Services Act 2007 and operation commencing 2011 has created much furor over how legal services are to offer to consumers. This paper has examined the impact ABSs have had in this regard. The change they have occasioned in the legal profession has been discussed; with the example of the Stobart Group being put forward along with the vast amounts of external investment which have poured in.

In this respect, the role private equity houses are having cannot be understated, financing, in large part, businesses wishing to offer legal provision under an Alternative Business Structure (ABS) license. The various positives and negatives of ABSs’ introduction were then examined. Whilst commercial practice must not curtail solicitors’ professional obligations and principles, devaluing the legal profession in the process; the benefits such a commercial mentality can bring were put forward, primarily increased innovation which can benefit the consumer.

Last, a case study was undertaken on Irwin Mitchell, the first top-20 UK law firm to operate as an ABS. This posited the reasons why its decision to become an ABS has transformed the way; it delivers its legal services, most notably, the significant restructuring of its practices into two clear divisions. In all, whilst there are right “no cookie-cutter ABSs”, as the Legal Services Board has conclusively found, Alternative Business Structure (ABS) has higher levels of innovation than; their ‘traditional’ law firm counterparts and, in turn, have had a related transformational impact on how legal services are delivered in the UK.