The days after tomorrow

The traditional law firm is a dying breed, with the profession facing a revolution in structure and practice. Joanne Harris reports on the implications of the Clementi Review


Imagine yourself in five years time. You have qualified into your chosen practice area and you are an assistant in a law firm, or a junior in chambers. How would that firm or set compare with the beast it is today?

The answer may be that it is unrecognisable. And thanks to Sir David Clementis review of the regulation of the legal profession, so may be the career path of a lawyer. The legal market is now bracing itself for a monumental shake-up, both in the way lawyers practise and in the way law firms and barristers chambers are run. Here, Lawyer 2B gives the lowdown on the review and the potential changes. Take note.


The review

Lord Falconer, the Lord Chancellor, launched the review following a consultation paper examining the professions future, and Clementi, chair of financial services company Prudential, was chosen to head it in July 2003.

He published his consultation paper the following March, giving three possible regulatory models and asking questions about new ownership structures for both law firms and chambers. During the four-month consultation period, 265 organisations and individuals responded.

The reports publication on 15 December 2004 produced a flurry of comment from all sides, including the national press, where it was generally welcomed as being a good deal for consumers.


Regulation and complaints-handling

The review looked at six main issues. Clementi examined the objectives and principles of a regulatory framework, before moving on to considering regulatory models. He studied the way the profession handles complaints and disciplinary matters, as well as governance, regulatory gaps and, finally, alternative business structures.

Clementi commissioned a survey from Mori into the way the public views the legal profession as well as a report by accountants Ernst & Young into costing issues. He also took advice from City firm Slaughter and May into the European ramifications of his recommendations.

The reports principal recommendation was the establishment of a single regulatory body to oversee the regulatory work of the Bar Council, the Law Society and other professional organisations such as the Institute of Legal Executives (Ilex).

The body proposed is the one outlined in Clementis consultation paper as “B+”. It is designed to maintain the professional bodies control of their members and would be named the Legal Services Board (LSB).

In making this decision, Clementi had to examine a number of elements, including: if it was in the public interest; if it would promote competition; if it would help innovation; and whether the regulatory arrangement would be transparent.

He decided that the LSB would be more independent and easier to implement than “model A”, which was similar to the Financial Services Authority (FSA) in form. B+ is closer to the existing arrangements, whereby the professional bodies are responsible for regulating their members. It also brings together the oversight functions currently held by a number of different bodies, including the Archbishop of Canterbury, who oversees the notaries profession.

It is expected that the handling of consumer complaints will be given to a single body, to be known as the Office for Legal Complaints (OLC), which will also be overseen by the LSB. This replaces the current system of each body dealing with complaints about its own members, with the Legal Services Complaints Commissioner as the overseeing body.


Alternative business structures

In his consultation paper, Clementi examined the pros and cons of two “alternative business structures”. These are a step forward from the traditional partnership structure of solicitors firms and the chambers in which self-employed barristers work.

The first structure is known as a legal disciplinary practice (LDP). This allows different branches of the legal profession to work together in partnership. Currently, barristers who want to become partners in solicitors firms have to leave the bar and requalify; although barristers can be employed by solicitors.

Under the LDP structure, solicitors, barristers, legal executives and others will be able to work together in partnership to supply a range of legal services.

Clementi also recommended that outside investment into law firms should be allowed. The investment could potentially include finance from banks, insurance companies and even supermarkets (hence the concept popularly known as Tesco Law). However, Clementi added the caveat that such investment would need careful safeguarding to protect both the businesses and the consumers.


Reactions

The immediate reaction to the Clementi report was positive. The Law Society led the praise, saying that the report would provide “a better deal for consumers”. The societys president Edward Nally said: “We have no problem with scrutiny by an independent board and look forward to working with it.”

Law Society chief executive Janet Paraskeva welcomed the concept of LDPs too, calling it a “new freedom”. However, she also warned that safeguards needed to be in place in order for LDPs to operate.

A similar reaction came from Ilex. President Sandra Barton said of the LSB: “This body will provide the consistent oversight of professional bodies that is currently lacking.”

However, although the Society of Trust and Estate Practitioners (Step) welcomed the introduction of LDPs, it said it was disappointed that a regulatory gap concerning estate administration had not been filled.

Other bodies found cause for disappointment too. Both the Law Society and the Association of Personal Injury Lawyers (Apil) said they would have liked to see tighter controls on claims farmers (companies that manage personal injury claims). Colin Ettinger, Apils president and a partner at Irwin Mitchell, said the Government had “dithered for years over this issue”.

But the most surprising and outspoken response came from the Bar Council, which gave a lukewarm welcome to the proposal of an LSB, but found problems with most of the other recommendations.

Bar Council chairman Stephen Irwin QC defended the organisations record on self-regulation and complaints-handling, saying that a universal complaints-handling office would diminish the service to consumers. Irwin also said that a “good deal of separation” already exists within the Bar Council for regulatory and representative functions and that the council was “happy” to examine changes in governance.

Irwins real ire was reserved for LDPs. He said that the Bar Council had real concerns about non-lawyers being in charge of a legal practice. He then went further to add that the council was “opposed to ownership or control of legal practices by people not bound by professional ethical codes”.


The City view

In contrast to the Bar Council, the top London firms have all broadly welcomed Clementis review. However, few say they think it will make much difference to their practices.

Slaughter and May practice partner David Frank said that things were “largely business as usual” for the large firms. Linklaters managing partner Tony Angel agreed, saying: “Were all pretty comfortable with where its come out.”

Most of the large firms submitted their own responses to the report, and the general feeling was that Clementi chose the right model of regulatory authority.

“Were pleased with what David Clementi has come up with,” said Stuart Popham, senior partner at Clifford Chance. “Its the right balance B+ with muscle or teeth. The division between regulation and representation is absolutely right and dare I say it? overdue.”

While City lawyers have no objection to partnerships between barristers and solicitors, no one thinks many barristers will rush to join law firms. Equally unlikely, it seems, is outside investment into large solicitors firms. City firms generate capital through turnover, debt and partners equity in the practice, and they can raise money themselves if need be. However, Popham said he thought that investment for instance by insurance companies in smaller firms is a likelihood.

Overall, the City firms hope the report will help improve public feeling towards lawyers and that it will help consumers. Barristers feel the same, adding that Clementis proposals could be key to modernising the bar and improving competition within it.


What happens next?

The progress of Clementis changes depends largely on the Government. Discussion is likely to be held up by the expected general election, as parliamentary time is limited, but enough effort has been invested in the review that it is almost certain to be accorded time for debate.

Implementing Clementis recommendations will require changes to the statute book. In a statement issued after the reports publication, the Government said it intends to publish a white paper early in 2005, “to be followed by legislation as soon as parliamentary time allows”.

In the meantime, the Law Society has already kickstarted an internal review that will ultimately separate its regulatory and representative functions.

It formed the Governance Review Group last year, chaired by the crossbench peer Baroness Prashar, and which examined possible ways of splitting the functions. The group reported in the same week as Clementi, but the finer details of how the split will work in practice have yet to be finalised.

In contrast, the Bar Council has not yet begun to examine the practicalities of changing the way it operates. Other bodies, such as Ilex, will also have to break up the two functions and are expected to begin work on this during 2005.

For now, the timetable and details of the implementation remain to be set. One thing is for sure: whatever comes of the review now, the legal profession will have to examine its practices and be ready to face significant change in the years to come.


Jargon-buster


LDP: Legal disciplinary practice, allowing different types of legal professionals to work together in partnership.

LLP: Limited-liability partnership, which limits the liability of a law firm.

LPP: Legal professional privilege, accorded to communications between lawyers and clients and protected from disclosure in court.

LSB: Legal Services Board, the proposed regulatory oversight body.

MDP: Multidisciplinary practice, allowing different professions (such as accountants, lawyers and estate agents) to work together in partnership.

OLC: Office of Legal Complaints, the complaints oversight body proposed by Clementi.


The law in 2010


By 2010, the vast majority of UK law firms will have become limited-liability partnerships (LLPs). An LLP is seen as a more corporate structure than the traditional partnership, and limits the liability of individuals if a firm suffers a negligence claim against it. Already a number of the top 100 firms have converted, including Allen & Overy in 2004, and most others are considering it.

A large solicitors firm of 2010 will be managed by a committee that includes an accountant or similar non-legal professional, who will be concerned with the financial and business affairs of the firm. A senior lawyer will also be involved in management. IT will have advanced greatly, allowing far better communication between offices and even between the office and courtrooms.

The partnership will be made up of solicitors and barristers working together with equal shares in the business. Women and ethnic minorities will feature more highly in the partnership.

Meanwhile, in smaller firms, notaries, estate practitioners, conveyancers and legal executives will all be working in partnership with solicitors and barristers. Private clients will be able to go to one firm for all their legal needs. Small firms will also be LLPs and will have a much higher IT capability than in 2005.

Overall, the solicitors sector will have consolidated, with more giant firms of the size of todays Clifford Chance or DLA Piper Rudnick Gray Cary, as well as more specialist niche firms.

Meanwhile, barristers chambers will be updated, working with a more corporate outlook. There will be fewer sets with more barristers resident in each set. There is likely to be better representation of the profession, and employed barristers will also be better represented.


What the public thinks of lawyers


As part of his report, Sir David Clementi commissioned research from Mori into the public perception of lawyers. Startlingly, it revealed that less than half of the public understand what lawyers do.

Moris study shows a clear lack of understanding among consumers about lawyers. Only 49 per cent of those surveyed said they knew “a fair amount” about the job that lawyers do.

Twenty-eight per cent thought they understood the role of barristers, with one saying: “Barristers. Well, theyre less qualified than solicitors, arent they?”

Lawyers also scored low in terms of how satisfied consumers are with the work carried out. While the overwhelming majority of the public was satisfied with the way nurses, doctors and teachers do their jobs, only 53 per cent are satisfied with lawyers.

The survey revealed that consumers are largely unaware of who they should complain to if they are dissatisfied with the service received. It also said that clients want more transparency in dealing with lawyers, provided that quality is not compromised.