alt.legal: All Your Profits Are Belong To Us

Can the U.S. look forward to legal services on every corner, provided by every supermarket, for every man, woman, and child?

ByEd Sohn on November 05, 2014 3:59 pm

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Did you know that as of last month,KPMG basically became a law firm? And earlier this year,PwC did too. Last year,British Telecom did the same. Weird, right? BT is a law firm?

Well, not quite. In the UK, these companies were granted status through which they can operate as multidisciplinary entities, owned by non-lawyers, but providing legal services. This was made possible because seven years ago, in 2007, Parliament enacted theLegal Services Act (“LSA”). The LSA did lots of fun things, worthy of discussion another day (perhaps after a beer or three), but today we focus on one change: the creation of thealternative business structure (“ABS”), a type of legal services entity that can be managed or owned by non-lawyers. BT, KPMG, PwC and many others have become entities that provide legal services because they obtained ABS licenses (with an “s”, dammit).

As you can imagine, the LSA substantially liberalizes (with a “z”, dammit) the practice of law in the UK. At the passage, a number of foreseeable issues instantly garnered some buzz. Private equity investing into law firms? Investment from non-lawyers resulting in greater reach? Competition driving prices down? At some point, the LSA was branded the “Tesco law”—Tesco is the Walmart of the UK, so basically, “Walmart law.” Legal services on every corner, provided by every supermarket, for every man, woman, and child!

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Great, nice for the Brits. Who cares? What effect will this have on us? If we had our own LSA in 2008, could outside investors have dished heavy-duty bailouts to save Dewey & LeBoeuf, Howrey, or Thacher Proffitt & Wood? What about conflicts of interest? In the meantime, as we exist in a globalized legal market, how will the pressures of the LSA affect us, even if the ABS concept never makes its ways onto our shores?

Look, I don’t have all the answers. Really. I’m just the messenger. Just keep reading…

It took about five years for the LSA to get going in this respect, but we started to see some ABSs coming out in mid-2012. Other than BT, PwC, and KPMG, we know that EY is next, and they haven’t hid their desire to poach talent from law firms. (By the way, does anyone rememberthis little venture? I was really impressed with McKee Nelson as a firm back in law school and nearly accepted a summer offer from them, thinking that securitization was the next big wave.Bullet dodged.)

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It goes the other way, as well—some of the UK law firms are seeking an ABS license to invite non-lawyers into their partnership, hoping for a truly multi-disciplinary practice.Several of the top 50 UK firms have taken this step.

So what might this mean for us? Some initial ideas:

Immediate Global Competition: Biglaw firms have consolidated and sprawled enough so that practices in the UK will immediately impact them. Irrespective of the amount of pouting and tantrum-throwing that is happening, multinational law firms will suffer in the UK market as their clients are being courted by multi-disciplinary practices and their talent is being lured away to PwC Legal and the like. This isn’t a completely new issue, but as innovation in those markets continues to drive new solutions for the delivery of legal services, it will be difficult for global law firms to stubbornly not participate.
Advance the Conversation: The ABAhas looked into this in the past, and even baby steps into investigating modest possibilities were brought to a screeching halt. But again, PwC and KPMG amassing an army of lawyers in the UK will invariably start to put pressure on U.S. law firms. And a group of New Yorkers has brought the issue back to the ABA, front and center, which gave rise to a super awkward 2013 ABA Formal Opinion about the “division of legal fees with other lawyers who may lawfully share fees with nonlawyers.” No joke, that’s what it’s actually called. The time for burying one’s head in the sand has ended, and the only real question is not whether to move forward, but how to execute. Expect conservative baby steps,well short of passive investor funding or publicly traded law practices, but the ball will creep ever-so-slightly forward.
A Nexus of Legal Innovation: As we have covered here on Above the Law, we are at a critical moment in the industry. Today, we exist in an era ofstart-ups andhackathons, driving innovation and technology, which in turn, impact access to legal services. Alternative legal services providers are shooting up the value chain and disaggregating what was traditionally considered the practice of law. And isn’t litigation financing just a workaround for non-lawyers tobet invest into litigation, enabling lawsuits and profiting off of outcomes?

It’s all coming together already! Yet, due to constraints of our own making, we tumble and twist through gymnastics to create strategic partnerships and investment vehicles… at some point, it’s just going to make too much sense not to bring it all together in one entity. Let some deep-pocketed non-lawyer investors pour real resources into a single, multidisciplinary company providing legal advice, legal managed services, legal technology, and accounting. We’ll figure out conflicts and ethics as we go, okay?? They’ll like us when we win!

Deep breath. So, is this a pipe dream? Fantasy, or reality? Are there real reasons not to go down this road, other than protectionist, guild-keeping, self-congratulatory ones? Email me with your thoughts or comments below.

Ed Sohn is a Global Director at Thomson Reuters’ award-winning legal outsourcing company,Pangea3, which employs approximately 1,000 full-time attorneys globally. After five and a half years as a Biglaw litigation associate, Ed spent over two years inNew Delhi, India, managing hundreds of Indian attorneys and professionals in delivering high-value managed legal services. He now focuses on developing integrated technology and outsourced legal solutions. You can contact Ed about e-discovery, managed legal services, theology, chess, Star Trek The Next Generation, or the Chicago Bulls at[email protected].