Evolution, Revolution (or Extinction)

I attended Modern Law’s conference on evolution or revolution in legal services yesterday. It began with a vigorous defence of the LSB’s approach from Dave Edmonds on his last day in the job and quickly descended into the usual regulatory name calling – trade unions vs out of touch regulators – in a panel session where three of the figures were outgoing – Charles Plant, Ruth Deech and Des Hudson. Plant struck the more moderate and thoughtful tone of the three.

Baroness Deech, perhaps overcome with a little rhetorical flight of fancy, struck the most absurd – do you want a single regulator run by the Kings and Queens of quangos, asked Deech. A reasonable question – if rather pejoratively put – but the irony of the put down appears to have been lost on her, so let me spell it out: quango stands for quasi autonomous non-governmental organisation and that rather precisely defines the Bar Standards Board, save for quangos more normally being seen as government sponsored. This could only be said to be indirectly the case for the BSB. I’d be tempted to let her off on that basis, were it not for her previous roles as Chair of the Human Fertilisation & Embryology Authority, Independent Adjudicator for Higher Education and a BBC Governor.

Diane Burleigh of CILEX and George Kidd (CLC non exec board member and former Cabinet Office advisor) bemoaned the inability of regulators and the LSB to get along, but resisted the idea of a single regulator – my sense was they were hinting that a stronger but less aggressive LSB might be the answer, but that is speculation on my part.

Edmond’s main policy aim was to (re)float the idea that the professional rule books could be/should be significantly slimmer. Nick Lavender QC (Chairman of the Bar Council) raised the reverse anxiety, that Outcome Focused Regulation is ineffectively vague and that rules are better. I suspect that both are partly right and am surer that we have neither outcome focussed nor rule-based regulation. A debate about fewer or more rules is rather sterile territory when what we need is a debate about effective rules (of which the more vs less, and principles vs rules debates would be part).

Whilst the panel was entertaining in a Punch and Judy kind of way the typical low point of the conference was the Ministers speech. He almost literally had nothing to say. It’s not an uncommon experience – Minster turns up to conference, says almost nothing of any import or interest to avoid controversy or protect their news cycles and then buggers off again. Why do conference organisers, delegates and ministerial teams do this to each other? It is a spectacularly wasteful exercise in non-engagement.

The next parts of the conference were given over to understanding why private equity might (or might not) invest in legal services firms. My reading of this was what they are looking for is larg(ish) businesses, already reputable and well managed, looking to grow significantly and quickly (so they can realise their investment in a 5 year-ish) timescale who have the ideas and skills to do so. Most of these largish businesses are not interested (big City firms who do not see the need for, or have a plan for, such dramatic investment). Most of the smaller businesses are too small or poorly managed to be of interest. The excellent Andrew Grech, MD of Slater and Gordon, revealed that he’d done due diligence on about 300 law firms and almost none of them were investible. A collective complaint running through much of the day was that the culture of partnership was inhibiting of change and not conducive to effective management. There was not a murmur of dissent on that.

A sub-theme was whether private equity was inherently evil. The main assumption on which this is founded is that they look to prioritise efficiency over service and take the increased profit out of their businesses quickly. The main answers appeared to be two fold. 1. Partners take almost 100% of the profit out of a business straight away, underinvest in service development and people, so who’s the most evil? And 2. The market protects service quality and rigorous risk compliance management by private equity funders is likely to be more testing than the kinds of systems firms would implement under their own steam.

They are reasonable answers, but the truth is – I suspect – a little more complicated. The ‘innovators’ we were exposed to differed in the degree to which they saw their innovation as bringing in highly financialised employee framework (everyone gets bonuses based on hitting financial targets); bringing in alternative employee management frameworks (we manage on quality not on financialisation, or on quality plus financialisation); and, those who sort to look at employee loyalty as a short term (bonuses) or more long term economic problem (employee ownership being implemented by some). A second problem is the potential for vertical integration to complicate client loyalties and market incentives in as yet not properly examined ways. A personal injury solution (as it was called at one point) is different to a personal injury claim for example. That’s not to say solutions are not better than claims; it’s just to say there are dangers of conflicting interest and misaligned incentives which need a harder look.

A second ethics related point was whether private equity posed a threat to pro bono work. The answer was consistent: private equity was as or more supportive of pro bono than most partnerships. That was not offered as a comfort – it was broadly offered as a criticism of ‘ordinary’ firms commitments in the area.

The final point for me emerging from this conference is that we actually got little sense of what the innovators were really doing. They were keen to talk about their business models; how they were more corporate than partnerships; how their employees were incentivised differently; what a nightmare the SRA ABS licensing process was (Jeff Winn told very entertaining stories about the absurdity of CRB checks on remote investors in private equity funds); and what an opportunity there was for people with ideas. There were three moments where we did glean a little more insight on what they were really doing beyond better process management systems:

  • Several had cottoned on to the practical potential of AI-like technology to automate decision making processes (rather than simply service delivery);
  • Slater and Gordon appear to invest in experimentation with – and evaluation of – different modalities of service (how significantly experimental and how evaluative the evaluations are are the key questions);
  • Karl Chapman spends 10% of his time on this question – what does the next Riverview Law look like. He will not be alone but he probably will be unusual.

Three important insights into what will drive revolution or evolution.  Overall an interesting day, with some great panels, expertly chaired by Mike Napier.


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