Why GP Solos Need to Worry About a Modern British Invasion
Debra L. Bruce, JD, PCC.
In May 2007 Slater & Gordon, an Australian personal injury firm, became the first law firm to go public. At the time, I discussed some of the implications of publicly held law firms, including the commoditization of legal services. I also gave some tips on how you can reduce the risk that your law practice will become a mere commodity.
Revolution in the U.K.
In October 2007 the United Kingdom passed the Legal Services Act (“LSA”), which authorized alternative business structures (“ABS”) with non-lawyers in professional, management or ownership roles in law firms. One of the regulatory objectives of the legislation was to promote competition in the provision of legal services. The LSA became effective in 2011, and in 2012 the Solicitors Regulation Authority approved the first four ABS firms. One of them, Co-operative Legal Services, launched a fixed fee family law service, with the intent of bringing “a refreshingly different approach to family law” with an “easily accessible and affordable” range of services. It is a division of The Co-Operative Group, a retail giant in the UK with 4800 retail outlets and 7 million members. So I guess you could say it is now the Costco of legal services.
Relevance to U.S. Solos
Why should a little solo law firm in the U.S. care about the developments in law firms across a big ocean or half-way around the world? Because we all live in a global economy now. Those events in the legal systems of other English-speaking countries, coupled with the ever-increasing developments in technology could be the harbingers of doom for your law practice if you don’t. It is essential that you take steps to modernize and systematize your practice as much as possible now. Make it as efficient, convenient and cost-effective for clients as you can.
As venture capital fuels online developments in legal services, many clients will still prefer to deal with a lawyer in person. When there are documents and even lawyers readily available online, however, a significant percentage will forego slow and costly in-person service for something faster and cheaper. We’re the same way. A lot of us used to get a CPA to do our taxes, but now we use TurboTax, even though we know we might make a few mistakes in the process. We know that the meals are better-tasting and healthier at our local organic restaurant. More times than we’d like to admit, however, we hit the fast food drive-through because it’s on the way home, quick, easy and cheap.
Current ABS Status in North America
The ABA Commission on Ethics 20/20 asked for comments concerning permitting ABS firms in April 2011, although they had already declined to recommend permitting passive equity investment in law firms by non-lawyers. In April 2012 the Convocation for the Law Society of Upper Canada approved the creation of a working group to study ABSs. You might think that your state will never permit non-lawyers to own an interest in law firms. I predict that most U.S. states will do so within the next 10 years.
Cracks in the Fortress Walls
Non-lawyers have long been allowed to own an equity interest in law firms in the District of Columbia. A bill was introduced in North Carolina in 2011 to permit non-lawyer ownership in law firms. The law firm Jacoby & Meyers LLC is pursuing lawsuits against New York, New Jersey and Connecticut challenging their prohibitions against non-lawyer investors in law firms. In August 2013 Jacoby & Meyers announced a joint venture with the London-based law firm MJ Hudson to form Jacoby & Meyers Europe Ltd. They will seek ABS status in the U.K. The U.S. system hasn’t changed yet, but the rumblings have begun.
Added Pressure from Technological Advances
In the meantime, non-lawyer entities are investing in technology and creating online venues for consumers to download legal documents cheaply or even for free. Here is an article at TopConsumerReviews.com rating 7 non-lawyer online sites for divorce documents. A few pioneering law firms have gotten into the game by offering attorney-assisted online legal documents, like the Law Office of Stettner & Morris at MorrisFamilyLaw.com and Petrelli Law, P.C. at FlashDivorce.com. Other attorneys upload legal forms for free at Docracy.com to increase their online visibility and demonstrate their expertise, winning new clients when users realize that they need a lawyer’s help. Legal aid services in some states offer free automated self-help legal forms online, including those at TexasLawHelp.org. In November 2012 the Texas Supreme Court approved and made available online a set of forms and instructions for uncontested divorces that do not involve minor children or real property. A Texas trial court may not refuse to accept a properly completed Supreme Court form.
Non-Law Firm Competition
By now you have heard of LegalZoom, the online legal document service. Despite investigations by the bar associations in North Carolina and Connecticut and class actions alleging the unauthorized practice of law in Missouri, Ohio, Arkansas, South Carolina and California, LegalZoom continues to sell legal documents at prices lawyers can’t compete with. There are plenty of other online purveyors of legal documents and instructions, such as Nolo, Law Depot, RocketLawyer and U.S. Legal Forms. Some of them also offer advice from lawyers at discount rates.
Axiom Law offers high level legal services to corporate clients, including Fortune 500 companies. They call themselves “a 1,000-person firm” with 11 offices and a “modern interpretation of a law firm.” They hire lawyers as W-2 employees, but they say they are not a legal process outsourcer (LPO), nor a law firm. The founder, Mark Harris, says Axiom aspires to become “one of the world’s largest providers of legal services.” As a self-described “non-traditional provider of legal services,” Axiom has been able to raise about $65 million in private equity, without the restriction of lawyer-only ownership. Axiom invests in technology to an extent that many law firms cannot, due to the pressure from partners to make profit distributions, which, together with its lower overhead, may give Axiom a competitive edge.
Clearspire developed another model for delivering legal services. Two organizations work together, one being the law firm, and the other a business management arm that provides marketing, project management and other management services, as well as technology to the legal side. The business organization has raised non-lawyer investment capital, a distinct advantage over traditional law firms. Clearspire eschews the overhead of big offices, with lawyers working from home utilizing specially designed technology to interact with each other and the clients. Clearspire touts reduced fees and greater transparency for the clients, with work performed by former BigLaw attorneys.
BigLaw Leaps into the Fray
The most significant development in my mind, however, has been the launch of Riverview Law in 2012. Riverview Law is an online ABS that offers lower cost fixed-fee legal services and fixed-fee annual contracts for small to large companies in the U.K. It has a free online portal with unlimited access to advice pages and documents, plus one free telephone legal consultation as an introduction to the legal team. The consultation is followed up with written case notes describing the advice and next steps. The ease of access, fixed fees and focus on customer service are impressive deviations from most sophisticated legal services.
What really catches my attention, however, is Riverview Law’s affiliation with BigLaw. DLA Piper, a global megafirm with 4200 lawyers around the world (including about 30 offices in the U.S.), owns a 21% interest in Riverview. Riverview also established an alliance with DMH Stallard, a 100-lawyer commercial law firm based in England. Riverview even opened a small New York office to offer fixed-fee advice on U.K. law to U.S. clients.
Other big U.S. law firms are now putting legal forms online for free to develop relationships or goodwill with mid-size or early stage businesses. See, for instance, Orrick’s Start-Up Tool Kit, Littler Mendelson’s Healthcare Reform Advisor, Perkins Cole’s Startup PerColator, Goodwin Proctoer’s Founders Workbench, and Wilson Sonsini’s Term Sheet Generator.
On October 30, 2013, Neota Logic, a producer of technology systems to aid professionals in complex reasoning, transparent advice and document automation, announced that mega law firm Seyfarth Shaw added Neota Logic Server to its toolkit. If big firms start implementing similar technology to develop a high volume, lower cost business division, how long will smaller firms be able to compete?
The Inevitable Invasion
As BigLaw starts losing global business to innovative, highly qualified law firms overseas and non-traditional providers of legal services on home shores, the dam will break. They’ll need large capital expenditures to revamp and revitalize their delivery capabilities to become more competitive. Partners will be tempted by opportunities to cash out their equity in IPOs. More law firms will start lobbying for legislative changes that give them the ability to garner non-lawyer equity investment, too. The British (and Australian) invasion of disruptive legal innovation will be complete.
And, at that point, Costco really will be able to offer discount legal services in its retail stores, luring away many of the traditional clients of solos and small firms. If you don’t want your practice to suffer the fate that small family-owned stores experienced when Walmart came to rural America, it’s time to develop a plan now.