Sir Nigel Knowles: alternative structures 'are here to stay'
Jonathan Ames meets the two driving forces, who warn the rest of the players that the market is changing for good
In the extended run-up to implementation of the most controversial elements of England’s Legal Services Act 2007, much of the country’s law firm elite were dismissive of the legislation’s potential impact on their business models. Global law firms were rich enough not to require external investment and focussed enough not to need to bring in non-lawyer partners.
Now that the legislation is live – and amid an unanticipated rush of applications for alternative business structure licences – that analysis doesn’t appear to be quite so confident. While so far no global firm has announced a bid for a licence, there is nonetheless a perceptible shift in mood, with senior partners at top firms at least acknowledging that the legislation is likely to change the nature of the English legal profession.
Likewise, US bar authorities have ratcheted up their negative rhetoric regarding external investment, possibly a sign that they fear the inevitable. Indeed, only a few days ago New York-based Jacoby & Meyers resurrected a challenge against a state rule preventing law firms from seeking investment from non-lawyers, claiming the prohibition is unconstitutional.
And some of the partners at arguably the world’s biggest law firm by number of lawyers – Anglo-US behemoth DLA Piper, which has 77 offices in 31 countries – clearly take the view that ABSs and new models of practice are unavoidable, and, indeed, potentially very lucrative.
At the end of last winter, the firm’s joint chief executive and managing partner, Sir Nigel Knowles announced that DLA Piper was taking a share of LawVest, the parent company to an innovative new legal practice called Riverview Law. There were subsequent reports that not all the partners at the global firm were happy when it emerged that Sir Nigel and several other partners had also made personal investments in the business.
Internal scuffles aside, Riverview Law – which blends solicitors and barristers and offers business clients fixed fee deals – appears to be a business on a mission. Under chief executive Karl Chapman, it has already launched a service in New York and claims to be on the verge of merging with another, so far unnamed, English practice.
Before implementation of the Legal Services Act, many – especially those at the business law end of the English legal profession – were dismissive of the idea that alternative business structures would make a serious impact. Were they wrong?
Nigel Knowles: Although it has taken 10 years from people thinking about the act to writing it to implementation – now all systems are go. There will soon be many changes and a new normal as a result.
In the period of turbulence that we are in – partly fuelled by the financial crisis, but definitely fuelled by the Legal Services Act – there will be a reordering of the legal market and certain people will rise in that process and some people will fall away. But it is it all there to be grabbed, for those who get it right.
The ABS rules will attract market entrants that initially will be likely to target domestic private clients – for example, wills, probate, residential conveyancing work. But they will also tackle the small and medium-sized enterprise end of the business market. In the new environment, SMEs will be able to get much better support on a retainer-based arrangement that will be very cost effective.
ABSs will also bring some refreshing re-engineering to high-value, low volume commodity legal work. What will allow them to do this is that they will be structured completely differently – they will have far fewer equity partners, they will have lots of paralegals and junior lawyers, they will have a high dependency on technology, most of the advice will be given on line; they won’t occupy city-centre locations, but out of town locations.
The Co-operative supermarket has already been granted an ABS licence, and other large retailers are queuing for regulatory authorisation. How much of a threat will they present to England’s traditional legal profession?
NK: These people have got resource, time and resolve. Once they’ve worked out what they want from the market and a plan to execute that, then there is nobody out there to stop them. How many customers walk through the doors of the Co-op each week? Those are all potential customers for its legal services.
If the ABS model will primarily target private client consumer clients, why is it relevant to DLA Piper? Why have some of the partners at the firm invested in a new ABS firm in waiting?
NK: We are simply taking a strategic stake in Riverview. We don’t influence it or manage it; we are shareholders. It gives us a foot in the new camp with a dynamic offering.
Also, the work that Riverview Law is looking to do and is doing is not work that DLA Piper is doing – so there is a perfect match. If a client realises that we don’t do that type of work any more, we can introduce them to Riverview, which can take its own view. And when we are preparing large tenders for corporates that are looking to outsource commodity work that we can’t do competitively, we can do a joint venture with RV or introduce the client to them.
The arrangement gives more strategic options. But we are not forsaking our strong local client base. We now have in our midst an offering that will be relevant to SMEs, some of our smaller clients that have been with the firm for 20 years but for whom we are not appropriate now, as we are a firm with aspirations to be the leading global business law firm.
Nonetheless, it has been reported that your firm’s involvement with this project has caused some concern among DLA partners. Have you made mistakes internally in the way this deal has been handled – or are some people always going to be uneasy with such a new model?
NK: ABSs and businesses arising out of the provision of the LSA are here to stay. There is no point in being in denial and pretending it is not happening. Businesses have got to adjust to a different competitive landscape. And as far as DLA Piper is concerned, Riverview is not in the least threatening.
The international legal services market has been a huge success story for a coterie of US and English law firms over the last 15 to 20 years. But there are signs of difficulties in at least in some regions of the world. Are you worried that the international market could contract significantly?
NK: There has been a paradigm shift in the way in which buyers of legal services buy those services. And in general terms, consolidation in the international market is just about to start. The magic circle firms are the global elite, then there are global business law firms, and the super-niche and the more general niche.
But there are still a lot of firms out there that have not made up their minds or not addressed what they are going to do and they will be the subject of consolidation. Some may cease to exist; some may merge and sort themselves out.
I am very relieved that DLA Piper made as much progress as it did before the crisis, because the crisis has allowed us to use our differentiation to continue to attract business and take market share. Right now, I would hate to be the managing partner of a firm based just in London, with an exclusive London cost base and with no business outside of London or anywhere else in the world. And that my only selling point would be that I might charge less than other firms. That would be fatal.
Riverview Law itself has already made moves internationally with the opening of an outpost in New York. What is the rationale behind that?
Karl Chapman: Our current US strategy is to provide a route into the English justice system for US corporations and US law firms. We are providing that direct route in on a fixed-price, absolute cost-certainty basis. And there is a lot of demand for it. I don’t think it would be surprising if after a while we saw US law firms working in partnership with us. And we will open in other parts of the world, creating a roadmap into the English justice system.
And back home in England, how has the traditional legal profession reacted to your launch?
KC: We are currently not having any problem recruiting lawyers domestically – there is definitely an oversupply.
Invariably every general counsel we sit down with for discussions is having an internal debate over whether to expand the in-house legal team. Why do they consider doing so? Because they are dissatisfied with law firms and their pricing models – and we say there is an alternative, which we call legal advisory outsourcing.
We ask GCs: what type of legal advice is crucial to your business and your sector that you will never outsource? And then ask yourself, how do I source advice for the rest? We say to GCs – give us all your employment work, all your commercial contract work, or intellectual property work or commercial property leases …
It is interesting the use and perspective the market has on the word ‘commodity’. Commodity adds up to billions of pounds a year in the UK market. It is not a small amount of money and we can do it much more efficiently and effectively.
CV -- Sir Nigel Knowles, joint chief executive and managing partner of DLA Piper
He has been managing partner since 1996 and in that time has led its growth from a regional UK law firm to what is now the world’s largest law firm. Globally, DLA Piper has a turnover in excess of £1bn.
Sir Nigel joined Yorkshire firm Broomheads as a trainee in 1978 and became a partner only six years later, specialising in corporate finance, private equity and mergers and acquisitions.
By 1990, he was appointed head of the commercial group at post-merger Dibb Lupton Broomhead, becoming managing partner in 1996.
Since that time, he has led the practice through several mergers, culminating in a three-way transatlantic deal that created the current firm.
CV -- Karl Chapman, chief executive of Riverview Law
Reading law at Birmingham University before joining Guinness Mahon Investment Management in 1985 as a unit trust fund manager.
He left in 1989 to launch recruitment and training consultancy CRT Group, which grew to a market capitalisation of more than £600 million.
In 2001 he left to set up resources outsourcing business AdviserPlus Business Solutions.
He founded LawVest in June 2011.