The Legal Services Act – “Carpe Diem”
Every year the City of London Law Society runs an essay writing competiton for trainee solicitors with prizes for the best entries. The essay is legally-focussed and typically relates to a ‘hot topic’, Elizabeth King who is a trainee solicitor in our London office wrote the following essay on the Legal Services Act.
“The Biggest Shake-up of the UK’s Legal Sector in a Generation Act” may not roll as nicely off the tongue as the “Legal Services Act”, but the former may win greater favour from the Plain English Campaign.
The Legal Services Act (“LSA”), to be introduced in less than six months, is set to revolutionise the UK’s legal sector. The Act will challenge the status quo. Under the LSA, firms will for the first time be able to cultivate external funds, and constitute management structures with non-lawyers.
City firms are multi-million pound institutions who have weathered, and it is fair to say still are weathering, many a regulatory and financial storm. Some may question the appeal of sourcing external funding to supplement a sector which has thus far proved, or appeared, self-sufficient. The statistics however paint a different picture. In a survey 43% of UK law firms stated they would consider private equity funding, and a fifth declared their interest in floatation. It would seem there is a ready eagerness to court external funding.
And this eagerness is mutual – interest in the UK’s £25bn legal sector among private equity groups is said to be ‘strong’. Indeed, with almost a quarter of the UK’s largest law firms seeking £50m in external capital in the next five years, partners may find the desire to replicate the successful floatation of Australian firm Slater & Gordon (the firm saw its turnover double post-IPO) too tantalising an opportunity to resist.
Besides capital, the LSA represents the opportunity to diversify the management of City firms, opening partnership to external professions. The greatest challenge here is not finding the correct balance of business acumen versus legal expertise, but safeguarding the very values which are fundamental to a firm’s future. Junior lawyers, the lifeblood and future of City firms and the legal sector, could be driven away from the profession by the diminishing value of partnership. Partnership for many is a goal: the representation of countless years of hard work, the realisation of PEP. Partners must exercise caution not to ebb-away the inheritance of a future generation through the sell-out of the current.
A further stumbling block. The tolerance of overseas regulators towards a UK firm’s infiltrated governance or capital structure is untested. English law is a precious, exportable commodity. City firms must not compromise their international credentials for the sake of a quick buck.
Perhaps these concerns are ill-founded. Whilst the LSA provides firms with innovative funding and governance opportunities, these opportunities are meaningless unless taken. A firm’s greatest challenge is not deciding which private equity group’s funding to gratefully accept, or which distinguished professional to accede to partnership. The test now facing City firms is to challenge the status quo, to have the confidence to prize away the iron grip of partner’s on a firm’s reins (and PEP) just enough to prevent the provisions presented by the LSA morphing into missed opportunities.
Competitions like this offer a break from the day-to-day work of a commercial lawyer but still draw upon those skills which you start developing at school and university and which you continue to hone as part of your legal career. It is also an opportunity to demonstrate your commercial awareness and ability to ‘see the big picture’.
For those of you keen to find out what the winning entry looked like the results should be made available by the City of London Law Society in July.