By Ian Fraser
Published: The Herald
Date: 18 December 2006
SCOTLAND’S failure to implement the Clementi reforms for the deregulation of legal services is not going to deter Glasgow-based Golds Solicitors from finding ways of exploiting the reforms south of the border.
Under Clementi, the market for legal services in England and Wales will be opened up from 2008. Among other things, the “Big Bang”-style reforms will introduce greater competition by permitting non-legal organisations such as Tesco and the AA to own law firms. But the possibility of Clementi coming north of the border has been headed off by opposition from the Law Society of Scotland, which maintains deregulation would inhibit the quality of legal advice on offer to clients, dilute the pool of expertise in Scotland, and undermine the standing in which lawyers are held in the community.
Stephen Gold, Golds’ senior partner, has a plan to ensure his Scottish legal firm can enjoy the benefits of deregulation regardless of how successful the Law Society of Scotland’s opposition is. He intends to simply sidestep what he sees as a restraint of trade by moving his principal operating base to its office in Manchester.
Gold said: “If major law firms are not going to be allowed the commercial freedoms north of the border which Clementi offers them south of the border, they will organise themselves in such a way that they can take advantage of (those freedoms). It is inconceivable that they would allow themselves to be inhibited by the Law Society of Scotland’s position.” He insisted, however, that “all options are open” as far as Golds is concerned.
Gold added: “The great fear of the Law Society is that the purity of the solicitors’ values would somehow be polluted by the nasty commercialism of external investors. Now Clementi has looked at that, and he decided it’s not really a valid argument. I don’t think it’s a valid argument either. We don’t want to appear to be painting the Law Society of Scotland as being Luddite – they’ve got principles to do with independence and professional standards – but commercially the world is moving on, and they risk missing the bus.”
He foresees strong pressure from several quarters for the Scottish Executive and the Law Society of Scotland to rethink their stance on Clementi. Another Scottish law firm, Turcan Connell, earlier this year said it would be lobbying the Scottish Parliament directly if the Law Society failed to open its mind on the issue. Gold said: “It’s inconceivable that the profession or the public will put up with a position where down to Carlisle you can’t (have external backers of law firms). You’re also likely to get pressure from the big corporates – the Asdas and the Tescos. I mean, if they can do it in England and Wales, you can be damn sure that they’ll put pressure on the relevant authorities (to ensure they can also do it in Scotland).”
Even if such companies do remain barred from actually owning law firms in Scotland, it is probable that they will seek to “white label” their legal services in the Scottish market, as they already do to some extent, using firms such as Golds as their long-term strategic partners.
Gold also rubbished the notion that Tesco, Asda or the high-street banks would have any interest in introducing lower ethical or professional standards into the legal services market than those upheld by existing solicitors’ firms. The firm’s recently appointed managing partner, Craig Marshall, said such players “are acutely aware that having the equivalent of a mis-selling scandal in their legal arms would be devastating for their reputation.”
Gold is a strong supporter of the Clementi reforms as they will permit firms such as Golds to raise capital to fund expansion, as well as enabling its partners to realise some of the value they have created. He is confident that external investors will be attracted to Golds because it has long-term contracts with around 50 financial institutions across the UK – for which it handles remortgages, repossessions, motor claims and debt recovery.
Gold believes the nature of these contracts, which are charged out on a fixed-fee per case basis (unless they get contested, in which case they become chargeable on an hourly rate), will make the firm more attractive to external investors than transaction-based corporate law firms. He said: “We have certain fundamental attractions (to investors). We work on long-term bulk contracts and have good defensive qualities.”
Golds, founded in 1981, already dominates the market for volume-based legal services in Scotland and was this year ranked by the Legal 500 as Scotland’s second-largest law firm by number of fee-earners. The firm is structured to handle high-volume work on a long-term contract basis. Only 20 (5.5 per cent) of its 395 staff are qualified lawyers and, with just 10 partners, it also has a very low partner-to-staff ratio. Yet 300 (76 per cent) employees are fee-earners, hence the high ranking in the Legal 500 table, where only Maclay Murray & Spens ranks higher by number of fee-earners in Scotland. Large numbers of its staff are paralegals, senior project managers, accountants and finance staff.
Instead of outsourcing IT, Golds has a 20-strong in-house IT department. Marshall said: “That has been one of keys that has opened the door to certain clients. They’ve seen the benefit of the way we approach work-flow management and they have adopted it.” Golds was earlier this year named as UK Law Firm of the Year in the Legal Technology Awards, where it saw off competition from several heavyweight UK competitors. In the year to September 30, 2006 Golds had a turnover of £15m. While he would not predict turnover for the current year, Gold said: “We foresee substantial growth and we are ahead of forecast for the first two months.” Marshall added that “the sky’s the limit” in terms of how big the Manchester-based office, which currently employs 50 people, might grow.
As Golds ratchets up its approach to the much larger English market, it will be coming head-to-head with some serious volume-based legal services players, including Addleshaw Goddard, Capita Insurance Services, Eversheds, Hammonds Direct and Optima (formerly DLA Direct). Gold said that, while the firm’s strategy until now has been to pursue organic growth, he “is keeping an open mind” about acquisitions or mergers in the post-Clementi world.
Earlier this year, the firm was praised by Legal 500 and Chambers & Partners. Legal 500 voted Golds Scotland the number one debt-recovery firm for the fourth year running, saying it “is a particularly strong choice for high-volume debt recovery, insurance claims and banking work”.