Scots ‘must not miss big bang’

By Ian Fraser

The Herald

August 20th, 2007

Another senior Scottish lawyer has added his voice to the crescendo of calls for Scotland’s legal establishment to fall into line with that in England and Wales over the deregulation of the legal profession.

Malcolm McPherson, senior partner of Edinburgh-based HBJ Gateley Wareing, warned that unless the Law Society of Scotland, as the profession’s regulator, and the Scottish Executive become more supportive of the reforms originally proposed by Sir David Clementi, both the Scottish legal profession and economy will suffer.

A “big bang” style deregulation of the legal services market is now due to take effect in England and Wales by 2010.

But McPherson said: “While I can gaze into my crystal ball and see all the positive benefits Clementi will bring, the Law Society of Scotland does not seem to be on side at all. It appears to have made up its mind that external investment is not right for the profession, but we are not prepared to be dictated to in this way.

“The traditional view of the Law Society of Scotland no longer fits the circumstances. The society appears to be finding it difficult to accept there has been a change of mood. It can’t be the last bastion of traditionalism on this matter.”

McPherson says he has spoken to many of the senior and managing partners of Scottish law firms and believes many are actively considering relocating their head offices to England because they do not want their firms to be penalised by any failure to implement the reforms north of the border.

McPherson’s firm – formed from the merger of Birmingham-based Gateley Wareing and Scottish firm Henderson Boyd Jackson in January 2006 – has a current turnover of £40m and employs 450 staff. He said the firm will consider relocating its head office from Edinburgh to Birmingham if Clementi-style reforms are not introduced in Scotland.

McPherson said he has long been a supporter of “alternative business structures” – and the prospect of different forms of ownership for the legal profession. Considering the recent influx of non-lawyers into senior director level roles within law firms, especially in disciplines such as finance, human resources and IT, the current restrictions stipulating who can own law firms are “totally outmoded”, he said.

McPherson added: “In today’s global market place there are compelling reasons why law firms should be able to raise money from other sources to build strong, independent and diverse legal firms.

“My concern is that if Scotland fails to progress this, the bigger Scottish firms, who already have a substantial English practice and perhaps want to go down this route, would probably end up becoming English LLPs. The firms would retain a branch office in Scotland, but I think the Law Society of Scotland would suffer in the longer term.”

He believes that lawyers should be entitled to take risks, and be rewarded by any uplift in capital value that is realised. And he is confident that institutional investors and private equity funds would be interested in taking stakes in law firms.

“Institutional investors are likely to view law firms as a reasonably safe and secure investment where the firms have a long track record of profitability and integrity. I am aware that a number of private equity firms are talking about investing in law firms,” said McPherson.

Although he has a high regard for the Law Society of Scotland’s chief executive, Douglas Mill, who he believes handled the passage of the Justice Bill extremely well, McPherson said: “It’s just that I disagree with him on this one point. I feel the Law Society will have to push to allow Scottish firms to benefit from the same opportunities as those in England. I understand their concerns about this, but it’s going to be impossible for them to keep their finger in the dyke on this.”

Ben Thomson, chairman of Noble Group, says that the legal profession could eventually become as heavily consolidated as the accountancy sector, where the Big Four firms have a stranglehold of auditing FTSE companies.

He said: “We believe that a number of law firms are looking for merger partners as they seek to take a leading role in the global consolidation of the legal industry.

“We believe that flotation is a real opportunity for law firms. By going public, larger firms would be able to adopt a more manageable corporate structure and would be able to incentivise new and exist-ing staff with shares and options. Increased capital also offers firms the option to expand.”

Although there may be some perceived downsides such as shareholder pressure and the risk of a takeover, Noble asserts that these challenges can be overcome with good advice and strongly recommends that British law firms rethink their future business model.

Richard Henderson, vice- president of the Law Society of Scotland, said the society is far from deaf to representations for change. He said: “We are arranging a conference for September 28 at which we will be setting out options and inviting debate.

“If we can develop a regulatory regime for alternative business structures to complement the regime for individual solicitors, then that might ease concerns on the regulation of new business structures.”

In an article in The Lawyer magazine, he said the society “was determined that there must be a full debate and that all views must be heard”.

What was at issue had “the capacity to affect the landscape of legal practice in Scotland profoundly. But I believe that they also provide considerable opportunity for the Scottish legal community to develop legal services provision in a way which can be beneficial to all.”

Mill said: “Some firms are keen to adopt the ABS approach while others are of the opinion that an ABS will not benefit their clients or business.

“The society is well aware of the competing interests involved, which include ensuring access to justice, competition in the legal services market and consumer protection, and has been engaged in the debate on the provision of legal services both in Scotland and England and Wales.

“In particular we contributed substantially to the executive’s Research Working Group.”

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Posted by Ian Fraser on Aug 20 2007. Filed under Article Library. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry