Clementi – Insider commercial law review

WE’LL HAVE WHAT THEY’RE HAVING: Many leading Scottish lawyers believe that if the Scottish Executive ignores their pleas for Clementi-style reforms, it could harm the Scottish economy and employment situation

A CRITICAL meeting was held in the Menzies Hotel on Glasgow’s Argyle Street on 19 February. In a rare show of unity the managing partners of Scotland’s 25 top law firms and representatives of the Law Society of Scotland met the Justice Minister, Cathy Jamieson.

The key item on the agenda was the Clementi Reforms, which will transform the regulation of legal services in England and Wales from 2010, and stem from an independent review led by Sir David Clementi in 2003-4. The reforms were driven by the UK government’s conclusion that the previous regulatory framework was “out-dated, inflexible, over-complex and insufficiently accountable or transparent”.

Scottish lawyers wanted some reassurance from Jamieson that the Scottish Executive is not going to penalise solicitors north of the border once the Clementi reforms for the liberalisation of their profession take effect in England and Wales.

The Scottish lawyers’ fear is that firms south of the border will have an unfair advantage, gaining he ability to raise external capital to help fund their expansion and for partners to benefit financially from the goodwill wrapped up in their businesses — while Scottish firms will enjoy nothing of the sort.

It was never going to be an easy meeting. Jamieson has been the MSP for Carrick, Cumnock & Doon Valley since 1999 and is a former social worker. Most of the managing partners of the Scottish corporate law firms run multi-million pound, cross-border businesses employing several hundred highly paid staff.

One lawyer present did not feel that Jamieson was really listening.

“She seemed much more concerned with the polarisation of the profession and issues like who is going to provide legal services to certain segments of the Scottish population than really understanding the issues. I didn’t come away from that meeting thinking, ah yes, Clementi is going to happen in Scotland.”

Patrick Andrews, chief executive of Shepherd & Wedderburn, was more positive. “It was a good and constructive debate,” he says. He believes, at the very least, that Jamieson left the meeting with “a clear understanding of the issues”.

Many leading Scottish lawyers argue that if the Scottish Executive ignores their pleas, it would be immensely harmful to the Scottish economy and employment situation. It could, for example, result in leading Scottish law firms relocating their principal operating bases to England, or finding themselves struggling on an unlevel playing field with their English rivals.

This is why many solicitors are quietly confident that, when it comes to the crunch, the Scottish Executive will see sense and implement Clementi-style reforms north of the border.

Many leading Scots solicitors believe the deregulatory reforms will really only affect high street law firms and those selling “commoditised services”, such as Golds, which handles bulk legals for mortgage lenders.

But Alistair Morris, chief executive of Pagan Osbourne, believes the effect could be more widespread. He thinks Clementi could revolutionise the law, breaking down the anachronistic culture still pervading the profession. He also believes the reforms will force firms to reassess their business models and scrap their partnership structures.

Some expect that Clementi could have a similar effect on the legal profession as ‘Big Bang’ had on the City of London in 1986. At that time, partners in most established City stockbroking firms swiftly sold out to US and European banks and had retired to the shires within a matter of years.

Today there are virtually no independent stockbroking partnerships left in the UK. The same could happen to the UK’s larger law firms. And if the partners of ‘magic circle’ firms prove to be too eager for a life of well-heeled lethargy, some of the top UK law firms could be denuded of both talent and continuity.

However, Andrews says it is “slightly naive” to assume that partners in corporate and commercial law firms will sell out in droves to retire to rural estates. “It is more likely that they will use the reforms to raise equity to reinvest in their businesses.”

Gordon Keyden, partner at Simpson & Marwick, which handles dispute resolution for most of the UK’s largest insurers, says: “I’m excited about Clementi — anything that’s new involving our profession can provide opportunities.

“If it happens in England, it’ll definitely be happening here. And if it means that Norwich Union want to buy me out, then I’ll be delighted.”

This article was published in Scottish Business Insider on 4 May 2007 . Read on Scottish Business Insider