It was a deeply divided vote that threatened to tear the legal profession apart.
When the Legal Services Bill passed in 2010, it was a very different legal landscape. Dundas and Wilson, McGrigors, Biggart Baillie, and Anderson Fyfe all were Scottish based and operated law firms. The"glory days" for Scottish firms came to an abrupt end, with the financial crisis ripping the heart out of both the High Street and the"big four" Scottish Law firms. Tods Murray saw their turnover decrease by 42% between 2007 and 2011.
ABS was brought around with the promise of new alternative models for running and operating a law firm in Scotland. The Act would"level the playing field" with the Scottish legal profession's English counterparts. On one side of the divide was the large commercial firm that saw ABS vital to being able to compete in the global marketplace, and on the other hand, seemingly, at one time or another everyone else. With the aforementioned firms either non-existent and/or under English control, the Law Society is stuck with a statutory obligation to create a new regulatory framework for something that was wanted by law firms whose current forms differ dramatically from the form they were in in 2009.
While the English legal profession backed a non-lawyer model in 2007, Scottish legal profession chose to follow a significantly different approach, limiting any non-lawyer ownership to 49%. This raised significant hurdles for the Law Society and has delayed the release of the regulatory framework for ABS.
The profession is still waiting for a framework. Douglas Mill, former Chief Executive of the Law Society, wants an explanation:"Baring in mind the unbelievable pressure on the Law Society from the Scottish Government and the big firms, I think the profession is entitled to an explanation as to why this has taken over four years to deliver."
Four years later and some are worried that the model that is under discussion in Scotland will be so restrictive, that legal firms will not ever be able to catch up with their English counterparts.
According to Law Society Chief Executive Lorna Jack, the ABS framework predicted to be ready,"no earlier than August of 2014." Because the regulatory framework does not require statutory underpinning, a Parliamentary vote approving the measure by the Scottish government is not necessary. However, questions have been raised by well-respected members of the profession at how slow and transparent the process has been, with allegations levied against the Law Society for lacking transparency and keeping the profession informed. Jack refutes this stating,"There has always been significant transparency about the ABS process."
When the FIRM posited that potential regulators are holding back because of the uncertainties that the Law Society and the Scottish government may have caused incidentally by crawling toward ABS rather than leading a charge, Ms Jack responded:"If another regulator wants to come forward into the market, like the Institute of Chartered Accountants, then they will have to come forward regardless and work with us on the Guaranteed market."
"Why would a potential regulator not come forward now? Why wait?"
Martin Darroch, Chief Executive of Harper MacLeod, and a vocal critic of"laborious" process in bringing ABS to Scotland has claimed that this uncertainty has delivered a significant blow to the legal profession as the English model has led to significant reductions in not only annual turnover, but net profits.
"Look at the legal landscape in professional commercial firms around Glasgow in 2008 and look at them now. They are either gone (taken over) or have had significant cuts in their profitability. There are only three or four firms that can claim a growth in profits over that period. The rest are either gone or suffered double digits percentage losses."
Is it appropriate to place all of that blame on the English model of ABS? When presented with these numbers, Ms Jack sounded resolute:"Profitability and turnover is not down because of the English model of ABS affecting Scottish firms. There was an economic crisis – a deep recession. Scottish firms relied on a lot of business from banks. Those firms over reliant on commercial property got hit hard by the economic downturn, not because of ABS approval in England."
"There was a long period of economic inactivity. No property deals. A lack of business deals. Companies combined their costs through mergers and downsizing."
Douglas Connell tends to agrees with Ms Jack on this point:"On one level I agree with Martin Darroch and on another level I agree with Lorna Jack. The financial crisis and the recession changed the way businesses in the global marketplace operated with Scottish law firms. The issue was one of procurement. Businesses wanted to deal with one large UK firm; a UK firm with international links. The mergers of the big firms came as a result of changes in procurement in the marketplace."
Ms Jack added: "Scottish firms have had to change their approach and this approach is working. The strategies of the mid and mid-to-small firms are bearing fruit. The profession is still struggling in the small firms and the sole practitioner. And for these firms, I don't think ABS would have been the answer. For the small firm and sole practitioner, their strategies had to be about accessing capital, rather than accessing new markets."
Douglas Mill disagrees:"I respectfully disagree with Lorna Jack. I don't think small firms would recognise accessing capital as a priority. Their priorities are succession, rationalisation, and mergers."
But is the form of ABS that the Law Society is working on going to live up to what was on the tin? Already some are expressing doubts about how restrictive the framework is going to be. Douglas Connell is warning that despite assurances from Cabinet Secretary for Justice Kenny MacAskill that ABS will go ahead; the Scottish model is going to be so restrictive that it will not work for most firms in the Scottish legal market:
"For a firm like Turcan Connell – having access to external finance is not our driver. For us, it is about having a successful business. And a successful business will come from having a minority of non-lawyer partners that are client facing – to have Chartered Accountants and Financial Planners who are equity partners and to reward those that are contributing to the success of the business. Right now we can't do that and until ABS becomes an option for us, we can't offer that. For those firms who want to remain autonomous and inter-disciplinary, it is not a level playing field right now."
"The framework under discussion currently is so restrictive, far more restrictive than the English model. For example, the definition of 'legal services' is so narrow, we cannot carry out incidental financial services work or some consumer credit work."
This article appeared in The Firm magazine. Click here.