The “future of law firms” has become one of the most written about topics – however have no fear, I have no wish to cover much trodden-upon ground by trotting out pictures of technology and statistics illustrating how few lawyers may be employed by 2050.
The future of our work as lawyers can be fairly insulting – we are told that the intricate and complex tasks involved in delivering client-specific legal services will be replaced with technology that can replicate and even improve upon human devised legal strategies and tailor-made contracts, whilst lawyers retreat to a shady back-room world of checking robotic computations. For a perfect example of legal technology in action today see this post on LawGeex.
Though with the current Miller v SoS court case that is to be heard before the Supreme Court on 7 & 8 December, I wonder if technology would make better decisions than humans whose minds have been muddied by emotion and politics. Perhaps a robot lawyer could digest a constitutional law text book and predict with 99% certainty the outcome of the hearing?
In the first part of a few posts on this topic , I’m going to look at business structures.
Are Partnerships future-proof?
Partnerships are a flexible tool that are built to provide a long term home for the most ambitious, hard working and successful lawyers. Partnership is the bait that keeps younger lawyers working hard and provides long term income security.
The attraction of Partnership retains talented and hard-working lawyers, then as these valuable engines of the business get older, they retire through the provisions of the retirement clause in their Partnership Agreement without a significant long term financial burden to the firm, therefore not being converted from money-maker to overhead.
The problem is that equity payments to Partners can become an enormous overhead, and can prevent profits being invested in growth and essentials such as marketing.
Could Partners become Directors?
Should law firms become Companies, this changes. Our super-lawyers, being used to the Partnership model where they gain an interest in the firm, may demand dividends in the business which they could retain after retiring, so creating a potentially eternal overhead for the Company. Super-lawyers who are Salaried Directors without dividends may find it more tempting to go elsewhere on a promise of being made an Equity Partner.
Tax benefits for share holders in Companies have also changed as the ability to offset Corporation tax paid against tax due on dividend income has been rolled back.
Companies still present an attractive alternative for businesses looking to retain profit within chosen shareholders, but they may find it difficult to find a means of retaining their high performing lawyers. However, a larger legal services Company could follow in the footsteps of Slater & Gordon by attracting outside investment through public trading.
Could we all go single?
Sole Practitioners are neatly in the equivalent position as an equity partner but without sharing profits. However unless they build their business to include additional fee earners, they have the burden of facing the administration expenses of running a law firm alone, which is less cost effective.
Undoubtedly the number of Sole Practitioners will continue to grow as we find that the means of reducing our overheads by working from home or out of town becomes more and more viable, and working from a “high foot tread” location such as a High Street becomes less important for bringing in clients than it has in the past. Here’s a great post on how to go solo.
Solo lawyer businesses could be boosted should the SRA develop its plans to achieve regulation that is appropriate for smaller businesses.
Could Alternative Business Structures be the way forward?
The ABS structure has some of the same issues as a Company re its senior lawyers – what is the attraction to stay for a highly successful lawyer, and why would that lawyer not join a Partnership as an equity Partner? Is an ABS just a means of gaining profit from a large number of lawyers who may not be able to secure employment in a law firm as more highly paid Associates or Partners?
ABS legal service businesses will continue to hoover-up business as many talented individuals will be hired either because they are overlooked by traditional Partnership firms, because an ABS may offer more modern employment terms such as home or flexible working, or because “traditional” law firms don’t make changes in their recruitment practices to take account of increasing diversity in the lawyer population or changes to how solicitors qualify.
Also without the massive payments to Partners, ABS legal service businesses have the potential to invest a much larger percentage of their profits in marketing and business development compared to traditional Partnership model law firms.
What is the future business structure for lawyers?
I’m going to conservatively predict that the Partnership structure will continue as the favoured business structure for our top law firms and lawyers.
However, the question is: How much of the total value of legal services work will be retained by these top law firms? Could we see diversification in the commercial legal services sector through competition with ABS and other professional service firms such as PwC?
The emerging trend that will surely continue is diversification in law firm business structures – more and more lawyers will work outside of traditional Partnership law firm structures and within businesses that provide multiple legal and non legal services.
Is there more to the future of law firms than business structures and IT developments? Your comments are welcome, and please get in touch if you would like to write a post on Law Practice Manager on this topic.