All the grocer's grandchildren

Tesco Law – threat or opportunity?

Much depends on your perspective. There are certainly many solicitors who see opportunities arising as a result of the ending of solicitor-only proprietorship. Those solicitors are likely to fall into different categories, namely:

(1) Big firms who have a realistic possibility of securing significant external funding – firms like Clifford Chance and DLA who have made clear their intention to float on the Stock Exchange.

(2) High Street firms who see benefits in joining with other related businesses to provide linked services and to attempt to benefit from economies of scale.

(3) Individual solicitors who may be attracted to what is likely to be more of a 9 to 5 existence as employed solicitors. This could be significant. Indeed it is an element which has been emphasised by the Law Society of England and Wales. In England many influential people see private practice in some way as failing to feep up with practice issues such as diversity and gender.

Opportunities all round, then?

For some only, and perhaps at a price for the public. First, I think we must avoid unrealistic expectation in the Scottish marketplace. With respect to our big firms, they are too small in the global sense to attract public flotation. Together, our four biggest firms have less than 800 practising solicitors. They are much larger than the next tranche of firms, each of which has approximately 100 practising certificates, but when you consider that our “Big Four” firms are cumulatively about a fifth of the size of Clifford Chance you realise that the Scottish marketplace is not likely to be able to take advantage in this way.

Secondly, we need to be realistic about our expectations. Some of our High Street firms seem to be anticipating a deluge of irresistible offers from other professions and businesses; but outside investment means:

(a) loss of future revenue potential and, of more real concern to the Society,

(b) loss of control.

Thirdly, I do not share the view that private practice is failing young solicitors in Scotland. There may have been an era a while ago where there was evidence of discrimination on religious grounds within the profession. Since then solicitors in Scotland have had to adjust to a significant shift in gender balance and I think by and large we are succeeding in this. I see no evidence of any discrimination on any other grounds, including race, and bearing in mind the fact that towns in rural areas in Scotland are crying out for young lawyers it is difficult to justify Clementi in Scotland on the basis of freeing up access. Whether private practice has fully grasped flexible and family-friendly working policies is a moot point, but I do not think private practice is incapable of adapting.

Does it really matter if solicitors don’t own law firms?

This is the key question. In the eyes of the economist, it clearly does not and indeed Clementi has described the hard and fast rule of solicitor-only proprietorship as being a significant barrier to entry into the market. If you are an economist this is anathema – distortion and monopolistic.

I do however think that there are many other relevant and important considerations which economists have not appreciated. It is for the professional bodies to put these to Mr Clementi in their responses to his consultation document.

There is a fundamental argument about core values. The UK and Irish jurisdictions all agreed that these comprise confidentiality, avoidance of conflict, and independence. My view is that independence effectively extends to independence of ownership and economic decision.

I think it is important to ensure that the Clementi debate covers the interests of in-house solicitors as well as solicitors in private practice. In-house lawyers, who now comprise a quarter of the profession, have one client – their employer. Their position if asked to give advice direct to the public will be an important part of this debate.

I can see areas of real concern arising where the employed solicitor receives conflicting instructions from a client to whom he/she owes a primary duty and from his employer. This may for example arise from selling tied products. In addition to the “pure” independence argument there are also significant concerns about the regulation of non-solicitor owners. Whilst this might not be a problem with Clifford Chance and their Stock Exchange flotation, the rule which allows this may filter down to the high streets of Scotland.

Why is this a concern?

Because quite simply regulation in Scotland works well as we are regulating solicitors. We have a culture of high professional standards. Scottish solicitors have gone through what can be up to a seven year process of education and training, during which they are taught rules, regulations and ethics. They are operating mostly in partnerships with inbuilt controls and an atmosphere of Society-led pro-active regulation – necessary with our joint and several obligations. Our fidelity and discipline statistics indicate that the profession in Scotland is outstandingly honest and trustworthy.

Other proprietors may not be. Let me give you an example of why this is important. The profession in Scotland is to be commended for its responsible approach to the introduction of Money Laundering Regulations and the Proceeds of Crime Act. Indeed the sellout response to our event in Glasgow in March is evidence of this. The plain fact is that these issues can be dealt with in the professional paradigm which has grown up and developed over the years. How enforceable are Money Laundering Regulations likely to be against non-solicitor proprietors (NSPs)? This is a question which I asked the National Criminal Intelligence Service in London at the end of January and they can foresee major difficulties in places such as Glasgow and Liverpool where solicitors could be targeted by organised crime.

Offering up an opportunity for less than scrupulous businessmen to access client accounts and to dream up John Grisham-like scams affecting the Guarantee Fund and Master Policy cannot be in the public interest. I am not saying it is impossible to regulate non-solicitor proprietorship adequately and in the public interest, but it will be quite a task. I am simply emphasising what the Law Society of Scotland has been saying for some time to proponents of this argument – show us the model and we will consider it.

What you are saying is that one size does not necessarily fit all?

Exactly. Many of the drivers behind the Clementi review come from the world of the Bank of England, the Prudential Insurance Company, the City of London and the globalised legal marketplace. I had lunch in London last week with a senior partner in one of the City’s largest firms. Just before meeting me he had been advising a Japanese construction company client on the difficulties arising with a contract in the Yemen. His partner couldn’t manage lunch – he had to go to Moscow for a meeting. This is a world familiar to only a few Scottish solicitors. Correspondingly Mr Clementi’s team must appreciate that any legislation, rules or regulations which they introduce will cascade all the way from the City of London to the high streets of Airdrie. They must be certain, not that the profession is protected as this is not their role, but that the public is not compromised.

Could the Society not regulate NSPs effectively?

Almost certainly not. Regulation works because ultimately we have the right to prosecute before the Scottish Solicitors’ Discipline Tribunal and have the solicitor struck off. No such provision would ever “bite” against some of the people who could potentially end up owning and running legal firms. Directors disqualification legislation is not effective. The time lag in prosecution would frankly be dangerous in terms of control of the firm. There are serious implications here for the rule of law; a potential abuse of the court process. The integrity of transactional work could be compromised. Ultimately the added value of the legal profession in Scotland is trust. Trust is, when you think about it, the oil in the legal machinery in Scotland. It is what allows court actions to settle, conveyancing transactions to complete, etc, in an expedient and less costly manner. If you remove trust, you slow up the process and procedures seize.

Is this not all a bit protectionist?

Absolutely – of the public that is, not the profession. If NSPs are introduced, the Society has two options. It can try either to regulate the NSP (which I consider to be a recipe for disaster) or it can distinguish solicitors from these organisations on quality and branding grounds.

The integrity of the Guarantee Fund and the Master Policy is presently absolute. The profession is likely to say with a fair degree of justification that whilst they are prepared to be responsible for the actings of their fellow solicitors, they are not going to pick up the tab for any defalcations by NSPs. This is entirely correct and I accordingly would foresee the public protections being eroded or indeed removed completely.

Don’t you think that the English are correct when they say there are a lot of young professionals out there who do not want burdened with having to run a business and simply want to get on with being what they train to be, i.e. lawyers?

Yes, they are correct and there are opportunities for these people. Even in Scotland there are thousands of jobs available in in-house positions and indeed as assistants and associates in private practice. I fully appreciate that the pressures of running a practice are considerable but I do have ultimate faith in private practices’ ability to do so. I find it actually incredible that there is a view that private practice is a failed model. In this jurisdiction it is not. We have a vibrant profession, nearly 10,000 practising solicitors in 1,300 practice units. The Cost of Time Survey which Bruce Ritchie and the Remuneration Committee run is evidence that the profession is improving its profitability at most levels and working for an increasing number of clients.

I accept that in the old scale fee era, solicitors did not have to be astute managers to make a very good living. I further accept that in the past there was a substantial deficit in our training of young solicitors in relation to management issues – which has now been addressed.

These days however I see increasingly well run businesses and a greater professionalisation of managerial skills within private practice.

I do not see the validity in any suggestion that the paradigm of private practice has failed the public in Scotland. Geographically solicitors reach parts of the country that banks and building societies have abandoned. In price terms I think that in general, Scottish solicitors are incredibly good value bearing in mind their training and the fidelity and PI protections they offer.

I do not think there is any barrier in access. I take great pride in the fact that the profession in Scotland has been wholly accessible over the last generation and I myself am a first-generation lawyer. If I have access fears they are more about the fact that the future of student funding is likely to deter people from embarking on such a long training period than about anything the profession is or is not doing. This is not a problem felt beyond the legal environment.

The profession have to work within the current market environment. If it is not economically viable to provide advice in some areas then solicitors will not survive by providing that advice at a loss, however willing they are to take on the work. Whatever the decisions are, they have to be based on reality.

Next month, Jim MacLean of Burness, Solicitors, will examine the review from the competition law perspective. In the April issue Douglas Mill will look in detail at the Clementi consultation paper and report on the development of Council policy, the roadshows and answer any queries raised by the profession.