Back office bait

News stories in the Scottish legal sector have not always made happy reading in recent times, in terms of the financial health of the sector. So the announcement in June, that London-based international firm Ashurst is to set up a support office in Glasgow, initially offering 30 legal jobs (and over 100 others), with potential to more than double the total, was bound to grab attention. It also appears to have attracted opposition from some quarters. What is it about, and should Scotland welcome the move?

At first sight it might be thought that this would be a significant new competitor for client work (Ashurst’s 2011-12 reported turnover of £322 million puts it at no 11 in the UK league table, one place above Pinsent Masons). But as Mike Polson, the former Dundas & Wilson partner who has been recruited to lead the operation, told the Journal, the new base is not like any other law firm office in Scotland. “There is no shop window; there is no selling from Scotland; it is very much Scotland supporting and working with other Ashurst offices in helping to deliver work that has been won by the other Ashurst offices.”

What, then, is the concept? Essentially, a response to market pressures affecting particularly the major City of London-based firms with their high office overheads. These include the arrival in the market of ABS-type businesses, and the impact of technology on working practices, but “Probably the most important thing is just the ‘more for less’ challenge from clients who are increasingly looking at how their law firms provide services”, Polson comments. “It’s a real efficiency challenge from clients who are looking to get more value, and it’s not just about lower fees: it’s about the whole way in which services are provided.

“For Ashurst, that translates into looking at the work we’re doing for major clients across the world and saying, are there elements of that work that aren’t done face to face with clients, that involve the regular application of technology, and also involve a degree of recurring activity so you’re following some sort of process from start to finish, so could you take these elements of client work and deliver them from another location?” That location would have two principal benefits: the lower costs of Scotland compared with London, for example; and the ability of a dedicated office to build up an expertise in particular services, with improved delivery and built-in process improvements.

Initially, the larger part of the workforce – some 120 out of the 150 planned opening complement – will be engaged on non-legal support functions for the other offices: finance, HR, IT, knowledge and learning, risk and compliance, business development and marketing. The legal side, which is planned to grow towards parity in numbers, will begin in areas such as banking and litigation; but one differentiator, as Polson sees it, from other legal offices will be that recruits – envisaged to be mainly at graduate level – will become proficient in a range of disciplines, in contrast with most paralegal roles. They will also be distinguished by the title “legal analyst”. “We wanted to use a new term because this is a role that’s new to the market,” Polson explains. “If we just used a term like trainee or paralegal or junior lawyer, everybody would have a preconception about what that role actually was. So we see this as a new role to be filled by graduates, and potentially by more experienced people who are attracted by it.”

Scotland ahead

Ashurst looked at a range of different locations across the globe, so why choose Scotland? The cultural aspect was important; equally so, transport links; and quality was critical to the firm’s service standards. Thus the talent pool was a big factor, not only because of the number of law graduates, but also Scotland’s success in the shared service market: Glasgow already has some 50-odd centres supporting blue chip names such as Shell and Morgan Stanley. “Scotland’s got a great track record in that market, so that gave us confidence that there’s talent in those areas as well,” Polson adds.

There was also the sweetener of a sizeable grant from Scottish Enterprise, a bone of contention for some Scottish lawyers. More on that below.

Would an office of that size not be likely to start pulling in locally sourced work, irrespective of present intentions? Polson denies it, insisting: “We’re very clear what we’re setting up here and we don’t want to dilute that at all. We can grow the office doing more and different things on work that Ashurst has already won, but we’re not going to grow it by trying to win work in Scotland because we’ve not set ourselves up to do that. It’s just not part of the proposition.”

Indeed it would need a whole new regulatory setup for that to happen, as Lorna Jack at the Law Society of Scotland confirms. “They will be regulated by the SRA because their clients will be clients of Ashurst LLP. We’ve been very clear that if they do want to open a client-facing office they will have to come and be regulated by us. This is an office that will offer services to their own colleagues in London and elsewhere within the Ashurst group.” Perhaps some of the more hostile first reactions arose from failure to appreciate this.

Only the beginning

As Polson hinted at, this whole subject is a lot bigger than just Ashurst. The pressures are common to all large City firms, as is confirmed by David Ellis of OMC, management consultants focused on the legal sector. “The Ashurst initiative is something that all the top London firms are looking at, which is to take expensive resource out of expensive real estate in the City of London and utilise the pool of talent elsewhere in the UK”, he says. “Basically the law is catching up with what every other business has done and that’s place their support services in much more cost-effective locations.

“The challenge is to maintain both fee earner and client service, but that’s far from being insurmountable and you only have to look at the big accountancy firms and the big consultants to see examples of professional services who have adopted this approach. OMC’s opinion is that virtually all large City firms will adopt this strategy over the next few years.”

Allen & Overy and Herbert Smith have already set up bases in Belfast, but the Northern Irish jurisdiction has a smaller labour pool. If Scotland can attract even a slice of the work Ellis claims is in the pipeline – involving half of the top 75 City firms – a significant upturn in the number of legal jobs here is on the cards.

Ellis confirms Polson’s comment that this is about work processes as much as location strategy. “The jargon is legal process deconstruction, which means looking at the totality of a large matter, or regular work, and examining critically how that can be done in a more effective and structured manner. That might mean a change in resource mix, using different types of legal professional, and/or looking at changing the way things are done.” The legal analyst-type role that Ashurst is developing is also set to become a standard.

Could this process change be achieved by outsourcing, which Ellis agrees was “flavour of the month” not so long ago? “The evidence is that true outsourcing, i.e. to a third party, hasn’t taken off to an enormous extent and has really focused on a few key areas such as litigation support, or volume due diligence, or some contract management work. Law firms are keeping work in-house for margin reasons: why give away the margin when we could change the way we work ourselves? And general counsel are either utilising their own network to get locational benefits, or they are concerned about risk and therefore want to keep it onshore. The onshore element is the trend at the moment.”

He too recognises Scotland’s potential. “Scotland has a lot to offer in terms of the pool of talent, the good reputation of its legal heritage and the costs. The jurisdiction aspect that it’s in Scotland, not England, is pretty irrelevant. It’s legal skills we’re looking for. It’s probably one of the most cost-effective regions in the UK that has a reasonable scale of talent.”

Support criteria

There is also, of course, the small matter of the grant, known as regional selective assistance (RSA), from Scottish Enterprise (SE), amounting to £1.2 million on recruitment of the first 150 employees, rising with the workforce to a maximum £2.4 million if 300 permanent posts are created within five years – a “stretch target”, Polson describes it.

Whether or not the grant was the clinching factor for Ashurst, public funds are available for those who meet the qualifying conditions, and SE is aware of the current developments within the legal sector and the potential for new Scottish jobs. Adrian Gillespie, SE’s managing director of operations, company growth, innovation and infrastructure, confirmed that the organisation is working with “various firms, partners and professional bodies” to promote the interests and growth of the sector in a number of areas. “It’s not appropriate at present to go into specifics about other discussions we’re having, but we can say that there are a number of legal services firms considering Scotland as a base,” he told the Journal.

“We cannot offer comment about the conditions surrounding individual awards; however, we can say that RSA is not awarded in simple cases of staff transfer, and that it is paid out in instalments as investment and jobs targets are met.”

That said, it is clear enough from SE’s website (www.scottish-enterprise.com/fund-your-business/rsa.aspx) that its interest is in bringing jobs to Scotland, even if from other parts of the UK; and it is clear also that Ashurst, while offering relocation to affected London people, will be looking at redundancy for those who choose not to move.

Gillespie points out that SE will support “any firm with the desire and capacity for growth”, whether based in Scotland or elsewhere. About 120 firms qualified for regional selective assistance last year, including 84 Scottish-owned companies and 97 SMEs. “Any business with a plan for growth is welcome to contact us to find out more about the support we can offer,” he asserts.

Good news, bad news

Has the Law Society of Scotland been involved? Lorna Jack confirms that the Society was in discussions from a relatively early stage, though mainly on regulatory aspects. While the Society welcomed the Ashurst announcement as good news for Scotland, she comments: “It’s not a huge fit for our strategy. It’s not where we see the future particularly for large numbers of Scottish solicitors. But the bit that does lend value to our strategy is that if we are holding out Scotland as a centre of legal capability, and it absolutely is, then you would expect to see some legal process centres here too. That adds to the mix of things that we can say the legal profession is able to do.”

While sympathising from people in London who will be affected, she adds: “The issue is if the work is mobile, why wouldn’t you want it retained somewhere in the UK, and certainly I would want it retained somewhere in Scotland to give our graduates a chance.”

On initial reactions, however, not all of Polson’s counterparts in Scottish-based firms are happy either with the opening of the Ashurst office or with the Society’s support. Although no one in this camp has gone public, the Journal understands that even without direct competition, there is concern that the emergence of the legal analyst career path will drive up graduate salaries, and that Ashurst’s support from public funds will give it an unfair advantage in the job market.

Graduate needs

Jack says that while the Society is alive to the possibility, it is not part of its strategy to try to hold back competition in recruitment. But the reality, she adds, is that “We are quite a long way from having an overheated recruitment market. This is a recruiters’ market and we are looking at low inflation in salaries for quite a number of years.”

Referring to a recent Council debate, she comments: “There is great concern for the number of graduates who are without legal activity to engage them. I know some people might feel that this clearly isn’t in the same league as being a qualified Scottish solicitor and all that comes with that, so it’s certainly not an answer for large numbers of qualified solicitors being employed, but it is an answer for large numbers of graduates that are currently without jobs.”

She insists that it is not a question of favouring one firm over another, but of bringing jobs into Scotland. “We’re here to work with our member firms and are doing that constantly. We’re working very hard to promote Scottish legal services outside Scotland generally.”

Polson professes himself puzzled at the reaction. “Having spoken to all the top law schools in Scotland, there are so many graduates who want to remain in a job in the legal services market and that opportunity is not currently available to them. So there’s talent available, and I think this is a fantastic opportunity for those who have studied law for a number of years to remain in the legal services market, so I can’t see anything but a positive there.”

To him it is a question of moving with the times. “I think if it’s not embraced it will happen anyway, and you will find that a big part of the legal services market will be increasingly delivered in this way, so to ignore it is a very dangerous thing. I think it needs to be encouraged.""

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On the plus side

Some practice leaders see the positive side. “Ashurst is a first class business, an enormous international business, so the fact that they are coming to Scotland to provide jobs, I can’t see why anybody would think it is anything other than a good thing”, says Malcolm McPherson, senior partner at HBJ Gateley. “You can have differing views on the effectiveness of government support to private enterprise by grants etc, but that’s a different argument.

“I see some people are suggesting that it could tip the labour market. Well, that’s what the world’s all about. You have to work in the economy that you’re in. If they’ve come in and they’re taking people on, then fundamentally I think that’s good for the country.”

McPherson cannot see any effect on HBJ Gateley’s practice of Ashurst moving its own work into Scotland to be done at lower cost. Neither, for his part, can Philip Rodney, chairman of Burness Paull Williamsons. “To be able to create between 150 and 300 jobs in a difficult legal sector, a legal sector which has had its troubles in Scotland, is a very good thing, that was my immediate reaction”, he observes. “And I don’t really see the challenges because what they’ve said is that this is going to be largely a back office function; they’re not going to be selling Scottish legal services in the market.

“This is a market where we’re all competing for talent. I think also it reflects well on Scotland that it’s seen as a place that has got a lot of talent, and that they’ve chosen to come here reflects well on the talent pool that we’ve got.”

Richard Masters, head of client operations of Pinsent Masons, contrasts the two firms though they are of similar size: “For single-site London firms it is no surprise that they are considering whether efficiencies can be achieved by doing some work outside of the capital, and it’s a positive that Scotland is an attractive location. Anything that creates jobs and investment in Scottish legal services has to be considered a good thing – we shouldn't lose sight of the fact that these are roles which could just as easily have been created elsewhere in the UK or overseas.

“Multi-site firms like ours have flexibility in how we resource work which can be deployed in line with client demand, although we should be clear that our lawyers in Scotland are primarily focused on going out and winning the best work in the Scottish market.”

A more ambivalent note was sounded by Chris Smylie, chief executive of Maclay Murray & Spens: “There is undoubtedly an over-capacity issue in Scotland and whether the jobs created are new or simply displaced remains to be seen. Scottish lawyers are a resourceful lot and have never been afraid of competition, but the competitive advantage that Ashurst will enjoy in the marketplace may prove a hurdle too high for some.

“The inevitable reduction in the volume of English referral work currently available to the Scottish market, which would result in the adoption of the Ashurst model by other City firms – something that might be expected given the financial assistance on offer – has the potential to impact severely on the Scotland-focused firms, who rely heavily on that revenue stream and may well result in further structural realignment in the longer term.”

Others, however, question whether the rationale for the move – the moving of work carried out in London to a location with lower costs – would impact on work already referred elsewhere.

Thought you’d be interested

OMC’s David Ellis took some time out in our interview to mention a couple of other trends his business is seeing that are relevant to Journal readers.

“Mid-tier firms in the UK will need to differentiate in order to compete and prosper, and by that I mean they need to be more than just the brand solicitor. They need to say why they are a good solicitor for the service, because I think the threats to the generic brand of solicitors are clear. We’re seeing all these new entrants to the market; we’re talking about some big corporate machines here, so they know what they’re doing in terms of marketing and brand awareness. So the traditional mid-tier and small firm needs to say why people should come to them, and the sort of “quality” and “we’ve known them for years” type argument isn’t going to wash.

“The other thing, and this is probably the biggest thing for your audience base, is that we’re going to see the smaller firms and mid-tier firms continuing to consolidate. But that consolidation to date hasn’t really been working very well, and the reason it hasn’t is that the consolidation has been based on a feeling that if we get some economy of scale and some clout in terms of our size, we will win business. That isn’t going to happen and the evidence is that it’s not happening. The merger or the acquisition has to have clear objectives and also a clear strategy for change, and that will be driven by three things: the financials; innovation; and leadership and bringing the partnership with you. Those consolidations and mergers have worked; the ones that are banging together so they only need one finance director and one building etc are not addressing the challenges of the current market.”