Are ABS so Fab?

February 2, 2013

We’ve all heard a lot about Alternative Business Structures (ABSs) lately, mostly which law firms and commercial organisations have succeeded in navigating through the thicket of registration requirements with the SRA and the uses to which they are putting their newly authorised vehicles. I have seen little comment suggesting that the development of the ABS (and the concomitant opportunity for non-lawyers to invest in the legal services market) is a bad thing, so I was interested to
read the views of IBM’s General Counsel, Robert C. Weber, on the issue. Although a subscription is required to read the whole article, I think that the main tenets of his argument (that the introduction of non-lawyer funding re-characterises law firm clients as consumers, and that the commercial drivers behind non-lawyer ownership are apt to impair the client interest first duty within the attorney-client relationship) are visible from the “teaser” part of the article on the public side of the paywall.

Despite spending 15 years working with Fujitsu, one of IBM’s larger competitors, and so developing an instinctive view that anything coming out of IBM was wrong on principle, I thought this was a good challenge worth exploring. Is Robert Weber’s a lone voice of reason or simply a failure to get with the programme?

I’d like to start with the financials. The concern about letting non-lawyers take an ownership stake in a law firm using an ABS is that they will drive the behaviour of the legal advisers using different parameters from lawyers’ parameters – in particular that they will put commercial imperatives ahead of serving the interests of the client. I’ve a measure of sympathy with the concern – but an over-zealous approach to billing is not a phenomenon which I’ve never seen before.

The recent interest in an apparent case of bill-padding at DLA Piper’s US operation illustrates this further. The email comments between DLA Piper lawyers (“… [ ] … is in full ‘churn that bill, baby!’ mode. That bill shall know no limits.”) imply that, for them at least, placing the financial imperative for their organisation ahead of the client’s needs was instinctive behaviour. (And I don’t think anyone would suggest for a moment that DLA Piper is anything other than a highly reputable firm.) The fervent interest in City law firm’s PEP figures every year further reinforces the fundamental point – law firms are owned and managed by people many (most?) of whom are highly interested in making money, and lots of it. Who knew?

So, can non-lawyers introduce a still more venal approach to legal services provision? I’m tempted to say that the “churn that bill, baby” example doesn’t leave much more room for enhanced venality. More seriously, while certainly a venture capitalist will have certain financial targets to attain during its period of ownership of the law firm – and an eye to a successful exit – I am not convinced these are incompatible with excellent client service. If anything excellent client service reinforces financial success, and vice versa. I’ve fired a law firm because it gave advice (on the prospects of a litigation) which I accept may simply have been misguided, rather than deliberately given in order to encourage my company to invest money in them to fight the case, but either way I was not about to give them a second chance to do the same.

Moreover, taking examples from other service industries, I know that well-motivated employees and wised-up organisations invest substantial effort and money in client care. I was working at Fujitsu at the same time as the 7 July atrocity in London – Fujitsu employees and those of other organisations were back in the affected areas and underground stations as soon as possible; not because there was extra money in it, but because they were highly inclined as professionals to do the best job they could to help out. So I don’t think that client-led service is incompatible with good financial returns for the service provider. Indeed, especially in those cases where ABS businesses are owned by organisations with experience of providing service in other areas, the client experience may well be enhanced through the application of techniques and technologies borrowed from those other industries. Part of that borrowed experience will respect the fact that excellent client service is closely associated with excellent financial performance. Lawyers may be distinctive in that they owe duties to the court alongside their duties to the client, and they may have specific obligations to their clients which other service providers do not have (confidentiality and privilege for example), but the necessity to place clients’ interests as paramount is a business imperative which is not unique to the legal profession.

There is no substitute for experience, and only future experience will tell us if the introduction of money and expertise from outside the legal profession and into alternative business structures delivers all of the benefits that we hope for. Perhaps it is because I am an optimist, or perhaps it is because I come from client-led service backgrounds which address this, but I expect that it will.

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