The report of the joint committee on the draft Legal Services Bill, (which contains many of the recommendations in Sir David Clementi’s Regulatory Review of Legal Services ) has urged caution in relation to the introduction of ABSs (Alternative Business Structures).
Two of Clementi’s principle recommendations were that different sorts of lawyers (solicitors and barristers for instance), should be allowed to work together in what were to be known as Legal Disciplinary Practices, and that these should be subject to outside ownership via a new and less restrictive business vehicle, (the ABS).
In fact, the draft Bill went even further, by allowing the creation of Multi-Disciplinary Practices (MDPs), which Clementi was against, and by providing for outside ownership of such structures whether or not lawyers were in the majority on the management teams (a condition set by Clementi as the basis for allowing outside ownership).
In his report, Clementi concluded: "Outside ownership of [Legal Disciplinary Practices (LDPs)] should be permitted. Such ownership should be subject to a ‘fit to own’ test; but the main focus of the regulatory authorities should be upon the identity of the management team, in particular the head of legal practice and head of finance and administration, and the management systems that they employ, in short on who manages the practice and how.
"Within England and Wales, outside ownership is already permitted in respect of certain types of legal practices which provide conveyancing services; it is proposed that subject to proper safeguards to be set by the [Legal Services Board (LSB)], it should now be permitted in other areas of the legal services market."
Notwithstanding such a clear endorsement of external ownership of LDPs, the joint committee has recommend to the Government that it needs to "use less haste and more care".
They go on to say: "We recommend that the draft Bill be amended to ensure that the LSB takes a step-by-step approach to licensing [Alternative Business Structures]."
This step-by-step approach envisages four stages, and according to the committee, it is only at stage four — after the creation of multi-disciplinary practices - that ABSs and external ownership should be allowed.
Various organisations, particularly the Co-op, who were hoping to take advantage of the draft Bill as currently drawn, have expressed dismay at the committee’s cautionary approach.
“One thinks they must have uncovered some new evidence that was not available to the regulatory review team” said Jonathan Gulliford, Operations Director at Co-operative legal Services. “The stated reason for advising caution and slow progress is set out in paragraphs 279-281of the report: "In our opinion, LDPs… with outside ownership may create an undesirable conflict between shareholders and lawyers and the benefits of outside ownership would need to be weighed against the merits."
“This is not a new issue. Clementi expressly addressed it in his report and set out how regulation would deal with it. The notion that somehow lawyers who work in private practice are devoid from commercial pressure is ludicrous”.
“Indeed, the owner/manager partners in private practice will be under far more pressure to keep a healthy cashflow and profit coming into a business than a non-lawyer-owned LDP. As Clementi highlighted in his report, this issue is addressed through regulation — the very regulation that is proposed”.
“Who is the potential loser from this report by the joint committee? Once again, it is the most important person in the legal services chain — the consumer”.
