Law firms snub reform at their peril

Walking around the City of London you can stumble across halls that were once home to powerful guilds. Their strength waned after the 1666 great fire when rules were relaxed for seven years to increase the supply of skilled labour.

It was hard for the guilds to reintroduce the protectionist restrictions after the benefits of liberalisation had been experienced. Now the livery halls can be a great place for a wedding, but the market has moved on.

Something similar is happening in law. Today the Solicitors Regulation Authority is updating its standards and regulations. These remove more of the guild-like restrictions on the practice of law, encouraging flexibility and innovation.

A core element of the changes are moves designed to allow solicitors to offer services from businesses outside of traditional regulatory control in the form of the authority, which is a subsidiary of the Law Society guild.

We have seen a taster of what this means as a few forward-thinking legal businesses have advance permission to trial new models. Businesses such as Rocket Lawyer, Hybrid Legal, Aria Grace Law and Peninsula have been taking the next step on from delivering basic legal services to employ practising solicitors to offer expert legal advice without some of the overheads and restrictions that law firms incur.

Those costs are often the result of little more than tradition — expensive city offices, partnership structures that suck out profit and inhibit long term investment or strategy. There is more in the pipeline with firms across the market looking at how reform is creating opportunities. Individual solicitors in these new model entrants are bound by the same code of conduct as those in traditional law firms. There is no dilution of ethics, just a removal of economic rules that protect law firms rather than the public.

While traditional law firms separate staff into lawyers and non-lawyers, new businesses are adopting more flexible recruitment policies to unleash creativity. They are adding practising solicitors to a mix of disciplines in a move that is likely to push their businesses up the value chain.

Traditional law firms must respond. Some appoint a partner for innovation. That is weak compared with businesses that value innovation and creativity across their whole workforce. Legacy technology, expensive real estate and financial models built on the old lawyer guild are holding back innovation. But the most imaginative law firms are finding ways to meet client needs. Others need to do the same.

Law firm partners may be tempted to see yet another set of regulations as a boring issue for their compliance team. Their competitors see it as an opportunity. The guild-like wall around law firms has been burnt down, so practice leaders need to rebuild around their customers’ needs to avoid the fate of mercers and haberdashers.