Alternative Business Structures and the Bar: Big Bang or Damp Squib ?

The build-up to the implementation of the Legal Services Act is gathering pace.  It is a topic that has been discussed, debated and opined upon for years.  Now, less than 6 months away, we are starting to see law firms declaring their intentions to adopt alternative business structures (ABS) as well revealing, in fairly specific terms, the ambitions behind these plans.

In contrast, there have been no announcements of this sort from any barristers’ chambers.  If discussions I have had with colleagues in other sets are anything to go by, then I don’t expect to be reading any eye-catching headlines any time soon.

This should really be no surprise.  The Bar is a referral profession and inevitably there will be some time lag between changes in the structure of the its principal referrers and any resulting impact on the services sought.  In any event, it is by no means a given that external investment in solicitors’ firms will give rise to any change in the services they seek from the Bar.

It should not be assumed that the Bar is burying its head in the sand.  Far from it.  The Bar Council and regional Circuits have been conspicuously active in heightening awareness of the challenges that await.  Many will have read or listened to the words of last year’s Chairman of the Bar, Nicholas Green QC, who very energetically (and most commendably) took centre stage in this process.  Furthermore, there is under way the development of a new and up to date quality control “kitemark” for the Bar, for chambers to opt into if they wish as a pathway to improving management, efficiency, client service and achieving business excellence.

In considering the impact of the LSA and how it might affect me in my role as a barristers’ clerk, it has become pretty clear to me that the possibilities are limitless.  But of course possibilities are, well, just possibilities.  Will they become reality ? If I was a gambling man (and I am) I would not even consider placing a bet as to where the LSA’s effect on the Bar would end up on an impact continuum spanning from “damp squib” to “big bang”.

The Bar’s strength

In my view the place that the Bar occupies in the legal landscape makes it less susceptible to impact from the LSA than other branches of the legal profession.

As I have said, the Bar is a referral profession.  Its customers (as distinct from “lay
clients”, who in most cases are better described as consumers) are predominantly
solicitors, who effectively subcontract work to the Bar when required, usually in cases requiring either advocacy or specialist legal expertise outside that available to them internally.  The Bar is evidently very successful at providing this service to a high standard and at competitive cost, the latter being made possible by the low cost base inherent in the chambers structure.

The Bar is not just competing in the legal marketplace for business.  It is also competing for people.  On this front it also boasts considerable appeal, in being able to offer a possibly unique combination of intrinsic rewards such as independence, autonomy, variety, challenge and work-life balance.  Not to mention the potential for very high financial rewards.

ABS and the Bar

The fundamental elements for the formation of an ABS seem to me to be investment and return.

The first question I ask about investment is how would external funding be used by a set of chambers ?  The two areas where solicitors seem to be setting their sights are marketing and expansion.  I do not see the Bar following suit.  Marketing to the relatively limited and clearly-defined audience of the Bar is not expensive and certainly does not require a large capital injection.  As for growth, for a set of chambers this simply means acquiring new members, either by lateral hire or by taking on pupils, or mergers between sets.  Again, there is no substantial cost involved.

If we do succeed in finding an answer to the investment question, there are further hurdles to overcome when it comes to generating a return.  Typically, each member of a set of chambers contributes something between 12-18% of his or her fee income to chambers expenses.  You can be sure that any return on investment would have to come out of this figure (both to remain cost competitive and to be commercially acceptable to the members), so investors would need either to find ways of generating additional income or to come up with an administrative structure that dramatically undercuts the existing one (which is already noted for its frugality) in order to have the opportunity to see any worthwhile return.

The chambers structure

The strength of the chambers structure is however also its weakness.  Generally, sets of chambers are very loosely constituted organisations, with little more than camaraderie, goodwill and convenience holding them together.  Perhaps above all it is more the perception that it is “not the done thing” that really prevents barristers from moving between chambers more frequently than they do, although this practice appears to be gradually on the rise.  If this situation were to escalate to the point where it became the norm to move chambers, then this really would test the strength of the organisational glue formed from the mixture of these largely intangible factors.

In this scenario, the threat to the cohesion of sets of chambers could be compounded by the temptations that other forms of business structure may be able to offer barristers, in the form of acceptable combinations of the rewards I have referred to above but perhaps with the added benefit of more financial security, guaranteed work streams and other employee benefits.

An example that springs to my mind is the personal injury specialist who acts predominantly for defendants and whose practice is dominated by a small number of large insurer clients.  It may end up being possible for this practitioner to have a virtually identical practice – doing the same work for the same clients  – under the umbrella of an ABS set up by a group of insurers, perhaps also involving solicitors, loss adjusters, experts etc.  This setup may be able to offer a guaranteed income (avoiding the uncertainty and continual pressure from the bulk buying power of insurers) while still offering virtually the same degree of independence (which is already somewhat limited in this sort of practice).

There may well be flaws in this rather speculative example, but I am in no doubt about my general point that before too long opportunities will arise, that were hitherto imponderable, for barristers to work outside the traditional chambers structure without having to compromise unduly the independence and professional values which brought them to the Bar in the first place. This could turn out to be a very tough test indeed for the cohesion of the chambers model.

What now ?

Although the general thrust of this piece is that the Bar is in the seemingly enviable position from which a “wait and see” strategy can be afforded that is not to say that there isn’t much that can be done now in order to prepare for these as yet undetermined challenges.

I can see particular importance in sets of chambers safeguarding their cohesion by clearly defining and establishing collective objectives, goals and values and ensuring that they are understood, agreed and aligned with those of the individual members.  This is of course fairly basic stuff for any modern business, but it takes on added significance in an organisation where, as we have explored, the binding factors are so tenuous.  A set that is strong in this respect will not only retain its members but will also have the commercial agility that will leave it well equipped to deal with difficult and unexpected choices that may be forced upon it by external factors.

Of course, sets must continue to focus on the Bar’s areas of strength – high quality specialist service at highly competitive cost – and combine this with good communication to the marketplace.  A very strange kind of big bang would have to happen to create a market where these fundamentals are no longer a recipe for success.