Society to put law firms on the block

BANKS and other investors will get the chance to buy into Scottish law firms within three years if plans to overhaul the legal profession are approved next month.

The Law Society of Scotland is asking members to back proposals to enable external investors such as banks, accountants and venture capitalists to buy shares in Scottish legal firms for the first time.

Under the current system, only solicitors can own equity stakes in Scottish law firms, but the Law Society of Scotland wants to open up the market so that firms can raise more capital and fund expansion plans. With similar reforms already under way in England and Wales, many of the larger Scottish firms argue external investment will allow them to compete globally.

Richard Henderson, president of the Law Society of Scotland, told Scotland on Sunday that the first external investments could take place within the next three years if the plan meets with approval at the society's AGM in Edinburgh on May 22. He said: "We're talking about 2011. I think this is one of the major debates for the profession over the last 30 years or so."

The proposal is one of several policies contained in a paper sent to solicitors last week after the society was asked by the SNP Government to review the market in Scotland. The review was prompted by an Office of Fair Trading recommendation last year following concerns raised by consumer groups that the current system may have led to higher prices.

But the Law Society, which originally resisted market reform, is likely to meet considerable opposition when hundreds of solicitors convene in Edinburgh to debate the plans.

Douglas Connell, joint senior partner of Turcan Connell solicitors, is concerned some lawyers will see the reforms as an opportunity to cash in their stakes for a one-off windfall without thinking about the consequences for the business. "I'm not sure what the legacy would be for the business," he said.

Connell expects the most likely investors will be banks and other financial institutions which will put financial returns ahead of other concerns. This, he fears, could compromise the way lawyers work. "I personally think that will change the whole nature of the way in which we have operated in Scotland," he said.

Philip Rodney, chairman of Burness, said Scottish lawyers are unlikely to want to work according to someone else's rules, which could happen if third parties buy significant stakes or even whole businesses. He said: "One of the things that is enjoyable about professional legal practice is that sense of independence we have. Just now we own ourselves. We're not working for other masters."

He questioned whether the changes will lead to potential conflicts of interest in situations where firms owned by an external investor are pitching for work involving that organisation, or are dealing with a case in which it has a vested interest.

However, Alan Campbell, managing partner at Dundas & Wilson, which in 1997 formed a separate company with the now defunct Arthur Andersen, refuted the suggestion solicitors can't offer independent advice if they are owned by a third party.

He said: "It is sometimes said that external ownership of a solicitors' practice is incompatible with a commitment to provide independent advice and so only lawyers can own legal businesses. But this confuses the role of lawyers as practitioners and lawyers as owners. Any suggestion that only lawyers can be trusted to own legal businesses demonstrates such conceit that it makes me blush."

Also to be debated next month are 'multi disciplinary practices' (MDPs) where lawyers will be able to go into business with accountants, chartered surveyors and investment mangers. After long deliberation, the Law Society has given its approval to MDPs but, according to Henderson, they are not likely to happen until "several years down the line".