It wasn’t so long ago that law firm risk teams fought an endless, fruitless battle to get partners and senior management to pay much attention. Traditionally, compliance has been anathema to senior lawyers, who see the box-ticking hordes from their risk teams as an expensive encumbrance to client work. Well, it is pretty boring… until, of course, it isn’t.
But it seems attitudes regarding law firm risk and governance are changing thanks to the rock of an endlessly awful economy meeting the hard place of an acronym-strewn overhaul of solicitor regulation.
As the discussion at our annual risk management round table demonstrates, the handling of risk at major law firms is advancing and the profession is – however grudgingly – starting to concede the hassle has brought some benefit.
The gap in risk and governance between corporate law firms and their smaller counterparts is in danger of turning into a yawning chasm.
Likewise, the Solicitors Regulation Authority (SRA) has accredited itself rather better in rolling out the new outcomes-focused regulation (OFR) regime than many were expecting (admittedly, that’s not saying much).
The bottom line is that, while the SRA has heaped significant cost and resource burden on larger firms in the UK with the shake-up, there is consensus that large practices are gaining genuine improvements in governance.
This will hand larger firms a distinct and widening commercial advantage as smaller rivals struggle to cope with the pressures of OFR. This has particularly been the case in finding a qualified lawyer who can combine fee-earning with the very specific demands of the new role of compliance officer for legal practice (COLP). (The brief carries considerable personal liability for the individual if the firm breaches the new handbook – liability issues that have yet to be ironed out to the satisfaction of many senior lawyers.)
And smaller firms are already suffering commercially as they say they cannot afford to run dedicated risk functions either.
This means the already sizeable gap in risk and governance between corporate law firms and their smaller counterparts is in danger of turning into a yawning chasm.
Given that the status-obsessed world of commercial law already had a fairly heavy ‘buying IBM’ premium attached to bigger, safer brands – the combination of tough markets and more rigorous regulation could trigger huge consolidation in what remains a highly fragmented market.
It also raises the likelihood that top UK law firms will further sharpen their governance superiority over law firms in other global markets, including the US. As shaky risk management has been implicated in several of the biggest legal collapses in the US in recent years, that edge is worth more than is generally given credit. (On this topic, one round table panel member raises the intriguing question of what would have happened if Dewey & LeBoeuf’s City arm had had a COLP when it went down.)
In conclusion, while it is possible to be ambivalent about some of the procedure, the regulatory medicine being administered to the profession does appear to be creating a more robust industry. Given the challenge that must eventually come from alternative legal providers – who may have shiny brands but little in the way of legal track records – law firms would do well to use this governance edge for all it’s worth.