In between law firms and law companies
BY
Adv. Natali Shaybak
Is it the beginning of the end for traditional law firms? Itdepends. How fast can the legal industry adapt?
Alternative Legal Service Providers (ALSPs) are quickly becoming anindustry norm. Soon, they will be referred to as Legal Service Providers or LawCompanies. A recognized business, not an alternative entity. As our fundamentalbeliefs about how law firms, and the legal industry generally, should function,only market participants who evolve with these advancements will remain.
For example, let’s begin by considering how Arizona (USA) haspermitted non-lawyers to obtain ownership interests within law firms.
In 2020, Arizona became the first American state to allow non-lawyersto have economic interests in legal services providers, under an alternativebusiness structure(other USA states have since done the same on a temporary basis).
The reason for the change is to promote public access to legalservices and promote innovation in a traditionally conservative industry.Although a new concept to America, in the mid-2000s the United Kingdom permittednon-lawyers to have economic interests in law firms, and Australia has done thesame since the early 2000s.
Therefore, it seems appropriate to consider America’s ownershipchanges as a sign of the times. It also seems likely that other Americanstates, and international regulators, will permit similar changes that supportthese Alternative Business Structures.
ALSPs are the best solution to the evolving ownership structuresemerging throughout international legal markets. ALSPs are flexible corporateentities that provide specialized solutions to the legal industry’s problems.
ALSPs can take the form of staffing agencies led by industry-leadinglawyers that provide elite lawyers to technology companies, traditional lawfirms that are offering enhanced services, financial institutions offeringniche legal industry services, and everything in between.
This approach allows ALSP clients to scale their offerings, receivetimely legal counseling, and all at a fraction of the cost of a traditional lawfirm relationship. ALSPs can also be an intra-law firm entity (captive) thatpermits law firms to retain control over these lawyers and their work whilereceiving the benefits that come with creating an ALSP arm for centralized andefficient business operations.
The intra-law firm (captive) ALSP approach also creates anotheroffering for clients and the option for the law firm to offer their ALSPservice to other law firms or companies for enhanced business to businesssolutions. And of course, non-law firms cancompete with the legal industry for ALSP market share through creating theirown ALSPs through alternative business structures.
With the global ALSP market is estimated to be roughly $14 billion, itshould be no surprise that traditional financial institutions, established lawfirms, established independent ALSPs, along with startup companies all want toparticipate.
As a result of everyone’s enthusiasm for ALSPs, there aresignificant potential synergies between competitors and partners alike. Overthe coming years, it seems likely that the ALSP market will see newpartnerships focused on scaling existing ALSPs, creating new entities, andcontinued consolidation among independent ALSPs.
One form of partnership may be ALSPs, or traditional law firms,expanding their international reach through joint ventures with establishedALSPs outside of their home markets, or outright acquisition of foreign ALSPs,or law firms to scale their reach.
As competition increases throughout the ALSP market, we shouldexpect that the boundaries of what constitutes the legal industry will continueto erode. Having established legal service offerings throughout Europe, the BigFour accounting/audit firms of Ernest & Young, Deloitte, KPMG, and PriceWaterhouse have begun offering these services in the USA, too (among othermarkets).
As such, these efficient and established firms will attempt toquickly obtain a global market share of the explosive ALSP industry. Not farbehind are private equityfirms. As the traditionally conservative legal industry becomes accessible tooutsiders via ALSP business models, we should expect ALSPs to resembleconsulting firms rather than law firms. This anticipated trend is demonstratedby the merger andacquisition activity throughout the ALSP market in 2021.
The burgeoning ALSP market is the legal industry’s solution to therestrictive boundaries of the conservative legal profession. And this solutionis not a passing fad. As the ALSP market matures, the boundaries betweentraditional law firms and ALSPs will become indistinguishable.
Much like the Big Four accounting/audit firms, and modern-dayconsulting firms, have become multi-pronged solutions providers, rather thansingularly focused companies.
For example, a law firm may need external e-discovery assistance ona particularly challenging case but then realize that the ALSP they contractwith can assist them with contract lifecycle management, staffing needs, andgeneral business counseling. The value of ALSPs resembling consultingagencies/firms is that they can capture a greater market share of the legalindustry through a wider range of offerings.
As ALSPs service offerings expand, their market share will growaccordingly. As such, the business structures that ALSPs utilize themselvesmust adapt into a flexible business structure that allows them to continue dominatingtheir core offerings while scaling to increase the types of solutions they canoffer to clients.
Irrespective of what type of business structure ALSPs ultimately morphinto, the ALSP market will continue to experience newcomers entering themarket, strategic partnerships, established ALSPs continuing to mature, and marketconsolidation.
Whether the legal industry, a traditionally slow to adapt industry,can match the pace of innovation through the ALSP market remains to be seen. However,evolving with market demands is necessary for long-term survival in anyindustry. It appears that the legal industry cannot insulate itself fromexternal competition much longer.
· Adv. Natali Shaybak is a projectmanager at LawFlex, an international legal outsourcing company (https://lawflex.com/)
Is it the beginning of the end for traditional law firms? Itdepends. How fast can the legal industry adapt?
Alternative Legal Service Providers (ALSPs) are quickly becoming anindustry norm. Soon, they will be referred to as Legal Service Providers or LawCompanies. A recognized business, not an alternative entity. As our fundamentalbeliefs about how law firms, and the legal industry generally, should function,only market participants who evolve with these advancements will remain.
For example, let’s begin by considering how Arizona (USA) haspermitted non-lawyers to obtain ownership interests within law firms.
In 2020, Arizona became the first American state to allow non-lawyersto have economic interests in legal services providers, under an alternativebusiness structure(other USA states have since done the same on a temporary basis).
The reason for the change is to promote public access to legalservices and promote innovation in a traditionally conservative industry.Although a new concept to America, in the mid-2000s the United Kingdom permittednon-lawyers to have economic interests in law firms, and Australia has done thesame since the early 2000s.
Therefore, it seems appropriate to consider America’s ownershipchanges as a sign of the times. It also seems likely that other Americanstates, and international regulators, will permit similar changes that supportthese Alternative Business Structures.
ALSPs are the best solution to the evolving ownership structuresemerging throughout international legal markets. ALSPs are flexible corporateentities that provide specialized solutions to the legal industry’s problems.
ALSPs can take the form of staffing agencies led by industry-leadinglawyers that provide elite lawyers to technology companies, traditional lawfirms that are offering enhanced services, financial institutions offeringniche legal industry services, and everything in between.
This approach allows ALSP clients to scale their offerings, receivetimely legal counseling, and all at a fraction of the cost of a traditional lawfirm relationship. ALSPs can also be an intra-law firm entity (captive) thatpermits law firms to retain control over these lawyers and their work whilereceiving the benefits that come with creating an ALSP arm for centralized andefficient business operations.
The intra-law firm (captive) ALSP approach also creates anotheroffering for clients and the option for the law firm to offer their ALSPservice to other law firms or companies for enhanced business to businesssolutions. And of course, non-law firms cancompete with the legal industry for ALSP market share through creating theirown ALSPs through alternative business structures.
With the global ALSP market is estimated to be roughly $14 billion, itshould be no surprise that traditional financial institutions, established lawfirms, established independent ALSPs, along with startup companies all want toparticipate.
As a result of everyone’s enthusiasm for ALSPs, there aresignificant potential synergies between competitors and partners alike. Overthe coming years, it seems likely that the ALSP market will see newpartnerships focused on scaling existing ALSPs, creating new entities, andcontinued consolidation among independent ALSPs.
One form of partnership may be ALSPs, or traditional law firms,expanding their international reach through joint ventures with establishedALSPs outside of their home markets, or outright acquisition of foreign ALSPs,or law firms to scale their reach.
As competition increases throughout the ALSP market, we shouldexpect that the boundaries of what constitutes the legal industry will continueto erode. Having established legal service offerings throughout Europe, the BigFour accounting/audit firms of Ernest & Young, Deloitte, KPMG, and PriceWaterhouse have begun offering these services in the USA, too (among othermarkets).
As such, these efficient and established firms will attempt toquickly obtain a global market share of the explosive ALSP industry. Not farbehind are private equityfirms. As the traditionally conservative legal industry becomes accessible tooutsiders via ALSP business models, we should expect ALSPs to resembleconsulting firms rather than law firms. This anticipated trend is demonstratedby the merger andacquisition activity throughout the ALSP market in 2021.
The burgeoning ALSP market is the legal industry’s solution to therestrictive boundaries of the conservative legal profession. And this solutionis not a passing fad. As the ALSP market matures, the boundaries betweentraditional law firms and ALSPs will become indistinguishable.
Much like the Big Four accounting/audit firms, and modern-dayconsulting firms, have become multi-pronged solutions providers, rather thansingularly focused companies.
For example, a law firm may need external e-discovery assistance ona particularly challenging case but then realize that the ALSP they contractwith can assist them with contract lifecycle management, staffing needs, andgeneral business counseling. The value of ALSPs resembling consultingagencies/firms is that they can capture a greater market share of the legalindustry through a wider range of offerings.
As ALSPs service offerings expand, their market share will growaccordingly. As such, the business structures that ALSPs utilize themselvesmust adapt into a flexible business structure that allows them to continue dominatingtheir core offerings while scaling to increase the types of solutions they canoffer to clients.
Irrespective of what type of business structure ALSPs ultimately morphinto, the ALSP market will continue to experience newcomers entering themarket, strategic partnerships, established ALSPs continuing to mature, and marketconsolidation.
Whether the legal industry, a traditionally slow to adapt industry,can match the pace of innovation through the ALSP market remains to be seen. However,evolving with market demands is necessary for long-term survival in anyindustry. It appears that the legal industry cannot insulate itself fromexternal competition much longer.
· Adv. Natali Shaybak is a projectmanager at LawFlex, an international legal outsourcing company (https://lawflex.com/)
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about the author
Adv. Natali Shaybak is a project and client manager at LawFlex, responsible for managing the entire pool of lawyers and is the liaison between them and the law firms or companies. Natali believes in transparency, sincerity and thinking out of the box.
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