The Future’s Unsure for Alternative Business Structures

November 18, 2021

Taking a Closer Look at the Initial Impact of ABS and What It Might Mean for the Future of Law Firms

Law firms are steeped in tradition, and by and large, haven’t had to evolve in any significant way for decades — centuries even! However, after the advent of Alternative Business Structures (ABS), their tenure as the great white shark of the high street may well be coming to an end.

This recently passed structural proposition threatens to turn commercial law on its head, and it’s causing a seismic stir among supporters and detractors alike, but the operative word in this sentence is “threatens.”

A threat is unsure. There’s the possibility it could materialize into something of consequence, but it could just as well have very little effect on established norms. Let’s discuss the topic in more detail to see if we can’t coax up a more concrete understanding of the implications of ABS.

What Is an Alternative Business Structure?

Simply put, an ABS permits a non-lawyer to invest in, manage, co-own, or own a law firm. So, for example, if a wealthy fiduciary advisor, or perhaps an enterprise CEO suddenly decided they’d like to add a law firm to their portfolio, hypothetically, they could do so.

ABS also permits non-legal commercial entities to create their own legal divisions, something that’s been pessimistically labeled “Tesco Law” in the UK.

For those who didn’t already know, prior to ABS, it was a legal requirement for a law firm to be owned and managed by accredited lawyers, but now, the door is open to anyone who can swing the approval of certain state courts.

ABS is not a blanket ruling made by an authority that instantaneously grants just anyone the permission to jump on the legal bandwagon to make a few bucks. Rather, if a law firm or, well… any business wishes to “become” an ABS, they must apply for the luxury, and the prospective non-legal party must be approved.

While this is good news for the law firms that see ABS as a needless and damaging overhaul of traditional values, it has created a pick-a-side sentiment that continues to polarize states and law firms across the nation.

Arguments for the ABS Reform

Introduced in 2007 in the UK, the concept of ABS was initially pegged as a means of reducing legal fees and stimulating more competition in the sector. It’s thought that by opening the door to a broader range of investors, law firms will grow in number significantly, affording the public a greater choice when the time comes to seek legal aid.

It also stands to reason that such a widening of the industry will create thousands of jobs for solicitors and generally broaden the scope of what is, and always has been, a very narrow commercial field.

Another benefit of the ABS system is that it enables businesses to combine legal aid with other complementary services, forming a convenient synergy that’s more likely to hold a customer in their ecosystem. For example, a business that already specializes in tax or accountancy could diversify its service with a legal department, so all matters could be addressed in-house.

ABS asks the question… Why do business in one place, then walk across town to finish the matter at another business? The most convenient thing for all involved would be to start and wrap up proceedings under one roof.

This principle works in reverse too, by which we mean that a specialist law firm can apply for ABS, then expand from the legal sphere outwards, growing their brand and services to attract more customers.

Arguments Against the ABS Reform

With more law firms around, profits will be split amongst them, and as prices will have already been forced down to compete with the big industry ABS newbies on the scene, some established law firms might be unable to keep their heads above water.

This bulldozing of the smaller legal outfits in the industry might not lead to more choice for the public, but less, as we’ll be forced to do business with whoever survives the struggle for dominance.

The job possibilities created by fresh ABS faces may also transform staff turnover into a perpetual game of musical chairs, which can put a strain on businesses and create a culture of distrust.

Furthermore, as big ABS names sink traditional firms left, right, and center, there’s an argument that jobs won’t increase all that much, and might even go through a period of decline.

Then there’s ABS’s lack of proliferation to consider. Being that it’s not really a thing anywhere else in the world (yet), ABS entities will have a significant hurdle to jump when trying to expand overseas. Consequently, if a loyal consumer moves abroad, they’ll have to find a new firm, which can make a potentially stressful situation even worse.

All that aside, possibly the most sinister consumer and solicitor concern about ABS is the idea that more and more legal work will be placed in the hands of non-specialists, diluting the caliber of the service and cheapening the profession as a whole.

ABS in the US

While Washington, DC has been leading the ABS parade alone in the States, the idea is steadily gaining traction in some states, with Arizona and Utah green-lighting the reform earlier this year. Despite many skeptics, the movement is finding support in high places.

How prevalent ABS will become and the impact it will have in these guinea pig states is not yet known; it’s simply too early to tell. But, as the UK has been handing out ABS licenses since 2012, we can look to our friends across the pond for insight.

ABS in the UK

In the UK, ABS implementation hasn’t been the nightmare that the diehard skeptics imagined it would be. There was a great deal of concern that every high-flying big business would throw their hat into the legal arena and claim their ABS permit, but the reality has been a lot more subdued.

The Co-operative (a popular supermarket) is the only evidence of “Tesco law” taking place, but the company subsequently consolidated their law foray with their much more successful funeral service.

Surprisingly, supermarket stalwart and source of the eponymous ABS warning label, Tesco, never showed even a flicker of interest in the move, which has visibly relieved some critics.

That said, there has been no significant evidence of a broadening of the sector, with firm numbers remaining around the 10K mark. In fact, a lot of the businesses that decided to try their hand at ABS expansion have already thrown in the towel.

So, even though the damning omens of ABS never really came true (or haven’t thus far, anyway), it hasn’t really brought any of the prophesized benefits either.

Final Thoughts — The Shape of Law Firms to Come

One of the most sensational aspects of this structural upheaval is that we just don’t know what it’s going to change, and we won’t know until the changes are already upon us.

Sure, ABS may have been more of a whimper than a bang in the UK, but nobody can say for sure if that’s how things are going to play out in the U.S.

Still, much like UK citizens, the American public may not feel comfortable seeking legal help at the same place that they buy their groceries, which would banish some of the bigger household names from the experiment. That leaves established firms, and businesses who already enjoy proximity to commercial law, to take a punt at ABS expansion largely uncontested.

ABS may or may not catch on, but one thing we can say with relative certainty is that it’s not likely to be the overhaul we imagined it might be. So far, it seems to bring neither good nor bad as far as the consumer is concerned. It simply… is.

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