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The British government outlined a radical reform program for the legal system Monday that could for the first time feature law firms owned by outsider investors or even listed on the stock market. It would also allow lawyers to go into partnership with other professionals. Lord Falconer, the lord chancellor and secretary of state for constitutional affairs, proposed sweeping changes that would also largely do away with the current system of self-regulation. “These new measures will help [consumers] to receive better service from the legal sector while at the same time enabling providers to develop better, more competitive, consumer-focused businesses,” Lord Falconer said. It is unclear yet what the impact will be on large law firms, which just a few years ago feared competition from big accounting-consulting firms. In the 1990s, firms such as Arthur Andersen began creating captive law firms with hundreds of lawyers and aimed to assemble global commercial law practices that would dovetail with their accounting, tax and consulting businesses. The law groups had to be legally independent for regulatory reasons but operated out of the accounting firms’ offices and drew most of their business from their sponsors. But the threat has receded, as most of those law groups have been shrunk or disbanded. The impact of the Falconer reforms may now affect the consumer and small business market more than big law firms. Retailers, including supermarkets or even department store chains such as Marks & Spencer Group plc, would be free to set up legal businesses and offer advice to customers, a practice that until now has been prohibited. Lawyers and accountants catering to individuals and small businesses also would be free to form partnerships together. The auto services group RAC plc said Monday that it welcomed the news that it might soon be allowed to open an own-brand law firm. Spokesman Philip Hale said RAC could acquire an existing firm or set up a team on its own. “We see the Clementi review as an opportunity to open up the legal industry, to make it more competitive,” Hale said, adding that RAC has been offering limited legal advice to clients since 1897, when it first began helping customers involved with accidents. Falconer’s proposals follow changes in the 1990s that eroded the sharp line in Britain between barristers, who had a monopoly on courtroom work, and solicitors. Solicitors can now appear in court in some circumstances. Falconer was responding to a December 2004 report by Prudential plc chairman David Clementi, former deputy governor of the Bank of England, who urged the sweeping away of “restrictive” practices in the profession. A 2001 report by Britain’s Office of Fair Trading also called for changes to create more competition in legal services. Of particular interest in the financial world was Clementi’s recommendation — which Falconer has taken up — that companies or individuals be permitted to own part or all of law firms, subject to “robust” safeguards. Under the proposals, nonlawyers would also be allowed to become partners in legal practices. “There’s a possibility that within the next five years, you’ll see VCs owning a stake in law firm businesses,” said Tony Williams, principal of legal consulting firm Jomati Ltd., who was once managing partner of Clifford Chance LLP and later head of the legal arm of Arthur Andersen. The reforms will make Britain among the most liberal legal markets in the world. In most places, including most of the United States, lawyers are prohibited from taking nonlawyers into their partnerships or sharing profits with them. The proposals spawned talk about firms tapping the public capital markets. But London-based law firm management consultant Alan Hodgart said he is skeptical about a rush of law firm IPOs. Law firms are not capital-intensive businesses, he said. “Most law firms don’t need huge sums of money. They’re profitable businesses,” Hodgart said. “Why should the likes of [London law firm] Slaughter and May take on outside investors? They already generate a lot of money.” Under the proposed legislation, Britain’s Bar Council and Law Society, which currently regulate barristers and solicitors, respectively, would become subsidiary regulators, answering to a new legal services board that would set standards and make sure they are upheld. Only day-to-day regulation would remain with the professional bodies. An Office of Legal Complaints would also be set up to handle consumer complaints about legal service providers. Most of its members would be nonlawyers. Copyright �2005 TDD, LLC. All rights reserved.

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