What to do about innovation?

Elisabeth DaviesThinking beyond the 21st century

On 9 November, the Legal Services Board and the Solicitors Regulatory Authority published joint research on innovation in legal services.

Inevitably I found myself questioning: what does innovation mean? For the Panel we interpret innovation as taking a market wide view of the whole legal ecosystem. So that’s including regulated and unregulated services. It’s about offering people greater choice, offering people the tools to decipher between which legal service provider to choose from, and about access to redress when things go wrong. True innovation must improve access to justice in the widest sense of the word.

There’s agreement that one of the key challenges for legal services is unmet legal need. The question is what role is market innovation really playing in addressing this, for both consumers and SMEs.

At first glance it may be tempting to assume that the legal services market has innovated quite considerably in the last 5 years with the increased use of fixed fees, online divorce, TV advertising and multi-disciplinary services. But the reality, according to the research, is that the levels of innovative activities remain below those in other professional services. Also, a close comparison between the research data set of 2009 and the data in 2015 shows minimal movement on the innovation scale. The adoption of Alternative Business Structures has helped but not by a great deal. ABSs are only between 13-15% more likely to introduce new legal services than any other type of regulated solicitor firms. Interestingly, the research highlights that, on average, the unregulated sector is more innovative than the regulated sector and is by far more likely to provide service innovation to consumers.

So what is holding innovation back?

In the research regulatory and legislative constraints were cited as the reasons for lack of innovation in the market, with one fifth and one quarter of respondents of all types saying this was a barrier. Both other barriers loom large:

“Regulatory factors have been the biggest issue because we are regulated by the SRA so we need to be careful what we do in our practices”.

“Basically anything because the legal professional is run by dinosaurs. Solicitors and barristers are still living in the dark ages and anyone who thinks beyond the 21st century is considered a radical. It’s the underlying culture of the legal profession, you could say”.

“Most of our work is legal aid and because we are having to cut back we can’t take on more staff and other things. We have to focus on keeping the doors open while the SRA and the Law Society are doing nothing effective that I can see, for example raising awareness of the local high street Solicitors in all areas”.

The truth about what is restricting innovation probably lies in all of these comments – a mix of regulation, legislation, governance and culture. I would also add to this mix ‘lack of consumer power’ – passive selection by consumers due to too little information on price, quality or other peoples experience.

So what is the solution?

Just as the problem has lots of different factors within it, so does the answer.

The SRA said it is responding by doing a number of things; it has abolished its Separate Business Rule, is reviewing its handbook, and has launched an Innovation Hub, seemingly modeled on the idea developed by the Financial Conduct Authority. The LSB has more work underway – it may commission further research into innovation and it recently reviewed the rules around restrictions on in-house lawyers and published a policy statement.

These proposals are a good start but only if the bottom line is that innovation produces good outcomes for consumers. The risk in this is that not enough thought is given to how consumers can be empowered to incentivise innovation. An essential part of this will come down to access to information. The Panel is currently working on an LSB commission which will propose some solutions to the dearth of information available on price, quality and the experiences of others. Our hope is that all the approved regulators engage robustly with this important aspect of the innovation solution.