In 2015, Birmingham based law firm Gately made history by becoming the first UK law firm to list on the stock market. Since then, most UK law firms have stuck with the traditional partnership model, with only six other firms going public. Why have so few law firms followed Gately, and what will the future hold for the listed firms?
Law firms have conventionally adopted the partnership structure. Whilst there are slight variations between firms, the standard model is that partners generate revenue for a share of ownership and profits. Traditional law firm partnerships tend to choose partners based on years of experience and billable hours.
Since 2015, some UK firms have opted to go down the IPO path. The way this works is much the same as all other companies who want to raise equity finance. Firms will try to sell their ‘product’ to investors and VCs. Once they have enough capital, they can open their shares to the public. The most significant legal float was in 2019 when DWF went public with a £366m valuation and offer size of £95m.
Pros and Cons
Why would a firm choose to float on the stock market? Like other companies, they are drawn towards the financial opportunities of an IPO. In an increasingly competitive legal market, the prestige and exposure that going public brings are very attractive. Listed firms have an edge that might attract clients, employees, and future investors.
The disadvantages, however, are quite significant. First, the firm loses some control. The partnership model means that the firm’s growth is in the hands of its most experienced employees. With decisions being made by thousands of shareholders, the firm loses a grip over critical verdicts, e.g., appointments and significant transactions. Moreover, the firm will need to appoint external advisors to adhere to the strict regulations applied to publicly listed companies. These additional costs should be considered before a firm is blind-sighted by the initial financial gain.
The latest firm to show interest in going public is City firm Mischon de Reya. With revenue of £188m in 2020, they would be the professions largest firm to float. It has been reported that they are eyeing up a £750m valuation. The FT interestingly noted that the switch would be profitable for seniors would receive a hefty equity stake, but more junior solicitors wouldn’t reap the same rewards.
Time will tell how law firms. In a fiercely competitive market where firms are looking to set themselves apart, this might be the time to make a move.
Cryptocurrency markets grew in value by 200% in 2021 from $800bn to $2.3 trillion. A net of £6.9 billion was invested into cryptocurrencies last year according to Coinshares, a leading cryptocurrency investment provider.
Many financial service leaders and regulators are campaigning for tougher regulation in this extremely volatile and complex market. The Bank of England governor, Mr Andrew Bailey has warned MPs he is ‘sceptical’ of cryptocurrencies, further arguing they are dangerous. Additionally, Berkshire Hathaway’s Vice-Chairman, Mr Charlie Munger, likened investing in cryptocurrency to ‘trading turds’.
Buyers are seemingly unprotected if things go wrong and firms go bust. At present, there are 2.3 million people in the UK with investments in cryptocurrencies. Although firms need to register with the Financial Conduct Authority (FCA) to ensure they meet anti-money laundering rules, many commentators are arguing that this is not enough.
The FCA has raised concerns regarding 218 firms that appear to be involved in cryptocurrency activity that are not registered. Hundreds of unregulated companies are offering customers opportunities to buy cryptocurrencies entirely under the radar of the regulators. The FCA issued 30 warnings in 2021 to companies, with 23 of those issued in December 2021 alone.
There are currently only four cryptocurrency firms that are covered by the Financial Ombudsman Service (FOS), and the Financial Service Compensation Scheme. If customers from other cryptocurrency trading firms go bust, there are very little recovery options available.
Cracking down on cryptocurrency adverts
Another area in dire need of regulation is the advertisement of cryptocurrency. The Treasury has recently announced plans to crack down on misleading cryptocurrency adverts.
Cryptocurrency is blowing up, there are adverts on the tube, football clubs such as Arsenal and Aston Villa are creating ‘fan tokens’ and cryptocurrency is also being endorsed by high-profile celebrities such as Kim Kardashian and Floyd Mayweather. The FCA research shows social media was the primary platform through which people have been introduced to cryptocurrency (over 30%). With the price of cryptocurrencies often responsive to tweets from Tesla chief executive, Elon Musk, regulation is needed in this environment.
Both Kardashian and Mayweather are now being sued over their promotion of ‘EthereumMax’, a type of cryptocurrency. The class-action lawsuit filed last month highlights the value of EthereumMax dropped by 70% the week after Kardashian’s social media endorsement. The price never recovered.
In the last few months, the Advertising Standards Authority (ASA) banned several campaigns featured across the London Underground. The Guardian reported that Transport for London displayed 39,560 adverts from 13 firms in 6 months alone. In May 2021, the ASA banned an advertisement for bitcoin after the price plunged almost 30% in one day which was a knock-on effect of the Chinese government prohibiting banks’ use of cryptocurrency and ultimately highlighting the unpredictable and explosive nature of cryptocurrencies.
The FCA’s research shows that 14% of cryptocurrency owners have borrowed money to buy crypto. With advertisements geared to pulling in those who have a lower understanding of the risks involved, it is clear there is a need for regulation imminently.
Earlier this week the government revealed plans to make cryptocurrency adverts subject to the same FCA regulation as other financial products. The reforms allow the FCA to ensure adverts are satisfactory, with the threat of fines being issued to those that do not comply.
Although the reforms are a welcome attempt to tackle advertising, more stringent plans are needed to regulate firms as crypto customers are not afforded the protection usually provided with traditional banking methods.
Like most tech users, cryptocurrency owners often come across technical issues. Customers of the platforms often lose the passwords to their account and some can be permanently locked out of their account. The Treasury Committee inquiry launched in early 2021 highlighted issues associated with buying cryptocurrencies. These issues are a huge contrast to how customers of banks are treated. Nicky Morgan, Chairwoman of the committee likened the current situation to the ‘Wild West’.
With calls for reform flooding in, it will be interesting to see the next steps regulators will take. The Bank of England is reported to step up talks this year with international counterparts to create global regulations that protect financial systems, explained Sarah Breeden, the executive director for financial strategy and risk at the Bank. With the popularity of cryptocurrencies picking up speed since 2018, is it a case of too little too late?
With the working from home trend due to the anxiety provoked by the COVID-19 pandemic and as the economy-more broadly-witnesses an increase in digitalization, criminal activity has witnessed a change. The myriad of dangers that comes with a remote workforce, such as employees using their homes’ networks and their devices, has led to a shift from physical crimes to data theft leaving companies to suffer an increase in cybercrime. This increase has created opportunities for the cyber sector, which already globally and holistically tackles cyber issues when it comes to engaging with cybersecurity.
According to the FBI, this shift towards working remotely has created “the perfect breeding ground” for cybercrimes. Also, WFH rids businesses of firewalls and blacklisted IP addresses, hence, rendering them even more prone to cyber-attacks. According to a survey by Deloitte, “Poor technological infrastructure and inadequate cyber and data security are hampering the productivity of Swiss employees working from home – and represent a cyber risk to businesses”.
Data in all its types is threatened, for example, employees’ personal information, corporate data and customer information, along with many forms of fraudulent wire transfer scams and the taking of computers’ networks hostage through malware in exchange for a ransom.
The weak technological infrastructure and ill-suited data and cyber security are jeopardizing remote employees’ productivity and consists of cyber risk for institutions. By using social-engineering techniques, cybercriminals manipulate human error to access confidential information and commit fraud/theft.
In a 2020 report commissioned by Deloitte on 1,500 Swiss citizens of working age, it was evidenced by 25% of the employees, an increase in fraudulent emails and attempts of phishing since the start of the pandemic. Workers in general, have witnessed significant spikes of social engineering incidents in 2020: an increase from 46% in Q1 2020 to 60% by Q2 2020 (BKS, 2021). According to the same source, the pandemic led to a 50% increase in mobile vulnerabilities such as vishing, and ransomware grew by 50%. Therefore, companies must take the required measures to address the “loss of corporate data and intellectual property” a priority while tackling corporate fraud risk.
As the world is now preparing for what life will life look like in a post-COVID-19 world, one of the crucial issues to be addressed is IT security (Irwin, 2021). Remote working’s benefits are too appealing; hence, it seems to be here to stay: the option of remotely working full-time after the end of the pandemic will be given to employees by 47% of organizations (Gartner, 2020).
It is not only the use of the internet that is dangerous but the mismanagement of remote workers’ phones and mobile devices (CISO, 2020). Additionally, 52% of respondents admitted that one of cybersecurity’s major challenges are mobile devices. As the fine line between professional and personal lives is becoming increasingly blurred, the risk of having sensitive information leaking in insecure environments is increasing and IT can do nothing about this.
In 2015, the Organization of Petroleum Exporting Countries (OPEC) forecasted that only about 4.7 million electric vehicles (EVs) will be used globally by 2040. 2021 conclusively disproved this by reaching twice that amount, with over 10 million currently in use.
This forecast was two decades late and the uptake on EVs may continue to multiply. It may even outnumber traditional cars sooner than many thought. In fact, EVs have recently outperformed diesel cars in Europe last month, with 176,000 and 160,000 sales respectively.
Well-established automakers are already jumping on the EV bandwagon as they lay down a red carpet for its production. In the January Consumer Electronics Show, General Motors, Hyundai, and BMW presented their new EV models.
Mercedes also declared they would be releasing ten new EV models at the last quarter of this year; Nissan will dispense eight new ones by 2023, and BMW aims to fashion an EV version of all their vehicle models also by 2023.
What spurred this swift transition?
A portion of the hype stems from Tesla’s 2012 Model S, the first electric vehicle that was able to provide a 260 miles range. It had become the benchmark of EVs since then and had reinforced the idea that electricising vehicles is feasible. Something that past attempts have failed to do.
The tipping point, however, was the governments’ active role in attaining a zero net economy. The UK government’s delivery plans for decarbonisation is edging petrol and diesel cars off the shelf by 2030, and these cars will be completely off the road by 2035.
They have apportioned £1.8 billion towards this delivery plan, using it for: giving out subsidies and mandating charging point installations.
Order for charging instalments receded
Unfortunately, things did not necessarily go according to plan. Charging installation mandates have been amended, initially requiring all existing and newly established non-residential buildings (i.e. supermarkets and workplaces) to only the new or renovated buildings. They backpedal from their policy, explaining that they will map out a more bespoke approach to the existing non-residential establishments.
This approach should be modelled as earlier as possible since the installation of charging stations is the backbone of the EV transition. Currently, only 38% of UK households could implant home charging points. The significant 62% is precluded from making the switch even if they wanted to.
There is also a scant amount of charging points on motorways and rural areas. Offering grants for such installations are not sufficient. The government must brew competition so that businesses would be coaxed into establishing charging stations. This, as a result, provides consumers with better access and more choices, coupled with competitive quality and prices.
The Competitions and Market Authority (CMA) is at the heels of this situation. They are currently investigating the Electric Highway (owned by Gridserve) situation, calibrating its impact on competition within charge point installation.
Are the cuts in subsidies the wrong move?
Slashes in grants for Electric Vehicles have been enforced for the second time. The new grant is £1,500 (originally 2,500), with the price limit for qualified car models descending from £35 to £32,000.
They appear to be veering towards a reasonable trajectory. The reduction of the grant is built on the awareness that it is largely leveraged by the wealthier class, and by extension, such reduction will not dissuade them from buying.
By slashing this grant to £1,500 paired with eligibility centred on cheaper EVs, it is swerving its target towards people at the lower end. Moreover, it spreads out the budget so that more people can use it.
EVs reaching the mass market
Some automakers aim to sell their EVs to the mass market — democratising it. They have spent much for advertising and marketing purposes. GM and Ford, most especially, seek to sell about a million EVs yearly by 2025, and potentially at a lower price.
At present, the most appealing advantage of using traditional fossil fuel-ran cars is that it is cheaper. The hole within this argument is that in the long term, fuel prices are cumulatively more expensive than electricity.
Such an argument may also be considered obsolete in the next few years. As more EVs are bought, there would be an increase in EVs setting foot in the secondhand market. This may lead to a bigger appetite for EVs because it would have been altogether cheaper at the first buy and throughout the use.
This is a warren of tell-tale signs that EVs will supplant traditional car models.