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Pestle Analysis Sample: Small Law Firm in the U.K.

External Business Environment of Fenwick & Co. LLP

Economic Environment

The economy of the UK was greatly affected by the 2007-2008 financial crises. Ever since mid 2009, the country has been recovering from the crisis (Price Waterhouse Coopers 2016). Its recovery, although slower by historical standards, has been faster than that recorded by most of the other G7 economies over the same duration. While the country’s GDP growth dipped slightly in 2015, consumer spending remained relatively strong, the situation further boosted by lower oil prices. Analysts estimate that the country will achieve a GDP growth of 2% in 2016 as noted by Price Waterhouse Coopers (2016). It is also expected that consumer spending will remain strong during the year much as food and energy prices will remain low. Economists estimate that the inflation rate will gradually rise to the 2% mark from the current zero% later in 2017, which could prompt the Monetary Policy Commission (MPC) to raise the interest rates (Price Waterhouse Coopers 2016). For almost seven years, the interest rate has been maintained at almost zero percent.

According to Spence (2016), the UK has a public debt in excess of £1.5 trillion. While this is the case, the government is steadily on track in repaying this debt. Analysts note that in 2015, the UK emerged as one of the fastest growing major developed economies. The rate of unemployment steadily fell during the year steadying at 5.4% while the housing market thrived (Elliott 2015). Consumer spending during the year also grew, a trend that will most likely continue in 2016 going by experts predictions. The country has also benefited from the strengthening of the pound against major currencies including the Euro and the US dollar in 2015 according to Elliott (2015). Although the first half of 2016 seems promising for the nation in economic terms, the second half is quite uncertain as noted by Elliott (2015). The uncertainty in this respect revolves around the impending referendum on Brexit.

Social-Cultural Environment

The UK has a population of more than 65.6 million people according to the Office for National Statistics (2018). Of this population, those ages 0-14, 15-24,25-54, 55-64 and 65 years and over account for 17.3%, 12.6%, 41%, 11.5% and 17.5% respectively (Index Mundi 2015). The population growth rate stands at close to 0.54%, the population comprising different ethnic groups, majority of which is White (87.2%). Close to 80% of the population of the UK lives in urban areas with London hosting over nine million residents (Index Mundi 2015). The nation has a literacy level of 99% according to Index Mundi (2015). The aging population in the country is steadily growing which also means that spending on the aging population by government and individuals is steadily rising (Kingsfund 2016).

London has a population of more than 8.8 million individuals according to Prynn  (2017). Majority of people living in London are in the 16-34 age bracket (Trust for London 2016). The city has a growing population of persons aged 65 and over. Reflective of national statistics, the city has a literacy level of 99%. The population of the city is mixed with ethnic groups including Whites, Blacks, and Asians (Trust for London 2016). Being a global business hub, London has a high population of foreigners from both EU and non-EU countries. The level of migration to and from London remains high at different times of the year. The prominent presence of foreigners in the city has seen residents of London embrace different lifestyles and cultures as influenced by visitors.

In general, people in the UK have divided opinions regarding whether the country should withdraw from the European Union. They are also divided on the net effects of a UK withdrawal from the EU in the immediate, medium and long terms. A recent opinion poll indicated that 46% of UK nationals want the UK to remain in the EU against 43% opposed to this view (Financial Times 2016). The population enjoys a lot of freedom in choosing what individuals do and where they work. Most individuals however work in urban areas where job opportunities abound.

Technological

One of the technologies that affect how business is conducted anywhere in the world is Information Communication Technology. Statistics indicate that over 90% of adults in the UK use computing devices on a daily basis (Office of National Statistics 2015). Statistics further indicate that close to 38 million adults, accounting for 77% of the country’s adult population, have access to the Internet on a daily basis (Office of National Statistics 2015). Between 2010 and 2014, usage of mobile phones to access the Internet grew from 25% to 58% (Office of National Statistics 2015). Well over 91% of UK households currently have access to broadband Internet.

Statistics show that over the years, use of ICT to procure or offer services has steadily grown among UK nationals (Office of National Statistics 2015). Some of the activities that people across the nation perform using the Internet include Internet banking, reading news, finding information regarding products, sending and receiving emails, buying or selling products, playing games, downloading software and social networking (Office of National Statistics 2015). The advent of social media has transformed the way businesses market themselves and interact with current and potential customers. Many businesses in London today have an online presence both in the form of a website or on social media. Businesses rely on social media to reach and respond to clients in real time. In general the Internet and social media have helped reduce the costs businesses have to occur in marketing their products, banking and in communicating with different persons. It has also made communication more efficient and effective. According to the Office of National Statistics (2015), close to 95% of households have televisions and roughly 93% of adults own a mobile phone in the nation.

Law firms in the UK and indeed other countries are fast adopting modern ways of doing business. Some of the law firms in London are going paperless as a way of reducing costs (Law technology Today 2015). The law firms are also using practice management software to schedule their activities and manage their resources for greater efficiency. As a way of reducing the risk of losing important information, many businesses are opting to store their data on the Cloud (Law Technology Today 2015). By backing up data on the Cloud, businesses are assured of having their information back in the event that the printed or soft copies they have locally are intentionally or accidentally destroyed or lost.

Legal Environment

The United Kingdom has a stable and reliable legal system. The country also has a reliable court system. Legislations and policies are instituted by the national and local governments through elected leaders. Several laws apply to businesses in the UK and London specifically. Some of these legislations relate to employment laws, contract laws, and environmental laws.

The national and local governments of the UK are concerned about the maintenance of a clean and safe physical environment. The Environmental Protection Act 1990 demands that domestic, commercial and industrial wastes be properly disposed to ensure that the environment remains clean (Tromans 1991). The law also aims at preventing harmful or unauthorised activities. The law places the duty of care on specific persons with a view of ensuring that wastes are properly managed without contravening on other people’s rights (Defra 1996). The London County Council has also instituted laws to ensure that the physical environment is conducive and that all kinds of pollution are minimised. Appreciating the fact that climate change is a serious global issue, the different levels of government of the UK are taking measures to ensure that nationals minimise emission of greenhouse gases.

Some of the policies and regulations that have been enacted recently and that will affect the operations of Fenwick & Co. LLP include the Pre-Action Protocol for Personal Injury Claims (2013), the Children and Families Act 2014 (CFA 2014), and the Finance Bill 2016 (Ministry of Justice 2013; UK Parliament (2016).

Environment

Being a major city, London has a huge population of people. The city has a good transport network comprising road, rail and air transport systems (London County Government 2016). In spite of the huge population of people in the city, the city’s environment is generally clean and well planned. More than 50% of the area in the city is covered in plants making the air quality much better that it is in most cities around the world (London County Government 2016). With parks and green spaces covering a huge part of the city, people in the city have several options to choose from when it comes to resting and leisure. The city has a reliable supply of clean water and well maintained sewer and drainage systems. In general, the city has a good infrastructural network that is vital for the success of businesses.

Recommendations

Fenwick & Co. LLP is operating in a business environment that is both politically, economically, and socially stable in spite of the changes that could result from the UK’s withdrawal from the European Union. The huge population of London, its position as a business hub, its good environment and infrastructure together make it a strategic location for doing business. With the UK experiencing steady recovery from the effects of the global financial crisis, low interest rates, low inflation, increasing consumer spending power, and a growing population of elderly individuals, there are high chances that in the foreseeable future, small law firms like Fenwick & Co. LLP are bound to experience good economic times. Although the effects of the UK’s withdrawal from the EU are yet to be fully appreciated, there are high chances that small law firms in London will gain significantly from a withdrawal. This is the case given that many law firms owned by foreigners may exit the market as a direct result of the withdrawal leaving fewer players in the market.

The company needs to take a number of measures to position itself as an emerging leader in the market. One of the measures that the company should take is strengthen its online and social media presence as a way of attracting more customers and creating awareness of its brand. The company should also purchase and make use of practice management software as a way of increasing its efficiency. Although storing information on the Cloud comes at a cost, the business needs to go this direction as a way of insuring itself against the effects of losing vital information. The company should also take every measure to align its activities with legislations such as the employment laws. Recent changes in laws relating to crime, family, and Personal Injury Claims call for an update of the employees’ knowledge of the laws and their effects on the business and its clients. Fenwick & Co. LLP which intends to establish other branches in the near future may not be able to do so in other EU countries easily in the event that the UK withdraws from the EU. The company should consider seeking alternative sites as soon as the results of the referendum indicate that the UK will withdraw from the EU.

Go to alternative/updated version …

References

Allen & Overy (2016). What are the potential legal consequences of Brexit?, viewed from http://www.allenovery.com/news/en-gb/articles/Pages/Brexit.aspx (Accessed 02 May, 2016).

BBC (2016) Guide to May 2016 elections in Scotland, Wales, England and Northern Ireland, viewed from http://www.bbc.com/news/uk-politics-35813119 (Accessed 02 May, 2016).

Carney M. (March 2015) Remit For the Monetary Policy Committee. HM Treasury, London.

Defra (1996). Waste Management, the Duty of Care, A Code of Practice The Stationery Office, London.

Elliott L. (December, 2015) The UK economy in 2016: a flying start but watch the brakes, viewed from http://www.theguardian.com/news/2015/dec/31/uk-economy-in-2016-flying-start-but-watch-the-brakes (Accessed 02 May, 2016).

Financial Times (2016) UK’s EU referendum: Brexit poll tracker, Financial Times, London.

Grandhi K. (December 15, 2015) Rise in UK minimum wage will cost businesses more than £1bn, viewed from http://www.ibtimes.co.uk/rise-minimum-wage-will-cost-businesses-more-1bn-1533368 (Accessed 02 May, 2016).

Index Mundi (2015) United Kingdom Demographics Profile 2014, viewed from http://www.indexmundi.com/united_kingdom/demographics_profile.html (Accessed 02 May, 2016).

Kingsfund (2016) Ageing population, viewed from http://www.kingsfund.org.uk/time-to-think-differently/trends/demography/ageing-population (Accessed 02 May, 2016).

Law Technology Today (2015) How Lawyers Will Modernize Their Firms in 2015, viewed from http://www.lawtechnologytoday.org/2015/02/modernize-lawfirms-2015/ (Accessed 02 May, 2016).

London County Government (2016) Green Capital – Green Infrastructure for a future city, London County Government, London.

Ministry of Justice (2013) Pre-Action Protocol for Personal Injury Claims, Ministry of Justice, London.

Office of National Statistics (2015) Internet Access – Households and Individuals: 2014, Office of National Statistics, London.

Price Waterhouse Coopers (2016) UK Economic Outlook – March 2016, Price Waterhouse Coopers, London.

Spence P. (2016) How large is the UK’s national debt, and why does it matter?, viewed from http://www.telegraph.co.uk/business/2016/02/19/how-large-is-the-uks-national-debt-and-why-does-it-matter/ (Accessed 02 May, 2016).

The Law Society (2015) The EU and the Legal Sector, The Law Society of England and Wales, London.

Tromans, S. (1991). Environmental Protection Act, 1990: Text and Commentary. London: Sweet & Maxwell.

Trust for London (2016) London’s population by age, viewed from http://www.londonspovertyprofile.org.uk/indicators/topics/londons-geography-population/londons-population-by-age/ (Accessed 02 May, 2016).

UK Government (2016) Corporation Tax rates and reliefs, viewed from https://www.gov.uk/corporation-tax-rates/rates (Accessed 02 May, 2016).

UK Parliament (2016) Family law, viewed from http://www.parliament.uk/topics/Family-law.htm (Accessed 02 May, 2016).

Pestle Analysis Legal Services Industry UK

Pestle Analysis Legal Services Industry UK Example

Introduction

Fenwick & Co. LLP is a law firm and partnership owned by two lawyers located in London’s Regent Street. Since the establishment of the firm, a number of changes have occurred in the business environment making it even more competitive. More law firms have been established in London and some have merged to form bigger corporations. In order to remain competitive, Fenwick & Co. LLP needs to analyse the external business environment with a view of identifying the measures it should take to remain competitive. The following sections of this report will discuss the political, economic, socio-cultural, technological, legal, and environmental factors of the market. The report will go further to provide recommendations that should be implemented to make the business perform better in a competitive business environment. This is a PESTLE analysis legal services industry UK example. 

Political Environment

The UK has had a stable democratic government and peaceful political environment for several decades, the situation expected to remain the same in the foreseeable future. One major change in the political environment of the UK has come in the form of Brexit, which has brought a lot of uncertainty to the political environment of the country. While the full effects of a possible Brexit remain unclear to a great extent, it remains a fact that there is a strong link between the nation’s legal sector and the wider economy as well as market forces. The implementation of Brexit is likely to see the UK toughen immigration laws for citizens of the European Union, making it difficult for them to live and do business in the country. Currently, the country provides virtually unrestricted access to foreign firms from about 40 jurisdictions to establish and practice law within its borders (TheCityUK, 2016b). This may change depending on the outcome of the ongoing negotiations between the UK and the EU revolving around Brexit. As a result, many foreign companies in the legal sector are likely to withdraw from the UK which may effectively create opportunities for emerging law firms like Fenwick & Co. LLP (The Law Society, 2015). In spite of the current political situation facing the UK, English and Welsh law remain the choice of law internationally.

According to TheCityUK (2016b), the UK is the leading international market for legal services in the world as well as the leading international centre for resolving disputes. Coupled with this is the fact that Wales and England (together) is the jurisdiction of choice for many international organisations (The Law Society 2016). Given that Fenwick & Co. LLP has foreign employees who are nationals of European Union countries, Brexit may lead to the loss of such employees or changes to their working conditions. Furthermore, Brexit may mean the loss of business for Fenwick & Co. LLP which serves customers across different EU countries on family matters and domestic conveyancing among other areas of law (The Law Society, 2015). This may be the case given that current and potential foreign customers may withdraw from the nation due to the implementation of tougher immigration policies and policies regulating foreign workers, which no doubt will affect the legal services industry.

Economic

Value of the Legal Industry

In 2016, legal activities contributed between £24.4 billion and £25.7 billion to the economy of the UK (The Law Society, 2016; Ullah, 2017). The legal services sector also contributed to trade activity in the country by amassing exports worth approximately 4.1 billion pounds (Ullah, 2017). Coupled with the need by companies in UK’s cities for legal advice on various issues, the growth in regulations has seen a sharp increase in the demand for the services of solicitors, most of whom have established in cities. The growing demand for legal services especially in cities has seen the number of solicitors increase by roughly 60% over the past decade (The City UK, 2016a).

Legal services activities are closely tied to financial service activities. For many financial services to be offered, certain enabling legal services such as contract development, deal structuring, dispute resolution, and broader advisory services are required. The high demand for legal services from financial services was highlighted by a report published by The Law Society. According to the report, the share of demand for financial services stood
at 17% (or £2.8bn) of total business demand; over three times the demand from the second largest external source (the construction sector) which accounts for 5% of total business (£ 919 million) (The Law Society, 2016). Given that Brexit is likely to have an impact on the financial services sector, there are fears that by extension, Brexit could have implications on legal services revenue (Ullah, 2017).

According to projections by The Law Society of England and Wales (2017), lower growth in the UK economy will more likely be reflected in lower growth in disposable incomes for households. It is projected that real disposable income for households will increase by a paltry 1.8% in 2018 and 2.2% in 2019 (The Law Society of England and Wales, 2017). These, together with relatively high house prices (and subsequently a ditch in housing
transactions), will likely lower growth in demand for legal services from the personal consumer sector.

Economic Growth

According to The Law Society (2016), the legal services sector has grown by an average of 3.3% every year for the last 10 years, even outstripping economic growth which has averaged 1.2%. Legal services net exports have grown by on average by 5.6% per annum over the past decade to reach £3.6 billion in 2016 (The Law Society 2016). Between 2014 and 2015, the total value of the legal services sector grew by 8% according to The Law
Society (2016). According to The Law Society of England and Wales (2017), growth in UK legal services sector between 2017 and 2018 will be modest with real turnover for 2020 reaching £30.82 billion as evidenced by figure 1. Between 2019 and 2020, it is projected that the sector will achieve growth rates of at least 2.7% per year.

Pestle Analysis Legal Services Industry UK

Fig. 1 UK legal services sector Forecasts  Source: The Law Society of England and Wales

Socio-Cultural

There is a growing trend among UK nationals to try and reduce legal costs. In this regard, many potential clients seek to complete legal tasks on their own as a way of reducing overall costs. Many of them are unwilling to pay for information that is already easily available or documents that are traditionally made from scratch (Invicta, 2017). Although technology is a source of competitive advantage for firms providing legal services, it has also contributed to loss of business as clients have increased access to free legal information online. According to Invicta (2017), 80% of the population found ways of solving legal problems without having to secure the services of a lawyer. Many of them rely on blogs, portals, or cloud computing to access the legal information they require. Another trend among UK nationals is their preference for predictable fees when seeking legal services. This trend is prompted by the need to avoid paying exorbitant fees commonly witnessed when fees are billed hourly. 

Yet another social trend among UK nationals is their preference for companies that engage in ethical practices and invest in corporate social responsibility activities. A recent survey by the Chartered Institute of Marketing revealed that 81% of millenials (those aged 18-34) wish that companies commit to corporate social responsibility values publicly (Chartered Institute of Marketing, 2018). The study also revealed that 92% of millenials preferred to buy from companies that committed to ethical business practices. Yet again, the study revealed that 73% of millenials would not mind paying extra for sustainable offerings. Another study conducted by the Association of Accounting Technicians (AAT) revealed
that 70% of consumers have their purchasing decisions influenced by the ethical behaviour of a company (Association of Accounting Technicians, 2016). The study revealed that 43% or those surveyed counted tax avoidance as a vital factor in deciding whether or not to engage with a company. The study further revealed that other factors consumers consider important when choosing a company with which to engage include a strict ethical code
with respect to the company’s supply chain, maximum transparency with respect to company accounts, and being careful with sensitive customer information (Association of Accounting Technicians, 2016). These findings indicate that transparency, ethical practices, engaging in best practices, and corporate social responsibility have an impact on purchasing decisions and consumer loyalty.

Technological

Like in other sectors, technology is perceived to be a source of competitive advantage in the UK legal services sector. It is for this reason that players in this sector are seeking more relevant technologies for use in delivering services (Deloitte 2016). Law firms in the UK are fast adopting modern ways of doing business. Statistics show that over the years, use of ICT to procure or offer services has steadily grown among UK nationals (Office of
National Statistics, 2015). Some law firms in the UK are already going paperless as a way of reducing costs (Law Technology Today, 2015). The law firms are also using practice management software to schedule their activities and manage their resources for greater efficiency. As a way of reducing the risk of losing important information, many businesses
are opting to store their data on the Cloud (Law Technology Today, 2015). By backing up data on the cloud, businesses are assured of having their information back in the event that the printed or soft copies they have locally are intentionally or accidentally destroyed or lost.

The advent of social media has transformed the way business in the legal services industry market themselves and interact with current and potential customers. Many businesses in the sector today have an online presence both in the form of a website or on social media which help them reach and respond to clients’ needs in faster and more effectively. In general the Internet and social media have helped reduce the costs businesses have to occur in marketing their products and in communicating with clients and potential clients. They have also made communication more efficient and effective.

Many regulated law firms currently appreciate the importance of having an online presence through websites and social media. As a result, many legal firms already have websites and social media pages or are in the process of developing them. With the wide and growing use of mobile phones and Internet technologies, many legal firms are using or have already developed mobile applications. According to Kimtasso (2018), 24 percent of the top 300 law firms in the UK already have mobile applications on the public app stores. Some of the applications most used by law firms include client support apps, interactive tools, content marketing apps, event apps and general firm apps (Kimtasso, 2018).

According to the Office of National Statistics (2015), close to 93% of adults in the UK own and use a mobile phone, which means marketing, advertising and providing services using mobile applications and websites is likely to be effective in reaching potential clients. With many individuals, businesses and organisations expecting to receive services even outside traditional office hours, Do-it-Yourself (DIY) online solutions are more and more
gaining ground in the provision of certain legal services such as will writing and divorce (Solicitors Regulation Authority, 2014). Regulated lawyers note that the development of online services has greatly contributed to the growth of their businesses (Solicitors Regulation Authority, 2014). Statistics indicate that over the next five years, use of online legal services will increase from 28% to 37% even as 40% of consumers indicate that they are willing to use low cost online legal services given that they also offer convenience (Solicitors Regulation Authority, 2014).

Some of the technologies likely to disrupt the legal services sector in the UK include artificial intelligence, mobile applications and automated document management (Thompson, 2018). These technologies are perceived to be crucial investments for law firms as they have the potential to reduce costs and improve efficiency in service delivery in a market where the customers demand cheaper and faster legal services. Some of these technologies, especially artificial intelligence, are extremely expensive and may only be afforded by well-established legal firms with heavy financial muscle (Thompson, 2018).

According to Solicitors Regulation Authority (2014), technology firm IBM is currently working with several legal organisations to develop and improve several artificial intelligence applications for the legal profession. Although artificial intelligence applications have so far not found much use in the legal services sector currently, they have great promise and could easily attract great rewards for firms which pioneer in their usage. In view of the importance of technologies as a source of competitive advantage, legal firms such as Fenwick & Co. LLP need to adopt different technologies and communication tools that are increasingly becoming available.

Legal

According to some experts, Brexit will inevitably bring changes in the legal environment and will, therefore, create demand for advisory services across all areas of law for both private and corporate clients (Lexis Nexis, 2017). Compliance as an area of practice is likely to benefit from Brexit as companies and individuals engage in the process of adjusting to a new regulatory environment (Lexis Nexis, 2017). Some practice areas are,
however, likely to be negatively affected as law firms will face the difficult task of becoming ready for the implementation of Brexit (Lexis Nexis, 2017). According to some experts, corporate and M&A are some of the practice areas that may suffer moving forward due to Brexit as companies and individuals focus on divesting or relocating their operations to Europe in the wake of a changing economic climate (Lexis Nexis, 2017). Whether Brexit assumes a hard or soft shape, the process of adjusting to the environment is likely to be characterised by a long-term period of change.

With Brexit being a reality, there are concerns that UK lawyers may not be able to freely practice across European Union member states (Ullah, 2017). At the same time, there are concerns that it may affect the ability of law firms to recruit skilled staff from European Union countries. With possible restrictions on the recruitment of foreign talent occasioned by tougher immigration requirements, the legal services sector is likely to suffer short-term skills shortage which in turn may see a significant increase in labour costs and immigration-bureaucracy related costs for law firms (Lexis Nexis, 2017). In spite of these potential changes, the United Kingdom is likely to remain a leading destination for international businesses to carry out their legal affairs, more so given their preference for English Law, as well as due to the good reputation of the UK for its highly trained and
skilled English judges (Ullah, 2017). Considering these factors, law firms such as Fenwick & Co. LLP need to take active steps towards adjusting themselves in line with the dynamic policy environment characterised by Brexit.

Environmental

In the UK, the commitment to engage in ethical practices and corporate social activities has emerged to be a sources of competitive advantage for companies as consumers tend to prefer the products of companies that publicly engage in such practices and activities (Association of Accounting Technicians, 2016; Chartered Institute of Marketing, 2018). On the other hand, businesses that are not committed to such practices and activities are
viewed more unfavourably by consumers. In the legal services sector, consumers view companies that offer a wide range of pro bono (free) legal advice with more favour than their counterparts that are only interested in making profits (
Slater Gordon, 2018). According to a recent study involving the top 100 law firms in England and Wales, companies that had lower ranking were more likely to be those that little engaged in CSR activities (University of Birmingham, 2017).

Conclusion and Recommendations

The UK has a stable political environment which is good for the business. While the implementation of Brexit is less likely to disrupt the political stability of the country, it has certainly brought a lot of uncertainty with regard to the future of the legal services industry. In this regard, law firms need to prepare themselves to quickly adapt to changes that may be brought about by Brexit. There are high possibilities, for example, that many foreign owned law firms may withdraw from the UK market which may effectively reduce competitive pressures on law firms owned by locals. At the same time, there are possibilities that the industry may lose a sizeable portion of its market if the UK implements tough immigration laws, effectively locking out many EU citizens from the UK.

  • The UK legal services industry has achieved steady growth (on average,
    3.3%) over the past decade. It is projected that the market will grow by 2.7%
    annually between 2019 and 2020 to achieve a value of £30.82 billion. These
    statistics indicate that the market promises growth for the industry and is,
    therefore, economically favourable for Fenwick & Co. LLP.
  • Given the political and economic situation of the UK currently, small law
    firms such as Fenwick & Co. LLP should put more effort in targeting
    organisations compared to individual consumers. This measure is informed by the fact that the UK is the jurisdiction of choice for many international
    organisations and remains the leading international centre for resolving
    disputes. The measure is also informed by the fact that projections show little growth in the demand for legal services from the personal consumer sector and increased demand for legal services from financial services going by past and current trends.
  • With many people preferring predictable legal fees so as to avoid exorbitant
    fees, Fenwick & Co. LLP should change its pricing structure from billing
    customers hourly to fixing more or less standard charges for every kind of
    work.
  • To appeal to more clients, the business should also engage in ethical practices and inexpensive corporate social activities such as providing some legal services free of charge. The company should also market itself as a company  that is extremely careful with sensitive customer information.
  • With many clients and potential clients seeking legal information and service providers online, Fenwick & Co. LLP should have in place a website and social media pages. The company should strongly market itself through social media and using mobile applications to reach a much wider audience than it is currently reaching. This is based on the fact that over 90% of adults in the UK own and use a mobile phone.
  • With a projected increase in demand for affordable, online legal services
    (from 28% to 37%), the company should produce and offer virtual and
    downloadable products and sell these online, through its website, in an
    automated process.
  • To reduce costs and improve efficiency, the company should go paperless by
    making use of technologies such as automated document management and
    practice management software. At the same time, the company should invest in cloud computing technologies to ensure the safety of its information. Yet again, the company should consider investing in artificial intelligence technologies which although extremely expensive, can afford it competitive advantage over other players in the market.
References

Association of Accounting Technicians (2016). Majority of consumers say purchasing decisions are influenced by ethical behaviour of company 12 September https://www.aat.org.uk/news/article/majority-consumers-say-purchasing-decisions-areinfluenced-ethical-behaviour-company

Chartered Institute of Marketing (2018). The case for CSR/ Sustainability Reporting Done Responsibly [online]. Available at: https://sustaincase.com/chartered-institute-ofmarketing-uk-millennials-love-csr/ [Accessed 22 June, 2018].

Deloitte (2016). Future Trends for Legal Services Global research study. London: Deloitte. [online]. Available at: https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Legal/dttl-legal-futuretrends-for-legal-services.pdf [Accessed 22 June, 2018].

Invicta (2017). What will affect the solicitors’ profession in the next twelve months? [online]. Available at: https://invicta.law/insights/see-major-policy-legal-regulatory-issueslikely-affect-solicitors-profession-next-twelve-months/ [Accessed 22 June, 2018].

Kimtasso (2018). Legal market research – Mobile apps in law firms 2017[online]. Available at: http://www.kimtasso.com/mobile-apps-in-law-firms/ [Accessed 22 June, 2018].

Law Technology Today (2015). How Lawyers Will Modernize Their Firms in 2015 [online]. Available at: http://www.lawtechnologytoday.org/2015/02/modernize-law-firms-
2015/
[Accessed 22 June, 2018].

Lexis Nexis (2017). Law firms of the future—preparing for Brexit, [online]. Available at: https://blogs.lexisnexis.co.uk/futureoflaw/2017/10/law-firms-of-the-future-preparing-forbrexit/ [Accessed 22 June, 2018].

Office of National Statistics (2015). Internet Access – Households and Individuals: 2014. London: Office of National Statistics.

Slater Gordon (2018). Corporate Social Responsibility [online]. Available at:
https://www.slatergordon.co.uk/about-us/corporate-social-responsibility/ [Accessed 22 June, 2018].

Solicitors Regulation Authority (2014). Research and Analysis: The Changing Legal Services Market. London: Solicitors Regulation Authority [online]. Available at: http://www.sra.org.uk/risk/resources/changing-legal-services-market.page [Accessed 22 June 2018].

The City UK (2016a). The Impact of Brexit on the UK-based legal services sector, The City UK

The City UK (2016b). UK Legal Services 2016 [online]. Available at:
https://www.thecityuk.com/research/uk-legal-services-2016-report/ [Accessed 22 June, 2018].

The Law Society (2015). The EU and the Legal Sector. London: The Law Society of England and Wales.

The Law Society (2016). The Economic Value of the Legal Services Sector. London: The Law Society of England and Wales [online]. Available at:
http://www.lawsociety.org.uk/news/documents/legal-sector-economic-value-final-march-2016/ [Accessed 22 June, 2018].

The Law Society of England and Wales (2017). Legal services sector forecasts 2017-2025. London: The Law Society of England and Wales. [online]. Available at: https://www.lawsociety.org.uk/support-services/research-trends/legal-services-sectorforecasts-2017-25/ [Accessed 22 June, 2018].

Thompson B. (2018). Deloitte muscles in on legal services in UK. Financial Times. January 10 [online]. Available at: https://www.ft.com/content/fa38f3c8-f54a-11e7-88f7-5465a6ce1a00 [Accessed 22 June, 2018].

Ullah S (2017). The value of the UK’s legal services sector and its importance to the City’s economy [online]. Available at: http://colresearch.typepad.com/colresearch/2017/07/thevalue-of-the-uks-legal-services-sector-and-its-importance-to-the-citys-economy.html [Accessed 22 June, 2018].

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Accounting Profession and Accounting Information

International Accounting Profession and Accounting Information

IntroductionInternational Accounting Profession and Accounting Information

This paper seeks to answer a number of questions: First it discusses whether the international accounting profession has lost its way and is no longer serving the needs of different users of accounting information in a manner which is appropriate and meaningful for the global business environment of today. Secondly, it seeks to identify the different user groups who require accounting information and how this information is provided for them. Finally, the paper discusses the status of accounting profession internationally and more specifically in the U.S. and the profession has been impacted by financial scandals in the recent past and the measures that have been taken in to offset the impacts of these scandals. The paper also discusses whether or not these measures have been successful – Accounting Profession and Accounting Information.

International Accounting Profession and User’s Needs

Accountancy involves recording, classifying and reporting on business transactions for a business (Bragg, 2018). It also involves measuring, processing and communicating financial information about business organisations. It is important that when reporting or communicating
accounting information, users of such information understand the information and can use it to make decisions. Members of the accounting profession should, therefore, ensure that accounting information is clear, understandable, and useful in decision making for users of the information.
The professional accounting profession has been proactive in ensuring that it caters to the diverse needs of users of accounting information in a manner that is meaningful to today’s business environment (University of Pretoria, 2016). This is partly evidenced by the fact that the profession has constantly adapted itself to the needs of different users of accounting information.

In response to these varying needs, different types and branches of accounting have been developed. Some of the types of accounting that have been developed in this regard include social responsibility accounting, management accounting, tax accounting, forensic accounting, financial accounting, governmental accounting and cost accounting (Siddiqui, 2011; Accounting Verse, 2018). Two main branches of accounting have also been established to cater to the needs of internal and external users of accounting information; management accounting and financial accounting. Internal users have direct and unconstrained access to accounting information of an organisation (Siddiqui 2011; Kimmel et al., 2010). External users, on their part, have limited and indirect access to this information and gain this information mostly through press reports and financial reports. Also worth noting is that cash flow statements were introduced in response to the need by some users of accounting information for information on organisations’ liquidity and sustainability (over and above their profitability information) (Simon Fraser University, n.d.). These adaptations and changes truly confirm that the international accounting profession seeks to provide accounting information to users in a way that is meaningful to today’s business
environment.

Accounting Information and Different User Groups

Different users need accounting information belonging to an organisation of interest to them for different purposes. Key users or user groups of accounting information include managers, employees, owners, shareholders, lenders, suppliers, customers, investors, regulatory authorities, community representatives, government, investment analysts, and competitors (Siddiqui 2011; Kimmel et al., 2010). The different user groups may be broadly classified into two groups; internal users and external users. While internal users such as owners, managers and employees have direct and unlimited access to the accounting information that belongs to an organisation, external users such as suppliers, investors, creditors and government have limited and indirect access to this information (Finkler and Ward, 1999). Internal users have access to accounting information that belong to a business through documents such as receipts, invoices, cash books, budgets, and ledgers. External users who are mostly interested with summaries of the organisation’s finances (as opposed to the minute details), often access information that covers an accounting cycle through four main documents or reports; the statement of financial position (balance sheet), income statement, statement of retained earnings, and cash flow statement (statement of cash flows) (Finkler and Ward, 1999).

Each of the four reports has a specific purpose. The income statement informs external users about the amount of money the organisation lost or made during a given duration. As noted by Kimmel et al. (2010), the balance sheet shows the exact accounts that the organisation has and how much every one of these accounts has. The cash flow statement provides details about what brought revenues to the business and how much of these revenues have been spent (Kimmel et al., 2010). On its part, the statement of retained earnings gives details on how part or whole of the net income presented on the income statement was invested back into the business.

Status of the Accounting Profession and Financial Scandals

Financial scandals have become common in many countries. Such scandals may result from the actions or inaction of different players including managers, employees, accounting professionals, or suppliers. Although there are countless cases of financial scandals that have been reported by media, some of the most notable are those involving Enron, Wells Fargo,
Cendant, and WorldCom (Michaels, 2018). The Enron case has particularly been important to the accounting profession as it has contributed to the adoption of changes in laws and accounting standards across the world. Investigations into the scandal revealed that the company’s executives overstated the company’s earnings, a factor that contributed to a failed merger. Several of these executives were found guilty of multiple crimes such as insider trading and money laundering (Michaels 2018).

Financial scandals have instigated changes to laws regulating accounting and the reporting of accounting information and accounting standards. In 2002, as an example, the Sarbanes-Oxley Act (SOX) was enacted in the US in response to the financial scandals that rocked Enron and WorldCom (Warren et al., 2012). As noted by Warren et al. (2012), this law was enacted as a measure to prevent the occurrence of similar scandals by regulating and standardising issues such as disclosure, corporate responsibility and independence. At the same time, education institutions have responded to financial scandals by teaching ethics and ethical principles as part of their accounting courses as noted by Titard, et al. (2004). The Sarbanes-Oxley Act has been criticised by some experts for being a “feel-good” legislation that was aimed at pacifying investors and members of the public while having little impact on the prevention of frauds and financial scandals (Coene 2018). The legislation has also been criticised for overburdening companies with paperwork and hefty implementation costs (in some cases running into hundreds of millions of dollars per year) as noted by Coene (2018). The act has especially been criticised for failing to prevent the 2008/2009 financial crisis that hit U.S. and several other countries (Verschoor, 2018). In spite of these criticisms, some experts note that the Act has helped strengthen corporate governance by increasing the accountability and responsibility of CFOs and CEOs in relation to financial disclosures and related controls and by increasing the engagement and professionalism on the part of corporate audit committees (Verschoor, 2018).

Although members of the accounting information have in some cases engaged in fraud, unethical activities, and financial scandals, members of the profession have also played an important role in detecting and preventing them in other cases. Without the input of professional accountants, many financial scandals would go undetected or would not be prevented. Furthermore, without their input, accounting standards would not keep improving. In general, organisations and countries in which adherence to accounting standards and laws is poor, several loopholes for
financial scandals exist and therefore cases of such scandals tend to be high, the converse being true. Basically, this shows that the status of the accounting profession has a bearing on financial scandals and frauds, especially at the organisational level.

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References
Accounting Verse (2018). Types of Accounting. [online]. Available at:
https://www.accountingverse.com/accounting-basics/types-of-accounting.html

Bragg S. (2018). What is accountancy?. [online]. Available at:
https://www.accountingtools.com/articles/what-is-accountancy.html

Coene T. (2018). Has Sarbanes-Oxley Really Done Anything to Curb Fraud?. [online]. Available at: https://www.allbusiness.com/has-sarbanes-oxley-really-done-anything-to-curbfraud-2-5220240-1.html

Finkler, S. and Ward D. (1999). Essentials of Cost Accounting for Health Care Organizations. London: Jones & Bartlett Learning.

Kimmel, P., Weygandt, J. & Kieso D. (2010). Financial Accounting: Tools for Business Decision Making. London: John Wiley & Sons.

Michaels. M. (2018). The most memorable and expensive financial fraud cases of all time. Business Insider 24 April. [online]. Available at: http://www.pulselive.co.ke/bi/finance/themost-memorable-and-expensive-financial-fraud-cases-of-all-time-id8297568.html

Siddiqui, A. (2011). Comprehensive Accountancy XI. New Delhi: Laxmi Publications.

Simon Fraser University (n.d.) History of the Cash Flow Statement. [online]. Available at: http://www.sfu.ca/~poitras/cash-flow-stmt-history.pdf

Titard, P., Braun R. & Meyer, M. (2004). Accounting Education: Response to Corporate Scandals: Helping the profession find opportunity in crisis. [online]. Available at: https://www.journalofaccountancy.com/issues/2004/nov/accountingeducationresponsetocorporatescandals.html

University of Pretoria (2016). Chapter 5 Accounting in a changing environment. [online]. Available at: https://repository.up.ac.za/bitstream/handle/2263/28951/05chapter5.pdf

Verschoor C. (2018). Has SOX Been Successful?. [online]. Available at:
https://www.accountingweb.com/practice/practice-excellence/has-sox-been-successful

Warren, C., Reeve, J. & Duchac J. (2012). Accounting. New York: Cengage Learning.

Human Capital and Financial Statements

Should human capital be included in financial statements?

The global economy has over time shifted from an industrial economy to an economy that is based on information and knowledge (Monday, 2017). As a result, human capital has more than ever before become of greater benefit to organisations. Many human resource and business experts agree that the human capital is an organisation’s most important asset (Dean, et al. 2012 ; Cobb and Wallace, 2016). Although this is the case, employees are often considered to be liabilities in financial statements given that they are paid wages and add to business expenses such is the case with their pension contributions. People play an important role in creating intangible such as research and development, brands, patents and intellectual property. In turn, these intangible assets greatly contribute to the creation of tangible assets such as land, equipment, vehicles and plants. Human capital, therefore, emerges as a core contributor to company profits and shareholder value (Dean et al. 2012). While this is the case, human capital often does not feature in balance sheets as assets in spite of its direct and indirect contribution to business profitability and shareholder value. 

Washer and Nippani (2004) hold the opinion that the importance of human capital in financial decisions can be appreciated by including human capital in the statement of financial position. Given that financial statements are mainly aimed at trying to portray as accurately as possible a company’s economic reality as well as providing users with relevant information to enable them make sound investment decisions, it is relevant and logical that human capital is featured as an asset in such statements. This is more so the case given that human capital is a key contributor to the organisation’s profits and shareholder value.

Human Capital and Financial Statements

Definition of Human Capital

Human capital is the skills, training, education, competencies, experiences, and innovation of a person that enables the transformation of raw materials into more valuable products (Micah et al., 2012; Dean et al. 2012; Oseni and Igbinosa, 2015). Cobb and Wallace (2016) define human capital as the productive capacity of an individual including their talent, innate ability, skills, and learned knowledge among other attributes. Essentially, the human capital of an individual determines their ability to generate ideas and produce goods and services, as well as their economic productivity (Cobb and Wallace, 2016). An organisation’s human capital can be said to be sum of the current and future economic valuation of the capabilities and skills embodied within all the persons that together make the organisation’s entire work workforce at a given date (Cobb and Wallace, 2016). In essence, human capital contributes to a business’ market value as it contributes to intellectual value. Intellectual value on its part contributes to organisational reputation and brand value.  Continue reading “Human Capital and Financial Statements”