With a prominent personal injury practice now owned by a controversial charitable trust, should law firms be more cautious about who invests in their businesses
The public perception of personal injury lawyers has perhaps never been lower than it is right now. While the fat-cat caricature of lawyers, especially those that practise in the field of personal injury, is far from a modern construct, the idea of a compensation culture fuelled by unscrupulous solicitors has increased exponentially since 1986, when the Law Society first permitted lawyers to advertise.
Despite evidence to the contrary that such a compensation culture even exists in the United Kingdom, let alone one that is on a par with the goliath industry that thrives in the United States, the insurance industry has gone to great lengths to ensure that politicians denounce the work of claimant solicitors and their clients as both frauds and charlatans.
The Justice Secretary, Chris Grayling, wrote in 2013: “All too often, ambulance-chasing has been simple fraud. People are encouraged to launch a claim for whiplash when no one has been injured.” Perhaps he was unaware that the Better Regulation Task Force reported in 2004 that the UK’s compensation culture was, in fact, just a myth.
Of course, the industry’s reputation is not helped by unsolicited text messages promising bountiful claims or the ‘cash for crash’ insurance scams that always make the headlines.
With politicians, a hungry media and the general public against them, what can personal injury lawyers do to change the prevailing negative perception that they face on a daily basis? Well, one firm may, quite unexpectedly, have found the answer. However, it may have also opened up a whole new can of worms.
News emerged in September that profits from one of the largest law firms in the North East could be used to help tackle social exclusion in Britain and poverty in Africa, following what was described as a ‘landmark piece of corporate restructuring’.
Winn Solicitors, which employs almost 300 people in Newcastle, is now part owned by a charitable trust following a shareholder restructuring. In 2013, a 60 per cent stake of the Winn Group, which is an alternative business structure (ABS), was jointly sold to JZ International (JZI), a US-based investment group, and Souter Investments (SI), which is backed by Stagecoach founder, Sir Brian Souter. It followed other market leaders, such as Parabis and Minister Law, by taking on outside investment.
The recent changes to the structure of Sir Brian’s shareholding in Winn Group mean that the SouterCharitable Trust (SCT) now owns a 21.18 per cent stake in the law firm, Winn Solicitors. A portion of the firm’s profits could, therefore, be used to support charitable causes in the UK and abroad. So is this a win-win situation for both the firm and the charitable trust?
Commenting on the change of ownership, Sir Brian’s wife, Lady Elizabeth Souter, said: “SouterInvestments and the Souter Charitable Trust are delighted to be associated with Winn Solicitors. Part of the rationale for the setting up of Souter Investments was to donate some of the profits generated by successful investments to the charitable trust. This move merely strengthens that association and we look forward to sharing in Winn’s growth over the coming years, which should enable the SouterCharitable Trust to continue to alleviate suffering around the world.”
The firm’s co-founder, Jeff Winn, told SJ how the personal injury giant has grown from its inception into an ABS with a turnover of £40m: “As soon as law firms were able to set up as a company structure we did so. That structure set us in good stead for the business approach that we believed would come in. It took a while, but eventually the government allowed outside investors. We had already brought in a sales manager who was non-qualified, so we were in a position whereby we needed to become an ABS.
“We were looking for outside investment. The model we have meant we had grown very rapidly, but also meant that all the cash was locked up. The profits were looking great, but they were all used in the cash flow. We wanted to take out a little cash where we had reinvested over many years, and we wanted partners with the reinvestment ability to take on big contracts and do unusual things moving forwards,” explained Winn.
It was at this point that Winn was introduced to JZI and Souter Investments. “Sir Brian has a lot of investments in the regulated sector and he also invests in these charitable trusts,” he said. “There were some initial complications in setting up the ABS with the charitable trust, simply because no one on the regulatory side had looked at the idea of such a trust owning a share of a law firm.”
Although some might think that a charitable trust investing in a law firm is a one-off event, Winn expects other charities to follow suit, which might have the effect of helping the perception of the legal industry. “Law firms are a good way of creating returns on investments and it does seem sensible for charities to look at this as an option,” he said. “Fundamentally, [the sector] has been viewed as just greedy lawyers grabbing fees. The fact that behind law firms there are now pension funds or, in our case, charities, that rely upon that income, does help to show the reality that firms are helping causes and this is very positive. Hopefully it will soften the view of government towards the sector.”
The SCT was established in 1992 by the Scottish bus tycoon and his wife, Lady Elizabeth, who, as Christians, have a particular interest in projects that promote spiritual wellbeing. Over the last five years, the trust has awarded over 3,200 grants, worth more than £32m, to projects aimed at relieving human suffering around the world.
Law firms of all sizes are increasingly considering their corporate social responsibilities (CSR). Winn believes that his firm’s ideals are in sync with that of the SCT: “We’ve always had a strong focus on CSR and backing good causes in the community, but this new arrangement gives us an even greater ability to help alleviate suffering across the globe. The SCT has transformed the lives of thousands of people over the years and we’re extremely proud to be part of its inspiring work,” he said.
It is likely that the corporate restructuring of Sir Brian’s ownership will bring with it some favourablepublicity for the PI industry. How could anyone, politician, journalist, or average ‘Joe Public’, criticise a law firm whose profits go to aid the fight against the world’s biggest killers, malaria and AIDS, or assist in the supply of meals to children in the poorest parts of Africa?
But, while much of the SCT’s work should be applauded, there has been some criticism. Sir Brian is seen in certain quarters as something of a controversial character and, in the past, he and the SCT have been linked to some debatable causes.
There was, for example, the highly publicised £1m campaign which Sir Brian funded in the hope of resisting the repeal of section 28 of the Local Government Act 1988 (otherwise known as clause 2A in Scotland). The clause, repealed in 2000, stated that local authorities ‘shall not intentionally promote homosexuality or publish material with the intention of promoting homosexuality’ or ‘promote the teaching in any maintain school of the acceptability of homosexuality as a pretended family relationship’.
In 2008, a small group of Westminster MPs unsuccessfully attempted to restrict abortion rights and block the Human Fertilisation and Embryology Bill. In 2009, the SCT awarded a £100,000 grant to the Right to Life Charitable Trust (RLCT), the charity wing of an anti-abortion lobby group. The RLCT aims to persuade women to keep their babies and funds research into foetal pain and the ‘learning capacity’ of unborn children.
Then, there was the £2m donation to the US-based Seaboard Asset Corporation, which has been developing neuro-electrical therapy (NET), a contentious method of treating drug users, which sends electric pulses through the brain via self-adhesive electrodes that are applied to an individual’s ears.
Despite these controversial donations, Winn does not believe that Sir Brian’s involvement will have a negative impact on his firm. Instead he points to the many other charitable causes that benefit from the SCT. “Sir Brian has his own personal views and he is entitled to them. He might have a reputation in the Christian world, but the trust is helping children in Africa from all denominations. If you look at what he is putting his money into and where it goes, fighting malaria, helping young people with business ideas or children that are homeless, I don’t think there is much there that you wouldn’t say isn’t worthwhile. At least from the ones I am aware of.”
The problem Winn’s firm faces is the sheer abundance of information now available at the fingertips of its prospective clients. A simple Google search of Winn Solicitors reveals several news stories concerning the original investment from JZI and SI. Further stories reveal the recent restructuring and links to Sir Brian Souter himself. From there it is but a short digital hop, skip and jump to the numerous donations that make Sir Brian such a divisive figure.
How will clients react to knowing that the fees recovered by their solicitor, after a successful claim, will soon be winging its way to funding causes and organisations opposed to gay rights or a woman’s right to choose what happens to her unborn child? For that matter, what will the firm’s 300 employees think? Will a gay lawyer feel comfortable knowing that the owner thinks his family relationship is just “pretend”? Might this result in some of the talent, which has been instrumental in the firm’s success, leaving for pastures new?
It would be disingenuous at best to suggest that Winn’s change in ownership will lead to employees leaving in their droves, or that there will suddenly be a dearth of new clients walking in through the front door. After all, it is debatable as to how much due diligence clients undertake into their legal representatives.
But while outside investment should continue to be encouraged, firms should consider and plan for the potential ramifications of new ownership. Of course, once outside investment has been accepted it may be difficult to predict what structure an external investor will want in the future. The personal injury industry may well be hoping that the SCT does not bring it yet more controversy.
This article was first published in the Solicitors Journal on 8 October 2014 and is reproduced with kind permission.