How the Co-operative Group’s legal business fits into its restructure plans

While the Co-operative Group is undertaking a comprehensive rationalisation and disposal programme of its wide portfolio of businesses, one contradiction stands out starkly – Co-operative Legal Services. According...

While the Co-operative Group is undertaking a comprehensive rationalisation and disposal programme of its wide portfolio of businesses, one contradiction stands out starkly – Co-operative Legal Services.

According to accounts filed with Companies House, Co-operative Legal Services made a loss of £8.9m in the year ending January 2014.  This is worse than the previous year, when the loss was £5.7m. A key event was an impairment charge on the value of the business’s goodwill of £13m during 2013.

At January this year, the CLS balance sheet showed more than £21m in liabilities. This comprised a bank overdraft of £3.6m, trade creditors of £9.7m and other creditors who are owed £8m. Total assets were marginally (£411,000) higher than total liabilities. The trading situation continues to worsen. In the first half of the current financial year, CLS reported a loss of £5m – up from £3m in the same period in 2013.

At these rates of loss-making, it is clear that the business requires continued financial support from the very stretched Group if it is to keep going. CLS is 25% owned by Co-operative Group and 75% by Co-operative Specialist Business Holdings Ltd, itself a subsidiary of the Co-operative Group.

To put things into context, a loss of £8.9m in one trading subsidiary is a small problem compared with the £2.5bn overall loss at the Group in the 2013 year. But when a business is in turnaround, as a rival slogan would have it, ‘every little helps’ – or in this case, hinders.

The accounts also suggest strategic confusion in the legal services business. There was a total staff of 408 as at January 2013, which rose to 516 in January 2014, before staffing was then reduced by about 60. According to a statement from CLS, the job losses were to bring the business’s costs more into line with likely income. This followed a significant decline in income from personal injury cases.

CLS secretary Caroline Sellers explained at the time: “This control of costs, combined with continued development of the existing revenue streams, is expected to return the business to profitability in 2015.”

There has also been a significant change in the leadership of CLS.  Christina Blacklaws, who led the initial development of the business, left earlier this year. She has reportedly now started up her own consultancy firm to enable other non-law firms to establish divisions that provide legal services. Ms Blacklaws has a very visible profile in the legal profession and is highly regarded.

In November, Ian Powell took over the role of marketing and business development director of CLS. He joins from Irwin Mitchell, one of the country’s largest law firms, where he held a similar role. On appointment, Mr Powell referred to it being “an important time in its development”.

He added: “My aim is to help it realise its potential to create a real alternative offering that provides its members and clients with an outstanding customer experience and real value.

“The Co-operative has a rich heritage – and with millions of members there is a real opportunity to build on this, developing its legal services offering and providing its members, clients and local communities with a legal brand that they know and trust.”

Matt Howells, managing director of CLS, added: “Ian will play a key role in helping us shape, develop and communicate our offering to members and clients while helping CLS to develop new products, services and channels to market.”

In October, a new partnership agreement was announced between Co-operative Legal Services and Total Conveyancing Services, a leading UK conveyancing provider.  This replaced a previous partnership arrangement with a different conveyancing firm, reflecting the desire of CLS to provide a range of services, while recognising the firm’s limitations when it came to providing a high-volume conveyancing service.

The difficulties in establishing CLS as a profitable business also have a significance beyond the Co-operative Group. It was one of the first three legal services providers licensed by the Solicitors’ Regulation Authority as a result of what was dubbed ‘the Tesco law’. The Legal Services Act liberalised controls over the provision of legal services, a move that has also been taken advantage of by some accountancy firms.

When CLS was launched, there were high hopes for the business and it was able to attract senior legal professionals – but it is unclear where its future now lies. While there is a clear rationale for an affordable legal service from a trusted brand, it is not obvious how the service fits within a clear business strategy for the Group.

However, the Group is clear that CLS is regarded as a ‘core’ business that is positioned to generate profits in the future.

A Group spokeswoman said: “Our legal services business is part of the consumer services division of the Co-operative Group – alongside our general insurance and Funeralcare businesses. It remains a core business and as part of the rebuild programme of the Co-operative Group over the next three years we will be looking at how we move this business forward.

“Since the start of this year, we have already tackled some of the underlying issues within the business which led to the half year loss – reducing the cost base and investing in restructuring the business to ensure it is the right size and shape for the future.”

She added: “We believe there is a significant opportunity to continue to build a legal brand that people know and trust, and are expecting a positive contribution from the legal services business as we move into 2015.”

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