American bar closes door on 'lowest common denominator' ABSs
Leading US lawyers have voted down a proposal to rule out all further studies on non-lawyer ownership of firms – while indicating that alternative business structure (ABS) arrangements remain firmly off the agenda for now.
The vote took place in a lengthy American Bar Association debate last week. The association was discussing a decision taken by its ethics commission last April not to allow ABSs of the kind created in England, Wales and Australia.
Members of the ABA House of Delegates subsequently proposed a resolution, which would have reaffirmed the opposition stance and ended the commission’s study on the subject. That motion was voted down as the ABA elected to look further into how fee-sharing would work with firms in jurisdictions that allow non-lawyer ownership.
Frederic Ury, a member of the ethics commission, said there was no desire to amend the 12-year-old rule opposing multi-disciplinary practices. But he said the changing legal landscape meant the matter could not be permanently ignored. ‘We do have an issue raised by regulators and lawyers asking us for some guidance in what happens when they get a matter from a firm in England and how they go about sharing those fees,’ he said.
‘As a profession and as a commission we decided that was something we should look at and investigate.’
April’s announcement followed increasing calls from some members of the legal profession in the US to allow a form of non-lawyer ownership. Any change would have enabled non-lawyers, employed by a law firm and assisting the firm’s lawyers in the provision of legal services, to have a minority financial interest in the firm and share in its profits.
The strength of feeling from both sides of the House of Delegates debate was clear, with more than 90 ‘salmon slips’ – intentions to make a speech – submitted in advance.
Speaking for the resolution, Lawrence Fox, from the Pennsylvania State Bar Association, said the US authorities should have nothing to do with jurisdictions that license non-lawyers. ‘Sharing fees is just as insidious when it is done overseas as it is in America,’ he added. ‘We are exporting our standards, not importing the lowest common denominator from other countries.’
- Meanwhile, Northamptonshire firm Franklins Solicitors has become the latest domestic firm to be granted an ABS licence by the Solicitors Regulation Authority. A legal disciplinary practice since 2009, the firm will use ABS status to create a more corporate structure but has no immediate plan to raise external investment. Managing partner Simon Long said the licensing process had gone ‘very smoothly’ and that confirmation had come four months earlier than expected.
Comments
Pariah Status
Desperate attempt to imply the US is going to introduce ABSs when the ABA are clearly against them. The City of London should start worrying. Wall Street is already attacking our banks (with reason) and they only have to extend this to our law firms (on the basis of fee sharing) and we will be isolated, potentially a pariah state unable to make money.
And why on earth would the
And why on earth would the magic circle firms want anything to do with third party ownership?
They are in an unassailable position (despite attempts by second rate provincial firms to pretend they can provide the same service)-and the partners are probably happy to keep it that way.
The accountants haven't gone down that route-why should top ranking lawyers?
American way
Ok, so we have American lawyers voting that no other non-lawyers be it American or other be allowed to share profits with American law firms.
Why are ABS seen as lower standards again? Just becasue they are not fuly stocked with lawyer-partners? And why would a company offering the architectural type of planing expertise and legal planning services all under one roof as part of an integrated package have lower standards to those of two separate firms one of architects and one of planning lawyers? Is it becasue the architect-partners would have a finger in the legal cake and the legal-partner would have a finger in the architectural-cake? Now apply the very same reasoning to property management companies, property development companies, etc.
Is this the argument or am I missing something?
Yes-what you are missing is
Yes-what you are missing is that external investors require a certain return on their investment-they are generally uninterested in how that is made.
Professions expect to make a profit-but are very much concerned how that is made.
Example? Financial services. I leave it for you to decide whether that is a profession-or not. However the pudding on that has been eaten-I'm fairly certain what the proof is.
There's also the argument for
There's also the argument for professional independence. Take the example given above of a multi-disciplinary ABS in town and county planning. A chartered planner may be compromised by pressure from the lawyer to look at things 'more commercially' or vice versa. Mention has also been made of a new ABS owned by a property management firm, and I am sure others will follow. Some of these multi-disciplinary ABS firms will offer services to the public. How will the employed lawyer deal with conflicts that arise between the interests of ABS owners and those of high street clients?
To guard against such conflicts, it is better to have discrete and independent regulation of each profession. That way, each of the lawyer and the non-lawyer specialist are, in principle, able to give advice in their own fields and in their own right without inappropriate pressures from the other. That - in part - was the point of the ownership restrictions: they guarded the profession's independence and, in principle at least, assisted public confidence in the integrity of lawyers.
The truth is that ABS structures are a direct attack on the independence of the legal profession. Of all the professions, the legal profession is among those that most needs its constitutional independence, in the interests of both lawyers and the public. Now that has been lost, we are in unchartered territory in which professional behaviours and standards will matter less because the commercial objectives of liquidity and profit will tend to guide and influence operational decisions.
Putting the fox in charge of
Putting the fox in charge of the Chicken House as Americans might say
ABS and the Americans
anon is repeating anonymously what the Solicitor Sole practitioners Group has been stating publicly for many years and still maintains as a principle following the introduction of ABS. The Group will not discourages members from taking advantage of forms of ABS now that this is approved but has always said that the principles on which the Americans have voted against ABS both before the introduction of ABS, and have voted emphatically against since the introduction of ABS, are still principles which are relevant to the maintenance of standards of independence of legal advice rather than advice which is liable to be affected by nonlawyer ownership
As Honorary Secretary of the Sole Practitioners GroupI invite anon to go onto our website and locate my e-mail or telephone number and get in touch with us.
Clive Sutton
Sorry, I'm out of it, thank
Sorry, I'm out of it, thank God!
My interest is effectively academic and detached; a case study of the destruction of a profession. The final outcome, like that of financial services, will be of most interest, not to mention hilarity.
When people like Jack Straw (no hypocite he, of course!) criticise and wish to change something they previously supported (and in fact enforced) the denouement cannot be long a-coming!
I do think the legal
I do think the legal profession will survive, but not as an independent profession, something that has all kinds of consequences for the rule of law in society and the power of the state. The problem is partly a failure of leadership. Those who were trusted to guard the interests of lawyers and our prized self-regulation - and thus also the long-term public interest - have failed.
Why is it that other prosperous, respectable jurisdictions - including those in the United States - allow their lawyers professional independence, yet here in England & Wales solicitors cannot be trusted to govern themselves? Are standards so dire in the profession? No. But leadership in the profession is. And this has, for many years, been a divided profession lacking in self-confidence and hidebound to short-sightedness and greed.
The solicitors branch of the profession has the potential to be a very powerful lobby, but we have failed to unite or organise on any issue - with the consequences that we now see.
I don't mean to be entirely negative. The ABS model is a good idea in some ways, and I have considered and discussed setting-up one of my own with three different clients - a property management company, a chartered accountant, and a CMC. It does present opportunities.
But here is the question - Are these opportunities worth sacrificing the core tenets of an independent, self-regulating profession? This is which solicitors should really be fighting to restore - and that, just as a start.
It has been a total failure
It has been a total failure of leadership.
The last President of any consequence was Martin Mears-but naturally democracy is not acceptable to the Law Society, far too uncontrollable. Best just to have anodyne placemen who do what they are told.
ABS
Does nobody feel slightly embarassed that we are being taught ethics and conflict of interest issues by our American cousins?-and they are absolutely right
The Americans have the right priorities
I agree, Andrew.
The Sole Practitioners Group (SPG) tried to ensure that the ethical issues were considered, but what chance do you have of the Law Society listening when the now-President of the Law Society has applied to make her own firm an ABS?!
http://www.lawgazette.co.uk/news/law-society-vice-president039s-firm-applies-be-abs
The point is that the US
The point is that the US repealed Glass Steagall only because of the UK's Big Bang. They were losing business to the UK whose banks were allowed to ignore conflicts of interest.
No US legal work will be lost to the UK because our legal businesses are similarly empowered-hence no need to follow.
Law Society Gazette is in error
I was a delegate attending the A.B.A. House of Delegates meeting in Chicago referred to in the article. The Law Society Gazette has reported inaccurately the action of the House at that meeting. First, the Commission on Ethics 20-20 does not allow or disallow anything; it can only make recommendations to the House that is the policy-making body of the A.B.A. Second, last December it published a discussion paper, not a proposal, for a change in the A.B.A. policy that would have allowed, on a very limited basis, fee-sharing with and equity ownership by non-lawyers. In April the Commission stated that several open hearings and many writeen submissions from lawyers, bar associations and other interested parties had persuaded it not to make that recommendation and that alternative business structures was 'off the table'. Despite that a few bar entities submitted to the House a resolution merely restating existing A.B.A. policy against ABS and, in effect, prohibiting the Commission from even addressing issues stemming from ABS in other jurisdiction such as how a U.S. law firm with an office in London that permits non-lawyer ownership can ethically deal with that issue. The most serious error in the article is in the lead sentence. The Houe of Delegates did not vote down anything. What it did was adopt a motion to "postpone indefinitely" the subject Resolution, the A.B.A.'s equivalent of a motion "to lay on the table". Delegates were simply unwilling to forbid the Commission to do the work for which it was formed.
Tom, your comments regarding
Tom, your comments regarding ABS are some of the best, in a critical analysis sense, that I have read on these comments pages in recent years. Its a shame you couldn't prepare an article outlining your views on this subject for publication in the Gazette (they would probably refuse to publish such an article given that it goes against the official policy line).
Seth, I am grateful for your clarification. I wonder what the reasons for the errors were - propaganda or simple incompetence?
I liken the Gazette to the
I liken the Gazette to the Financial Times. Anyone who wants to know what is really going on in business and the City reads the Financial Times because it's the unofficial house journal for the financial elite. Whereas the rest of the media will propagandise, the FT just tells it as it is, partly because they cannot imagine that someone like me would read their editorial and so they assume they are safe.
Likewise, the Gazette is - consciously or not - the house journal for the in-crowd at The Law Society and the SRA. I happen to prefer it that way. It means that reading the Gazette is a useful study and informative as to what the in-crowd are thinking and what they are up to.
Would that be the same FT
Would that be the same FT which was in favour of the UK joining the Euro? And they know whats going on?
Try some decent financial websites instead-and find out what really IS going on.
That is may be, but that is
That is may be, but that is not my point.
The US and ABS and more
American lawyers have not given up on external investment or thoughts of ABS. Regardless of what the ABA says it has no power in this regard, that is down to the state supreme courts. We've heard from New York, but I suspect we won't hear from others until there is a pressing concern.
Large American law firms are worried about the comparative advantage that UK firms will have by virtue of external investment. One think is clear, ALL English law firms are investigating or have looked into the matter of external investment, moving to a corporate firm, moving to an IPO, or even considered ABS. I include the Magic Circle in this. If they haven't they are remiss.
We talk of independent professionals but that merely harks back to a golden age that never was. The vast majority of people working in legal services today are employees. That sector will grow. Partnerships have been shrinking for years.
Add to this that most law firms depend on bank loans to keep them afloat every year, which puts them into hock with the banks. Look at Citibank's actions towards those "independent" New York law firms during the depths of the recession. It had them laying off associates and partners in droves. Independence?
And just to emphasize the point the role of insurance companies in telling professional service firms how to manage risk is a growing interference with "independence".
I'm afraid this much vaunted independence is illusory. Just as illusory that somehow--the canard is always repeated--ABS are less professional, have less integrity than law firms. I doubt that can be said of those granted licences this year by the SRA and CLC. In fact I would not be surprised if their quality standards aren't higher than most law firms. Perhaps we can begin to measure this in the coming years by the relative numbers of complaints made against each category. Should make interesting reading.
The Americans are being particularly insular which is odd given that they have promoted the virtues of globalization in everything else except this. Ultimately, they will have to give way or lose out on a substantial market. And let's be clear the legal services market now is not just made up of lawyers; there are many others involved.
Mr. Flood's contributions are
Mr. Flood's contributions are an interesting study in how the propaganda system works. I've often thought that when a tyrant in some form needs help, the first place he would look isn't the army, navy or air force, but the university campuses. It is among the professional intellectuals that the civic, social and moral justification for injustice, oppression and tyranny is formed. For they are the cultural architects. Mr. Flood began by presenting himself as the neutral, perspicacious academic, but has now regressed into his true role: that of providing an intellectual defence for the indefensible, a stamp of social respectability for the unforgivable, which after all is what academia is for nowadays.
Mr. Flood overlooks - probably intentionally - the fact that the ABS model and other 'liberalising' reforms are in fact legislative changes. This was political action. These changes were not the result of a transformation in the natural order of things, they are about politics and the thirst for profit. The bedrock of professional standards and behaviours that has long-existed for the legal profession is just as vital today as it was yesterday and will still hold its relevancy tomorrow. What has changed is the involvement of the unscrupulous, who have no interest in maintaining standards; the naive, who are easily-led; and the neurotic, who are happy to be led. What needs to change is that the profession has to learn to act collectively. I concede at this point that I am a slight hypocrite in that I have never done anything about it, other than post here, but the answer is in front of us.
Let's also consider Mr. Flood's use of language. He talks of insularity on the part of American lawyers. That word 'insular' reminds me of the word 'island'. It is suggestive of an isolated life, but that is far from true of the American legal profession, as anyone who has had dealings with American lawyers knows. The term 'insular' is meant to distract us. Much like the 'New' in New Labour, it is meant to signify something pathologically insipid in the opposing point-of-view. In fact, the American position is perfectly rational and informed. Unlike, it seems, the English regulator, certain other jurisdictions - most, in fact - respect the rule of law and value the independence of their lawyers. So much so that they will sacrifice any gains in profit, service and efficiencies for the sake of these overarching values, which are priceless. It is the loss of this important perspective that is most troubling.
Mr. Flood also makes some comments on the financing and insuring of firms, in support of his suggestion that the professional independence of solicitors is mythical. In response, I would suggest that independence is a state of mind, and it is attitude that determines the way in which a solicitor might practice. What is lacking in this profession is thorough education and relevant training in matters of ethics, professional responsibility, and duties and obligations to (in order of importance) the Court, clients and one's professional colleagues. That is what we need, not outside ownership.
And if some firms are in debt to their bank, and if this raises concerns about independence, then the solution is smaller firms and more sole practitioners, together with lower overheads and better financial education and training for these practitioners. A profession of sole practitioners and small partnerships would require a regulator who works to understand and supervise a profession made up of independent, critically-minded, taciturn, sceptical, professional men and women. That is not what the SRA is geared-up to do, and that in part is our problem, but to argue that independence is a myth because it is being stripped-away from us has to be the height of mendacity. A profession dominated by small entities and sole practitioners would be a difficult profession to regulate, but that is in part why we had self-regulation, is it not? You see, what we had in the past - that is, when we had a legal profession, not the legal industry I worked in - was a complex, interwoven set of checks and balances that were meant to assure an independent profession that was self-policed and self-regulated and in so doing, worked for the public interest (not the consumer interest, a different thing) by upholding the rules and dignity of the courts and ensuring ethical principles in business. All this is gone - but we can go back, if we are willing to act collectively.
And no independent academics
And no independent academics either apparently-but then we already knew that in your case.
Isn't it interesting how the
Isn't it interesting how the profession is patronised by people like Mr. Flood, not to mention the Charles Plants of this world who frankly should know better. It has now become commonplace that fundamental decisions about the future of one of society's most vital professions should taken without the consent of that profession's own practitioners. You'd think there would be a profession-wide vote on the relaxation of ownership restrictions, and a few other things. It is, after all, of fundamental importance to the way law is practised, and has wide-ranging consequences for the rule of law and other facets of society. A vote would have spurred a debate. A debate would have encouraged wider interest among solicitors (myself included: to my shame, I ignored much of it). A wider constituent interest might have galvanised ordinary solicitors in opposition to......Wait, I see how it works now. My goodness, isn't life bleak and cynical, and don't our betters disappoint us. Democracy (or any some semblance of it) is only for American lawyers it seems. Time to bring the revolution home?
I'm afraid 236 years too
I'm afraid 236 years too late!
just common sense
Nothing has changed. In an ABS if a lawyer-partner believes that there may be a potential conflict of interests he has the duty to advise and insist since he is a partner that legal matters are handled outside the business. This is a simple Code of Practice issue and the fact that he is a partner alongside some non-lawyers does not or should not bear any influence.
In another scenario if a deal does not makes legal sense and non-lawyer partners stamp the pedal for the deal to be done then maybe the lawyer-partners would have to reconsider their partnership or their presentation skills because it’s either that the other partners have no regard to the legal implications or in-house legal expertise or that the lawyers do not present the legal implications so as to make them understandable. It is obvious that a professional should not allow himself to be influenced in doing something against the principles of his profession and there is no excuse for temptations being there as anyone should be able to say “no”. It’s really that simple.
If one pictures the legal profession as consisting in part of naives – easy to led or neurotic – happy to be led – then whether we put different kinds of professionals in the mix through ABS or we let it “pure” makes no difference as the strong characters of the profession or those of other professions would get the naïve and the neurotic to act for them. The point being that if a threshold of standards is going to fall becasue of naive and neurotic elements this will not be caused by the implementation of ABS alone.
The argument that a decision potentially reducing the profit entitlements of lawyers be taken with the consent of lawyers is a non-issue. It’s like saying that the Greek government needs to get the consent of the citizens of Greece before imposing drastic cuts. As if this will ever happen.
Independence is a general characteristic of a group but a particular characteristic of an individual and in this case individualism is particularly important. Having an own and lawyer-exclusive share of the profits does not equal to independence. I would have thought that getting penalised either through the Court or via a regulatory decision is going to hurt the ABS as a whole just as much as it will hurt a law firm and not only the lawyer-partners so what is the problem? Why would an investor wreck its pot of gold against advice from trusted and partner-professionals who are on top supposed to be independent as individuals and as such can leave the partnership as they wish.
I am getting lost on the American way.
The key point you have made
The key point you have made is that independence is a characteristic of individualism. That is what is lost in large organisations.
Again one can only take as an example the "financial services industry". When the decisions were local and the reponsibility of a few people, the decisions were taken responsibly and with due regard for the consequences. Once the banks et al went "global", the only thing which mattered was short temr profit. The entire business model was about maintaining high short term profit. The reason, naturally, was to keep the investors happy.
The investor don't take advice from "professionals" in the company-they ARE professionals at making money; the ethics of it quite simply don't matter at all. Were your theory to be correct bank shares would have bombed becasue of mis-selling etc. They haven't-they have gone down because of potential bad debt but are now recovering rather well. Look at Barclays over the past month. In any event most trading is done by computer programmes-and they don't know anything about ethics.
lost value
Your example with banks is probably the best. Risks taken before the crisis take their toll now. If you look at the value of shares pre-crisis and now of several banks the argument will make full sense. Is that a reason for pre-crisis investors to be happy? Not quite.
How about dividends not being paid on some banks for years now. Another reason for investors to smile about? Again not quite.
But shares are not held long
But shares are not held long term-they are traded daily. The long term investors will have lost-but there are few of them. In large organisations short termism. i.e. what can be got today, is the ethos. It is not an ethos which sits well with professionalism-and I do not think it can be made to by rules and regulations. Certainly with the banks there were a plethora of rules-and they didn't work.
In respect of law, the SRA cannot even manage to keep a list of solicitors-there is no chance whatsoever of it keeping large companies in line. Again the example of the banks is appropriate-the FSA could crack down on small IFA's-but failed miserable with large banks. The LIBOR fraud was actually known about by the FSA and BoE-nothing was done.
Independance
Dan, in your post at 09:46, you say in effect that an ABS is the same as a law firm because the lawyer partner can say "no"; also that the ABS would not wish to suffer the regulatory penalties of non-compliance.
In fact, I can't see there being any regulatory penalties, because the regulator won't want to upset the apple cart and damage the standing of their baby project, but that's another point for another day.
You say the lawyer should just say "no". On what basis would that be? There are few companies, and even fewer large companies, in which one individual's views outweigh all others. In an ABS if the lawyer says "no", and the board says "yes" then that is going to be a problem. And assuming that the company does not consist of a sole lawyer, one imagines that the work, or transaction, or whatever, will be done by salaried employees. Salaried employees are on the whole not permitted to say "no" to doing the job for which they are employed.
As for regulatory compliance, why would the ABS care less about that? In a large firm, the likely fall guy / gal for anything going wrong is the Compliance Officer COLP/COFA, not the ABS.
And even if the ABS itself had the regulatory mud stick to it (which is unlikely), this will have no effect on the managers and owners. A professional person, who has invested effort, thousands of pounds and many years in their qualification will understandably be upset to be disciplined by his or her regulator, and in severe cases be forced to work in a different career.
A marketing director, finance director, sales director, or whatever is unlikely to lose any sleep if the SRA says "we will intervene into the legal side of your company; the rest can continue as before. If you apply for another ABS licence for your company it will be refused; if you go and work for a different company and that applies for an ABS licence, it would probably be refused if you are listed as an owner of director, but if you aren't so listed, we would have no way of knowing that you are even involved in the company."
Like it or not, an ABS is
Like it or not, an ABS is always going to be seen as inferior to a traditional solicitors firm - possibly cost effective for providing bulk services to the general public, but not a big hitter capable of doing the difficult stuff.
Another point is that the Americans are much less naive than we are when it comes to anticipating what can go wrong. Whereas, any suggestion that a foreign drug gang would want to buy/set up a law firm for money laundering purposes would be derided by our leaders, it is exactly what the Americans would anticipate - and guard against.
common sense returns
@ DomCoop
The mechanism is simple if you are a steering element such as a partner in a company and if the company is heading into “unlawfulness” or it’s breaking your professional boundaries or beliefs and you are also a regulated legal professional then everyone expects you to say “no” and get out of it regardless of what your other partners may decide. This should happend and regardless of whether you are a lawyer or not. That is a working example of independency not some concept vaguely mentioned.
Any significant regulatory penalty being financial or prohibitive – i.e. restricting the powers to act – will have an influence on the partners of an ABS as they will either suffer a financial penalty which is likely to come out of the profits or they are going to suffer a decline in revenue as the company would not be able to act on certain matters until it gets its house in order.
You then go on and deal with directors and manager and compliance officers but may I remind you that they are employees not sharing the profits or corporate liability if I may say so. The same employees can exist in actual law firms and in many do exist without them being qualified lawyers and I dont see ABA commenitng about that.
@ Interested Observer
Is this a new topic? ABS and money laundering – the issue of compatibility
If it is then please explain how this could happen rather than give an outline view.
I have to say however that if you come up with nothing someone should argue ABS – a measure to fuel the global warming?
@ Anon 10:50
When a company losses value its shareholders whether they keep their shares for long or short lose if they have shares when the devaluation takes place. Value was lost it follows that there are people who lost and I bet that they are not be happy about that.
The argument here is about ABS but we can get to the SRA if you wish on another topic.
ABS
"everyone expects you to say “no” and get out of it regardless of what your other partners may decide."
Corporate law is not my thing, but I'm not aware of any general legal principle which permits a person to "get out of something" on the basis of their decision. It could (and obviously should) be written into any contact / partnership / shareholder's agreement, but if it came to the crunch of "we think you should do this and if you don't like it, off you go with no pay-off and no immediate right to return of your equity", then it isn't an attractive proposition, is it?
but may I remind you that they are employees not sharing the profits or corporate liability if I may say so
You don't need to remind me - it's the point I was trying to make! By creating the regime of COLP / COFA, the SRA (and the Legal Services Act) puts the major responsibility on an employee; whereas the profits go to individuals subject to no personal regulation whatsoever.
If you were going to create a regime for ABSs, then it seems to me (and the banking financial crises only emphasises that as set out by others) that this is the exact opposite of the way in which it should be done.
Separating the people who want the money and the profits (the owners) from the people who get blamed if things go wrong, is rarely a good thing to do.
common sense - after 20 years
I understand you argument but a law professional is expected to refuse to do something unlawful even if this means difficult financial times ahead or a lower return. That is the over-ridding point.
The banking system went wrong becasue of the high short term returns policy sustained by an over-exagerated performance bonus culture which disregarded the risks of doing business. The idea of bringing equity in the legal profession from other spheres does not attract a compromise in the independence by consequence unless there is a pre-disposition for compromise or even worse a willingness. What it does however is open some bridges which may become secondary ways of (legal) access or primary ways of (legal) access in time.
Every industry I know of which is significant enough runs on the basis that people who make money take on people to represent them and those representatns will get blamed when things go wrong or they underperform. Why should the legal industry run differently?
You still did not get it that of course employees will suffer when things go wrong - like everywhere - but also the partenrs will suffer - like everywhere too - either by corporate penalties or by a reduction in trade hence in profits. And this happens now in a conventional law firm.
You may recall that the UK
You may recall that the UK was taken to war illegally because the MD, one Anthony Blair, coerced most of the Board (aka the cabinet) into doing so.
If you think a large law firm will be otherwise either you are barking mad-or I am. However, I thnk we will all find out in due course (and too late-just as with the Iraq War).
Danger to the profession!
Well, I never saw myself as a propagandist or someone who patronizes the profession but so be it. What I try to do is introduce some rationality and evidence into debates that are frequently based on misunderstanding and prejudice.
Take what has been said about ABS. It's all negative with absolutely no evidence of if they are bad, whether they will be bad and so on. Two of the recent ABS are eminently respectable in their field: Coop Legal Services (with the backing of the entire Coop) and Irwin Mitchell. Are these outcasts? Unprofessional operations? Careless to their clients? Mad profiteers? If they are, where is the evidence?
ABS came about through legislative change, that is true. That change occurred because the legal profession allowed its vaunted professional standards to slip. Complaints have increased year on year against lawyers and the profession did little about it. Also, competition analysis of the profession said there was little justification for the restrictive practices obtaining. The market--and it is a market--would benefit from increased competition. And ABS will aid that.
I'm sorry but no amount of bleating about the good old years of high professional standards--which is doubtful at best as I've suggested--will change matters. Lawyers will have to adapt to new markets with savvy competitors.
Finally, on the US. I have been educated and I worked in the US for a number of years. The majority of US lawyers are insular because they have such a large domestic market. However, their big law firms are global and they are worried by the US parochialism. I also recall the Kutak Commission in the 1980s when revising the ABA ethics code trying to introduce freedom on external ownership. The backwoodsmen in the ABA House of Delegates were frightened of that.
Th problem, old chap, is that
Th problem, old chap, is that you are a propagandist-with a vested interest. I imagine you cannot produce evidence to support your views. So we are entering uncharted territory-with no compass whatsoever.
Oh and I see you haven't taken up the idea of research as to why the profession mistrusts the SRA/LS-but are happy to "precis" views to support your colleague. Original and independent research ever so slighty difficult isn't it?
Let me respond to Professor
Let me respond to Professor Flood's comments:-
[quote]"Well, I never saw myself as a propagandist or someone who patronizes the profession but so be it. What I try to do is introduce some rationality and evidence into debates that are frequently based on misunderstanding and prejudice."[unquote]
I would hate to think that Professor Flood is insinuating that my position on the issue is based on misunderstanding and prejudice. If he is, I would make the observation that this is a common trick used by propagandists, especially politicians, journalists and academics, who wish to trigger in the reader the unconscious notion that the opposing viewpoint is, somehow, 'out-of-date', 'old-fashioned', 'archaic', 'irrelevant' and so on. It's a clever trick and Professor Flood does not deny the propagandist charge. I would reiterate my view that his approach to the issue is pre-judged and pre-conceived within a 'modernising' frame of reference, and - consciously or otherwise - he is engaging in classic propagandist techniques to advance an agenda.
[quote]"Take what has been said about ABS. It's all negative with absolutely no evidence of if they are bad, whether they will be bad and so on. Two of the recent ABS are eminently respectable in their field: Coop Legal Services (with the backing of the entire Coop) and Irwin Mitchell. Are these outcasts? Unprofessional operations? Careless to their clients? Mad profiteers? If they are, where is the evidence?"[unquote]
It is simply wrong to suggest that I or others have been unremittingly negative about the ABS reform. I have made the point here and elsewhere that the ABS model does present benefits. I can imagine circumstances in which a gentler approach, one that did not threaten the ownership restrictions, might have worked. You suggest comments should be evidence-based. Well, let's do that. It is difficult to draw any qualitative conclusions on ABS firms in England & Wales because the licensing regime is so recent, but we could look at Australia. There, in the largest jurisdiction - New South Wales - the take-up of the 30-year old external investment model is very low, with Slater & Gordon being one of the prominent exceptions. Furthermore, the context for the introduction of the ABS model in Australia was quite different to that for England & Wales. The Australian regulators and legislators were concerned primarily with facilitating multi-disciplinary partnership among professionals, and even Slater & Gordon remains majority lawyer-owned. Finally, I think it would be fair to say that, until recently, the Australian investment market has been something of a backwater of southern Asia, and so the interest in external law firm investment is much lower - and of a very different character, much less rabid I think - compared to the potential investment opportunities in the UK which has the largest financial services centre.
For these reasons, I would suggest there is little we can usefully learn from the Australian experience, and so all we have to go on is our own experiences of practice (mine includes many years practising as a solicitor, including running my own practice). Based on your posture on this forum and the tone of your reply to my comments, I would put it to you, Professor Flood, that you have little interest in my views or the views of others like me. You have already judged the thematic aspects of the issue, and your own concern now is to get me and others like me to fill out some survey the better that I might validate the preconceived conclusions of your colleagues. I find that patronising, and I also observe that surveys are the sine qua non of conventional academics, authoritarian politicians and compliant bureaucrats who wish to advance an agenda.
I have not suggested that Irwin Mitchell or Co-op Legal are anything other than diligent and respectable in their fields. It is you who raise this suggestion, Professor Flood, in an attempt to invent arguments I have not made. However, what I would suggest is that structures matter and can influence professional behaviour. Based on my knowledge and experience, I do find it difficult to understand how a solicitor (or any other lawyer) will be able to resist commercial pressures and assure ethical behaviour at all times in circumstances where he is supervised by a management answerable to shareholders. Perhaps what an ABS firm should do is amend its Articles of Association so that priority is given to the lawyers' duty to the court, then to its duties to clients, and only after these considerations should the interests of shareholders be addressed. As far as I can see, this type of safeguarding position has not been rigorously accommodated, and even if it were, I would remain unconvinced, for I know how companies work, both public and private. The day-to-day ethical precepts of the lawyer will, in time, be subsumed to the broader duties expected of commercial management. Any ethical lapses will either be attributed to individual lawyers, who can be scapegoated quite easily, or will be shrugged-off as they are by large corporations currently. Do you think a fine from the SRA will bother a large multi-national?
That is not to say large organisations are full of unethical people - that would be a crude characterisation of my views and beliefs. What I am suggesting is that autonomous regulation and partnership structures did provide a limited, but effective, check against egregious professional conduct while safeguarding the independence of the profession, a situation which in turn contributed to the protection of the rule of law. Much of the safeguards were informal and unwritten, but it seems to me that the system worked. It did not always work as well as it could. It did not always do right by individual members of the public. Changes were needed and I am all for modernisation. You needn't caricature me as a conservative on the matter, but I think to remove self-regulation entirely was wrong and dangerous. As I see it, independent regulation of the legal profession, which I think is what you want and which is what we are close to now with the SRA/LSB, is actually a euphemism for something quite nasty: a state-regulated legal profession. Think through the consequences of state regulation for the profession that is supposed to protect the rule of law. Add to that the fact that law firm partners will now be able to sell-out to commerce and that commercial owners and businessmen can enter and exit the market at will. I am sure it's the type of set-up that will take care of consumers very nicely in certain obvious areas of law, such as claimant road traffic accident work, but how does such a system measure-up to the public interest?
[quote]"ABS came about through legislative change, that is true. That change occurred because the legal profession allowed its vaunted professional standards to slip. Complaints have increased year on year against lawyers and the profession did little about it. Also, competition analysis of the profession said there was little justification for the restrictive practices obtaining. The market--and it is a market--would benefit from increased competition. And ABS will aid that."[unquote]
As I see it, the central point here that Professor Flood is failing to address is that this latest radical reformation of the legal profession is not the result of the natural order of things, it is the result of the thirst for investment and profit. Our political system is, and always has been, in the hands of vested interests. Set within that context, a respectable hypothesis arises that the clamour and outrage about solicitor complaints-handling that we saw in the 80s and 90s was largely manufactured, the real agenda being a desire among powerful people to subdue the legal profession. My charge against Professor Flood that he is a propagandist has a multi-layered significance in this respect. It's first that he harbours certain pre-conceived notions about the profession - for instance, on his website he decries the QC appointment system and other "restrictive practices" along the lines of "It's all so terribly old-fashioned", without really bothering to understand it, and - crucially - without bothering to consider the consequences of abolishing the QC system (even if it is a little archaic) and replacing it with something apparently more meritocratic. This reminds me of a certain London barrister who has vocally called for fusion of the profession. The reason he gives for fusion amounts to the same cry as Professor Flood: "It's all so terribly old-fashioned". It's fairly obvious that he has not thought the matter through.
But it's not just that Professor Flood and others like him are modernist cranks in the grip of a crude 'free market' dogma with shallow arguments dressed-up in erudition. It's also the fact that by advancing these shallow points, Professor Flood, as a professional academic, is giving a social stamp of respectability to people who do not care for such things as the rule of law, justice, the public interest (as distinct from consumer interest) and the value of an independent legal profession. I suspect Professor Flood DOES care for these things at some subconscious level - it's just a pity he doesn't think more deeply about them. "Competition analysis", whatever that is, amounts to little when set against notions of integrity and independence.
[quote]"I'm sorry but no amount of bleating about the good old years of high professional standards--which is doubtful at best as I've suggested--will change matters. Lawyers will have to adapt to new markets with savvy competitors."[unquote]
I have a fair idea of what the word 'bleating' means - something to do with sheep, I thought, but I checked my dictionary, and sure enough the definition is to "speak or complain in a weak, querulous or foolish way". The use of this word by our Professor friend speaks for itself. He has no regard for me or my views. Professor Flood is conventionally-educated at the usual elite institutions, and in common with academic elitists of his point-of-view, he is privately contemptuous and dismissive of those who question, challenge or oppose the Zeitgeist, that is to say, the main thrust of what is going on. In point of fact, I have not referred to any good old years of high professional standards. What I have referred to is a notion, that once existed, of an integrated professional community and a notion, which again once existed, that the law is a profession. My central point is that although the manifestations of that previous reality might have ebbed, they can return if the legal profession - particularly the solicitor branch - is willing to act collectively. Just as these 'liberalising' reforms (I would suggest they are anything but liberal or liberalising) represent the outcome of legislative action, so a profession that is willing to use its strength can work to begin to restore itself as an independent profession, if there is political will.
I was also referring to that previous reality so as to compare and contrast the values that once existed with those that are prevalent today and to ask which a reasonable practitioner would likely prefer. I think I know the answer, and I think it is clear why these reforms have no mandate among practitioners, nor might I say among the public who are misinformed, and thus, in my opinion there is no legitimacy for these reforms.
[quote]"Finally, on the US. I have been educated and I worked in the US for a number of years. The majority of US lawyers are insular because they have such a large domestic market. However, their big law firms are global and they are worried by the US parochialism. I also recall the Kutak Commission in the 1980s when revising the ABA ethics code trying to introduce freedom on external ownership. The backwoodsmen in the ABA House of Delegates were frightened of that."[unquote]
As far as I can tell, Professor, you are a lifelong academic, you have never worked in the legal profession and you have no experience whatsoever of practising law either here or in the USA in any capacity. That is not a mark against you. You are entitled to your views, but I must question your use of the term 'insular' in this context. I have frequent cause to deal with U.S.-based attorneys, mainly solo practices and small partnerships. These are tiny law firms in small cities and towns across the USA, yet many of them have significant international practices. They are not insular, nor are they parochial, nor are they "backwoodsmen". It would be much to your credit if you re-examined the dismissive language you are using to caricature others who do not share your views. It is not a crime to disagree with the orthodoxy. You are certainly erudite and if you were to re-consider things and not be so contemptuous, you might make some interesting findings.
Game, set and match I
Game, set and match I think...
[quote]"Unfortunately, the
[quote]"Unfortunately, the legal system appears to present an uncomfortable dichotomy between the perception of what one believes it to be and the reality of what it really is."[unquote]
All professions do. As I have already stated, it is not my intention to present a rosy picture of how things once were, however I do think there has been a decisive shift in the profession's underlying sense of itself and its values. If this shift in values is not arrested, this will lead to increasingly dangerous behaviours on the part of lawyers and their principals, and increasing harm to innocent members of the public as individual lawyers fail to reconcile their ethical duties with commercial pressures, and as young lawyers in particular come under intolerable strain in their roles.
@ Tom Rogers
You are arguing mostly the way in which Mr Flood approached his argument and not the substance if any of his argument and this to me is not right.
Then you write about commercial pressure which may subdue a lawyer but then again a similar pressure exists in a normal law firm and huge multinational law firms care about a penalty as much as any other multinational company simply becasue it will not harm their profits so your points are no points in my view.
You also mention informal and unwritten safeguards which purported to work but there is nothing to say that those informal and unwritten safeguards are going to perish. Other than that and more importantly I certailny hope that your argument is not based on custom of trade when it should be based on whether regulation would be as effective.
To me this seems a scenario where a child is worried that his house-tree is goign to be shared when he should be excited that he has to opportunity to build a bigger house with more working hands joining in.
[quote]"You are arguing
[quote]"You are arguing mostly the way in which Mr Flood approached his argument and not the substance if any of his argument and this to me is not right."[unquote]
My comments address Mr. Flood's arguments point-by-point, but I have argued both against the way Mr. Flood puts his arguments and their substance. The two elements are inextricably linked because he earlier presented himself as someone who is fair-minded on these issues. He clearly isn't. My arguments on the substantive points are clearly-expressed and relevant in any case.
[quote]"Then you write about commercial pressure which may subdue a lawyer but then again a similar pressure exists in a normal law firm and huge multinational law firms care about a penalty as much as any other multinational company simply because it will not harm their profits so your points are no points in my view."[unquote]
I don't doubt that commercial pressures exist in a traditional partnership, but they are as nothing to what we will see once the big boys are charge. The point is that a partnership structure is better able to address its commercial pressures in an ethical manner than a corporate structure. That is not to say that a partnership will always act ethically - much depends on the behaviours and attitudes of individuals - but it is a structure that is more likely to encourage ethical behaviour in the face of commercial pressures.
In a corporate structure, the principals must answer to shareholders, and usually this will be their first duty. Where there are external investors, this creates an additional commercial pressure that will subdue ethical considerations among lawyers, most of whom will be mere employees and thus eminently replaceable.
By contrast, in a partnership structure, the principals are each personally responsible and liable for the performance and behaviour of the firm. Again, I am not suggesting this guarantees ethical behaviour at all times and under all circumstances, but it does encourage greater and closer surveillance of behaviours and systems within a firm due to the consequences for an individual partner if misconduct is found.
Of course partnerships act unethically all the time, but when they do the regulator holds each partner responsible, often on a joint and several basis, something which is also true of small incorporated practices, but which will not always be true for everyone who has a controlling influence over an ABS firm, and certainly not for a sizeable public company structure. Partnerships and corporate structures are very different environments and prompt and encourage very different behaviours.
[quote]"You also mention informal and unwritten safeguards which purported to work but there is nothing to say that those informal and unwritten safeguards are going to perish. Other than that and more importantly I certailny hope that your argument is not based on custom of trade when it should be based on whether regulation would be as effective."[unquote]
Yes I do think that effective regulation needs to rely on informal and unofficial cultural pressures as much as officious and prescriptive organs and structures, and my point is about the destruction of one of the keystones of effective professional regulation: the notion and reality of the legal profession as an integrated professional community. It was the sense that the profession was a community and the culture and behaviours this encouraged and inculcated that contributed to the policing and safeguarding within the profession, and that keystone has now disappeared - ironically, thanks to organised consumer lobbying, which I would suggest is mostly a front for investment interests. Nowadays, virtually anyone - and I do mean anyone - can set up shop as a solicitor in some back office and no-one except the central regulator need know about it. They can advertise on the internet and obtain their clients electronically, sometimes by paying some dubious organisation a referral fee. I have nothing against the notion of a virtual law firm. It can be entirely professional, but there does come a point when we have to acknowledge that's not a profession. More to the point: where are the safeguards? How can a centralised regulator be expected to police and monitor such a profession effectively? The truth is, it can't. The culture that previously existed, with its devolved structures and local antennae, has given way to something inchoate and unmanageable in which, ironically, the public will have no effective democratic input and no stake.
[quote]"To me this seems a scenario where a child is worried that his house-tree is goign to be shared when he should be excited that he has to opportunity to build a bigger house with more working hands joining in."[unquote]
Eh...?!? I think you and others on your side of this argument need to stop these patronising remarks and start taking these concerns seriously. If you can't, fine - just don't respond to my comments. No-one forces you to, and if you don't get it then you just don't get it. But if you want a debate, then at least acknowledge that these concerns are real and valid. To employ your analogy, not everyone wants to build a "bigger house" if it is to be built on flimsy foundations. I would rather dig deeper, and have a small, friendly house built on a foundation of rock.
One further point, "Dan" I
One further point, "Dan" I think is arguing that large multi-national companies will care about regulator penalties as much as traditional partnerships.
I think that argument is flimsy when set against evidence from the real world. I can roll-off literally dozens of large corporate scandals involving, variously, financial and environmental disasters in which senior corporate officers and employees have ignored, discounted, circumvented or disregarded altogether their professional responsibilities and their wider responsibilities to their community and society.
In fact, I would like to suggest that in order for the ABS model to take-off, these investors, multi-nationals and large corporates will have to come in and treat the SRA much like any other industry regulator. Otherwise they will not be able to profit to any justifiable extent.
I do understand the point that for some investors, ABS ownership will be more about market penetration and revenues than profit per se, but it does not follow that standards will be upheld just to maintain the integrity of a brand.
In fact, the evidence goes the other way. In other professional industries that permit external ownership routinely - including accountancy and financial services - large corporates are fined and disciplined all the time and barely evince a shrug while they cough up.
Does anyone want a 'legal' Enron or an Arthur Anderson? The Americans don't. Think about why those professional scandals arose. It was because professional people working under corporate pressure put commercial concerns before law and ethics. Remember that solicitors, uniquely, act as fiduciaries. The dangers of the path we have chosen cannot be emphasised enough.
In my view, the partnership structure and a restriction on ownership to lawyers only is a much more effective way for the profession to control risk and guard standards.
ABS
Perhaps the Americans have realised that we are now a state controlled profession and consequently they view ABS with suspicion? I am sure they would welcome the expertise of a such a competent body as our SRA.
The modern legal services market
Thank you for your comments which I do find of interest. They are representative of part of the profession but unfortunately a part that is not well-versed in current approaches to research. For example, the discussion on whether or not to complete the Legal Education and Training Review survey (http://www.lawgazette.co.uk/news/solicitors-shun-training-review) was not based on scrutiny of the survey instrument (apart from a half-hearted attempt by the Chancery Bar Association), but rather on beliefs that the SRA had already made up its mind.
This speaks to a lack of engagement and impugned the integrity of the research team.
It is through research that we learn and adapt. The legal profession is relatively under-researched compared to others (eg. medicine and accounting). It is important for the legal profession to understand how and why change occurs. There is nothing "natural" about change in professions that is akin to Darwin's ideas.
Professions occupy a strong and special place in society. They are important, they receive many benefits, but only if they act responsibly. If professions are seen to be rent-seeking bodies they will be challenged. In the last 30 years this has happened.
I'm afraid the volume of complaints did rise. There were notable scandals that didn't help (eg. Miners' compensation scheme). But even when warned about these things, the legal profession did not take appropriate steps to improve its complaints handling, allowing backlogs to grow. In effect, we had a failure of self-regulation.
The Clementi Review engaged with the profession and used academic research and as a result we have a better system of regulation than we've had for generations.
It may be worth mentioning that both public interest and consumer interest are regulatory objectives in section 1 of the Legal Services Act 2007, without either having priority.
As I said it has been both UK and EU policy to examine closely the restrictive practices in the light of limiting competition. Professions can't be excluded from that.
We have a new opportunity with the present regulatory scheme to improve things. Both consumers and legal services providers (as lawyers are not the only providers now) will benefit from rational, evidence-based approaches that are founded on an analysis of the risks. This is exactly what has been done in Australia where regulators have put the consumer and public interest first.
When Slater & Gordon floated on the stock market it worked closely with the regulators to ensure that investors would not affect the conduct of cases. And much of the regulatory intervention there has been informed by rigorous academic research.
Finally, in the US there are over one million lawyers. While many, large and small, engage in transnational practice, the overwhelming numbers of lawyers are in very small domestic practices. These are the frightened ones. They will prevent the ABA 20/20 Commission from pursuing its work on ABS/MDP to the detriment of US lawyers. It may be worth referring to the recent Opinion 1189 of the New York State Bar Association which peremptorily embargoed any collaboration with external investment without explanation or justification. The NYSBA, however, takes a different view on MDPs in Washington DC. Is this an example of Nero fiddling or Canute ordering the waves...? I don't know, but it's not about consumer or public interest--it is about self-interest.
PS. I practised for a short while in Chicago.
Professor Flood, Are you
Professor Flood,
Are you suggesting that a rise in complaints was due to a lowering in professional standards? If so, what evidence can you point to in support? And what standards were these primarily - service, negligence, misconduct, complaints-handling, or what?
Specifically regarding the miners' compensation scandal, was that part of a pattern of systemic misconduct or did it mark a shift in the nature of solicitor misconduct? If the latter, could it be argued that the 'liberalisation' that you evidently support might have contributed to increasing opportunities for solicitors to misbehave? If you will at least admit that possibility, then how do you think the introduction of external, non-lawyer law firm ownership will help?
On the survey, there was widespread criticism on these forums and elsewhere of both the nature and style of questioning. It's not just that people distrust the survey's objectives, but then, given you think some of us on this forum are lunatics (see your Twitter account) and you don't take us seriously, why should we have any faith in your or your colleagues' sense of fairness?
@ Tom Rogers
Most firms as far as I know are LLP’s and the issue of personal liability applies way differently not that I am an expert far from it actually. I also believe that some firms are actually LTD’s not many though.
If you are concerned that anyone can set up their own law practice in their own garden then I would be more concerned if such practice succeeds because if it does then this says a lot about the consumers. If the consumers want a back-garden practice to represent them then they will find one with or without the introduction of ABS.
As you quite well pointed the involvement of other professionals in an ABS does not imply that standards will be kept as to preserve the brand integrity but at the same time this involvement does not imply that such integrity would crush either. So I suggest we wait and see.
Quote from your argument:
In my view, the partnership structure and a restriction on ownership to lawyers only is a much more effective way for the profession to control risk and guard standards.(end)
I take your point in but on the same reasoning the restriction of ownership of medical facilities to doctors would attract a simial array of benefits – i.e. better health-care, better standanrds through education and training, better working systmes, etc. Well no because funding is key and if funding is made available on a bigger scale though ABS then my opinion is that it’s good unless it proves otherwise.
I guess we could agree to disagree.
ABS
I will add one further point regarding ABS and the new legal services market. Unlike the US we have never taught legal ethics as a stand alone subject in the law degree. It is, of course, mandatory in the US since the Watergate scandal.
One of the recent interventions by the Legal Services Board is to attempt to create a process whereby we can understand and evaluate the ethical standards of all legal services suppliers in the UK. Again, this is something the Australian regulators have introduced.
Effective regulation can only work with ethical standards. Maintaining and improving these can only be good for the public and consumer interests.
On the differences between lawyer and non-lawyer suppliers of services, there has been to my knowledge only one piece of research, viz. the writing of wills, a mystery shopping exercise carried out by the LSB. The results of this research showed that errors in writing wills were evenly spread across both categories of supplier. The report is available here: http://www.legalservicesboard.org.uk/what_we_do/Research/Publications/pdf/lsb_will_writing_report_final.pdf.
Professor Flood, I agree with
Professor Flood,
I agree with you about ethics, except my point is that a decline in ethics and standards is down to the disappearance of a culture of behaviour that the profession itself informally enforced on a community basis. We are now also seeing the advent of structures within the profession that will manage risk poorly. I do not see how the structural permissiveness and liberalisation that we see now, a la the ABS model, will help matters.
On a more positive note, I see no reason why a law degree could not incorporate much of same type of socio-legal material that is on your website. I have enjoyed reading your work (especially the article, The Cosmopolitan Lawyer). It's almost a preparation for practice in itself and I wish something like this had been around when I was a student and earlier in my career. Maybe all law students/student-lawyers should be required to undertake socio-legal programmes? It wouldn't be such a bad idea and it might be a starting point for education in professional ethics and the wider responsibilities of being a lawyer.
ABS
ABS is a good thing for small high street firms as they can arrange their tax affairs more efficiently.
There are Solicitors who ignore the code of conduct certain in the knowledge that SRA will do nothing.
The "new entrants, new world, change or die, demise of high street" bullshit has all but died out.
Takeover
Which world do you live in? The high street is on its knees being manipulated by banks and in danger of losing its "bread and butter" work, residential conveyancing. That work has in the relatively short time between now and the late 1980s gone from brioche with butter to stale hard sliced bread. In short, the value of conveyancing has collapsed whilst the complexity has mushroomed. Legal aid is almost dead and its replacement CFAs are under attack. Solicitors have lost out big time. They are earning peanuts whilst IFAs earn a fortune. The story of the last 30 years is a huge collapse of legal income and a huge rise in the income of financial services. ABSs allow the financial services giants to take over the legal world. It is as simple as that.