IBA 2012: former president of American bar dismisses 'risky' ABS model
The immediate past-president of the American Bar Association has strongly denounced alternative business structures, arguing that non-lawyer investment in law firms compromises the client's best interests and undermines professional independence.
William T (Bill) Robinson III gave the strongest indication yet that the US will not bend soon to pressure for liberalisation, pointing to the jurisdiction's Model Rules of Professional Conduct to underpin his arguments.
Robinson was speaking at a panel session on ABSs at this year's International Bar Association conference. Also on the panel were Solicitors Regulation Authority chief executive Antony Townsend, former Law Society president Bob Heslett and Christina Blacklaws, director at Co-operative Legal Services.
Though stressing that he was not speaking on behalf of the ABA, Robinson said his views broadly reflect the consensus among US lawyers. 'What you need to understand is that from the US perspective, the Model Rules start and end with a focus on the interests of the client,' he said. 'There is a strong sense that in the ABS approach there is an inherent conflict of interest. Investors invest to make money and, as we say, "he or she who has the gold makes the golden rule". They don't bring a higher quality of practice or integrity.'
He added: 'If there is one investor in a firm and that investor is Walmart, it is not unrealistic to expect that investor to communicate what is to be done and that will be in the investor's best interests. That is why we are not stepping up to this.
'Another concern we have is the continuing attack on the legal profession and its independence across the world in the name of consumerism and bringing the price down. The reality is that specialised training and years of extra education are necessary to impute the required discipline and time to protect the client. Profit as an influencer of human choices under pressure is just too much of a risk.'
Robinson acknowledged the potential benefits of ABS status to lawyers and law firms, but said he had 'yet to hear how the interests of the clients are enhanced'. He also raised the spectre of government interference in the profession to protect shareholder interests, 'just as the Securities and Exchange Commission has intervened to protect corporations'.
He added: 'They will come in behind the investors and tell us what to do; we will have become not a profession, but commerce'.
In the US, ABSs would also have to clear other practical hurdles. 'What about exit strategies? In the US lawyers cannot be required to sign non-compete agreements, it is up to the client to decide whether to waive privileged, confidential information.'
Robinson also dismissed the claim that liberalising ownership will enhance access to justice, an argument made by Co-operative Legal Services. He said: 'In the US there is no money in access to justice and pro bono; it's an overhead that derives from commitment and professionalism. I am perplexed as to how having investors involved enhances access to justice. Too much pro bono inhibits return on investment.'
Responding, Christina Blacklaws described it as an 'insult' to suppose other professionals who might co-own firms adhere to lower professional standards. However, an inquisitor from the German bar questioned using the Co-op as an exemplar of ABS status, pointing out: 'The Co-operative is more analogous to a trade union owning a law firm that will provide services to its members. That is very different from a third-party investor seeking a return on their money.'
In her address, Blacklaws pointed to the rigour of the SRA's ABS licensing process and joked: 'We have seen very little evidence of the mafia or al-Qaida applying.' Co-operative Legal Services now has 48 licensed managers and expects annual turnover this year of £45m, placing it among the top 75 legal firms.
Townsend meanwhile, expects the number of ABSs approved, which recently hit 30, to double by the end of the year. There are about 100 more applications 'in the wings', some of which may come to nothing. 'We are beginning to see the evolution of a more dynamic market,' he said.
Heslett, meanwhile, was notably more muted about ABSs, saying: 'I think the changes are extremely limited. The Co-op may raise standards on the high street but I don't think the major firms [in England and Wales] will ever get involved.'
International interest in following the UK and Australia's lead on ABSs is clearly limited. Fewer than 50 of the 5,000 delegates registered at this year's conference attended the session.
Comments
UK AND ABS We now have two
UK AND ABS
We now have two professional bodies with a common Law tradition, one here, and one over there, but now separated by one body adhering to modern professionalism in the practise of law and the other (Law Society) no longer adhering to what should be the ethical core of a strong independant legal profession separated from Government interference
Oh that we had some wise
Oh that we had some wise folks like William T Robinson in the Law Society or SRA...
Blacklaws' 'joke' about criminals getting hold of Law firms through ABS is spectacularly mis-judged.
Based upon their track record for competence in running the MySRA shambles, who on earth could trust the SRA to spot a foreign crook?
As stated before, if any of the ABS's give rise to a claim on the Comp Fund I for one will be sending an invoice to Messrs Townsend, Plant and the Law Soc worthies who sold us down the river...
Is anyone else embarrassed to
Is anyone else embarrassed to be taking morality and ethics lessons from Americans?
Or is anyone at the Law Society ashamed to be doing so?
two points
While I understands Mr Robinson’s view on the fact that law is getting cheaper while it should get better I do not understand what does this have to do with ABSs as it should be a separate subject. It may well be launched into the mix as a second rabbit or it may be that it was approached as a distinct subject which just so happened to be juxtaposed to a subject concerning ABSs.
The other argument he makes that ABSs bring nothing to the client may be refuted by the fact that a firm with increased access to funds through investment coming from a non-legal party may be able to offer better training opportunities to its staff and as such clients would benefit from this. Also a firm with potential access to more funds can think about expanding with more ease taking potentially lower risks such are those of internal restructuring whereas claims are assigned to various individuals who are not always prepared to handle them. In the end it all boils down to the fact that a firm with a better financial backing would take less risks or should take less risks than one with a lesser such backing.
Mistakes in trading standards have appeared not mainly because investors were greedy for return but mainly because regulators have failed to sustain standards – see the banks.
but Dan the investor will
but Dan the investor will demand a return and a hands on input on managing lawyers so that they will be put under pressure to hit targets .
The clients best interest will become subordinated to the internal politics of the ABS abd priorities skewed
I too am unsure why the
I too am unsure why the ability to expand is necessarily in the interests of the client
practically nothing
Well as far as I know solicitors are always under pressure to hit targets even if their firm does not have access to non-legal funding. It's something called billing and apparently it is very important whether is made by the hour or on a fixed price.
What can a non-legally qualified investor say or do to a lawyer that a legally qualified partner or practice manager cannot? I presume above that the investor is also an officer of the firm with similar powers to those of a partner or manager and not merely an investor becasue otherwise my question falls.
Dan - it's really very
Dan - it's really very simple.
If a Solicitor decides to take advantage of a client he faces disciplinary sanctions, including being struck off and losing his means to earn a living.
If Mr External Investor from a country very far away decides to get his ABS to take advantage, he frankly has nothing whatsoever to worry about...
to Arthur
Nothing to lose but potentially the business. Yep sound reasoning - that is exactly what investors do. Singing an American song.
Tell me how many shoe-makers lead banks? In other words what investor in their right mind would go over advice coming from his solicitors as advisers and from his solicitors working for his investment and over his business sense and would deliberately push the business into rocky waters by directing that anyone caught spending on a matter generating 10k in fees more than half an hour would be dismissed hence leading to standards being consistently lowered but to an increase in profitability.
The example is used to highlight that investors without proper qualification or understanding usually follow advice coming from professionals - in our case that would be...let's see...aaaa of course solicitors.
And another point which solicitor in their right mind would work for a company like that? If they are some then they deserve to be struck off hence promoting higher standards.
Dan Do you work for an ABS?
Dan
Do you work for an ABS?
Dan Do you like Frank
Dan
Do you like Frank Sinatra?
Obviously the blogs above have struck a raw nerve with you
Did you ever see Wall Street?
Classic manifestation of what commecial pressures can do to rational beings
brilliant q's
I don't work for an ABS.
Frank Sinatra has fortunately nothing to do with the above subject. I was simply saying that my colleague was just singing along without putting his own reasining into the argument.
Comparing solicitors with Wall St bankers is like comparing someone who has a lot to lose with someone who is driven by the fact that his colleague got a promotion and he did not.
Painting the picutre that investors are all or predominantly mean individuals taking the chastity away from invariably completely innocent solicitors for the sake of money is just not really the kind of "art" that I would appreciate. If you add into the mix that such mean individuals have seemingly been helped by the Government by passing the law and by the regulators which are led also by solicitors who did not harshly demonstrate against it is also a bit of a SF movie for me. To put it into context it is more like "Universal Soldier" and less like "Braveheart" in terms of fantasy.
Dan, you appear to be naive
Dan, you appear to be naive about the workings of the murkier end of business and finance.
An investor in a law firm is unlikely to lose that investment if it shuts. Firstly, they'll get their return back quickly enough. secondly, they'll be secured and debentured to the hilt.
thirdly, the lax corporate insolvency regime post Enterprise Act 2002 is a licence for cowboys like that to behave however they like. I take it you know what a pre-pack Administration is?
just look up Cartel Client Review and Consumer Credit Litigation Solicitors to see what fun we have in store.
@DomCoop
@DomCoop
What kind of money do you think one invests in a law firm to make it up very fast? £10,000? £100,000? How about £50 mil or more? One of the ABS entities apparently is due to get an investment of 50 mil. I wonder how fast would that be repaid. What do you honestly reckon?
Why would a law firm opt for an investment coming from a non-legally qualified investor and not for a loan if it knows and has solid data to back its reasoning that it will make up the money to repay the loan very fast? Becasue they don't know.
Finally why would an investor have always a secured debt is beyond me when it comes to realisation of assets before getting to who is secured and who is not.
One point which you should practice in the future is to know your issue is relevant. Now unless Consumer Credit Litigation Solicitors or the other one you mentioned are ABSs I do not find your argument relevant here at all.
If anything if they are not ABSs it only reinforces my point that law firms do not need to get a well behaving passport and ABSs dont simply on the grounds that they have non legally qualified persons involved in the decision making process.
Oh, do come off it, Dan. You
Oh, do come off it, Dan.
You made a very valid point about targets-the eternal problem of how can you be an employed professional. Most solicitors have been caught on the horns of that dilemma. Each tries to solve it their own way-with advice from others more experienced. Some don't even bother to try-of course.
However, do you really think some fool investor is going to put in 50 bar? My view is that is total PR -the world just doesn't work that way.
The investor will have a structured investment which may amount to that much-depending on the return they get. Remarkably like targets-but a damn sight more commercial.
structured invesments plan
And if so what investors do usually is take long to do a complex structured investment plan including return targets and then push like wild beasts to try an make that plan even more profitable disregarding standards or regulations and endangering the very long and complex plan in to which they have invested in phases.
My actual view about investors is that they have nothing to do with gamblers.
Full marks to the American
Full marks to the American Bar Association for spotting the risks involved with ABSs in a way that the SRA haven't.
There are two fundamental problems. First of all, the danger of criminals running an ABS to facilitate fraud and money laundering. When I mentioned this at a meeting a few years ago, it was treated with scorn. However, there seems to be something of a change and this risk is acknowledged.
The more likely problem is that external owners will have no understanding of professsional ethics and instruct, or more likely lean on, the lawyers to maximise profits. The most likely way is by insisting on cross selling of insurance and loan products. When scandals are detected ("They said I'd not see my children again, if I didn't sign up") then the proprietors will pretend to be horrified, and say that it was just a few rogue solicitors who have been dismissed and robust new systems are in place. These will be devised to avoid easy detection in future.
Patrick You have put very
Patrick
You have put very well the tensions which would be created by the inevitable collision of ethical considerations with the pressures to generate profit exerted by an outside investor
The worst aspects of corporate greed were present in the film Wall Street, which to me was uncomfortably accurate in its portrayal of such behaviour and it is why I mentioned it to Dan.
This type of greed would find more and more ways to evade ethical constraints to the detriment of the client.
Now that the Law Society has thrown off the burden of regulation albeit in a disastrous manner why isn't opposing any further toxic fallout from the ill thought out Legal Services Act?
The Co-op
The fact that the Co-op is owned by it's 'members' does not curtail the Co-operative Group from wrong doing or exploiting customers .For example Co-operative Financial Services have been involved in PPI mis-selling. It was the success of the Co-operative Bank that proped up the Co-operative Group/Co-operative Wholesale Society for years.
Now that the Co-operative Group have at long last begun to mastered the art of cross-selling services with a strong and trusted brand image it does not take much of a leap of the imagination to see how the ABS employed Solicitor could be encouraged to exploit a client on behalf of the Co-operative Group.
Far be it for me to agree with the view of the USA but I feel that William Robinson is quite right. The Co-op can do a good funeral : the Co-op is now the Undertaker to my profession.
Co-operative Legal Services
Earning fees of £45 million will not turn the Coop into a top 75 legal firm. It will turn it into a Company that earns an amount that puts it amongst the top 75 earners of providers of legal services. A totally different thing. If the Coop's legal offering mirrors their efforts into funeral services then privaye practice has nothing to worry about.Stick with fud.
QUALITY CO-OP SOLICITORS
Has anybody seen the re-hashed advert for QS? Obvioulsy realised that no one really got the last advert - thought is was an advert for solicitors generally who are quality!
Free initial interview. I started this when I set up my law firm. Soon stopped because it becomes clear that the only people who want free advice generally are free-loaders who very rarely turn into a decent paying client. They then sue you for the wrong advice you gave without charge - wrong because in 30 minutes you could not really get to the bottom of the problem and because it was free yuo did not bother to write any detailed attendance note.
If a client has a real problem that the need advice for they generally do not mind paying £100 for an initial consultation. If they wont pay this then rest assure they will not want to pay c£200 /ph plus vat for proper advice.
Mosy clients know that in 30 minutes they will not get an answer. If they can then they probably should have looked a bit harder on the internet to find the answer.
Good luck to the COOP. Hopefully their legal services will be a better success than the grocery adventure. I am sure they will be able to recruit and retain quality solicitors for what they are willing to pay. I can just see it - don't mess with me because I am represented by the COOP.
What a laugh. In ten years time it will go a full circle.
The Loser?
Musing about all the arguments about ABS cutting corners, profit motivated and not practicing in the client's best interest makes me suspect any solicitor caught in between would be the ultimate loser. While the ABS involved in malpractice would probably be closed down or slapped with any form of sanctions (depending on how big it is or the influence it wields), the solicitor involved would be hounded by the SRA and probably lose his cerificate to practice for ever!
A Great Sadness
From a personal view point it is with great sadness that the ABS will pervade our profession. Mind you this is what the SRA wants and is hell-bent on ensuring it will happen and you can be certain that they will achieve their mis-conceived goal(s). Far from ensuring client protection - which is what the SRA continually spout on about - the ABS will inevitably dilute the quality of the profession and the professionals within it - stand-by for massive future claims which are also inevitable - the mission statement of the SRA should be "we know the price of everything and the value of nothing"
Mr Robinson of the American
Mr Robinson of the American Bar Association is correct. Do we want a law industry the purpose of which is to make as much money as possible? Or do we want a profession the purpose of which is to give useful advice while making a comfortable living? The two are mutually exclusive. Lawyers in the UK have become ever more focussed on law as a profit making business, and ever less focussed on giving useful and cost effective service. ABSs are a further lurch in the wrong direction.
Business and the bottom line
Law, big business and profits do not go together.
Big business will drive down costs by giving more and more legal work to paralegals as opposed to qualified lawyers. There are plenty of capable candidates trapped in paralegal jobs because of the absurd training contract system and when businesses realise that there is a pool of untapped talent which is being under used, law firms which are ABS will be required to drive down costs by allocating the work to teams of paralegals under the supervision of a few qualified lawyers.
In the future there will only be a few areas in which qualified lawyers practice and which command decent salaries, and although paralegals will do more work, paralegal salaries will only increase slightly.
Legal jobs will become more and more like sales jobs with a focus on the bottom line as opposed to quality. Some people may start to question if a sales job would be less stressful and more rewarding financially as sales jobs can be quite well paid, plus you don't have to worry about professional negligence claims.
The writing is on the wall and Peter Susskind’s predictions might just start to become real.
Sarah gently but very
Sarah gently but very effectively puts her case well
The 2007 Legal Services Act is the apparent source of many of the profession's developing problems, but as has been stated on many occasions before, the rot started well before the Act, with the Law Society already moving away from the historic best interests of its members, implementing policies completely at odds with the primary ethos of a truly learned profession.
This festering canker has such a hold on the departments of the Law Society, that only radical surgery or even complete dissolution seems now to be the only solution.
The Law Society has lost prestige and the respect of many of its members.
In many respects it resembles the AA- offering relentlessly special offers and services for its members.
The Council of the Law Society "still doesn't get it "
There is a tide in the affairs of men and the Law Society had better understand quickly what this means recover its professional soul and reconnect with its members NOW!
ABS v LLP or other
Good point until you refer to the fact that an ABSs and presumably only ABSs would seek to reduce the costs by employing a paralegal to do a solicitor's role. What would prevent a conventional law firm of similar size to do the same?
Next ABSs and global warming...
Also from the series:
ABSs and the deforestation
ABSs and polar bears
ABSs and Chuck Norris
Muddled Thinking
Dan
ABS sounds like something to be treated at certain clinics
Chuck Norris is not the martial artiste he once was.
How about ABS and the Quatermass?
ABS is a symptom of muddled thinking by equally muddled politicians, many of whom have never run a business or had a real job in their life, who thought it was ok to engage in change for changes sake, and upset the delicate constitutional balance between the Executive and the law which has evolved over centuries.
ABS is also muddled in the sense of the semi-permanent tension it creates between ethical behaviour on the one hand and crude commercial interests on the other.
Remember the Statute of Frauds from your college days. The Act was so unworkable the judiciary went about changing it over many years.
The mutant mechanisms created by poorly conceived legislation will end in tears.
Regulators need to regulate with the consent of the regulated.
Solicitors do not have to put up with the pollution of their profession by such alien creations.
The advent of these structures is not innovation but the outcome of poor leadership by the Law Society when it failed (hold on there is a cliche coming) "to step up to the plate" at critical time
tension
I agree with the element of semi-permanent tension which you refer to above. That is real in any firm and any business. Anyone who ever had a business thought about maximising profits. The argument as to whether that would be an over-ridding factor to professional standards in the way ABSs are run as opposed to it being - de minimis - second on the list after supposedly professional standards in a traditional law firm is not yet proved. And in my opinion it will not be proved until cold facts or statistics show it.
Approaching the same argument from a point of view that investors would push firms so hard that the poor lawyers would start breaking their standards is as I said before presuming that lawyers are innocent and incapable of making a choice which I hope it is far from the truth.
Approaching the same argument by saying that ABSs as opposed to traditional law firms would hire paralegals to do a solicitors' job without explaining why a traditional law firm would not do something like that - especially since quite a lot of law firms have out of London offices dealing with "paralegal" work - seems again unfinished.
Commenting on articles seems a too popular sport these days.
What is wrong with a bit of
What is wrong with a bit of sport -lawyers need somethng to cheer them up!
This blog remains a lively medium for seroius and less serious discourse and long may it remain so
sporty
It's a group exercise well spotted. You're right although sometimes it gives the impression of being a bit more like zumba and a bit less like a 5-a side league.
Professional Soul
Ah professional Soul- is Curtis Mayfield making a late contribution to this entertaining discourse!
Axiom?
Isn't this precisely what Axiom Law www.axiomlaw.com is doing? It is US law firm with non lawyer investors as far as I can tell and from what I've read. And they are growing very fast.
Not Axiom
No - Axiom isn't actually a law firm. They are essentially a temp staffing and provider of a "managed services" that enjoys the benefit of being called a firm in the press. I'm rather surprised they haven't received any regulatory scrutiny this far.
well if they are not a law
well if they are not a law firm, then by providing lawyers to companies without a legal department, so the attorney is the only attorney there, (which is one of their services) is a huge no no according to the ABA as well as every state Bar I know of. I am honestly shocked they have just gotten by so easily without any bar even questioning this.
It is interesting
From LawDotCom: "Still, there is much Axiom can't do because of legal and regulatory restrictions. It can't offer a legal opinion. It can't represent a client in court. It can't take a company public. It also can't lead a major corporate transaction. Axiom's leadership isn't crusading for a change in the rules. "We don't see where we could do those things better than a law firm," Harris says. (However, he says that the company might become a law firm in the United Kingdom for marketing reasons.)"
That said, the site really makes it look like a firm. One thing many commenters [presumably] from the UK fail to recognize is how disparate the application of these high standards actually is.