The debate over whether legal advisers should stick with the traditional practice model has been stoked by David Clementi's review.

In the fourth instalment of our Clementi series, Neil Rose looks at the pros and cons of alternative business structures

If David Clementi looks set to achieve one thing in his review of the regulation of legal services, it is to put to bed once and for all the long-running debate about multi-disciplinary partnerships (MDPs).

Despite a global trend that in previous years has moved against MDPs, especially after the Enron scandal highlighted the dangers of one professional services firm offering different services to the same client, the government has given its backing to the model.

It has asked Mr Clementi to consider how MDPs could be brought in from a regulatory perspective.

Whether he says it is possible or not, at least we will finally have an answer.

Having identified new business structures as one of the five key architectural issues he intends to address, Mr Clementi introduced the legal world to a subset of MDPs and a new acronym - SDPs (similar disciplinary partnerships), involving legal professionals of different hues.

Unsurprisingly, they appeal to the Institute of Legal Executives.

President George Owens says it would be a natural progression for his members to become partners, adding: 'I am sure a lot of firms would welcome it too.'

While he does not oppose MDPs either, Mr Owens envisages that SDPs would be easier to introduce because there would be no major issues over ownership - under the Law Society's blueprint for MDPs, solicitors would have to retain majority ownership, although there is no guarantee that Mr Clementi would back such a restriction.

The Bar Council has no interest in either MDPs or SDPs.

A spokesman argues that it is in everyone's interest to retain an independent, self-employed referral profession - self-employment, the bar maintains, is more competitive, while independence would be constrained by partnership.

'If a barrister wants to practise in partnership, he or she can become a solicitor,' he says.

This view is backed by Clive Sutton, chairman of the Sole Practitioners Group, who says that while he would have no problem with solicitors going into partnership with legal executives or licensed conveyancers, the very essence of the bar is its detachment.

MDPs have long been allowed in Germany.

Leading firm Haarman Hemmelrath is made up of lawyers, accountants and tax advisers, with a slight majority of lawyers.

Founding partner Wilhelm Haarman says some clients only use one of their services, while others use them all, particularly in fields such as mergers and acquisitions, and restructuring, where they can add value.

He says a multi-disciplinary offering only makes sense where firms can offer a genuinely integrated service.

'It's a question of quality,' he explains.

'You can be assured that questions on the borderline of the professions [which might otherwise be ignored] are dealt with.'

Another key element in Germany is that, as Mr Haarman explains, lawyers, accountants and tax advisers have the same professional obligations.

A problem commonly identified elsewhere, including in the UK, is that lawyers have far stricter rules on confidentiality than accountants - this means that firewalls would need to be set up in an MDP, which Mr Haarman says would be little different from having separate firms.

But, as Ronnie Fox, senior partner of City firm Fox Williams and a partnership adviser to professional firms, says, the climate of opinion over MDPs in the City has been changed by a single event - Enron.

Restrictions placed on advisers offering multiple services to the same listed client as a result of the Sarbanes-Oxley Act in the US, overseen by the Securities and Exchange Commission, make an MDP-style offering unattractive at the top end of the market.

If MDPs are allowed, says Mr Fox, City firms 'might take the odd accountant, patent agent or actuary into partnership with them, but I don't think we'd see a great rush to take over accountancy firms'.

Mr Haarman argues that issue of conflict arise whether a firm is an MDP or made up solely of lawyers, saying US lawyers have made this more of an MDP issue than it is.

The approach all firms must take is quite simple, he says.

'Conflict of interest is a very important issue and Enron made it very clear that you cannot work if there is conflict.'

There is a body of opinion which maintains that MDPs could mainly benefit high street firms, which may form 'professional supermarkets'.

However, Mr Sutton opposes MDPs on principle, saying the solicitor would be placed in a difficult commercial position if, for example, he knew his estate agent partner was not the right person to whom he should refer a particular client selling his house.

'I don't see the benefits [of MDPs] as it's already so easy for profes-sionals to work together,' he adds.

The scoping study commissioned by the government to underpin the Clementi review found widespread concern among stakeholders that the current regime on business structures is too slow-moving and inflexible to respond to changes in the marketplace.

The Institute of Directors told the study's authors that the problem is cultural.

'These are dinosaur organisations that lack the will to change,' it said.

The study found that the current restrictions soften competition and stifle innovation to the detriment of consumers.

It said: 'In a competitive market without such restrictions, competition among organisational forms will lead to the dominance of the few or to the survival of many, each meeting the needs of individual groups of consumers.

'This economic analysis suggests that every effort should be made to reconcile liberalisation of entering the market with the attainment of regulatory objectives.'

The words 'economic analysis' make lawyers shudder, because most argue that the profession - with its role in the administration of justice - should not be judged by economic criteria alone.

But Mr Fox says Mr Clementi is right to look at this issue.

'The starting point has to be that anyone seeking to restrict the freedom of lawyers to enter into partnerships with other lawyers or professionals has to justify that,' he argues.

As it so happens, however, 'most of the comment I've heard in the City is that the restrictions don't operate as a serious barrier', he says, either to firms developing their businesses or to the public gaining access to legal services.

But where once MDPs were the shining beacon of what could happen if restrictions on business structures were lifted, they have been put in the shade by the move towards allowing employed solicitors to advise to the public, rather than just their employers - the so-called Tesco or supermarket law option.

First mooted by the Law Society, the idea has now been taken up with gusto by the government, which wants Mr Clementi to look at how to regulate them as well.

No issue has arguably divided the profession more in the last two years than this, from the young solicitor who sees a future where there could be far greater choice in what kind of legal career to pursue, to the high street sole practitioners convinced that the likes of the major supermarkets could put them out of business by scooping up all the straightforward work.

In her interim report on the Office for the Supervision of Solicitors, issued last week, the Legal Services Ombudsman articulated the opportunities and threats of this change.

Zahida Manzoor wrote: 'It is my view that opening up legal services to organisations that are easily accessible, well recognised for being customer friendly, have a reputation for providing high-quality service and are likely to be fiercely competitive in terms of price, can only be a good thing.

It will undoubtedly drive through improvements in access, choice, service quality and price.

'Of course, this has to be balanced against possible negative consequences, such as potential conflicts of interest, the "cherry picking" of lucrative transactions, or the threat to universal access through closures of uncompetitive high street firms, and any changes must be underpinned by appropriate safeguards for the consumer of legal services.'

'Supermarket Legal Services', it is argued, would not want to act on an acrimonious divorce because it would not want the other party to think badly of its brand - but what if the liberalisation of the market has driven many high street firms to the wall, leaving a chronic shortage of practices able to offer family law advice?

But even cherry picking has its defenders.

In its response in July to the In the Public Interest? consultation, from which the Clementi review sprung, the Department for Constitutional Affairs said that 'in market terms, cherry picking has advantages: it is likely to allow the consumer with an uncomplicated requirement to obtain a service at a much more competitive rate...

the commercial reality is that the market will not allow a need to go unmet'.

The RAC, which was set up in 1908 to provide legal advice rather than breakdown services to members, has led the charge from outside in favour of the employed solicitor reform.

Jonathan Gulliford, the RAC's head of legal practice, says: 'The business models have to change to provide customers with customer-oriented legal provision.

Some areas of legal work can be commoditised and our customers will benefit...

our members tell us they're happy to use us and the customer ethos we bring to them.'

Clive Sutton strongly opposes 'supermarket law' and says the interests of both the legal profession and the public meet at this point.

'If you start to get people giving legal advice under the umbrella of a corporate employer, it is inevitable that the corporate employer will seek more and more control over the way that legal advice is given, whatever lip service is paid to regulation,' he asserts.

Mr Gulliford strongly refutes this, saying that there have been no complaints of compromised advice in 95 years of RAC legal work.

'The RAC is not interested in the unregulated provision of legal services by unqualified people.

I want solicitors employed in a different structure,' he says.

Mr Gulliford foresees the RAC owning an incorporated legal practice run by solicitors and regulated by the Law Society or whatever regulator comes out of the Clementi review.

Mr Fox reckons that companies such as the RAC may be deterred for more practical reasons.

'When they start looking closely at the profitability of law firms, they'll see it's not as attractive a proposition as they thought,' he says.

Mr Gulliford says the RAC is well aware that the perception of fat cat lawyers is false, but says: 'There's enough in there to make it attractive.

We know what the economic realities are.'

In its July paper, the government challenged the view that liberalisation could hit the high street hard, saying there was no evidence to back this up.

'Our analysis indicates that the likelihood of solicitors' market share being significantly eroded is small.

Provided high street firms and those in rural communities take steps to improve the quality of the service on offer, the impact on them would likely be lessened.'

It said that new structures 'would provide an opportunity for increased investment and therefore enhanced development and innovation, for improved efficiency and lower costs'.

The vision of solicitors at the heart of a far more complex market, where legal needs are met by a multitude of providers, is shared by Andrew Holroyd, chairman of the Law Society's standards board.

He says the solicitors most under threat by the development of the market are those offering services that others can turn into commoditised products.

In some fields, such as conveyancing, this is already happening, although he says this does not have to exclude existing small firms.

There are some that have already re-engineered their practices to thrive in this area.

But when it comes to more bespoke legal advice, Mr Holroyd says 'it is hard to see how that market will change significantly, although the methods of delivery may change' thanks to IT.

Size is more and more important at both ends of the profession.

The largest firms continue to expand to ensure they can offer global service.

The future of the high street could quite conceivably be one populated by a smaller number of larger practices.

This seems to be where the Legal Services Commission, for example, is heading in terms of specialist legal aid practices.

These are all firms that, in their markets, will have the financial muscle to hire the best lawyers, offer economies of scale and invest in IT.

At the same time, the ability to combine expertise with lower costs may help niche firms to flourish.

Mr Holroyd argues that no longer can firms use one field of work to subsidise another.

'Any branch of work you do must stand or fall on its own merits,' he predicts, adding that those firms which do a bit of everything - the dabblers - will 'have difficulty making it pay'.

For Mr Holroyd, it is wrong to equate liberalisation with eroding the core values of lawyers.

It is those core values that solicitors will use to mark themselves out in the new market, and it will be for Mr Clementi to safeguard them.

As the government said in July: 'The ethics, integrity and independence of lawyers employed in alternative business structures must be preserved in the public interest in any new framework of regulation.'

These are hollow words, says Mr Sutton.

'If government has to weaken regulation to mollify corporates because they have invested so much in legal services, it will do so at the drop of a hat.'

The mistake everyone makes when gazing into their crystal balls, Mr Holroyd argues, is to see massive revolution.

'It doesn't work like that,' he says.

It will be gradual change, he maintains, as it has been over the past 30 years, a period during which the profession has in fact evolved a great deal.

'We've always as a profession been willing to embrace change,' Mr Holroyd says.

'If we lose that, we're in trouble.'