The evolution of lawyer regulation

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The thing about change is that once it gets rolling, it’s almost impossible to control and can go in directions you neither anticipated nor like very much. That thought occurred to me while reading a report issued last week by the Legal Services Policy Institute, the think-tank division of UK legal training company The College of LawTowards a New Regulatory Structure for Corporate and Commercial Legal Services: Options for Change is just 23 pages long, half of which is a lengthy appendix. But what the report recommends looks to me like an entirely new system of lawyer regulation, one I’m not sure I’m crazy about.

A little background: if you’ve been following the course of events flowing from the Clementi Report and the 2007 Legal Services Act, you’ll know that the UK legal profession is in the midst of redefining itself. On this side of the pond, we mostly hear about the LSA’s provisions to allow alternative business structures and non-lawyer ownership of law firms. But a major element of the reforms involved splitting the Law Society’s previously dual functions of solicitor regulation and representation, on the grounds that the same body could not both govern professionals in the public interest while also advocating for the interests of those professionals.

Regulation of the legal profession in England & Wales is to be the overall province of the newly created Legal Services Board, which launched on Jan. 1 and aims to assume all the powers assigned to it under the LSA by the end of this year. The Board will oversee all the various regulatory bodies for lawyers, such as the Bar Council, the Institute of Legal Executives and the Council for Licensed Conveyancers. Until the Board becomes fully functional, the Law Society technically remains the approved frontline regulator of solicitors, through the Solicitors Regulation Authority, which was partly spun off from the Law Society for this purpose. The SRA remains officially part of the Law Society, but is independent from it. Relations between the two are not always warm, and have just taken a marked turn for the frosty.

This is kind of an interim period in the regulatory overhaul process: the Legal Services Board is active but not yet fully on stream. That’s why some people were taken by surprise last fall when, with one day’s notice to the SRA, the Law Society commissioned a report to review the lawyer regulation process. That report’s author in turn commissioned a sub-report on whether current regulation of law firms serving corporate clients is satisfactory. It’s in the context of this mishmash of reports and political jostling that the Legal Services Policy Institute report was issued and needs to be understood.

The report’s premise, as I read it, is that a single regulatory framework can no longer properly govern the extreme range of solicitors’ practices in England & Wales. More specifically, the traditional framework, geared towards sole and small-firm practice in smaller communities, simply doesn’t work for the major corporate/commercial firms of London and their clients. In areas ranging from defalcations and conflicts of interest to client sophistication and lawyer transfers from other jurisdictions, rules meant for a smaller profession serving private clients constrain and damage global firms serving massive corporate and institutional clients.

The report’s recommended solutions are radical. While nodding towards a midway approach — merely modifying the current SRA regulations for large commercial firms — the report’s clear preference is to create a brand new regulatory regime for these large firms and the lawyers who work within them. This new regulator would create and administer new qualifying criteria and would even bestow a new title for these firms’ lawyers to use (the report refers to these, in uncomfortably Orwellian terms, as “NewReg,” “NewQual” and “NewTitle”). Here’s how the Institute summarizes its case for a new regulatory regime:

The assumption that the relationship between the lawyer and the client is one between a well-educated professional and an unsophisticated lay person may hold good, to an extent, in respect of high street practice serving the needs of private and small business clients; it does not apply at all to the relationship between the major corporate and commercial law firms and their business clients. Equally, the notion that the market has little impact on professional conduct may have some truth in a market made up of unsophisticated clients; it is simply untrue in a highly competitive global market for sophisticated legal services.

In short, for the major firms, the client relationship is no longer individual to individual, but business to business. Business clients are, in general, highly sophisticated, tendering for work, and issuing instructions through in-house counsel. Such relationships cannot be regulated effectively by tweaking a regulatory regime designed primarily to protect the unsophisticated private client. …

The proposition now advanced in this paper is that a new regulatory approach should be taken to the relationship between the major corporate and commercial firms and their sophisticated clients. The case for a new approach does not rest solely on a couple of examples of regulatory provisions not suiting those firms, or on regulatory cost alone. It rests on a recognition that different types of law firms operate in very different markets.

Regulating the relationship between a high street sole practitioner serving mainly private clients is different to regulating the relationship between a major City firm and its global, corporate clients. Trying to operate a single regime to cover both relationships is likely to produce unhappy compromises that will serve the interests of neither client group.

To my reading, the Institute’s report is suggesting that the longstanding de facto differences between lawyers in large and small practices be codified into a de jure division of lawyers based upon the size of their firm, the main practice areas of the firm, and the types of clients that engage the firm. Although even the SRA is looking into ways in which City firms might be regulated differently, it still strikes me that the Institute report is proposing something far bigger than that. (The Institute probably shouldn’t be considered an entirely impartial source, by the way: its parent, the College of Law, provides extensive training for new lawyers at Magic Circle firms Allen & Overy, Clifford Chance and Linklaters). There’s more to the report and to the whole situation, but for present purposes, that’s the gist of what it recommends.

Now, I’m neither a UK lawyer nor a governance expert, so my subsequent thoughts on this report and its implications could reasonably be met with the response: “Who asked you?” But I’ve been picking up this kind of vibe in the North American profession as well, the idea that big-firm practice is so fundamentally different from other types of practice that it merits its own rules and processes. The ABA’s recent decision to amend its conflicts rules has a big-firm feel to it, and large Canadian firms have in the past lobbied to have conflicts rules amended so that they could act against “sophisticated” (there’s that word again) clients in certain circumstances if a waiver had previously been obtained from the client. So this looks like a live issue going forward, no matter what comes of the Institute’s report. And there are other implications that bother me as well. So here are four points I think are worth noting.

First, there are some practical objections. The report refers repeatedly to “major corporate and commercial firms”: what qualifies as “major”? Number of lawyers, total number of staff, annual revenue, profit per equity partner, number of offices, size of clients? And having decided the criteria, what are the cutoff points for each one? On the other side of the ledger, how do we determine what qualifies as a “sophisticated client”? Is a small entrepreneur with no in-house law department but with 25 years’ sharp experience in corporate backrooms not “sophisticated”? Is the dullest collection of in-house lawyers at the most doddering big company automatically “sophisticated”?  And who decides? I grant that this brief report isn’t trying to set out a complete system in 23 pages, but “major” and “sophisticated” are worryingly imprecise adjectives with which to start discussing a regulatory revolution.

Secondly, this seems to me the wrong way to delineate differences among lawyers. Certainly, it’s only common sense to acknowledge that the practices and concerns of a High Street solicitor (or a Main Street solo, in North American terms) are markedly different from those of a mega-firm lawyer serving multinational clients. In fact, a while back, I made the argument that lawyers have less in common with each other all the time, and that a single regulator for such a diverse profession was an antiquity destined to be replaced. I’m now prepared to rethink that position to at least some extent. But while you can still make a case for specialized regulatory approaches for some lawyers based on their practice areas (e.g., criminal, family, real estate law), I don’t think you can make one for law firms  based on their clients, size, or major practice areas.  All these characteristics can change on very short notice (as we’ve seen recently), and their mutability makes them a shaky foundation for a separate regulatory regime.

Thirdly, it’s not clear to me that this would be in the best interests of clients. I can’t help noticing that in the areas identified by the Institute’s report as ripe for change — defalcation funding, conflicts, lateral transfers — regulatory change would invariably operate to the benefit of law firms. The report suggests that what’s good for the firms is, GM-like, also good for their clients. But I’m not sure, from a client’s perspective, what advantages would flow to me if my outside counsel were governed by a separate, and undeniably more flexible, regulatory regime. To the extent clients are supporting these kinds of changes, it appears to be as a temporary crisis measure only.

The report even acknowledges the perceived risk of “‘regulatory arbitrage,’ with firms seeking to be regulated by whichever regulator appeared to offer the lightest touch.” The report’s answer is that the sophistication of these firms’ clients will prevent such abuse. But why would the firm be the one deciding which regulatory regime applies to it? Maybe that’s a choice to made by the Legal Services Board, or maybe it’s a choice for the client; but surely it’s not a choice for the law firm. If there’s even the possibility that one regulator might have a “lighter touch” than another, what confidence would clients have that their lawyers are being held to an appropriate standard?

Finally, it’s not clear to me that this would be in the best interests of the public generally. The report takes pains to reference the 1983 Court of Appeal ruling in Swain v. The Law Society, which identifies legal regulators’ ambit not as the public at large, but as “that section of the public that may be in need of legal services.” Be that as it may — English jurisprudence is light-years from my forte — the immediate interests of a client might not be the long-term interests of society at large. I’m sure you can think of clients in the financial services sector whose recent activities vividly illustrate that. As between clients’ interests and society’s interests, I think the latter self-evidently takes precedence.

I think it’s important we don’t confuse two concepts here. Lawyers act in the best interests of their clients; regulators act in the best interests of the public. Society at large has an interest in the proper governance of legal services and the people who deliver them — interests like competence, professionalism, integrity and transparency. Clients’ interests in this regard are most often the same — but they vary just often enough that we should want to be very careful about defining society’s interests in legal services governance to the narrow denominator of a given client’s perceived self-interest.

And you know, aside from all of the foregoing — and it may all be completely off-base; I’d like your take on it — something else bugs me about this whole idea. There are, as acknowledged, fewer things all the time that lawyers have in common; but maybe, for that very reason, we should do what we can to value and preserve those that remain. Possibly I’m guilty of the same kind of legacy-based traditional mindset I criticize for crimping innovation in the law, but for all that I think a degree of regulatory diversity for lawyers may be warranted, I’m still leery of straining the bonds of our professional identity beyond the breaking point.

To my mind, professional identity stands, among other things, for the proposition that every lawyer is equal within the profession — that  no lawyer is to be entitled to treatment or status different, better, or more favourable than his or her colleagues. The one thing we all share in common is those professional duties — to competence, professionalism, integrity and transparency — and to the rule of law. Lawyers insist that everyone is the same before the law; I think we need to insist on the same for ourselves. The Institute report’s recommendations, whether they’re right or wrong, should warn us that we need to give these concepts some serious thought.

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3 Responses to “The evolution of lawyer regulation”

  1. Carolyn Elefant

    I agree that we should strive to unify the profession. In fact, one reason that I started MyShingle was to highlight the accomplishments of solo and small firm lawyers so that large firms could see that we too deal with complex issues and are as capable and competent as our large firm peers. When I started MyShingle in 2002, major legal media publications simply did not cover small firm issues and accomplishments. That has changed to some degree, with major publications now offering an occasional section or column on solo and small firm practice.

    I don’t like to assign blame for the chasm between biglaw and small-law in the bar, but I do believe that larger firms are to blame. Their lack of curiosity about solo practice and small firms is appalling. Case in point – most solos I know regularly follow blogs like Above the Law, WSJ Law blog and Adam Smith Esq. to keep on top of events in the biglaw world. By contrast, I’ve never met a single large firm lawyer who has read, let alone heard of blogs such as MyShingle, BuildASoloPracticeLLC or Chuck Newton Rides the Third Wave, to name just a few.

    The chasm is a significant problem during this period of economic chaos. Large firms dominate the ABA and local bars and they will implement rules – like the conflict rules – to help preserve their practices. Look at the bars reaction to sites like Avvo that allow solo and small firm lawyers to present a professional presence online at no cost. What about onerous advertising rules that restrict lawyers from engaging in social networking? These rules disproportionately impact new solos and small firms which rely on these marketing measures for their livelihood.
    These days, many solos are now looking at opportunities to form affiliations or alliances where firms would market and work on projects collaboratively but maintain their own identity. When large firms (which have thrived on the one stop shopping model) start losing business to these sleek, low-cost alliances, I predict that they will seek to change bar rules to prohibit law firms from engaging in joint marketing without substantial disclosures that would undermine the value.
    If we can’t bring the bar together, we will find ourselves competing over a diminishing pie, and it won’t be pretty.

  2. Neil Denny

    I am not sure I share your anxiety about the potential for splitting the profession.

    I readily accept that the work that I do within a 7 partner firm in Bath, UK is fundamentally different to the work that my colleagues in Slaughter and May or Allen and Overy may do.

    I do not see that a separate limb representing or regulating different sectors should be problematic. The requisite skills and compliances are different after all. If there was another body, it is not automatic that it will overshadow the existing one, or that either one will be held in higher regard than the other.

    Would it not reflect the Court system itself with its divisions between Chancery, Family, Probate and the like?

    Where you have an excellent point, I feel, is in highlighting the public interests as a whole given the fallout we are all experiencing from the actions of the banks and institutions over the last however many years. That suggests that the regulatory body should hold powers and responsibility for guardianship of social/commercial mores and would require a far more proactive, intrusive body.

    I cannot think that you will find much appetite for that within the profession even if the suggestion was broadly approved.

  3. Richard Potter QC

    I support Jordan Furlong’s general skepticism in his post “The evolution of lawyer regulation”. I cannot see that further regulatory fragmentation in the legal sector is likely to be positive for either lawyers or the public. Rather than narrowing, we need to maintain as broad a perspective as possible, and I’m leery of thinking that such breadth can be maintained with a narrower scope of regulation.

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