At the crossroads of regulation

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I respectfully suggest that we stop using the following lines from Henry VI Part 2, Act 4, Scene 2 in conversations about the modern legal profession:

DICK: The first thing we do, let’s kill all the lawyers.

CADE: Nay, that I mean to do. Is not this a lamentable thing, that of the skin of an innocent lamb should be made parchment? That parchment, being scribbled o’er, should undo a man? Some say the bee stings: but I say, ’tis the bee’s wax; for I did but seal once to a thing, and I was never mine own man.

These lines are routinely misused by two warring parties: the small-minded critics with contempt for the profession who gleefully cite Dick’s line to justify actionable loathing of an identifiable group, and the self-righteous lawyers who aver that Dick and Cade were traitors and rhapsodize about lawyers’ role as bulwarks against anarchy (in actual fact, lawyers in Henry VI’s time were often viewed as corrupt accomplices to the king’s crippling taxation laws).

I wish we could leave these lines to literature and history, but that phrase keeps coming up, most recently in a new book from the Brookings Institution titled First Thing We Do, Let’s Deregulate All the Lawyers. The title put me off right away, as did the unusually flawed article in The Economist that discussed the book’s findings and recommendations.

The authors are, however, on reasonably solid ground when they identify numerous distortions in the legal marketplace that inflate costs well beyond what they should otherwise be. I’d need to read the book to assess their claim that “of the $170 billion spent on lawyers every year in America, some $64 billion is a premium produced by market distortions,” but it doesn’t sound wildly improbable to me. (Gillian Hadfield’s excellent work on the distorting effect of lawyer regulation comes highly recommended.)

What I really don’t get, however, is this idea that “deregulation” of the legal services marketplace would be a good thing. Set aside for a moment the sorry history of deregulation across almost every industry, as well as the fact that we’re now unmistakably entering an era of more regulation and greater government involvement in the private sector. Legal services in particular require regulation for the simple reason that consumers are in no position to know whether or not they were properly served: this is not a marketplace in which buyers can figure it out for themselves before purchasing. Legal market deregulation isn’t an option even in the UK, which is undergoing massive change, as Stephen Mayson points out.

What we need in the legal marketplace is not deregulation, but disinterested regulation. We need a regulatory structure in which we can have the highest possible confidence that all vendors are equally scrutinized and all purchasers are equally protected.

In many jurisdictions, legal services are regulated by lawyers, who regulate themselves and other licensed providers in the public interest and prosecute unlicensed providers for unauthorized practice. It was, however, the widespread perception of inadequate self-regulation that led to momentous governance changes in Australia and England & Wales, highlighted by the removal in whole or in part of lawyers’ right to exercise ultimate authority over either the marketplace or themselves — demonstrating with a vengeance how fragile these rights actually were.

The public interest in disinterested regulation is now going to take center stage in the US and Canada, thanks to the emergence of web-based legal service providers (including, significantly, Lexis-Nexis) not owned by lawyers and not licensed by the appropriate governing bodies. The correct function of legal marketplace regulation, it seems to me, is to set acceptable service and competence standards for all providers and assess the fitness of each provider against those standards. Lawyers’ traditional approach to regulation, by contrast, has been simple and syllogistic: (1) Only lawyers are competent to provide legal services, (2) these providers are not lawyers, (3) ergo, these providers are not competent to provide legal services.

And maybe so. But jurisdictions in which the government regulates the legal market (such as the UK, where the Legal Services Act specifically prioritizes consumer interests) have viewed these new outside providers more favourably than jurisdictions (such as the US) in which lawyers regulate the market. It’s reasonable to ask why that’s the case, and it’s not difficult to come up with answers.

The “practice of law” (as I noted at the 3 Geeks blog recently) is something of an historical anomaly: lawyers have long been performing many law-related activities without competition mostly because there wasn’t anyone else around to compete. Our exclusivity emerged from the fact we were the only competent entrants in the market, not from a time-tested demonstration of skill so superior to other players that it required a ring-fenced franchise on legal services. It’s natural, in that context, that “self-regulation” should have morphed into “marketplace regulation,” but that doesn’t mean that morphing had a rational basis.

Times have now changed and new providers have emerged, making defensible claims that they can tackle some (but by no means all) kinds of work that lawyers previously performed exclusively. How will we respond, and with what regulatory philosophy?

“Disinterested regulation” of the legal marketplace is not only in consumers’ interests; it is very much in our own interest as lawyers. If the public and the government perceive us as truly objective regulators, fair dealers who apply the same standards of competence and reliability to lawyers and non-lawyers alike, then we have a pretty good shot at retaining our governance role. But if we’re instead perceived as regulators who consistently approve our own kind while systematically barring everyone else, then we’re practically asking for state intervention. You can guess which end of the spectrum we’re currently nearer.

No one out there is going to cut us any slack; too many people still quote Henry VI and smirk. So we need to be beyond reproach when assessing new market entrants in our regulatory role, or we risk serious consequences. We can afford to lose the right to govern the market; I would not want to see us lose the right to govern ourselves.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

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