Who should have the right to own a law firm?

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And so the floodgates have opened, and here come the “non-lawyers” surging into the law firm ownership stream. The Legal Services Act‘s long-awaited authorization of Alternative Business Structures in the UK took effect in January. Within the first two weeks of February, here’s what followed (all transactions unofficial until approved by the Solicitors Regulation Authority, which so far has received 121 ABS applications):

Now, at long last, we get to test-drive the worst-case scenario. Ever since the implications of Sir David Clementi’s commission recommendations were first absorbed — even before that, since Queensland made the legislative changes in 2004 that allowed its law firms to float on the stock exchange — we’ve been hearing that non-lawyer ownership of law firms was the beginning of the end, the steepest of slopes down which professional independence and dignity would inevitably slip. All the arguments up to this point, pro and con, have been theoretical. Now we get to see — in a £40 billion legal market anchored in one of the world’s great financial city-states — what the practical actually looks like.

You might have noticed that all three of these ABS pioneers are practitioners of personal injury and/or insurance law, which are essentially both sides of the accident-compensation coin. Their leadership in this regard make sense — personal injury lawyers have long been the profession’s unsung pricing innovators (cf. contingency arrangements), while insurance companies watch their legal costs extremely closely and don’t hesitate to make aggressive moves to reduce them. We expected that ABS expansion might first occur in consumer-side practices such as wills & estates or family law; but with these firms, we get to see both consumer and corporate interests take a dip in the ABS pool and test the waters.

What can we now expect? At this early stage, specific predictions are obviously impossible. But it’s safe to say that some of these and other future experiments will fail — the wrong fields were entered, the wrong firms were chosen, the execution was ham-handed, bad luck intervened, etc. Equally, however, we can be sure that some will succeed, often spectacularly: massive publicity, booming business, satisfied customers, rising firm values, continued expansion, etc.

What we won’t see is across-the-board failure of the ABS experiment, because there’s nothing fundamentally wrong, from a market perspective, with the ownership model. There’s no reason why law firms run by non-lawyers should be less successful than those run by lawyers — in fact, there are many reasons why the opposite should prove to be the case. If you’ve worked for or with lawyers, you can probably think of several right off the bat.

But what drives the opponents of non-lawyer ownership of law firms isn’t the likelihood that these businesses will fail — they’d probably concede that some of these operations will do very well. Their argument is that by allowing control of law firms to pass out of our hands, lawyers will lose our professional purpose and identity — we will have sold our souls for private equity gold. Not only do I not subscribe to these arguments, I think they reveal the fundamental problem at the root of our profession’s vulnerability in this new market.

A concise example of the arguments favouring lawyer-only law firm ownership is contained in this Wall Street Journal Law Blog interview with Robert C. Weber, general counsel of IBM. It should go without saying, here at the outset, that Mr. Weber deserves enormous respect for his position and accomplishments, and that his clear concern for the good of the profession and the clients we serve is one that every lawyer should share, as I certainly do.  But I think there are problems with the arguments he puts forward in his cause. I want to identify three:

“When the world was such that lawyers were able to raise their rates 5%, 6%, 10% a year… and profits per partner at big firms and small were outpacing the GDP, you didn’t hear about [non-lawyer equity in law firms].” He said the profession has grown more selfish in recent years and less focused on clients, which, in turn, has given the idea of outside ownership room to grow.

“Now it’s not ‘I’m doing something good for society and my clients’ — it’s ‘How far can I push things to maximize my personal potential,’” he said. “All you need to do is open the paper and read about groups of partners jumping from one firm to another. The notion of partnership has degraded at these mega law firms.”

This argument, it seems to me, actually demonstrates that the evils of non-lawyer ownership against which we’re being warned have been here for awhile. Greedy firms, selfish lawyers, disloyal partners — we’ve managed to achieve all these outcomes without any assistance from non-lawyers at all. The current lawyer-owned law firm business model, with its rictus fixation on annual partner profit, produces unpleasant and undesirable lawyer behaviour all on its own. Non-lawyer ownership, whatever its real and imagined faults, at least has the virtue of requiring a sustainable, long-term rise in the value of the business, accomplished through mature management and forward-thinking research and investment. Law firms don’t need to fear equity shareholders obsessed with short-term profit who’ll empty the entire piggybank into their pockets every year. They’ve already got those.

The purpose of the rules of professional conduct for lawyers is to protect the integrity of the attorney-client relationship and guide decision-making based on the client’s best interest, Weber said. “Lawyers have a separate set of rules that are used as a defense of the profession policing itself. Once we get to the point that we start behaving like any other business, then I would take the position that we are forfeiting our right to self-regulation,” Weber said.

What’s interesting, however, is that the loss of self-regulation didn’t result from non-lawyer ownership in Australia or the UK — it preceded it. Those jurisdictions took self-governance away from lawyers because lawyers’ self-regulating bodies had failed to curb lawyers’ cavalier treatment of clients or to respond adequately to client complaints. The state didn’t suddenly notice that law firms were behaving like businesses and therefore no longer deserved self-regulation — they noticed that lawyers, in lawyer-owned law firms, were serving their own interests above those of their clients and the public. Law firms have always behaved like other businesses because they’ve always been businesses, albeit with far less sophisticated management.

“I can tell you the way of the world is that incrementally those protections [suggested by the ABA] will begin to go away and non-lawyers will have more and more say, and this profession will have given up not only our independence but our rightful differentiation from a business.” He went on, “The only way you could say that’s not going to happen is to ignore human history, to ignore the example of the investment banks and to say lawyers really are different, better people by nature than others. As much as I love lawyers, that isn’t the case.”

Hang on — these two statements don’t jibe. The first says that law firms are differentiated from other businesses because they’re run by lawyers, clearly implying that lawyers are a cut above the average businessperson when it comes to professionalism and scruples. The second says that no, lawyers actually aren’t any different than other businesspeople, that we’re just as prone to the temptations of greed and selfishness as anyone else. Which is it? (It’s the second, of course.) This is important, because it goes to the heart of this debate. When we say, as Mr. Weber and others say, that lawyer-run law firms are better and more admirable and more desirable than firms run by non-lawyers — what exactly do we mean by that?

What we mean, of course, is that we’re better. We have higher ethical standards, better behavioural norms, more high-minded professional concerns than everyone else. That’s what the overused term “non-lawyer” really means, doesn’t it? We’re the only profession I can think of that divides the world into “us” and “not us” — have you ever heard of “non-plumbers” or “non-nurses”? We do this because we really believe, in our hearts, that there are two types of people — lawyers and everyone else — and we are certain that we’re the wiser, nobler, and more responsible segment. That’s why we’ve never been able to come up with a better term than “non-lawyer” — it’s because we don’t need to. It’s perfect. It says everything we believe about ourselves.

And it’s folly. Look, I’m a lawyer, and I’m proud of it. I’ll be the first to jump out there and defend us against patently false accusations that we’re worse than other members of society. And I’ll be the first to say that lawyers, at our best, are extraordinarily civic-minded, responsible, generous — leaders in and pillars of our communities. But it’s delusional for us to believe that we’re the only people who answer to that description. It’s the worst kind of elitism to maintain, even implicitly, that we occupy higher moral ground than everyone else. But fundamentally, that’s the belief that underlies opposition to non-lawyer ownership of law firms.

I call this “lawyer exceptionalism” — the belief, held by lawyers and lawyers only, that our professional standards, ethical training and higher calling places us in a separate and better category than those without our advantages, both making us socially indispensable and justifying special treatment. You might never have articulated it in so many words, but I’ll bet that subconsciously, that idea stirs feelings of recognition and affirmation. It’s an assumption that was planted in our minds in law school and has been growing quietly in all the years since.

If lawyer exceptionalism were valid, I’d expect lawyers to be unusually exemplary in their personal and professional conduct, law firms to be models of outstanding corporate behaviour, and the legal system to be as fair and accessible as this life will allow. You and I both know, of course, that that’s not the case. We know it because we’ve dealt with too many lawyers, spent time inside too many law firms, and met too many people who can’t afford or even understand the justice system. Mr. Weber referred to the crumbling behavioural standards within increasingly profit-hungry law firms, and people inside those firms could provide plenty of ugly examples.

A legal marketplace run solely by lawyers has successes to its credit — but also failures and missed opportunities. If we really expect to defend lawyer control of law firms — not to mention the legal market itself — we need to mount an airtight, categorical case that we have consistently placed the interests of our clients, our communities and our societies ahead of our own. Anyone want to go first?

Here’s what I think is going to happen when non-lawyers have the right to own law firms. Some firms owned and managed by non-lawyers will turn out to be very profitable businesses, some will show mediocre performance, and some will consistently lose money and eventually fold. Equally, some of these firms will turn out to be exceptional businesses that genuinely increase access to justice, while some will be unimpressive peddlers of legal services and some will be lousy businesses that make employees and clients equally miserable. In other words, I expect non-lawyer-owned law firms to be pretty much the same as lawyer-owned law firms, because I happen to think that lawyers and non-lawyers are just as good and just as bad as the other. The primary market difference is that non-lawyer-owned law firms will be far more efficient and will offer far more affordable services.

But maybe I’m wrong. Maybe lawyers really are better than non-lawyers, and maybe law firms run by non-lawyers will prove to be a scourge of society. There is, as it happens, only one way to find out for sure. Lawyer-owned law firms need to prove, in direct competition with non-lawyer-owned law firms, that they’re better — better for clients, better for lawyers, better for staff and better for society. The legal profession has talked a good game for a long time, but it’s never had to actually play that game, until now. The flag has dropped in England & Wales. The competition is on. May the best model win.

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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5 Responses to “Who should have the right to own a law firm?”

  1. Bradley Wright

    When Zhou En-Lai was asked in the 1960s whether he thought the French Revolution had been a success, he replied, “It’s too soon to tell.”

    When law firms become beholden to the interest of their shareholders instead of to the interests of their clients (no safeguards will prevent it over time), something fundamental shifts. It may take a generation or two, but the folly of this will become apparent down the road. There was no need for it, but a combination of (1) underestimating the ethos of the practice of law and underestimating how many lawyers take it very seriously, (2) overestimating the altruism of the buyers who have never worn the full mantle of that ethos, (3) not understanding history and the 1,000 year battle that it took to obtain the independence of the bar, not just (though mainly) from government but from other usurpers, (4) not understanding philosophy or, for that matter, psychology, and (5) underestimating the harm caused by anything that was once exceptional or non-existent that then becomes mainstream, caused the proponents of this breath-takingly and dishearteningly awful turn of events to push mindlessly forward with it. That it began in the cradle of modern democracy (2,000 years separated ancient Athens from Magna Carta, and even then it took 800 years for women to get the vote in Britain) makes it all the harder to bear. The Brits should have known better, and they will rue what they have wrought.

    Insofar as the shifting of loyalty away from the clients and to the shareholders is concerned, consider that the soft drink industry funds so-called unrestricted research at universities. The universities then produce “studies” not funded by those grants that show that soft drinks or the ingredients are not harmful to health and then claim that those studies were not part of the researches funded by the soft drink industry. Does anyone believe that there was no contamination, no wink wink, occurring? Those studies are next to worthless. It does not matter whether they produce correct science or not. How can one ever be sure unless a truly independent research facility duplicated the results? The sell out to non-lawyer owners of law firms can never produce a legal profession that is as highly regarded by the public as a legal profession wholly independent of such pressures. Having non-lawyer ownership taints the profession. Nice for the sellers perhaps, but lousy for the long-term health of the profession and thus the public.

    It is often said that our societal “problems” (from underfunded pensions to misconceived entitlements to lack of access to justice) are difficult to identify and fix. In reality, there is nothing difficult about identifying the problems and there is nothing difficult in understanding what needs to be done to fix them. What is difficult is overcoming the vested self-interests of the vestedly self-interested and the cluelessness of the clueless. Instead of implementing simpler, more effective solutions, we make things more complicated than ever, complications that worsen the situation but make their advocates feel warm and fuzzy.

    And don’t accuse me of being a reactionary conservative. There are countless amendments I would make, some of them radical, but they would lead to a system that is demonstrably fairer and more accountable. As Alan Dershowitz said, “No one wants justice”. He meant that everyone wants an advantage for themselves and to hell with justice, to hell with the greater and broader good. Non-lawyer ownership is an advantage for the sellers and buyers, but a disadvantage for everyone else. You’ll see, eventually.

  2. Rob Aiers

    I have been dealing with lawyers in the USA and the UK for very many years as an acknowledged authority in my field. It is quite offensive to assume that being a lawyer makes you somehow morally elite, indeed if this were the case why are lawyers reputations where they are? Conversely does this assume that us non lawyers are a bunch of vagabonds. One assumes that lawyers are human and therefore will display normal human behaviour — good and bad in equal measure. My learned friends I have seen lawyers give time freely to good causes and prop up charities. I have also however been engaged with lawyers who’s self interest is much more evident than their ethics or the needs of their clients. Where para legals run case loads whilst lawyers do the more important stuff. (quite what this is I have no idea). The ABS system will as has been mentioned not make any material difference save for two areas bad lawyers who don’t perform will be out of the door. Non profitable cases will not be fought, leaving those lawyers who find them selves out of work picking up the slack. This will mean less justice for those cases who do not provide enough financial recompense. Wait a minute is this not all ready happening? The UK’s model to date is far from satisfactory with lawyers fees often far exceeding their clients awards, with US lawyers picking up only those cases they have a better than even chance of winning.

    I can tell you as a non lawyer I do not consider my ethics to be inferior to yours, just remember if you are on your high horse taking the moral high ground you are well positioned for a proud fall.

  3. fearius23

    You keep attacking the elitist tendencies of lawyers but the tone of your writing makes you sound elitist. I think that’s what Rob Ayers is so mad about.

  4. Anne Marie Segal

    I agree with your “realist” arguments in large part, but there is one distinction between lawyers and non-lawyers that cannot be overlooked. The latter cannot be disbarred, which is what I believe ultimately keeps the unscrupulous lawyers in check, since it is potentially disastrous to their future earnings potential.

    Great blog.

  5. Rob Aiers

    The name is Aiers, not that it much matters. I am not mad at all or even remotely angry, though may be I should be on behalf of clients who are not exposed to the best legal care available. My beef is just that an awfull lot of lawyers behave in a very patrician maner towards their clients and give scan regards to specialist from whom they might gain valuable knowledge. Involving experts in Thier business not only makes great sense but is also good for client aquisition and retention, marketeers and business managers with a stake in the business would help rather than hinder. I can think of now other organisation that would not have a board made up of mixed skill sets – it simply would not be good for business.

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