Hope vs. experience in California

What we know: The State Bar of California is creating a task force that will examine whether to modify ethics rules requiring that only lawyers may own equity in law firms. The Task Force’s commission followed the acceptance by the Bar’s Board of Trustees of a “Legal Market Landscape Report” commissioned by the Bar from Prof. William Henderson of the University of Indiana Maurer School of Law. That excellent report, extensively researched and detailed, argues that requiring lawyers to be the sole equity owners of law firms stunts the development of more productive, one-to-many legal services delivery and contributes to a system-wide legal access crisis.

What we don’t know: pretty much everything else.

The question everyone’s asking is: Has the game-changer arrived? Is this the American equivalent of the 2003 appointment of Sir David Clementi to examine the legal regulatory structure in England & Wales, the first pebble in the coming avalanche?

My early answer is this: The chances that California’s task force will result in fundamental reform to law firm ownership rules in the United States are higher than they’ve ever been. That doesn’t mean they’re particularly high.

Invariably, it’s not. But inevitably, at least once, it is.

It makes all kinds of sense to be cautious here. No legal regulator, in any jurisdiction, has ever voluntarily renounced the ban on non-lawyer ownership. In both Australia and England & Wales, it was direct government intervention that started the process — and in both cases, that intervention followed extensive criticism of legal regulators for failing to address client complaints about lawyers. Whenever the spectre arises of “non-lawyers” in legal services delivery, the legal profession mobilizes immediately and throws its considerable weight against the prospect. Toby Brown summed up the strong case for skepticism more than three years ago. It would be foolhardy to bet against the lawyers here.

But if you were ever going to make that bet, this would be the time to do it. There are several factors at play here that could justify the idea that maybe, possibly, this time is different.

  • Last fall, the California State Bar “deunified,” spinning off its trade association activities into a separate non-profit and keeping its regulatory and disciplinary functions. The Bar no longer suffers from conflicting mandates to both govern lawyers in the public interest and advocate for those lawyers’ interests; only the first directive survives. The regulator appears to be taking its “recent reforms and clear public protection mandate” seriously.
  • The Bar’s new Board of Trustees has 14 members, only seven of whom are lawyers. All are appointed by the state Supreme Court, legislature and governor, rather than elected by the legal profession. Speaking from a jurisdiction where the regulator’s governing board is directly elected by lawyers, following extensive campaigns in which candidates promise to “represent your interests,” I can tell you that this is no small thing.
  • The report was commissioned pursuant to Goal 4 of the Bar’s 2017-2022 Strategic Plan, “Support access to justice for all California residents and improvements to the state’s justice system,” objective (d): “…determine if any regulatory changes are needed to better support and/or regulate the expansion of access through the use of technology in a manner that balances the Bar’s dual goals of public protection and increased access to justice.” There’s a pretty clear theme here.
  • The task force’s mandate is not neutral or deferential towards the status quo. Rather, the task force is to conduct an analysis of “possible regulatory reforms,” a phrase that at least suggests the task force is supposed to come back with findings a little more robust than “everything’s fine the way it is.” Task forces tend to examine their commissioning documents closely and parse the language that was used to launch them.
  • This isn’t just any state: It’s California, home to 250,000 lawyers and an historic pioneer in public policy reform. More importantly, it’s home to many alternative legal services providers, online document providers, managed legal services companies, legal outsourcers, and legal technology startups. They’ll have pockets deep enough to support any kind of lobbying efforts they might wish to make, in conjunction with access-to-justice organizations and chambers of commerce.

Now, even taking all that into account, the challenges here are immense. The legal profession in California and nationwide will almost certainly throw everything it has against the possibility of regulatory reform emerging from this process. A lot will ride on the membership of the task force, which hasn’t been chosen yet: A chair or prominent member with strong views about the preservation of lawyer exclusivity in legal services could easily drive the task force where every previous reform effort has wound up. And even if California did decide to expand ownership of law firms beyond lawyers, that won’t happen before late 2020 at the earliest, and it would galvanize opposition by the organized bar elsewhere. It would be a significant step forward, but it wouldn’t be the tipping point by itself.

Sure the original’s better, but this version’s not bad.

But imagine for a moment what the legal market might look like if this reform actually happened. We’d find out if reform opponents were right all along, when they warned of  “non-lawyer” owners compromising lawyers’ judgment, abandoning legal ethics in favour of quick bucks, and exploiting vulnerable and under-informed clients with shoddy services and poor advice. The challenge for these opponents is that England & Wales has allowed “non-lawyers” to hold equity positions in firms for seven years, and there’s been little or no evidence of these outcomes unfolding there.

And on the list of potential benefits? Law firms offering equity positions to professionals and technicians from outside the law to restructure processes, build high-tech systems, and serve clients directly. Deeper cash reserves, enabled by injections of funding from outside investors, to finance technology and marketing upgrades. More non-lawyer equity holders moving in to replace retiring senior lawyers, thereby maintaining or growing the firm’s capital base. And ideally, the establishment of online legal services providers with the resources to offer the best of both NewLaw and OldLaw: low-cost, high-efficiency legal documents and services combined with high-quality legal assistance and advice from good lawyers. Not all of these benefits will be realized. But even one would be pretty great.

I’ve been in this business too long to harbour any illusions about the legal profession’s willingness to change. The smart money, the obvious prediction, says this task force will come to nothing, that the forces of intransigence will chalk up another win by making the right arrangements with the right power brokers, or simply by stonewalling until the reformers tire themselves out. The odds still favour that outcome, as they always do.

But here’s the thing: Eventually, change does arrive, often when you least expect it. Nothing stays the same forever, and believing that it will just makes it easier for nothing to change. I still root for the triumph of hope over experience, in spite of experience’s long winning streak. At some point down the road, power in the legal market will shift away from lawyers just enough to enable new expectations, assumptions, and rules for how legal services are created and delivered — just enough to start benefiting the people who need legal services more than the people who provide them.

There will be a moment when that shift begins. This might even be it.



5 Comments

  1. Heather Morse

    Thanks for linking my recent post, Jordan. I spoke to the trustee who is charged with creating the taskforce. After my conversation with her, I would say the odds are better than you think. The two branches of the Bar have different missions, and the one who is proposing the revision of 5.4 is only focused on access to justice for the People of California, and the lawyers standing in the way will be heard, but they are not the concern.

  2. Jordan Furlong

    That is very encouraging news, Heather — thanks very much!

  3. William Henderson

    Jordan, nice summary and perspective. Many thanks! bh.


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