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- Will continuing to ban nonlawyer ownership make US firms and clients less competitive?
The New Normal
Will continuing to ban nonlawyer ownership make US firms and clients less competitive?
Posted Nov 1, 2013 8:23 AM CST
By Paul Lippe
I had a visit this past week from Karl Chapman, the CEO of Riverview Law, and Steve Harmon, head of legal operations at Cisco. Steve, Karl and I spent time at several law schools, with several large clients, and with one large law firm. Click here for a full video of our panel at Northeastern Law School’s NuLawLab. (Full disclosure: OnRamp has a broad commercial and strategic collaboration with Riverview.)
Let me divide this travel report into three themes:
• The background of the Ethics 20/20 Commission and the change in the U.K. law around alternative business structures.
• What Riverview means to the legal market.
• Possible implications for American law firms from the differential regulatory regimes.
Ethics 20/20 and alternative business structures
Under U.S. ethics rules, lawyers can’t share profits with nonlawyers, which means that law firms can only be owned by lawyers: in other words, law firms (unlike many other professional service firms) can’t have nonlawyer partners. The U.K. changed this rule a few years ago, while in the U.S., the ABA’s latest Ethics 20/20 Commission effort declined to follow the U.K. change. Early commentators imagined that the U.K. rule change would result in Clifford Chance going public, but that’s not at all the most probable scenario; rather, we’re likely to see new market entrants with a mix of old and new DNA challenge the traditional structures.
Academics like University of Southern California law professor Gillian Hadfield in an outstanding new paper "The Cost of Law: Promoting Access to Justice through The (Un)Corporate Practice of Law" argue that restricting nonlawyer ownership of legal service firms limits innovation and increases prices to the detriment of clients. Others, including many general counsel friends of mine, believe that following the U.K. change would “undermine the unique attorney-client relationship, … exacerbate the law’s drift from a profession into a business, and … hasten the day when the legal profession is no longer self-regulated.” (PDF)
My view had been more agnostic. On the one hand, if you look at the behavior of many large law firms, it’s hard to imagine that they could be more short-term financially oriented if they were investor-owned. On the other, any lawyers who want to be innovative are perfectly capable of doing so within the constraints of pure lawyer ownership, since law really isn’t very capital-intensive. See page 123 of the comments on technology working group issues papers (PDF).
I also was on a panel on the International Bar Association meeting with Jamie Gorelick, who chaired the Ethics 20/20 effort, and Patricia Greer from the Law Society in the U.K., who reports a mini-boom in law firms choosing London as the place to base themselves. (If you listen to minute 58 in the Northeastern video, you’ll hear Luke Bierman, the associate dean for experiential education at Northeastern, describe a 1999 ABA effort at reform that would have put the U.S. well ahead of the U.K. in this area.)
Riverview is a brand-new firm that calls itself a “legal advisory outsourcer,” to distinguish itself from legal process outsourcers. Riverview is focused on high-volume activities that large companies do, sometimes recurring but other times “event-driven.” Their closest U.S. competitor is Axiom legal, although Axiom can’t organize as a law firm under U.S. rules. (According to George Beaton, Axiom is on the pace to be the biggest law firm in the world by 2018.)
Riverview is perhaps best known in the U.S. for their hysterical “fixed fee” video, but in the U.K. they are better known for having developed large advisory outsourcing businesses in recruitment and human resources over the last 25 years, so they’re building on a foundation in other fields. From what I saw from Karl, Riverview is extremely rigorous in its approach to training and managing work, much more so than what I see from law firms. Yet at the same time, Karl is very engaging and businesslike.
When Karl spoke earlier in the month at a law firm conference in London, he laid out his strategy. Most of the clients were interested, but several law firm managing partners in attendance said in essence: “We’re not sure change is necessary.” To which Karl responded: “Good.”
Some other Karl-isms:
“We’re not doing anything clever. We’re just applying common sense to the legal market”
“The legal market [in the U.K.] has been protected by myth and regulation for so long that the existing incumbents can’t respond to the change that’s going to hit.”
“We started with a blank sheet of paper and built from the customer up, not the law firm partner down.”
“Most GCs we talk with are growing the size of their in-house functions because law firms are too expensive. What supply chain would create a situation where it’s cheaper for customers to do it themselves?”
The implications for the U.S.
If the U.S. continues to operate under a more restrictive regulatory regime, it seems likely that Gillian’s fears will be borne out—law will be less innovative and more expensive than it would otherwise be. It may be that the benefits of greater ethical behavior by lawyers outweigh those costs, but that’s ultimately an empirical question. Will we see evidence of less ethical behavior in the U.K. under their more flexible regime? Since clients could always choose which style of firm to engage, why not allow more experimentation?
What seems pretty certain is that—given that most of the growth in legal demand will be outside the U.S.—firms in the U.S. will be disadvantaged in competing for that work, and U.S. clients will pay higher fees for legal work than non-U.S. clients, creating a competitive disadvantage globally. I understand the arguments against deregulation, but in talking to Karl I found it a little embarrassing, even “un-American,” that the U.S. has adopted a more anti-innovation view here than what many Americans think of as the “stodgy” U.K.
The point of law is not to benefit lawyers, but to make for a more ordered and just society. Law is too expensive for most people, whether large corporations, small businesses or individuals. Lawyers will have to find ways to deliver more for less. While structural change to the ownership model of law firms is not a prerequisite to that change, it may be a useful catalyst.
Paul Lippe is the CEO of the Legal OnRamp, a Silicon Valley-based initiative founded in cooperation with Cisco Systems to improve legal quality and efficiency through collaboration, automation and process re-engineering.