U.K. Alternative Business Structures (ABS) – Caution is best for new law practice models.

October 7, 2011

I recently read in the September, 2011 issue of “National”, the Canadian Bar Association (CBA) magazine, that the United Kingdom and Wales were fast on the way to licensing their first “Alternative Business Structure” (ABS).[1]  What I found there really piqued my interest and made me dig further, into the Solicitors Regulation Authority of England and Wales (SRA),[2] the UK Legal Services Act, 2007,[3] and the SRA Handbook;[4]  and I further learned that the first ABS is now operative, as licensed under the Council for Licensed Conveyancers (CLC).[5]  As a whole, I find that the ABS rules are rather complex and not yet well-settled, at all.  The model, however, has 3 (“three”) essential tenets:

CONCEPT.

A.        Lawyers and non-lawyers can share in ABS management and control;
B.         An ABS can have external investment and ownership;
C.        An ABS can offer multiple services to clients (including legal services) from within the same entity (known as a multidisciplinary practice).[6]

COMPETENCE.

I am not an expert on U.K. law or licensed to practice there.  It appears, however, that while the SRA application to be the sole licensing authority for ABS is pending before the Legal Services Board (LSB), any other “Approved Regulator” may license ABS in the interim, so long as said regulator already has the authority to regulate the “Reserved Legal Activity” or activities, that will be performed within that ABS.[7]  This seems to be what happened in the case of the CLC’s recent licensing action.[8]  I will, therefore, restrict my commentary to the CBA Article, and generally consider the 9 (“nine”) ABS options identified there; with my own titles added for better classification, clarification, and comparison.

CONGLOMERATIONS.

1. Sole-branded Lawyering: A fully externally-owned ABS, with the ring-fenced owner merely taking profits and having no interest in the supply of ABS legal services.

2. Co-branded Lawyering: A fully externally–owned ABS, with the owner having an interest in supplying both ABS services and its own co-branded products and/or services.

3. Multi-Disciplinary Practice (MDP): A single-source ABS offering or arranging a variety of legal and other services.

4. Co-Operative Lawyering: An externally-owned ABS providing both legal services and non-legal services.

5. Private Equity Lawyering: An ABS owned by a Private Equity entity that does not, itself provide any legal services.

6. Listed Law Company: An ABS that is publicly-listed, with non-lawyer shareholders, and likely non-lawyer directors, also.

7. Legal Service Arrangement: An ABS that is, essentially a non-legal practice administrative Hub (which may still need to be licensed for one or more reserved legal activities), and that has and maintains various spokes providing either different types of legal services, or legal services in different jurisdictions.

8. Parallel Non-Profit Lawyering: Not-for-Profit entities, as ABS, that offer legal services.

9. Parallel In-House Lawyering: In-House legal teams, operating as ABS, that also market and offer their services to clients other than their own corporate employer(s).

COMMENTARY.

“Safe-so-far” models: These are or have been tried, tested, or discussed in other jurisdictions or amongst practitioners and regulators at length, and seem to be safe; if well thought-out, well-regulated, and well-managed.

3. Multi-Disciplinary Practice (MDP): has been considered in legal practice for some time.  However, it has not really taken hold in any major way on either side of the Atlantic; due to the need for rigorous attention and adherence to Rules of Professional Conduct for lawyers.  The already very tough compliance requirements on multijurisdictional law practices with global operations, have, doubtless, made  many a Managing Partner balk at the thought of even more – and potentially conflicting – codes of conduct with which to comply.

7. Legal Service Arrangement: The hub and spoke model is already in use; but in a highly regulated format, such as with a Legal Aid model, or a Lawyer Referral Service.  Granted, the hub does not provide legal services per se, it can and does, sometimes only for a membership fee and sometimes for both a membership fee and a user fee, handle back office administrative duties, advertising, and general facilitation of access to and for its members.  Many models may also certify members for a minimum level of competence, and verify or require that adequate insurance coverage be present as a pre-condition for membership in good standing and therefore referrals with confidence.

8. Parallel Non-Profit Lawyering: Again, this is a variant of the hub and spoke model, but within the Not-for-Profit sector.  Any or all of a community assistance entity, a social welfare entity, and a court services department may offer legal services on a not-for-profit basis, in parallel with their standard or regular functions.

“Suspicious” Models: These are entirely alien to the currently accepted, normative models of legal practice.  To my knowledge, they are not yet in use in the Americas, in Europe, or in Africa or Asia, for that matter, as their existence and availability could well jeopardize lawyer independence.

6. Listed Law Company: A publicly-listed law firm or other entity that regularly provides legal services will raise significant questions about the degree of control a board of directors will have over day-to-day operations and the provision of client services.  Will the profit motive take precedence over quality, and will management put additional pressure on practitioners to settle a major suit quickly before the share place slips too far; to skimp on the due diligence for a major merger due to a potential bonus fee promised for its speedy conclusion; or otherwise pressure them to perform outside the reasonably possible or the ethically advisable, due to promises earlier made to clients by non-lawyer officers or directors, or both.  The potential pitfalls of this model, are really quite perturbing.

1. Sole-branded Lawyering: Branding the law practice with anything other than the name of a current or former or deceased practitioner of that firm, or with another permissible name under the applicable Rules of Professional Conduct, just, for me, serves to cheapen the practice of law.  Many may ask why lawyers should be so different?  The answer: they just are!  Consider these questions, to demonstrate this point.  (i) Not all potential clients will be attracted to that name.  Will a law firm be permanently smeared by former attachment to a named entity that runs sweatshops, has a nasty environmental incident, is sanctioned for abuse of a dominant position or for foreign corrupt practices, or faces bankruptcy in the wake of a mass casualty incident?  (ii) If a dispute arises over the use of that name or brand, what will the firm use in the interim, and how and to what extent should it raise and contribute the funds for any settlement of that dispute?  How happy will the firm’s clients be when approached to fund a surcharge as their contribution for the benefit of having been served by a firm bearing that name, in the past, and for wok that has already long been completed?  (iii) How tacky can the co-merchandising become, before someone has or a group of someones have, a gag reflex, and state that enough is enough?

(iv) How foreseeable is the likelihood of a given name brand proving a disaster in the future, when it comes to coverage and denial of coverage, if things go wrong and an insurable claim is filed against an ABS firm?  Which regulator, if any, will be responsible for approving who can practice law under what brand?  (v) There are certain types of business (gambling, pornography, liquor sales) and even religious and cultural practices, that are not universally welcomed in all jurisdictions where lawyers can and do work.  What will be the impact upon the World Trade Organization (WTO), the General Agreement on Trade in Services (GATS), and the various Human Rights regimes, regarding any barriers constraining the seamless or reciprocal conduct of such ABS around the globe?  Will anyone be listening, or, if listening, rush or be able, to do anything about it?

There are almost as many potential questions as there are jurisdictions, and yet few of these, if any, appear to have been asked and/or answered, or can be adequately covered and accounted for in brief Rules of Practice and website disclaimers, or contracts that are thinner than multiple, bound volumes, that a layman or a laywoman can digest in non-legalese.

Is it not better to have a lawyer focused on your issue, and exclusively your issue, as opposed to any or all of the above?

“Strange” Models: In light of my concerns as earlier highlighted, I really fail to see the rationale in the remaining 4 (“four”) models.  To call them strange, is to significantly lessen their import when it comes to upholding legal ethics and public confidence, and not bringing the administration of justice and the practice of law, into disrepute.

2. Co-branded Lawyering: This model brings to mind, for me, the “complications” that resulted in the current financial crisis, which came about as a result of cross-selling, excessive risk taking, co-dealing with both their own money and client money, and other practices, at various financial services industry actors, including those related to the mortgage industry n the United States of America.  This industry was claimed to be fully regulated and controlled, but someone, somewhere, obviously dropped the ball.  It would be wise to avoid doing the same thing to the U.K. or European legal services industry, by introducing a strange practice model with far too much haste.

4. Co-Operative Lawyering: This is another strange model, but it can work if the services are complementary and could, conceivably, be practically and ethically offered together under appropriate circumstances and with applicable controls.  The Estate Planning example given in the CBA article is one option, with will writing, funeral services, and probate services offered under the same corporate brand.  Other examples might include Municipal (zoning applications, regulatory infractions, small claims, title searches and liens, landlord and tenant); Health and Wellness (Drug regulatory agency representation, health food store ownership, Health Maintenance Organization representation, insurance defence, and medical malpractice litigation).  Another example, of course, is that of Premier Property Lawyers (PPL),[9] the first ABS licensed under the new UK regulatory regime.  This cooperative model may also be combined with a hub and spoke model, to enable members of a union or a club, to access legal services in designated fields.  There is, though, a greater potential for conflicts of interest – such as with the Health and Wellness model – that some readers may have missed, which potential for conflict I will address more generally, below.

5. Private Equity Lawyering: With an ABS under this model, law will become a strict commodity business and no more a service industry, just as is possible with the Listed Law Company, detailed above.  With a Private Equity owner, however, the ABS may have its ultimate owners more focused on beefing-up the profits, before going public or selling the business, and taking their profits.  The prospect of having law firms bought and sold – outside the self-directed movement of Partners and their practice groups – should leave many lawyers in England and Wales with sleepless nights, right now.  There are tangible benefits in having a “professional services” entity managed by professionals in that same line of service work; who know, and can understand, and can respect (with knowledge of the repercussions from a failure to respect) the rules and regulations by which those performing on the front-lines, in their line of service work, are bound.

9. Parallel In-House Lawyering: I see this as an insurmountable conflict of interest.  The In-House legal team should be exclusively focused on serving the corporate client.  Indeed, many employment contracts specifically prescribe against any outside interest or remunerative work; even for non-lawyers.  I will not even begin to count the number of ethical rules that could be violated, here.  (i) The lawyer could be unwittingly consulted by a person with a grievance against his or her employer, thereby putting said lawyer into a conflict from a duty to keep that confidence private, after, of course, declining the representation.  Could the lawyer then continue to represent the corporate employer and not be in breach of a duty to one or the other client?  (ii) How will the lawyer, practicing outside, or practicing in-house but with an outside parallel practice, guard against being consulted by such a person?  How will such a lawyer manage in a diversified holding company where he or she may not know that a subsidiary is the potential adversary, until it is late in the consultation and far too much has been disclosed?  (iii) There are actually good and valid reasons for the attorney conflict of interest rules; and anything less or their widespread re-writing in the belief that “customers will find legal services become more accessible, more efficient and more competitive”,[10] does not adequately consider the impact of these downside risks, excessive competition, and the results of that competition on clients in the inevitable failure of ABSs that cannot adequately compete under the new model, and the dire straits in which some or all of their clients will be left.  Unlike a bank account with deposit insurance, there is no protection for funds on deposit other than being segregated in a trust account until earned as fees or expended as disbursements.  What about the work in progress when a firm goes bust?  Once the retainer is expended, there may still be work done but left unpaid for.  A good number of lawyers will not take-on a case where moneys are owed to the former lawyer, and a lien is in place or may be emplaced on any recovery or resultant winnings.  This could leave the client in a tough spot, unless the former lawyer takes the financial loss and signs-off to a reduction or a release of that debt.  In certain cases, Rules of Professional Conduct will mandate that the lawyer not prejudice a former client’s interests, and therefore he or she must take that loss.  In other cases, a mid-level lawyer who does not have enough of his or her own clients when a firm collapses, may really need to be paid for that work already done, while diligently seeking another employer.  The results, for many, could be very ugly indeed.

CONCLUSIONS.

You can call me a traditionalist, but I prefer the safe-so-far models, for now.  I don’t think that things have become so bad, at least not yet, that legal practitioners must now sell their ethics to the highest bidder, through these other models.  There are, of course, also those annoying little restrictions on lawyers splitting fees, ambulance chasing, and communicating with the clients of someone else, that these new models seem to overlook or treat as a mere inconvenience.

Available options for this our cash squeezed legal profession, include lowering the Law Society dues payable by lawyers; control of premium costs across the board for the malpractice or errors and omissions insurance of accredited professionals (including lawyers, architects, doctors, accountants, and engineers), whether with or without Tort Reform; and dedicated loan pools and credit lines for accredited professionals that would help them maintain their professional independence, ethical duties, and levels of service for their clients.

Available options for the cash-squeezed public and governments, include unbundling of legal services, which will allow for the provision of limited services in more palatable fee portions;[11] courthouse and regulatory reforms to streamline and speed-up some of the most time consuming procedures (including Estate probate, Real Estate closings, and so forth); and reducing law school tuition, so that graduate debt loads create fewer potential disasters in practice, due to more of a focus on getting the bills paid, than on keeping to the best and proper practices.

Time will tell how far the ABS model actually goes in the UK, and whether and to what extent, and in what form or forms, it will migrate to other jurisdictions.[12]  I have grave misgivings for this excessive focus on competition, and I would certainly favour the words of Max Hill, Q.C., Chairman of the UK Criminal Bar Association, over those of the UK Justice Minister, as reprinted above, and of the Irish Justice Minister as reprinted in the footnotes. Speaking on another matter of legal services regulation, but with immediate and equal application, Max Hill aptly said, “Where professional livelihoods are at stake, these matters cannot be rushed.”[13]

As a legal practitioner, I fully agree.

Author:

Ekundayo George is a Lawyer and Strategic Consultant.  He is a published author in Environmental Law and Policy; licensed to practice law in multiple states of the United States of America, as well as Ontario, Canada; and has over a decade of solid legal experience in business law and counseling, diverse litigation, and regulatory practice.

Hyperlinks to external sites are provided as a courtesy and convenience, only, and no warranty is made or responsibility assumed for their content, accuracy, or availability.

This article does not constitute legal advice or create any lawyer-client relationship.


[1] Neil Rose. “A New Model: The many faces of ABS.”  National Magazine, September 2011, at page 47.  Visited online on October 7, 2011. http://cbanational.rogers.dgtlpub.com/2011/2011-09-30/home.php Sub-article as found under main article: “A new legal landscape.  The first alternative business structures will be launched in England and Wales next month.  What will deregulation of the legal industry look like?

[2] The Solicitors Regulation Authority for England and Wales (SRA).  http://www.sra.org.uk/sra/sra.page

[3] UK Legal Services Act, 2007.  Available at: http://www.legislation.gov.uk/ukpga/2007/29/contents

[4] Handbook of the Solicitors Regulation Authority for England and Wales (SRA).  Available at http://www.sra.org.uk/handbook/

[5] Sofia Lind. “Alternative Business Structure Launched Under U.K. Legal Services Act.”  Law.com, October 7, 2011. http://www.law.com/jsp/article.jsp?id=1202518170381&slreturn=1

[6] SRA: “Does your firm need to be authorized as an ABS?http://www.sra.org.uk/solicitors/freedom-in-practice/alt-bs/need-to-be-authorised.page Visited on October 7, 2011.

[7] Schedule 4 to the Legal Services Act, UK: Approved Regulators. http://www.legislation.gov.uk/ukpga/2007/29/schedule/4

[8] See Supra. Note 5.

[9] Catherine Baksi.  Premier Property Lawyers becomes first firm to register as an ABS.  Law Society Gazette, October 6, 2011.  Visited online on October 7, 2011. http://www.lawgazette.co.uk/news/premier-property-lawyers-becomes-first-firm-register-abs

[10] Id. The words of U.K. Justice Minister, Jonathan Djangoly, at the close of that article.

[11] The Law Society of Upper Canada (LSUC), which governs lawyers in the Province of Ontario, recently issued some guidance on this type of practice unbundling, under the heading of “Limited Scope Retainers”.  Visited online on October 7, 2011. http://www.lsuc.on.ca/WorkArea/DownloadAsset.aspx?id=2147485622

[12] Ireland appears to be first jurisdiction in line to adopt this ABS model.  In the words of Alan Shatter, Ireland’s Minister for Justice, Equality and Defence, who most vigorously supports the move:

“Anachronistic and unnecessary restrictions derived from regulatory rules which permeate the legal profession are outlawed and a structure is to be put in place which provides for the possibility of greater competition in the provision of professional legal training and a reduction in the cost of such training.”  Catherine Baksi.  Ireland set to embrace ‘Tesco law’.  Law Society Gazette, October 5, 2011.  Visited online on October 7, 2011. http://www.lawgazette.co.uk/news/ireland-set-embrace-tesco-law

[13] Catherine Baksi.  Advocacy assurance scheme put on hold for a month.  Law Society Gazette, October 7, 2011.  Visited online on October 7, 2011. http://www.lawgazette.co.uk/news/advocacy-assurance-scheme-put-hold-a-month (Quotation found at the close of that article).  Of course, lawyers face other problems when it comes to professional livelihoods, as shown by the ongoing case of Horace F. Hunter, Esq., a Richmond, Virginia-based criminal defence lawyer who’se blog the State Bar has decided is more akin to attorney advertising than basic news and commentary, and therefore needs to be strictly regulated, with more disclaimers.  As with the UK’s ABS, this case promises to set a precedent on attorney advertising and lawyer free speech that could have ripple effects far beyond Virginia’s borders; and whether it is a good one or a bad one, remains to be seen.  See e.g.  Ekundayo George “Media Effectiveness: Generations of Media“, at footnotes 17 and 18, and accompanying text.  (Visited on October 12, 2011) https://ogalaws.wordpress.com/media-effectiveness/

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