Monday, July 30, 2007

Law, Society, Berlin and MDPs

Taking a taxi at 4am to catch a plane from Luton is not something I recommend. I can never get to bed early enough to feel awake when I get up. But since I said I would participate in the Graduate Student Workshops at the Law & Society Association meetings in Berlin, I had to arrive in the morning.

Berlin feels so empty compared to London: the only crowded bit was the conference at Humboldt University where 2400 academics clustered in a huddle. Because of my Miami summer school class, I could only come for the last two days. The effect of this was good. Instead of a languorous drift through the conference getting more and more weary, my experience was sharp and intense.

The student workshops were lively and my group forgot we were supposed to take a break. I made up for it by buying them a beer afterwards. My group came from Jordan, Nigeria, Canada, and Argentina--wonderfully cosmopolitan.

I only made it to one legal profession session, but it inspired me to polemicize. Someone gave a paper on MDPs (multidisciplinary practices). It was about the problems lawyers in the US have on working and sharing fees with other professionals. Straightforward and conservative.

I let loose and said this was 20th century thinking and that the real situation was going to be very, very different. After the session I was approached by two of the audience who produce a textbook, Ethical Problems in the Practice of Law. One said:

"I was very struck by your powerful comments about the likely downside of opening up MDPs and of allowing ownership of law firms by business corporations. But I don’t know of any succinct statement of that problem to put in the book. Would you mind giving me a one-paragraph statement of your dire vision of the future of small firms for inclusion in the book? Something that pretty much echoes what you said on Saturday would be perfect. We would quote you and cite your email message as the source."

Here then is that attempt to record succinctly what I said in the session:

The changes that are about to affect the legal profession in England and Wales are the most profound in its history and will be the functional equivalent of the Big Bang in financial services in the mid-1980s. Under the proposed legislation lawyers will be able to practice in any kind of organizational setting, be it partnership, incorporated company, or one that is controlled by external investors, or as an MDP. These changes are driven by two main issues: one is competition (or antitrust) and the other is consumerism. Professions are by their nature monopolistic practices that necessarily produce asymmetrical relationships in favor of the professional. Added to which complaints against lawyers have risen dramatically and the profession has not been seen to deal with them expeditiously. Since MDPs will be permitted, the most likely outcome is not one where lawyers rationally choose to practice with other selected professionals, but rather a more radical one where external investors will see legal services as a natural addition to their portfolios of services. Consider then a supermarket chain offering legal services along with pharmacy and medical services at the checkout—wills, leases, problems with welfare benefits. All of these could be offered. Consider an insurance company deciding to handle all aspects of claims including liability as well as quantum. Many insurance policies offer legal services for motoring and home problems: it could be done by the company’s own unit with lawyers. Consider banks and mortgage companies offering full house sale and purchase services with the legal services thrown in as part of the deal. What place will there be for independent practitioners? Will they be as trustworthy as Wal-Mart? Will their quality assurance procedures be superior to Wal-Marts? Unlikely. Do people like lawyers? Not much, but they won’t mind too much buying legal services in a setting they know on a daily basis at a price that is clearly stated. And what of corporate law firms where already investment banks and private equity funds see law firms as dependable streams of revenue at fairly low risk? Lawyers will take on external investors, but they will be totally unaware of the controls that come with it. One problem with partnerships is that there are too many chiefs and not enough servants. Partnership as an autonomous mode of practice will begin to wither. We already see partners being de-equitized, multi-tiered partnerships being constructed, and private equity will ensure that rational management techniques with a weather eye on costs will make law firms increasingly profitable. But it won’t be the practice of law as we know it now. When the liberation of Big Bang blew through the City of London, the stockbrokers and small investment banks believed they would make lots of money. What they didn’t see was the big US banks coming in behind vacuuming up these small fry into their networks. The small firms disappeared overnight. Lawyers are smart but not about these kinds of events. They are no match for the banks and other entrepreneurs. Only a few elite lawyers and firms will choose their style and mode of practice, the rest will have it done for them. This is a different vision to the one lawyers normally have. And because of the potential repercussions of these changes in the UK, the rest of the world won’t be able to ignore them or defeat them.


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1 comment:

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