Thursday, December 27, 2007

Lawyers, Law Firms and the Stabilization of Transnational Business

Fabian Sosa and I have written a new paper, Lawyers, Law Firms and the Stabilization of Transnational Business. The paper can be found at my website and at SSRN. We welcome comments from interested readers. This is part of the research we have been doing at the SFB597 Institute for the Study of the Transformation of the State at Bremen University

The abstract reads as follows:

Globalization is having profound effects on the practice and the organization of law. In the field of cross-border transactions the role of the state and its legal system has diminished such that private ordering through contracting is now the key mode of lawmaking. The vast majority of private ordering is undertaken by large law firms with international practices. Moreover, these law firms tend to adopt Anglo-American common law principles when putting together transactions. Yet within Europe there is competition from the law firms of the civil law countries, which are becoming adept at identifying markets not fully taken over by the American and English firms. But in order to understand the roles of lawyers in such cross-border transactions, we start from Abel and Lewis’ question: what is that lawyers do? By using a number of case studies of transactions and disputes, we attempt to theorize how it is that lawyers create enabling and support structures for transnational business. We draw on Luhmann’s ideas of stabilization of expectations and Gilson’s depiction of lawyers as transaction cost engineers to help explain our findings.


Wednesday, December 12, 2007

What is a Court?

Birkbeck Law School held a symposium on adjudication this week, organized by Linda Mulcahy with the help of the Journal of Law and Society.

The main focus was "Courts and the Public Sphere" which was addressed by three papers presented by Judith Resnik of Yale Law School, Simon Roberts of LSE, and Linda Mulcahy. The title of this post is taken from Simon's paper.

He examined the Mayor's and City of London Court during 2006 looking at the way it handled cases. The court is a county court in the City of London hearing civil cases not assigned to the high courts. These involve contractual disputes and personal injury claims and the like.

The starting point was seeing if the Woolf civil procedure reforms on promoting settlement rather than trials was being effective. It was doubtful within the range of data collected if that could be answered. Simon Roberts collected statistics on case trajectories and observerd some pre-trial case reviews.

The figures for 2006 are telling:

Claims issued: 5,777
Defences entered: 2,021
Cases allocated to track: 914
Cases listed for trial: 637
Cases determined at trial: 140

The attrition rate is enormous. From close to 6,000 claims to 140 cases tried through to result. As soon as a defence is entered a huge proportion of cases settle as soon as the two sides learn more about the other's case. And as Roberts quoted from many lawyers, "Listing focusses the mind." With the result that only a relatively few cases are tried.

The idea that trial and judgment was the norm is a fallacy. What we do know is that judges spend little time on cases, and less on trying them. Apparently, the worse thing that could happen was for a case to be argued on a point of law because the result would be entirely unpredictable. This was a great promoter of settlement.

The conclusions of this preliminary study are profound. Most cases are resolved through bilateral negotiations (in the shadow of the law and court). The court's mediation role is small. The main task for judges is to supervise the negotiations.

Do we need courts? Do we need judges? Or as many of them as we have?

Monday, December 10, 2007

Comparing Law, Lawyers, Soft Law and More

Last week I participated in an author meets critics forum at the Institute of Advanced Legal Studies in London. The book in question was Comparative Law: A Handbook edited by Esin Örücü and David Nelken.

Perhaps, as one of the contributors and audience members, William Twining, said, out of the four speakers (Nelken, Örücü, Woodman, Flood) only one, i.e. Örücü, was a declared comparative lawyer, which meant that, in effect, we are all comparativists now. That was a fair resume.

The book is designed to inform students about the field of comparative law. It is, however, almost impossible to define or to set limits around. Depending on one's perspective there are alternative ways of analyzing the topic, including economics, systems theory, or appeals to globalization. Nevertheless, in the modern world there is a tendency away from examining other legal systems towards believing one's own system is superior. This form of ethnocentrism is catastrophic for lawyers as it induces tunnel vision.

Comparative Law: A Handbook contains diverse views, as to be expected from the range of authors within it. Each chapter ends with a set of questions to guide the student to further thinking and examination. It is also a user-friendly book in that readers can either travel straight through or dip in wherever they want. Moreover, no author writes in isolation of the others often commenting or critiquing various approaches to the subject.

Is the book successful? Yes. Does it have limitations? Yes. But then this is rather like saying that one doesn't have all the answers. Because it isn't the answers that are important, it's the questions.

My critique focussed on what I saw as a lack of diversity in treatment of comparative law. I would have liked to see an acceptance of legal or normative pluralism recognizing that law comes in many guises: regulation, contracts, international standards, model codes, soft law, lawyers' opinions and so forth. As I, and my Bremen colleagues, have written, the legal system as personified by the state is no longer a sufficient condition nor an adequate basis for the stabilization of expectations because legal systems are too weak and fragmentary. For example, Errol Meidinger's work on product certification in the timber industry is a pertinent case in point.

Moreover, we can't always rely on states to tell the truth about what they do with their legal systems. For example, Greece states it has a legal aid system which is available to many, but unfortunately it has no budget so it exists nominally but not in reality. Instead the state relies on the pro bono activities of lawyers or families contributing to defence expenses.

Another example, is found in the way Russia has forced a restructuring of the production sharing agreement on Shell over Sakhalin II. This private ordering scheme between the Russian state and the oil companies and banks depended on profits being remitted to the state once costs had been met. Costs, however, doubled and Russia was seeing no return. Using the threat of environmental breaches as a pretext for withdrawing exploitation licences, Russian compelled Shell to hand over 51% of the investment. Thus power is a considerable factor in the comparative study of law.

For me, the most significant omission from the text was the legal profession. In this respect comparative law is often at an abstract level that ignores much of the legal and normative work being done that stabilizes people's expectations. Two areas that interest me are the globalization of insolvency and capital markets, both shaped and tested by lawyers rather than states.

My final comment refers to a deficiency within the book. Although some writers commented on legal systems from the south and the east, there were no contributors from these regions.

Of course, these criticisms do not decry the book, rather they portend the coming of the second edition. We have to start somewhere and this is a good starting point, one that puts down a challenge to others.

Tuesday, December 04, 2007

Judges Returning to the Bar or Becoming Coal Miners

Is there a problem with judges retiring from the bench and returning to practice at the bar? If you are the minister for justice, the answer is yes. It is a bad thing. It has traditionally been so and we are not going to change it.

So when judges retire and wish to embellish their pensions, they rejoin their old chambers and hang out their shingles that say "arbitrator and/or mediator". They are no longer advocates, they are quasi-judges instead. It is probably slightly preferable to becoming the English equivalent of Judge Judy.

It seems that the bar itself is no longer so enamoured of its judicial brethren returning to skim their work: "One magic circle set member said judges in arbitrations has now become "an overheated market"."

Frankly, this is all very childish. In the US judges can retire and join law firms as lawyers. They even appear in court, often with the honourific title, "Judge." Some become attorney general or head a government agency. Over here we think that it is unseemly for judges to abandon their olympian ideals in favour of partisan advocacy.

It is also a restrictive practice without justification. If a judge wants to become an advocate again, then the market will adjudicate on his or her fitness to practise. The clerk will soon announce that a change of direction into another line of work is to be preferred if the work isn't there.

Perhaps as judging is becoming more specialized--needing tickets to be a family judge or commercial judge and so on--we should reconsider the basic qualifications for a judge. Is being an advocate truly the most appropriate credential? Why not make judging a career choice out of law school as in Germany, for example. However, let's leave the last word to that searing critic of human malaise, E L Wisty, as he lamented:
Yes, I could have been a judge but I never had the Latin, never had the Latin for the judgin', I never had it, so I'd had it, as far as bein' a judge was concerned. I just never had sufficient of it to get through the rigourous judging exams. They're noted for their rigour. People come out staggering and saying "My God, what a rigourous exam!" - and so I became a miner instead. A coal miner. I managed to get through the mining exams--they're not rigourous, they only ask one question, they say, "Who are you", and I got 75 per cent on that. I'd rather have been a judge than a miner. Being a miner, as soon as you are too old and tired and sick and stupid to do the job properly, you have to go. Well, the very opposite applies with judges.


Sunday, December 02, 2007

The Temporality of Legal Practice

Two items read recently chime with each other. A survey by Citi quoted in Legal Week said non-equity partners are the least productive partners because they bill 100 hours less than equity partners and 150 less than associates. The second item is a new law business has opened in London called Axiom Legal, which hires out lawyers to corporate clients on a temporary basis.

The Legal Week story reinforces the approach in the legal profession to making equity partnership a harder ideal to achieve. Moreover, it will remain exclusive, the inner core. While the race for partnership might still have some strength in it, we are seeing a move to the deprofessionalization of law practice as more professionals are assigned to the category of permanent employee. The result is that commitment and loyalty can no longer be taken for granted: they have to be bought. And there is the free rider problem as the Citi survey shows.

Axiom represents a way out of this. In essence it is a kind of legal outsourcing. Axiom hires lawyers who are discontented with the way of the corporate law practice, offers them a reasonably good salary, consistent and predictable work hours and no responsibility. When a business needs lawyers to handle corporate matters it can take in one or more of the Axiom crew and keep as long as necessary. All the resources the lawyer needs by way of research and backup is provided by Axiom. Hourly rates are lower than a law firm and salaries for the lawyers are lower than those paid by law firms. All Axiom has to do is monitor performance and ensure consistent hiring. For the lawyers it's like being a permanent temp.

The largest, the most complex, and the most urgent transactions will continue to require the input of the large law firms with the oversight of equity partners. Certain niche areas will need high levels of expertise, such as complex litigation. But most legal work is routine and mundane and doesn't necessitate the highest qualified and most expensive lawyers to do it. This is the very point made by Wachtell Lipton: "We specialize in matters that require special attention, extensive experience, a high level of sophistication and the reputation of our partners."

A lot of law firms are going to find it difficult to compete in this variable, ever-changing market.

Wednesday, November 14, 2007

Consulting Law Firms

I've been writing about the legal profession for some time now, but usually without a view to monetizing this activity as a consultant. I am an academic and love the freedom that brings. It also means I don't have to think too hard about my own business case: it virtually operates by default.

Occasionally I receive calls and emails asking for advice and information. Mostly, if I can, I give it. If it is a government department, then it has to pay and that goes through the university books. That usually involves a sustained research project.

The other calls, however, are for answers to specific problems. The first call was from a law firm in Kentucky--I was at Indiana University--that was about to experience succession jitters. The firm had been established by a pater familias and run by his fiat. All the junior partners did as they were told. Their problem was that when the founder said he was leaving, none of them knew how to practise democracy. Self-government was an enigma. My task was to talk them through basic principles. And it was fun.

Today I had an unusual one: a call from the Midlands from a corporate law firm that wants to establish an office in New York. Although it does large deals, the firm is in a different league to the usual foreign law firm that opens in New York. The question was how to do it. Should it open as a foreign legal consultant? Join the New York Bar? Hire US-qualified attorneys? The one thing it didn't want to do was form an alliance with another New York law firm. Of course, much of the decision making revolves around whether the firm wants an office for American clients interested in investing in the UK and/or wants an office for UK clients who want to invest in the US. Is establishing an office--admittedly an expensive enterprise--the best way to achieve these ends for your clients, real and potential?

I did this for free. But should I continue to do so? Maybe I should say, "Look, I'm a consultant. Time is money! You gotta pay me if you want me. I'm in business!" I don't know. At one point, during my PhD in Chicago, I considered an offer from a law firm. My thinking went like this: law firm--interesting work, lots of money, lots of billable hours, enslaved to clients. Academic work: interesting work, no money worth speaking of, most time my own, enslaved to me (except when I say yes to another request to contribute an article, damn).

Well, I'm an academic, but maybe a little consulting would be nice.

Tuesday, November 13, 2007

Pakistan--The Shame Continues

If Musharraf is being leaned on by the US, and the poodle UK, he's conceding ground very, very grudgingly. He is still defending his coup d'etat, which is essentially indefensible. The press are chained. People arrested for protesting his dictatorial actions are still in prison. And the Supreme Court remains emasculated.

Musharraf, although he will run elections in January now, won't reinstate the Supreme Court or the other judges who have refused to take the illegitimate oath of allegiance. Iftikhar Chaudhry is under house arrest and probably whatever concessions Musharraf might be forced to make, he will resist reinstating Chaudhry. Because Chaudhry has focussed attention on the core illegality of Musharraf's reign, that he can't be both commander in chief and head of government simultaneously. The constitution forbids it and Chaudhry won't let him or the people of Pakistan or the world forget it.

Now Musharraf wants the newly-reconstructed Supreme Court to sanction his status until the election, whereas he is supposed to give up his military status if he wants to contest the election.

The rule of law is vacant here. I hope the Commonwealth has the cojones to do something about it.

Chaudry should be nominated for the Nobel Peace Prize for his courageous defence of Pakistan's human rights and fledgling democracy. Members of international courts are eligible to submit nominations for the Peace Prize. Now is a chance to honour one of your own.


Tuesday, November 06, 2007

Who Defends the Rule of Law?

The pictures of lawyers being beaten by police in Pakistan is both terrible and laudatory. General Musharraf's coup d'etat is a blatant attempt to undermine the rule of law. And that is one of the very few things that keeps us sane and free. Get rid of it and we have nothing. That is why I am ashamed that the US and UK governments still support Musharraf. In the battle over public opinion they have lost the plot. If the only way an alleged "war on terror" can be fought is by succumbing to arbitrary abuses of power, then we were defeated long ago.

This is the second time the chief justice of the Pakistan Supreme Court, Iftikhar Muhammad Chaudhry, has been illicitly removed from the court. The general couldn't face the court's likely decision to remove him from the electoral race because he holds civilian and military positions which the constitution forbids.

I admire the judges who are refusing to take their "new" oaths of allegiance and the lawyers who are taking to the streets. They are true heroes. And they are taking serious risks to their lives, physically and spiritually. How many lawyers in the US or UK would come out in defence of the rule of law? Could we imagine the American Bar Association or the Law Society or the Bar Council urging its members to strike and rebel? Hardly.

There aren't many cause lawyers around here, but almost every lawyer in Pakistan is one.

Friday, November 02, 2007

Will We Ever See the London Approach Again?

In days gone by the Bank of England knew how to step in and help ailing banks. The London Approach came to the fore in the 1970s when the secondary bank market faced collapse. The Bank was able to work with other banks to organize rescues and bailouts. No direct interference occurred but suasion and negotiation were mobilized to forge action.

Northern Rock has shown how the system can no longer respond quickly or effectively. The tri-partite system of regulation shared between the Bank of England, the Financial Services Authority and the Treasury has eviscerated the capability of the Bank to move quickly and quietly. Indeed, Mervyn King, the Bank's governor, remarked to the Treasury Select Committee that his hands were tied by inconvenient pieces of legislation.

Instead, we now see the London Approach being applied by other countries. The Federal Reserve showed how it could be used when Long Term Capital Management imploded in 1998. And it has encouraged the banks to support the Superfund to buy distressed debt. Germany was able to galvanize its banks and central bank to assist IKB and Sachsen LB when they were threatened by their exposure to the US subprime mortgage debacle. Even the European Central Bank could offer liquidity to its markets without struggle.

While the US and Germany have offered succour to their ailing banks, the UK is bereft of any means to ameliorate a worsening financial situation. Now the Bank of England is reconsidering its position and may relax its rules on collateral, which sounds like it wants to return to the old days of the London Approach. But as its chief economist, Charlie Bean, said, there are too many known unknowns and unknown unknowns around at the moment for that to occur. Moreover, it would require the Treasury to reconfigure the rules around bank supervision. If the FSA can't really do it, perhaps the Bank should.

Tuesday, October 23, 2007

Superfund, SIVs, and Firesales

Having been declared bankrupt, despite sitting on a cash balance of $1.3bn (a "technical" insolvency one lawyer told me), the Cheyne Finance structured investment vehicle (SIV) has found a saviour in the Royal Bank of Scotland.

According to the FT if RBS can refinance the SIV, it will be rescued. Furthermore, the FT opines

"A successful deal would mark the first time an entire SIV portfolio has been sold and is likely to provide hope for the other vehicles controlling more than $40bn in assets that have had their debt downgraded by ratings agencies. It would also demonstrate another possible method of avoiding a firesale of assets from the SIV sector, after the mooted plans for a super-SIV being promoted by Citigroup, JPMorgan and Bank of America."

All of this looks good and augurs well for the financial services industry. I noted in my previous posting that SIVs were not going to be well helped by the new Superfund. But if others can pitch in so much the better.

But perhaps the glasses are tinted too rosily. This deal has a sting:

"No price range has been disclosed for the deal but it is highly likely that the value of the junior creditors’ notes and some part of the mezzanine, or middle-ranking, creditors’ notes will be wiped out, according to those involved."

In other words the high risk elements are not being saved. The junk will be just that. It begins to sound more like a firesale to me than otherwise. Pick out the good bits and dump the rest. Maybe some distressed debt traders will buy, but no one seems to be really developing a market.

Given the unpredictability of the rescue culture that's growing up, if the SIVs start to unwind, we have no way of knowing how far the mess will spread. We know it doesn't take much to initiate panic in the markets. A fairly obscure sector of the mortgage market (subprime) wobbling has demonstrated that most lucidly. It looks possible something similar could recur if rescuers don't think beyond high class assets. Of course not all junk is worth saving but not all of it is worthless. If efforts are made to develop a secondary market in distressed debt, it might save considerable pain that will reverberate around some economies for years to come.

We have lost the commonality of cause that was apparent in the London Approach. The number of players in the market has multiplied enormously and any effort at coordination will run into tremendous difficulties. And it seems in the UK at least that the regulatory institutions have shied away from proactive behaviour under the guise of creating moral hazard.

But this is how rescue cultures have evolved and emerged: crisis begets solutions. It occurred with the collapse of Barings in the 19th century; it occurred with the collapse of the secondary banking market in the 1970s; and it occurred with the collapses of the property markets and technology markets in the late 20th and early 21st centuries.

For some reason the impetus doesn't appear as strong this time. While this is not a plea for more formal regulation--it won't work--more informal creativity is called for.


Thursday, October 18, 2007

Superfunds, Reinsurance and the Big Unwind

My colleague, Joe Tanega, compared the new Superfund put together by Citigroup, JPMorgan and Bank of America as a reincarnation of the Lloyds reinsurance brouhaha some years ago that resulted in the formation of Equitas.

The job of Equitas is (it's just had its 10th anniversary) to reinsure the syndicates that were caught short and achieve a solven run-off. The independence of Equitas allows Lloyds to continue without these accumulated liabilities. The key to the success of Equitas was that it took over all liability.

The Superfund is clearly not buying all the distressed debt in the credit-squeezed market. It wants only the "good" assets to help avoid firesales in the market. According to Gillian Tett in the FT, "They have estimated that the scheme will need $75bn to $100bn of back-up liquidity lines, and will only buy high-quality assets."

While a super-conduit may help reinvigorate the market and restore some liquidity, it omits from the equation the low-grade assets slopping around in structured investment vehicles. It's these that have the capacity to wreak havoc if not dealt with.

SIVs are meant to be separate from their so-called parent institutions, ie. orphan entities off the balance sheet, but because of the credit squeeze, these supposed barriers are being breached as money is pumped in.

They are already causing trouble. Cheyne Finance (an offshoot of a hedge fund) is the first SIV to stop paying its short term debt. Even though it has $1.3bn of cash its administrator has managed to persuade the court that it is breach of insolvency tests. According to the administrator this will avoid a firesale. Would a Superfund buy its assets? Supposedly four banks are bidding for them.

There will at some point need to be a stronger concerted effort by the major financial institutions to deal with this problem. There will be more SIVs and SIV-lites heading towards insolvency. The Equitas solution might not provide the answer here, so what will, if anything?

Wednesday, October 17, 2007

Discriminating Lawyers

Usually lawyers are the ones fighting battles over discrimination rather than being the subject of them. But two recent age discrimination cases make an interesting comparison--one in the US and the other in the UK, and both in large law firms.

Peter Bloxham, a former partner of Freshfields, was caught in the law firm's restructuring trap. The firm has been going through major changes to increase its profitability over the last few years. One was to reduce the number of partners by 100. The other entailed revising the firm's pension plan.

The partner reductions have occurred. This was the infamous "Size & Shape" programme.

The pension changes have been made too. Essentially, Freshfields paid pensions out of current earnings, with a cap. As the firm has grown this has become unsustainable, the firm has claimed. Imposing an arbitrary cutoff point of 55 years, those below would take a big hit (20%) on their future pensions. At 54 years old, Bloxham objected.

Testing out the new age discrimination law, Bloxham claimed he was, in effect, "constructively retired" from the firm. He sued, and others are in the queue.

The Industrial Tribunal decided he would lose this claim saying that the firm's actions were proportionate in achieving its proposed pension reform. It seemed to suggest as partner he had freedom to choose. Bloxham had said he wasn't treated fairly as other partners were offered better terms.

In Chicago Sidley Austin agreed to settle its discrimination suit by 32 former partners (reduced to of counsel by the firm in 1999) for $27.5 million. The EEOC had won an appeal court ruling stating that the parners were actually employees because of the law firm's closed management style. Sidley didn't want to risk going to trial.

Some believe that the Freshfields decision was the correct one--"a victory for common sense". And in a way it is. As is Judge Posner's ruling in Sidley. Because the fundamental mistake that Peter Bloxham made was to think he actually was a partner in a law firm. On paper yes, but in reality he was an employee just like those Sidley lawyers. Our courts have not got round to stating it quite so baldly. But it will happen.

There is a fiction that partners in professional service firms are autonomous, independent beings who are severally and jointly liable. That may be what partnership law says, but if a partner were to act autonomously he or she would soon be asked to leave. And that would not mean dissolving the partnership. It would be a straight firing, but discreet.

In the Financial Times (Monday 15 Oct) KPMG announced that it had made up 810 new partners globally. Yet if you look at KPMG's website you will see its proud boast of 113,000 professionals on staff led by global leaders on the board. At this point it's obvious that the term partner is being used in the loosest of ways. It really means someone who is now paid more than the others with the kudos of being labelled partner without any concomitant power.

Large law firms are the same. Partner equals impotence. The era of professionalism is dead; the era of being a member of a partnership has disappeared. A partner is another stratum in the geology of corporate organizations.

Partnership is no longer morphology--it's pathology.

There is, however, nothing wrong with this as institutions evolve, mutate according to environmental and internal pressures. Professional service firms, so called, are no different to any other kind of corporate enterprise. But rather than attempt to maintain fictions derived from 19th mores, it would be preferable if law firms and other professional service firms just told the truth about what they really are. Then we could hold them to account for full transparency and they could no longer hide behind the "professional" veil.

This is why Peter Bloxham was doomed to fail in his case. (And I haven't addressed the age concerns.) He thought he was a partner in a law firm, a professional man. Sorry Peter, the dream is over.

Wednesday, September 26, 2007

India Opens to Foreign Lawyers

After many years of refusing to allow foreign law firms to open offices in India, the Indian Ministry of Law & Justice has relented. They will be able to establish offices but not practise Indian law.

The last attempt to set up an office was by Ashurst a few years ago. It found itself on the end of a lawsuit by the Indian Bar Association. No one has really tried since then although there have been a number of "alliances" but these seem for marketing purposes. As Legal 500 says, "Although Ashurst and White & Case have liaison offices in the country, these are currently limited to marketing activities. Both firms handle all legal work related to India from elsewhere."

Indian lawyers are frightened of being overrun by the big corporate western law firms. Of the 800,000 or so lawyers in India, most will not be affected. Indian lawyers practise in very small firms or solo, and much of their work is litigation. There are relatively few Indian corporate law firms. They will pick up work from the western firms because expertise will be in short supply.

Much of the demand for western law firms comes from Indian industry and commerce which needs seamless access to our capital markets.

It's strange how countries can be so advanced in certain areas yet behind in others. India is a leader in IT but its legal profession is still immersed in the days of the Raj.

Of course what is ironic about this is that Indian lawyers have already been invaded by the west through the outsourcing moves of American and English law firms who are looking for common law trained lawyers who are cheap. I've written on this before. (See also this interesting Bloomberg article.) When I did I received a somewhat different reaction to what I expected. Here it is below:


Dear John,

This is with regard to your posts in your Blog and few articles referring to Legal Process Outsourcing.

Not explaining much about the current trends about Legal Process Outsourcing in India (which of course is its in boom time), I wanted to draw your attention to an emerging trend in this industry. I am sure you must have noticed the rapid growth of Legal Process Outsourcing outfits in India and other low cost destinations. This is evident of the fact that how fast this industry is growing, but the opposing force is definitely the reluctance and the conservative nature of the Law firms worldwide and also the Large and Middle sized business houses. There is, though shining, a murky picture of this phenomenon. This is with regard to the individual growth of the outfits per se and not the country/ volume growth because of which new budding outfits have become “fly by night operations” and have to close down at rare times.

Keeping this is mind we have forayed into a new model of that of a Pivotal Provider in this area. We are called LexVantage Legal Solutions based out of India. We are a fledgling company yet growing steadily. We liaise between our clients and offshore legal services vendors and bring to our clients the finest LPOs or legal service vendors from India, Sri Lanka, Philippines and Malaysia etc. for any project that they may require assistance with.

We maintain databases of leading LPOs or similar providers and form partnerships/ alliances after a stringent selection process. We take care of the entire vendor selection process for them and project execution, management and delivery as well. This helps the clients to overcome the daunting task of selecting the right offshore provider for you and manage complicated outsourcing relationships.

As this could a new piece of information, I could provide you with more information. More about who all we serve and how. As you have an established field in the legal arena, we would like to know how you think we could have an access more in the market especially the UK market in the light of the conservative nature.

I hope we could exchange some insights and develop a mutually beneficial relationship.

I look forward to hear from you.

Kind Regards,

Business Development
LexVantage Global


Now you know where to go when you want to outsource. Just tell them, "John sent me."


Monday, September 17, 2007

Open House 2007

How are you feeling?

Knackered. I've just had over 600 people come through the house for the Open House weekend.

This is the second year you've done it?

Still knackered. You see, I feel I should make it a worthwhile experience, so I give them a guided tour. And it means I say roughly the same thing four times an hour!

What's so special about your house?

From the outside, nothing. It's a Victorian terrace, plain and simple. It's when you step inside it changes--very radically.

It feels like the Tardis.

White and bright!

Yes, it's white throughout but there's plenty of colour. Look at the fuschia pink sofa. Even the speakers are funky colours.

Is it practical?

It's great for parties. Look at the kitchen; it can hold 30 people easily.

And then there's the garden--my jungle. I'll let you have a glimpse.

Did any friends come?

No, except a neighbour from across the road. That was strange. Although we had a celebrity. After I'd finished one tour, Eleni and the two volunteers said, "Did you see him?" "Who?" "Alan Rickman came to see your house." I missed him.

Saturday, September 15, 2007

Writing About Barristers' Clerks

Last month I published an article on barristers' clerks in Counsel Magazine (a magazine for barristers, clerks and more). One clerk I know said, "Now wait for the letters." I was thinking no one will be that interested to write.

Wrong! Let me quote a couple of reactions:

Dear Editor,

I was intrigued by the cover of this month ’s COUNSEL magazine – always essential reading.

Above the headline “The Barrister’s Clerk” there was a picture of an elderly gentleman in stripes a nd black jacket brushing down the suit of a rather suave-looking younger man who appeared to be wearing a cravat.

What I couldn’t ascertain was which of them was meant to be the clerk. Can anyone explain?

Kind regards, Philip Turton, Ropewalk Chambers, Chambers of RF Owen QC

I didn't choose the picture....but he's right, it's ambiguous

Dear Editor,

It is remarkably easy for me to slide into an indignant rant having just endured the extraordinarily ill-informed wafflings in Professor John Flood’s article on barristers’ clerks (“The Fall & Rise of Barristers’ Clerks”, August 2007). While there are snippets of superficial, factual accuracy and some interesting insights based on them, the Professor has chosen to base his essay on folklore and hearsay. In the process he has drastically over-simplified the complex and mutually beneficial working relationship that exists between two groups of dedicated professionals.

The Professor misses the point entirely while arguing his “hierarchy theories”. In support of his argument he quotes an offensive, age-old adage passed down from clerk to clerk and often attributed to many of the infamous clerks of yesteryear. It is not the clerk; it is the clients who set the pace. Clerks who appear to order their principals around are only doing so in the best interests of the clients, and if the clients are happy then it’s usually good for the barrister – and therefore good for the clerk.

The clerk is employed by the barrister, not as some sort of servile quasi-butler/minder, but as an aide, an agent and an adviser. He removes the burden of administration from the barrister so that the lawyer can concentrate on the law. The clerk earns his fee (and however it is paid, Professor Flood has got HM Revenue & Customs’ stance on those earnings completely wrong) for providing this unique service.

Contrary to his contentions, quite a lot has been written about clerks over the years; the Institute of Barristers Clerks hasn’t just introduced training for clerks; it isn’t a struggle for clerks to be heard and understood by committees; in the 1990s it wasn’t a collectively conscious decision by barristers to run their practices more professionally and there had been nothing amateurish hitherto about the organisation of the Bar – to suggest otherwise is offensive
and utterly incorrect.

Yours sincerely, Keith Plowman, Senior Clerk, Ten Old Square

I am really curious to see if Mr Plowman will agree to be interviewed...


Thursday, September 13, 2007

Is It Worthwhile?

I've always had ambivalent feelings about teaching. There are born teachers who love it, but I became an academic primarily to pursue research. For me teaching was the "price" I paid to be part of the academic community that allows me to follow my ideas.

Recently I received an email from a former student of mine at Indiana University Bloomington who had been one of my first students when I started as an assistant professor in 1987. I had a joint appointment across criminal justice and law. My student said:
Professor Flood

I was unable to post the following in your website's guestbook, so I am emailing it to you:

I took two undergraduate classes with you almost 20 years ago during your tenure at Indiana University. The first was a Law and Society course; the second was a 400 level seminar on Law in Radically Different Cultures.

Even though I never followed through in pursuing a law degree, you had a very significant influence on me and remain one of my two favorite profs. I very much appreciated being allowed to "think outside the box." This encouragement carried me through a sizable chunk of my academic studies.

Shocked, startled, yes, but maybe I feel less ambivalent now. Thank you, Jim.

Tuesday, September 11, 2007

A "New" London Approach?

Credit risk has gone crazy. It appears to have emanated from the subprime meltdown in the US. What has struck me about the thirst for liquidity that has been brought about is that no one seems to have developed a secondary market in credit risk yet.

Last time there was a slump that had property as one of its causes--back in the late 1980s and early 1990s--(remember Olympia & York and Canary Wharf?) lawyers and bankers created a secondary market in distressed debt that became popular. (You can get a copy of my paper on this here.)

It had one side-effect which was to upset those grandees who managed the London Approach to corporate rescue. For those of you who know little of this, it is a set of principles coordinated by the Bank of England to enable banking creditors to institute a moratorium on debt payments, re-organize the failing company, and sell it off. As long as the business had little secured debt and was big, the bank creditors were able to restructure and refloat it.

It started coming apart when the vulture funds in the 1990s started buying the debt and trading it. The Bank of England never had quite the same control again as small creditors were able to sell out and avoid being trapped in a workout that had little benefit for them. The distressed debt traders did not have the same outlook as the bank creditors.

These vulture funds have mutated into hedge funds and other kinds of traders. ("Vulture fund" is a dirty word now for those who exploit the intricacies of sovereign debt of developing countries.)

Yet they haven't moved into the credit squeeze market. Banks are holding significant amounts of paper which their normal customers are refusing to buy. According to the FT trading volumes are too low for values to be properly estimated and so subject to manipulation and conflicts of interest.

If this crisis is to be overcome without the perils of moral hazard, a secondary market will emerge and begin to mop up. The debt traders will do well and the banks and private equity funds will suffer because they are too nervous to calculate risk. The banks will become traders when others have shown the way, which means they won't be able to get the big profits that the early traders will receive.

One last point on this: one professional group that will shine in this period will be the lawyers. After all, someone must do the restructuring work and who better than those who wrote the original agreements. The beauty of lawyering is that lawyers are simultaneously creators and destroyers, which is neatly summed up in this joke:

A surgeon, an architect an a lawyer are having a heated barroom discussion concerning which of their professions is actually the oldest profession.

The surgeon says: "Surgery IS the oldest profession. God took a rib from Adam to create Eve and you can't go back further than that."

The architect says: "Hold on! In fact, God was the first architect when he created the world out of chaos in 7 days, and you can't go back any further than THAT!"

The lawyer puffs his cigar and says: "Gentlemen, Gentlemen...who do you think created the CHAOS??!!"


Sunday, September 02, 2007

Law School as Boot Camp (Greece)

My niece is attending law school in Greece, something which can only be described as a chaotic experience. The high point is the snakes in the library. Last year was her first year and it was bedeviled by academic's strikes against the introduction of private universities, no books, no computer or internet connections, and a complete lack of interest on the part of the law school in remedying any of this.

The snakes are still in the library! And of course the books are still in pristine condition. It's one way of keeping grubby student hands off them.

Students were supplied with their textbooks forty days before their first year final exams. It's a new form of "just-in-time" curriculum development. It worked for Toyota, so why not Greek law schools.

The upshot is that she failed some of her exams, which is no surprise. Perhaps the hardest part was obtaining the results. Did her law school put them on the internet? No. Did they mail them to students' homes? No. They posted them in the law school when everyone had gone home for the summer. Brilliant.

How do you then get your results? From either Pasok or New Democracy, the main political parties. You might think this a little strange, but this is one of the ways the parties extend their grip on the daily routines of ordinary life by making themselves essential to overcoming its obstacles. You then owe them a favour. Favour banks rule everywhere.

In a day or so my niece returns to take her resits. Given the arbitrary nature of the system so far, she doesn't know what to expect.

Why doesn't she go to law school overseas? Because as I have repeated in my work on globalization, law is the one thing which is resolutely local. If you want to practice law in Greece, you must learn Greek law and for that you need to get friendly with the snakes in the library. Be careful to carry anti-venom with you.

Friday, August 24, 2007

$1,000 an Hour Billing Rate

The Wall Street Journal reports that biglaw firms in New York are breaking through the barrier of $1,000 an hour for their billables. David Boies, formerly of Cravath, is quoted as saying: "Frankly, it's a little hard to think about anyone who doesn't save lives being worth this much money." And an unnamed partner at an unnamed New York firm said: "We have viewed $1,000 an hour as a possible vomit point for clients." Some attorneys are so shy about charging this that they move their fees to either $950 or $1,050 an hour.

To English ears, and those in Hong Kong, this must sound terribly quaint--"Only a $1,000 an hour! An absolute steal, old boy." In sterling that's £500 per hour. It isn't unusual to find partners in the City charging at least that and usually more.

Some reckon one can make a $$/££ equivalence. What figure you pay in dollars in New York, you will pay in pounds in London. And certainly if you look at the top earning barristers in London--Sumption, Pollock, et al--you are seeing the £1,000 an hour billable breached regularly.

Of course, if this is all too much, hop on a plane to Poland. You may not have to pay more than 70 euros an hour if the Kaczynski twins have their way!

Saturday, August 18, 2007

A New Website!

I was going to write about the interaction of credit rating agencies and lawyers in the current securitization crisis, but something more important has intervened. And I will do that one later.

I have a new website!

Caroline Mockett, my web designer, has overhauled my website to make it more user-friendly, easier to navigate, and easier for me to manage. She's also added, amongst other things, two new items: a "news" page, and a "blogs posts" page that summarizes whatever has been recently blogged by me. Both have RSS feeds. Caroline has done a terrific job.

All my papers and publications are available for download in PDF, so feel free to browse. My aim is that our work should be disseminated as widely as possible, especially beyond the confines of the academic journal.

The website can be found at or

Thursday, August 16, 2007

Law Firms Buying Law Firms

Slater & Gordon, Australia's first law firm to float on the stock exchange (last May) has been on a spending spree buying law firms. Its latest purchase, and biggest, is McClellands, a Sydney personal injury litigation firm. The price is made of cash and AUS$2million in S&G shares.

S&G has also bought another law practice where it's locked the principal in for three years. This is interesting as I watched a law firm merger in Chicago once. It was going smoothly until the incomer's senior partner died after 9 months. As one of the partners who promoted the merger said: "If he'd lived for another 9 months, we'd have had all the clients locked in. Now I don't know."

Slater & Gordon, as one of my Miami summer school students told me recently, has had a bumpy ride on the Australian Stock Exchange. Although its share price has gone up, it has dipped a few times as well.

The chart shows the progress of the share price. S&G is shown by the bright red line: beginning of August it was down to AUS$1.56 from a high in July of AUS$1.73. (S&G is compared to the S&P/ASX 200 and the M Average.) It shows that despite probably good earnings and consistent revenue streams, even law firms aren't a sure bet. Mind you, the markets thought subprime mortage bonds were a good bet. Oops!

PS. Bruce McEwen has an interview with Andrew Grech, the managing partner of S&G at Adam Smith Esq.

Tuesday, August 14, 2007

Maybe There Won't Be Bargain Basement Justice After All

Following from my post yesterday about Poland's plan to limit lawyers' fees to a maximum of 70 euros an hour, it may not happen.

The Polish government is in trouble. The Kaczynski twins' Law and Justice party has lost the support of the left-wing Self-Defence party and the right-wing League of Polish Families' party. The twins (both lawyers by the way) have developed paranoia to new heights. To upset both the left and right takes talent. And, of course, they nearly derailed the EU reform treaty in June, blaming Germany's actions in the second world war for their present "small" population.

There will have to be a general election and as the Kaczynskis haven't exactly fulfilled their election promises, they won't win. Maybe lawyers can breathe easily now. I would still buff those pro bono activities as fee caps could always return.

Monday, August 13, 2007

Access to Justice at 70 euros an hour!

All through July and into August there have been "grave" words spoken about the iniquitous drive by the Polish government to improve access to justice. Now I believe in access to justice and have done some research in the area, but in this case I have two research areas intersecting: legal profession and access to justice.

According to the Financial Times, "The plans are part of the policy of Jaroslaw Kaczynski, the Polish prime minister, to broaden social provision and give state help to people who feel they have lost out in the transformation to a market economy."

The plans, however, include one provision that is driving lawyers wild with anger and frustration. All legal fees--yes, ALL--will be capped at 70 euros an hour (£47, $96).

All those corporate law firms out of London and New York won't be able to charge more. White & Case, Clifford Chance, Allen & Overy, and Linklaters will have to lower their current 200 euro minimum fees or leave.

The British and American ambassadors are doing their bit as are the Law Society and other legal bodies. They are also worried that if Poland implements this law other new EU member states will follow.

In the case of Poland it's tough because for a number of law firms, it's their base into central Europe. Added to which there are the European Football Cup finals in Poland and Ukraine in 2012 with all their concomitant contract work. How will it be done? On the cheap? Unlikely.

Maybe if the law firms had paid more attention to their pro bono activities, been more socially aware, perhaps... Who knows?

Tuesday, July 31, 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.


Wednesday, July 18, 2007

Talking About Barristers' Clerks

When I talk about my research on barristers' clerks to other academics, they are curious and interested usually because they have never encountered a group like them before. Today I had a conversation with an academic who is personally affected by them. In addition to lecturing he practises in a set of chambers that actively pursues academics to be members.

This is unusual. Academics who practise at the bar generally do so as "door" tenants, a quaint term for someone who is attached to the chambers but doesn't work in them on a daily basis. Their association is ad hoc. The sporadic member is a difficult person to clerk for as they are not in a position to respond to clients' needs as others can. If you have a seminar or lecture, you can't just abandon it and rush along to the courts because a client wishes it.

The academic I was talking with was concerned to find ways to ensure that academic members would feel part of the chambers, be integrated. He started by asking me what I thought the key attributes of a good clerk were. It's one of those situations where I feel I should have ready-made three-part list up my sleeve to trot out. But I don't so I had to think about it.

Two attributes come to mind. The first is that clerks have to know people, they have to like people and be interested in them. And this has to be genuine not manufactured. Clerks need to know what is going on with their barristers because ultimately they are selling people. Clerks need to know them as individuals so they can track them and counsel them through their careers. They need to know their barristers as a collective force so they can situate their chambers among the others.

Clerks also need to know other people: their solicitors, the listing clerks at the courts and so on. Clerks have to be able to get on with a range of people despite the differences. That's a real talent.

The second attribute connects with the first and it is a sense of timing. Clerks must know how to monitor and guide a barrister's career. At the beginning of a career a baby barrister is dependent on the clerk for work. It's the consequence of being part of a referral occupation. Then it is the clerk's task to develop the career trajectory to suit the talents of the individual, and the desires of the individual barrister. The clerk manages the career expectations and uncertainties of the barristers. All of which must be done with sensitivity.

There are nodal points when decisions have to be taken. What direction will the baby barrister be weaned onto? What are the strengths of a particular barrister? Advocacy or advisory work? When is the optimum time to apply for silk? And what would the consequences be?

Besides being matters of individual choice and decision, for the clerk they are also collective matters. How does the individual fit and perform within the chambers organization? The clerk resembles the Tralfamordorians in Vonnegut's Slaughterhouse Five. They see in four dimensions, that is including time. It means the Tralfamordorians can see any moment of their lives they want, but they can't change their lives.

Clerks have to look at the chambers the same way as if they were on the planet Tralfamadore--from beginning to end as a unit with a life and culture of its own. The individual must be a part without being a disruptive force. It's a talent, especially if you are not born on Tralfamadore. One can see it when clerks talk about former pupils who are now heads of chambers.

How does this work? A lot of it is to do with proximity. Clerks are in daily contact with their barristers. Most barristers have to pass through the clerks' room to enter chambers.

This then is the difficulty of the academic member. They are not proximate; they can't respond to urgency when called on. They take more effort. But for what return? This is not an easy decision for a rational economic actor to take.

Tuesday, July 10, 2007

Globalization Works in Strange Ways

Today I started teaching my summer school class for the University of Miami School of Law. My class is "Global Lawyering". The main argument of the course is that whereas we can talk of globalization from an economic perspective, it is actually quite hard to do it from a legal one. There isn't much international law, so the significant gaps have to be filled. They are mostly filled through a system of private ordering or governance that is manifested in transactions crafted by lawyers, primarily in large American and English law firms.

In bringing parties together in transactions, lawyers use law instrumentally. I've mentioned in papers of mine that New York state law and English law are the key choices in capital markets work. Moreover, when banks are lending for asset purchases they display a preference for the documentation to be based on one of these two to avoid irregularities caused by say French or Luxembourg law (eg. problems with "thin capitalization").

To make sense of all this, it's necessary to understand how the law firm came into being, why it has its present structure, how lawyers are educated, and more. My course puts this into the context of globalization. And that means globalization from above and below. Above is the large commercial/financial transaction like the Chad-Cameroon oil pipeline developed with World Bank participation. Below is the move by NGOs and popular movements to make drug companies reduce the prices of AIDS drugs in third world countries, such as South Africa.

So I am always looking for examples to illustrate different facets of globalization. I think the case of the dispossessed Dutch farmers against the government of Zimbabwe is a good one.

Tucked away on an inside page of the Financial Times is an article about dispossessed Dutch farmers taking a dispute against the Zimbabwean government to ICSID (International Centre for Settlement of Investment Disputes). (But see this version from Zimbabwe.) For more on the Zimbabwean dismantling of white farming, see Angus Selby's paper. The case was registered in 2005 (case #ARB/05/6). Fourteen farmers claim that
Mr Mugabe’s government breached its international law obligations by failing to provide adequate police protection for Dutch property owners in Zimbabwe between 2000 and 2002 and by actively supporting a series of violent land invasions that led to their farms being abandoned. They add that the Zimbabwean government subjected them to unlawful racial discrimination by targeting white farmers. (
ICSID is an institution that grew out of the World Bank president's involvement in settling disputes on an ad hoc basis. The governor of the Bank of England has done the same. The legal basis of ICSID's dispute resolution process is found in a series of bilateral treaties as well as in investment contracts between investors and governments.

This case has brought together an interesting set of groups around the parties. On the claimants' side are the Dutch Farmers Association, Agric Africa (UK-based NGO run by a former land valuer in Zimbabwe), and George Soros' Open Society Initiative for Southern Africa. So far the respondent, the Zimbabwean government, appears to be on its own.

The Dutch farmers have brought together an international mix of lawyers based in Washington DC, London, and Harare. The Washington lawyers, Wiley Rein, are ICSID litigators; the English lawyers, Bishop & Sewell, do dispute resolution work and have strong African links; and the Zimbabwean lawyers are Coghlan, Welsh & Guest.

Despite Zimbabwe's reluctance to join in the government has appointed an arbitrator. It has selected the former Pakistan Justice minister Mohammad Wasi Zafar. The Dutch farmers have appointed Ronald Cass, a former dean of Boston University Law School. Judge Gilbert Guillaume of France is the third arbitrator. Moreover, Zimbabwe's plea to have their capital, Harare, as the venue because of exchange rate difficulties (ie. inflation at several thousand percent), has been rejected.

This case brings together the fundamental clash between north and south, aspects of colonialism, both British and Dutch, with memories of apartheid and subjugation. This is stark in the case of Zimbabwe and its legacy of Cecil Rhodes and Ian Smith and is assertion of an unilateral declaration of independence from British rule to maintain white hegemony. And it is layered with Robert Mugabe's desperate clinging to power at any cost through his suppression of any opposition and the expropriation of lands: the despotic leader averse to democracy. As Selby's paper above shows Zimbabwe had good, productive agriculture, but now it has famine. There is the involvement of sophisticated international agreements, bilateral treaties, governed by supranational bodies, ICSID. This represents the dominance of western law over more traditional forms. And NGOs--AgricAfrica and Soros' Open Society--are also implicated. All this to be dealt with by lawyers from three continents.

One single case thus encapsulates the conflicts, dilemmas and messiness of globalization.


Tuesday, June 26, 2007

Who Actually Sells the Law Firm?

Mid-market law firms in response to questions from The Lawyer are saying they would like to consider seriously an IPO or taking in external investment. This is all part of the post-Clementi maneuvering that is taking place as the Legal Services Bill travels its slow journey through parliament. I've indicated some of the potential pitfalls before.

While I believe the legal profession should be relieved of many restrictive practices and be given the freedom to organize itself how it likes, I do not believe lawyers are a knowledgeable group when it comes to making these kinds of decisions. Fundamentally, they are naive: they are not great business people, not when it comes to themselves.

If the Legal Services Act is like a Big Bang, lawyers will not have the technical savvy to compete with the private equity funds and banks. All the stockbrockers and jobbers in the City of London were eaten up after Big Bang.

Although lawyers engage in business and play an enormously constructive role, this does not mean they are perceptive analysts of their own situations. Lawyers are essentially technical underlabourers for financial institutions. Undoubtedly good, but they are not the leaders in transactions.

Here then is a possible scenario for the post-Clementi age. Everyone is excited about investors. Law firms are being courted assiduously. Within these firms--and this is mostly the mid-market ones--the senior partner (often a founder) will be sitting with his chief financial officer (probably an accountant), and one or two other senior lawyers. They will be planning their exit strategy, just like good private equity funds. They will have worked for a goodly number of years and comes the payoff. The crucial question is: how much of the equity can they sell off without causing a revolution in the partner-ranks?

Let us assume they work a wonder of spin and convince their partners that this is the yellow brick road for the firm. And let us assume that they decide to sell off 25% of the equity. Once the deal is clinched and the shares of the sale have been distributed, why would those senior guys stay around?

They won't. They will leave because there is nothing in it for them any more. It will be up to the remainder to knuckle under a different, and potentially harsher regime (remember how the unions have been complaining about private equity) with less of the pie than they used to have.

That's because they won't have thought of exit strategies like the others. I would suggest any partner should now plan a possible exit strategy and be prepared to execute it as soon as the chief financial officer and senior partner start walking around with slightly manic looks in their eyes.

Thursday, June 21, 2007

Article on Barristers' Clerks

My research on barristers' clerks is picking up. Counsel magazine has asked me to write an article on clerks. They want 1400 words by July 2. Why not? I think. Then the reality sinks in: this means there have to be all these words looking reasonably coherent on paper in about a week's time.

I have been promising myself that I would say no to requests, but I don't. I'm realising that there is a similarity between me and barristers. According to the clerks barristers are always anxious about where the next bit of work will come from and when. It doesn't seem to matter how eminent they are, they're nervous.

I'm the same about writing. If no one asks me then I'm lost in the wilderness, forgotten, adrift, never to publish again. It's stupid and so when I get asked for a chapter or an article for about a millisecond I will consider saying no, then I switch into normal mode and say, of course, yes.

The Reincarnation of Barristers' Clerks -- Part 1

When I first started this blog two years ago I mentioned in my first post that I had written a study of barristers' clerks. (The book is available for download here.) I have recently started a new research project which is to re-study them. The gap between the two studies is a long one, so one imagines that all kinds of changes will have occurred and that the entire scene will be quite different.

When I did my first study there were no mobile phones, faxes were rare, computers very rare, and email nonexistent. Clerks maintained large paper diaries for their barristers and someone had to be close to a (landline) phone. I don't know if the Blackberry had even been imagined: it was easier to expect to be beamed up by Scotty. Now it all exists, but are clerks any different?

First, let me sketch a clerk. The barrister's clerk must belong to one of the strangest and least known occupational groups in the world. They have been around for over two hundred years from what historical data exist. Their main task is to act as the interface between the barrister and the external world. Think of it as bridging the sacred and the profane. The law, following Mary Douglas, is pure and sacrosanct. It therefore requires a priesthood to celebrate it and to proselytize it to the world. In law, we can theoretically say this is the barrister, an individual who is immersed in the law and remote from the quotidian concerns of the client. Clients are managed by solicitors who engage barristers as advocates when a trial is likely.

The world beyond the law is profane and the law and its interpretation must be protected from it. The priesthood is guarded by the barrister's clerk. He, and most are he, arranges the barrister's diary, negotiates the fees, and, most importantly, counsels the barrister on career choices. These could be what area of law to specialize in, when to take silk, or when to take a holiday. (One barrister recalled telling her clerk she was to be married. The clerk told that the middle of December would be a good time for the ceremony.) The clerk is manager, promoter, administrator, and shrink.

Any job role analysis would have a fit trying to establish the "dimensions" of this one. There is no formal training for the job. The usual route is by apprenticeship. A young clerk starts by running around doing photocopying, pulling cases off the internet, taking bundles of paper to court. This makes the job a social one in that young clerks mix together in courts and in the Inns of Court, so that they also learn from each other by exchanging information and gossiping.

With experience clerks take on more responsibility and take on the fixing of fees and diary management. Fixing fees is as much an art as science. There are notional hourly rates; there is the value of the case; there is the amount to be saved to the client if the case succeeds; and there is the clerk's gut feeling as to what the case is worth. The clerk doesn't have to know anything about the law, although some do.

Here it's worth mentioning that the English legal profession is similar to the American one in that its configuration is made up of two hemispheres: the corporate and the individual, reflecting the clients and their types of business. Within the English bar the two sides are the privately funded and the publicly funded, which crudely correspond to the US version.

Until a few years ago, up to 50% of the bar's earnings came from legal aid. With the legal aid bill in the UK running at £2.5 billion a year, it's still pretty substantial. For clerks the distinction is vital. Fixing private fees, especially corporate, is a much simpler process than dealing the bureaucratic nightmare of publicly funded fees with their graduated fees, Very High Criminal Case fees, and soon the Carter revisions to legal aid fees.

Two instances demonstrate the differences: in one set of chambers I observed which does a considerable amount of publicly funded work, there were 3 people working full-time attending to fees. In the other, a "Magic Circle" set of chambers, the clerk admitted that he would not know how to set and handle publicly funded fees. To him it was another, remote world, but he did say that the difference could be expressed thus: "Their barristers earn in a day what mine earn in an hour."

Sunday, June 03, 2007

What is a Partner?

The figures for law firms' year-end earnings are coming in. The Magic Circle firms are breaking through the £1 million PEP barrier as Clifford Chance has broadcast. These results coincide with two other sets of results. First, trainees and first year associates are getting vastly increased raises for stipends and salaries. Second, equity partnerships are on the decline and have been for a number of years, while salaried partnerships and permanent associateships are on the increase.

So who exactly is sharing in these "spectacular" PEP results, as The Lawyer defines it? And, more importantly, how are these rare specimens--equity partners--being selected?

In situations like these it's worth going back back to first principles. Law firms are essentially flat institutions, but we can take a tripartite view which looks at lawyers in a firm as "finders, minders, grinders". Finders bring in the clients; minders look after them and supervise the work; and grinders do the grunt work."

But since law firms really only consist of partners and associates, these categories overlap. Associates are grinders and minders and partners are minders and finders. These days with the rise of transactional work the role of the finder is king. Work and clients is potentially fickle. Institutional clients always, or nearly always, obtain two quotations for a job. This can be fudged to ensure that the "desired" lawyer gets the transaction.

Finders have to focus on marketing and raising the profile of the firm to make clients want to keep instructing the firm. The lawyer therefore rather than the firm is the key to making this work. Some Magic Circle firms can rely on their brands to attract work, but that's no longer a shoo-in. The recent defection of partners from them to big US law firms demonstrates the brand isn't inviolable, especially when these lawyers take their clients with them to their new firms.

For the second tier and beyond of corporate law firms, where the brand is at best inchoate, the rainmaker is crucial to bringing in the work. And the expected result would be that finders would be rewarded and given equity partnerships above others. This is especially the case in firms that operate an "eat what you kill" form of remuneration over "lockstep" (managed or otherwise).

Merit will dominate and win. Well, maybe. It depends on who has been able to weasel their way into the management positions in the firm where partnership decisions can be influenced. It is the case apart from the founders and those who have been around for a very long time that minders have that spare time to take on the management roles. Finders are too busy. Emmanuel Lazega's ethnography of a northeastern US law firm illustrates these tensions quite well.

The upshot is that minders can be wary of finders because they represent that which they are not, or likely to become. They're a threat. Who better then to see promoted to equity partner than another minder who can be assured not to propose anything too radical. When this happens we see the exodus begin. Look, for example, at the numbers of lawyers who have left Allen & Overy. It becomes a race to the bottom, for once finders and potential finders suspect themselves of being sidelined, or not being given the resources they need, they will move elsewhere and, of course, take their clients with them.

I imagine in the last analysis, what I am describing might take place at the margins. We are seeing graphic examples of law firms being ruthless. Freshfields has de-equitized 100 partners (from 520 to 420), which means they were fired for not being productive. Mayer Brown has demoted or fired 10% of its partners (see Legal Marketing Blog) and there was the classic rout by Sidley Austin a couple of years ago. (According to the 7th Circuit Court of Appeals, these partners were employees [?])

Law firms must have and maintain the capacity to examine themselves ruthlessly and critically. The days of the cosy partnership with long lunches and a lifelong marriage disappeared a long time ago.

Tuesday, May 22, 2007

Law Firm Has IPO and Goes Public...but what about the public?

Why wait for Clementi and the Legal Services Act? It's already happening. The Lawyer reported today that Slater & Gordon, a PI firm based throughout Australia floated on the stockmarket. Over 8 million shares were sold, the market closing at AUS$1.4 on an issue price of AUS$1. It's hardly in the Google IPO stratosphere but still represents a huge change on the ancien regime. Legal Soapbox has written an insightful piece on the potential conflicts for lawyers that arise with the IPO.

No other law firm, to my knowledge, has done this. Once the Legal Services Act is enacted in the UK, then it will be possible for English law firms to do this too. However, do see Ideoblog on "Blackstone and the publicly traded law firm".

So what does it mean to the legal profession and its client base? The first tension is that between professionalism and business. Professionalism speaks of disinterestedness, community orientation, ethically minded conduct, duties to court (as Legal Soapbox reaffirms), all of which conspire to be antithetical to business. The real question for analysts is to what extent are these real tenets as opposed to shibboleths produced to create an artificial impression? It's difficult to know, but these days any lawyer that hewed merely to these values wouldn't last long.

Law is a business. And that's not just the case for corporate law firms, but also those that survive on legal aid cases. Let me exemplify this: today I interviewed a barrister's clerk in a set of chambers that does a range of work including a heavy dose of legal aid work. He makes sure that the lawyers who brief his barristers include travel expenses with the delivery of the brief so that his barristers aren't out of pocket when travelling to suburban courts. It may be simple and mundane but the clerk knows that he's got to watch his cash flow. It's easy for solicitors to go out of business and leave counsel with no chance of collecting their fees. That doesn't happen in the elite, of course.

Lawyers have financial targets and a range of incentives (and penalties) to help meet them. Even the new legal aid regime post-Carter will be organized around more severe financial terms than before. To see how dire the situation can become, have a look at Richard Abel's article, "Practicing Immigration Law in Filene's Basement" in the North Carolina Law Review. Here incompetent lawyers recklessly misrepresent their clients for a paltry fee and then dump them. It helps too if the clients can't speak English.

But perhaps the key tenet of professionalism is incarnated in the ideal of self-regulation: the ability to keep one's own house in order. Unfortunately the English legal profession has not kept on top of this. The legal services ombudsman has reported a rising caseload of complaints about lawyers from the public year on year. Neither the Bar Council nor the Law Society have managed to reduce the complaint load. And the result is that government now believes external regulation must take over from self-regulation. This will be encapsulated in the Legal Service Act.

The final push has come from the competition authorities who see lawyers' arrangements as constitution restrictive practices not in the public interest. With their focus on consumer's rights, lawyers can no longer rely on traditional modes of working.

Given these moves, it's no wonder that law firms have begun to look for more entrepreneurial ways of organizing and financing themselves. What used to be a direct bargain between lawyer and client is now mediated by the state. (And I am not discussing the changes in internal organization with permanent associates, salaried partners, consultants, etc. For that see here.)

But herein lies the essential paradox of the matter: lawyers established themselves on the principle of independence and being the guardians of individuals against the might of the state. The state is now co-opting them in various ways. First, there is the direct regulation of the legal profession. Second, more selective funding of state legal services. And finally, it is easing (pushing) the way for lawyers to move away from traditional forms of organization enshrined with personal liability into more technocratic and bureaucratic forms that will no longer be able to claim the ancient rights and privileges, as in, for example, attorney-client privilege.

It's no surprise. The state has intensively increased its surveillance of the populace, with the excuse of terrorism, so it must ensure that its "struggle" isn't compromised by groups who are opposed to its aims and stand up for human rights. Promoting the business model is actually one way of subverting these aims, unless human rights becomes big business.