Overblown rhetoric about ABSs imperiling the rule of law doesn't help the profession solve its problems
By Paul Paton
FOR ALL THE TALK about global integration of the profession, there are still some pretty big fault lines. Whether regulators permit alternative business structures (or ABSs) is probably the most controversial. ABSs are allowed in England and Australia; the American Bar Association forcefully rejected them in 2012. Recommendations from both the Law Society of Upper Canada and the Canadian Bar Association this spring will not only determine which side of the divide we end up on, but also how closely Canadian firms might connect with international counterparts.
So what is an ABS? The definition depends on the jurisdiction, but generally the term covers alternative forms of arrangement for the delivery of legal services. It can include anything from a law firm packaging legal services with other products or services (such as a fully integrated multidisciplinary practice, or MDP), to non-lawyer investment in or ownership of a law firm.
The debate boils down to two positions: on one side, supporters of innovation are joined by those who believe that freeing up rules will lead to greater efficiency, lower costs and broader access; on the other, traditionalists fret about how non-lawyer ownership will compromise the independence of firms. The characterization of the law as a business offends their basic sensibilities (no matter how close to the truth it might be).
However, recent law firm bankruptcies such as Howrey LLP and Dewey & LeBoeuf LLP were in part caused by a reliance on bank loans, which were pulled when the firms violated the terms of their agreements. If lenders can dictate how firms conduct their business, don't non-lawyers, to some extent, already control them?
Yet those lawless jurisdictions in which ABS are permitted have somehow managed to figure out how to balance a more liberal regime with protection for the profession's core values. Solutions are attainable, as long as there is the drive to find them — either externally imposed or out of self-interest. In both England and Australia, for instance, change only came about as a result of pressure from government, something that hasn't been a feature in Canada. But self-interest might be, especially now that law firm economics are threatened. The collapse of Heenan Blaikie LLP suggests this isn't just theoretical.
In Australia, legal practices have been permitted to incorporate under ordinary company law since 2000, and shares of Slater & Gordon have been publicly traded since 2007. In England, a legislative overhaul of legal regulation led to the first ABS licence in March 2012. Co-Operative Legal Services was the first significantly large entity to register as an ABS. The Co-Op is a retailer offering everything from groceries to banking to funeral services from over 5,000 outlets to its more than six million owner/members. (Think of Costco or Loblaws or Walmart having a kiosk in every store and you get the picture.)
In 2012, the LSUC established a working group to consider whether regulatory modification was needed given developments abroad. Its preliminary report and symposium last October signaled the potential for change. As symposium summary noted, “ABS and ABS regulation might enable the development of innovations in the delivery of legal services, which could lower the cost of providing these services, assisting the public in accessing service at a lower cost or in a more accessible way.”
In November, working group Co-Chair Malcolm Mercer, of McCarthy Tétrault LLP, wrote that opponents feared that ABSs “will transform the practice of law. Lawyers will no longer be in charge of their practices or of their profession. The rule of law and our free society will be imperiled.” His conclusion? “It is not necessary to throw caution to the winds in order to permit greater innovation. We should look hard at specific rules and think clearly about whether there are sensible less restrictive alternatives.” The Working Group's final report this spring offers options for just that.
Evolution rather than revolution — very Canadian. Whether the Law Society of Upper Canada and the CBA Futures Task Force finally follow through, the dialogue in Canada has finally changed. And that, at least, is a start.
Paul Paton is a professor at the University of the Pacific's McGeorge School of Law in Sacramento, California. He can be reached at (916) 739-7284 or [email protected].
By Paul Paton
FOR ALL THE TALK about global integration of the profession, there are still some pretty big fault lines. Whether regulators permit alternative business structures (or ABSs) is probably the most controversial. ABSs are allowed in England and Australia; the American Bar Association forcefully rejected them in 2012. Recommendations from both the Law Society of Upper Canada and the Canadian Bar Association this spring will not only determine which side of the divide we end up on, but also how closely Canadian firms might connect with international counterparts.
So what is an ABS? The definition depends on the jurisdiction, but generally the term covers alternative forms of arrangement for the delivery of legal services. It can include anything from a law firm packaging legal services with other products or services (such as a fully integrated multidisciplinary practice, or MDP), to non-lawyer investment in or ownership of a law firm.
The debate boils down to two positions: on one side, supporters of innovation are joined by those who believe that freeing up rules will lead to greater efficiency, lower costs and broader access; on the other, traditionalists fret about how non-lawyer ownership will compromise the independence of firms. The characterization of the law as a business offends their basic sensibilities (no matter how close to the truth it might be).
However, recent law firm bankruptcies such as Howrey LLP and Dewey & LeBoeuf LLP were in part caused by a reliance on bank loans, which were pulled when the firms violated the terms of their agreements. If lenders can dictate how firms conduct their business, don't non-lawyers, to some extent, already control them?
Yet those lawless jurisdictions in which ABS are permitted have somehow managed to figure out how to balance a more liberal regime with protection for the profession's core values. Solutions are attainable, as long as there is the drive to find them — either externally imposed or out of self-interest. In both England and Australia, for instance, change only came about as a result of pressure from government, something that hasn't been a feature in Canada. But self-interest might be, especially now that law firm economics are threatened. The collapse of Heenan Blaikie LLP suggests this isn't just theoretical.
In Australia, legal practices have been permitted to incorporate under ordinary company law since 2000, and shares of Slater & Gordon have been publicly traded since 2007. In England, a legislative overhaul of legal regulation led to the first ABS licence in March 2012. Co-Operative Legal Services was the first significantly large entity to register as an ABS. The Co-Op is a retailer offering everything from groceries to banking to funeral services from over 5,000 outlets to its more than six million owner/members. (Think of Costco or Loblaws or Walmart having a kiosk in every store and you get the picture.)
In 2012, the LSUC established a working group to consider whether regulatory modification was needed given developments abroad. Its preliminary report and symposium last October signaled the potential for change. As symposium summary noted, “ABS and ABS regulation might enable the development of innovations in the delivery of legal services, which could lower the cost of providing these services, assisting the public in accessing service at a lower cost or in a more accessible way.”
In November, working group Co-Chair Malcolm Mercer, of McCarthy Tétrault LLP, wrote that opponents feared that ABSs “will transform the practice of law. Lawyers will no longer be in charge of their practices or of their profession. The rule of law and our free society will be imperiled.” His conclusion? “It is not necessary to throw caution to the winds in order to permit greater innovation. We should look hard at specific rules and think clearly about whether there are sensible less restrictive alternatives.” The Working Group's final report this spring offers options for just that.
Evolution rather than revolution — very Canadian. Whether the Law Society of Upper Canada and the CBA Futures Task Force finally follow through, the dialogue in Canada has finally changed. And that, at least, is a start.
Paul Paton is a professor at the University of the Pacific's McGeorge School of Law in Sacramento, California. He can be reached at (916) 739-7284 or [email protected].
Lawyer(s)
Malcolm M. Mercer