Who Wins with Non-Lawyer Ownership? Just the Bankers (Part 2)

Part 2 of 2 in my series regarding non-lawyer ownership of law firms. Click here to read Part 1.

3) Non-lawyer ownership will not cause society to pay less for legal services.

Seriously, can you imagine making this pitch to some investment bankers?

“So we have this law firm, but we think it costs too much for the public to use our services. So we want to charge less, and make less money.” Well, that’s what the argument is making, but on a macro, industry-wide level.

In order to argue that non-lawyer ownership is a solution to society paying too much for legal services, you rely on the premise that by allowing non-lawyers to own law firms, the total amount that society will spend on legal services will decrease. I’ve heard of the concept of making the pie bigger (the “rising tide lifts all boats” concept), I’ve heard gaining a bigger slice of the pie (i.e. the competitive advantage concept), but I’ve never heard anyone involved in business who successfully pitched the idea to REDUCE the size of the pie.

It’s logically incompatible to argue that we should make the practice of law more responsive to market forces by allowing non-lawyer investors, while simultaneously arguing that by allowing such investment, we will decrease the overall amount of money our society spends on legal services. The opposite will happen.

4) Innovations don’t “trickle down.”

The reason you innovate is to make your firm “bigger, stronger, faster.” You use those competitive advantages to beat the other firms. Walmart and Best Buy have both been pioneers in streamlining competitive processes in their respective industries. Ask Circuit City if the “innovative” competitive advantages trickled down to them.

Introduction of non-lawyer ownership will not create an innovative boom in the practice of law. Small firms will not benefit by the big firm in town getting an influx of cash in order to buy all new software and equipment. They’ll be forced out of business. You don’t take your competitive advantage and use it to help your competitors.

5) The only real beneficiaries of non-lawyer ownership of law firms: Investment Bankers.

Thank God, I know we were all worried about whether investment bankers would survive this terrible climate. I’m concerned. So it’s important to me that we sacrifice the entire nature of the practice of law so that big banks and major corporations can pad their bottom lines a little by investing in law firms.

Seriously, read all the arguments in support of non-lawyer ownership. After each argument they make, ask yourself this question: How? They all seem quite brief on that point. They state that there will be benefits in efficiency and cost, but don’t say how. They say that overall legal services will be cheaper, but don’t say how.

Then think about what you REALLY know about corporate ownership. Sure, you might see some technological innovation on the front end, along with unbundling of legal services and significant investment for a few firms. But over time, you’ll see a smaller and smaller number of actual attorneys with a financial interest in their own law firm. Instead, you’ll see corporate boards and shareholder groups just like today’s major corporations.

Right now, the attorney’s SOLE responsibility is to his client. What about the law firm CEO that now has a fiduciary duty to the firm’s shareholders on the open market? How do rules prohibiting conflicts of interest address the new tangled web of investor interests? How does attorney-client privilege survive corporate ownership of confidential information?

As Sam Glover postulated in the Lawyerist: “Underneath the shiny-new-business-model rhetoric seems to be a simple idea: cheaper legal services, probably delivered by less-well-compensated lawyers, primarily to the benefit of non-lawyer CEOs and shareholders (on both sides of the transaction, when it comes to corporations representing other corporations).”

Can you imagine your law firm giving a golden parachute to a CEO who drove the company into the ground? How about investors who prefer to see short term profits over capital reinvestment? Wait, didn’t we start this by saying that non-lawyer ownership will allow firms to invest in the future? How many major corporations today are faltering because they’d rather buy back stock or pay out dividends than invest in their own human capital?

Remember…

Most of the people asking for non-lawyer ownership in law firms have a vested interest in the deregulation of the practice of law. Whether they want to be the law’s version of Turbo Tax, or whether they simply want to earn profitable returns out of a law firm’s revenue, how many of them really and truly want to create a better, cheaper, and more accessible law firm? How many of them really want to improve access to justice? How many of them just want more ways to make more money?

Ask yourself, is “so that investment bankers can make more money” a reason to fundamentally and irrevocably change the practice of law? I say no.

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  • 47YearBroncoFan

    Define “nonlawyer ownership.” If you mean equivalent professional practitioners, such as CPAs, etc., maybe.

    Paralegals are barred from partnering with attorneys. Attorneys are barred from splitting fees with paralegals and other nonlawyers. While I can see nonlawyer firm ownership giving paralegals greater opportunities, I can see it creating greater professional liability for them and conflicts of interest with them and their attorney partners. As a paralegal, I’m not sure I would be care to be exposed to greater liability, and I certainly do not want conflicts with any attorney-partners. For these reasons I don’t think I’d want to own or co-own a law firm.

  • James Hannigan

    Are you aware of the publicly-traded law firm in Australia? Sky has not fallen as far as I can tell.

    Your argument that prices by definition won’t go down because the market will grow is wrong. More rational investment in a deregulated market would increase the availability of services to different market segments at a better price point for that segment; a bigger market would be proof of unserved buyers being offered the right service, not necessarily

    The fact is law firm partnerships have not invested at nearly the rate required to maintain their position against the technological and forces lining up to take their business, which will happen with or without rule changes. Enforcement of the UPL rules is not going to happen against any company with clout and resources. So firms should figure out a way to invest for the future and restrain the reflex to disburse all profits to the attorney owners.

    • http://www.thecyberadvocate.com/ Brian Focht

      While I agree with much of your second paragraph, your first paragraph represents one of the biggest complaints I have about proponents of non-lawyer ownership: generic macro vs micro economic statements of supply and demand that have no support vis-a-vis the practice of law, and limited actual real-world support in other industries. We simply do not live in a traditional market economy (because it never existed in the first place). Plus, I don’t argue that prices won’t go down because the market will grow, I argue that there is no evidence that non-lawyer ownership will have any true effect on the prices of legal services.

      Moreover, your second paragraph actually demonstrates what I’ve been arguing in the first place: that non-lawyer ownership is NOT the panacea that proponents of non-lawyer ownership claim it to be. I agree that the partnership model causes considerable difficulties as far as re-investment, but look at the trouble caused in the banking industry when we changed the rules requiring investment banks to be closely-held companies. By making it so that the people who ran the company no longer had a stake in the future of the company, the interest in long-term investment actually went DOWN.

  • Responsive Law

    You wrote: “Most of the people asking for non-lawyer ownership in law firms have a vested interest in the deregulation of the practice of law. Whether they want to be the law’s version of Turbo Tax, or whether they simply want to earn profitable returns out of a law firm’s revenue, how many of them really and truly want to create a better, cheaper, and more accessible law firm? How many of them really want to improve access to justice? How many of them just want more ways to make more money?”

    We’re a national, nonprofit organization working toward a more accessible and affordable legal system. We’ve testified numerous times to the ABA and state policymakers about the benefits of non-lawyer ownership. Since our organization’s purpose is to speak on behalf of users of the legal system, we are most certainly taking this position as a way to improve access to justice and not as a way to make more money.

    The greatest benefit of outside investment won’t come from a change in the practice of existing firms. Instead, it will come as other companies, both new and existing, are able to offer law as a consumer service on a scale that solos and small firms—the predominant deliverer of services that the average person needs, such as wills, family law, housing, and employment issues—are unable to offer. For example, a national company could develop training and supervision protocols for lawyers, teaching them how to provide legal services to their clients and providing not only the legal expertise they need, but also letting those lawyers focus on their core competency of practicing law, while letting a corporate office handle the business side of practice.

    There is a clear disconnect between the 80 to 90 percent of Americans who cannot afford basic legal services and the growing number of recent law school graduates who currently have no employment prospects. Corporately-provided legal services would bridge this gap and allow the true democratization of law. Consumers would be able to take advantage of economies of scale that do not exist for small firms and newly-minted lawyers would be able to receive training and employment providing legal services at an affordable price.

    Concerns that lawyers would shirk their ethical duties under pressure from corporate owners and investors are misplaced. Lawyers in every setting face financial pressures to act against their clients’ interests. For example, associates at large firms face pressure to pad hours to meet billable hour goals. However, this financial pressure does not relieve an attorney of the obligation to follow the rules of professional conduct, and neither would financial pressure from shareholders. As an additional safeguard, the US could adopt a version of Australia’s requirement that each firm with outside investment designate an officer to be responsible and liable for ethics violations.

    Both the UK and Australia have permitted non-lawyer ownership for several years, and have shown that consumers benefit from the innovation it fosters, while predictions of diminished lawyer professionalism have been proven wrong. It is past time for the US to join its international brethren in adopting this reform.

    • http://www.thecyberadvocate.com/brian-focht/ Brian Focht

      Therein lies the problem: what evidence is there that non-lawyer ownership will actually increase the access to justice? For my more central argument on that particular issue, I direct you to the first part of the article, discussing the overall cost of legal services and the issue of access to justice. To me, access to justice is the single most important issue that the practice of law needs to address at this time, and I have not seen a single argument that supports anything other than a fantastical notion that corporate ownership of the practice of law would actually increase access to justice. I know of one example in Australia, offering basically a flat-fee family law practice (which is actually already offered today by many firms in the U.S.), and no effective example in the UK of TRUE access to justice questions being answered by non-lawyer ownership.

      Also, the UK has only approved the first non-lawyer owned legal practices in 2012, and the number is extremely limited. To point to the UK as an example of anything, particularly as an example of how non-lawyer ownership is capable of delivering the services that proponents suggest over the long-term, is disingenuous.

      I strongly support your mission of increasing access to justice. However, given the method and manner in which corporations have lobbied to decrease access to justice, on both the state and federal level, I find any suggestion that those who most need their access to justice would be served by corporate ownership of law firms to be a little ridiculous.

      I would argue that many other proposed solutions, including increasing the ability of non-lawyers to deliver services at lower levels of the practice (compare to the growth of the Physician’s Assistant in medicine) would be a far more effective way of increasing access to justice than by introducing non-lawyer ownership.

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