UK lawyers and firms should resist the lure of outside investment

Many are heralding the creation of alternative business structures (ABSs) as a watershed moment in the evolution of UK legal practice that will be good for consumers and the law. I am not convinced.

As an American attorney with over 35 years of experience in the international legal market as both a legal advocate and client, I have watched the debate over whether to allow outside investment in law firms with keen interest. Indeed, lawyers in the US are presently in the midst of the same debate. As on so many legal issues, the American bar naturally looks to the UK and our shared legal culture. And, on the issue of allowing non-lawyers to invest and participate in law firms, the UK has been well ahead of the US.

I believe the development of ABSs marks a dangerous shift in the UK’s approach to legal services that could weaken the UK’s deservedly stellar international legal reputation. It also threatens the attorney-client relationship, which is at the heart of what makes the law a profession rather than just another business. Advocates may welcome ABSs as a victory for consumers, but conceptualising those who receive legal services as consumers, rather than as clients, is at the root of the problem.

Outside investors can be good for many businesses, but not for the practice of law. ABSs open the door to ethical risks that will work to the detriment of corporate and private individuals and the overall way legal business is conducted internationally.

I believe that ABSs will create pressure on lawyers to compromise their obligation to protect confidential information and cause conflicts of interest between the lawyer and clients or outside financiers. These outside funders – who are interested in maximising their return on investment but are strangers to the rules of professional responsibility – could seek to influence a lawyer’s behaviour or even the outcome of a case. That is particularly true of ABSs, where the legal practice may be just a small part of a larger business enterprise.

Traditionally, the lawyer-client relationship has been treated as fundamentally different from a business relationship – because it is. The relationship is protected by a unique privilege for attorney-client communication and by the professional ethic that lawyers must unequivocally put client interests first.

By contrast, no one expects an investor to act as a zealous client advocate. Nevertheless, proponents of ABSs argue that there are sufficient safeguards in the regulations governing ABSs and in lawyers’ own professional code to avoid any problems in practice. They express confidence in the SRA’s licensing process and contend that a lawyer’s duty to the client will always trump responsibilities to investors and owners. I do not share their confidence.

The rules of professional conduct, as their name suggests, are premised on law being a profession rather than a business. They require lawyers to behave in ways that will leave profit-maximising investors scratching their heads. Relying on those professional norms to deal with outside investors who are not bound by those rules and whose investment blurs the line between the business of law and the profession of law strikes me as wishful thinking. ABSs are problematic precisely because they introduce outsiders who have neither a personal interest in the case nor an ethical obligation to the client, creating a temptation to let those who run the broader enterprise call the shots.

The past few years have seen the legal profession repeatedly putting money first. Openly embracing outside investment shows a willingness to discard the fundamental client-first values that once made this a trusted and respected profession. Internationally, the chase after higher profits has also produced a relentless pursuit of growth, with already-large firms swallowing up more firms or adding new partners with their own extensive books of business. That growth creates a complex morass of client conflicts and a willingness to brush those conflicts aside in order to create bigger and bigger law firms (and presumably bigger and bigger profits).

As the UK begins its experiment with ABSs, it is hard to ignore the parallels with investment banking. When investment banks morphed from partnerships to corporations, they undoubtedly increased their access to capital. But they also stopped managing their risks as carefully as they did when they were partners and their own assets were on the line. It is naïve to think that lawyers will behave any differently.

While there may be no turning the UK back from ABSs, individual UK lawyers and firms still have a choice. They can and should resist the temptation to pursue outside investment. Instead, they should push to remain the client-focused professionals and professional organisations that we all need them to be.

gccomm@us.ibm.com