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ALA Comment Letter to the ABA’s Alternative Business Issues Paper

Katy Englehart
American Bar Association
Office of the President
321 N. Clark Street
Chicago, IL 60610
IPcomments@americanbar.org

Dear Ms. Englehart:

Thank you for the opportunity to provide comments regarding the ABA Commission on the Future of Legal Services’ Issues Paper Regarding Alternative Business Structures.  On behalf of the more than 9,000 members and 6,000 firms represented by the Association of Legal Administrators (ALA), we believe the benefits of alternative business structures as described in the issues paper outweigh any potential risks.  We encourage the ABA to pursue policy changes to facilitate the creation of such structures.

The members of ALA provide professional business management skills, including operations, human resources, administration, marketing, technology, and information services to law firms and law departments throughout the United States and around the world.  These legal management professionals provide critical services to ensure the ethical and efficient leadership and business operations of firms, enabling lawyers to focus on providing exceptional and ethical service to their clients and the courts.   

The legal profession is experiencing tremendous and disruptive change unlike any period in our history: 

  • Global competition for legal work is increasing. According to Citi Private Bank and Hildebrandt Consulting’s 2016 Client Advisory, the global legal market is becoming extremely competitive and, in some markets, over-crowded. Yet, despite global expansion in the legal market, the report predicted that the U.S. would experience continued consolidation. In particular, it notes that accounting firms in markets outside of the U.S. are increasingly competing with traditional law firms.  Indeed, the adoption and success of alternative business structures in Australia, England and Wales is what has reignited the debate in North America.  That trend will no doubt continue.  For U.S. firms to compete effectively internationally, we believe the playing field should be more balanced.  Allowing firms to create alternative business structures will better position them to compete successfully on the world stage and provide more comprehensive and effective services to their clients.
  • Access to legal services, particularly for those of limited means, remains a challenge.  When it comes to access and affordability to legal counsel in civil disputes, the World Justice Project’s Rule of Law Index ranks the U.S. 20 out of 35 nations surveyed, below countries such as Croatia and the Dominican Republic. And while some progress is being made on this front, it is happening very slowly.  Often, those in need of legal services must rely on small partnerships or solo practitioners who have limited resources.  As the issue paper points out, allowing investment by those other than lawyers and management into firm structures could increase the capital available to facilitate the creation of larger consumer law firms better suited to manage risk and leverage economies of scale. 
  • New entrants to the legal market are changing how legal services are delivered. As client demands for lower cost and more efficient legal services continue, new entities are entering the legal market to meet that demand.  These entrants include law and business advice companies, such as Axiom and Tandem; virtual law firms and companies such as LegalZoom; and secondment firms that place lawyers in house to work at a client site on a temporary or part-time basis.  That competition is forcing traditional law firms to rethink how they deliver service to their clients.  Allowing the creation of alternative business models will improve firms’ abilities to attract skilled business professionals best suited to enhance operations, reduce costs, and optimize efficiency. It also will provide increased capital that can be invested in technology and innovation.
  • Clients are demanding more comprehensive consulting services. A recent article in The Economist noted that, after Britain and Australia authorized multidisciplinary practices, the Big Four accounting firms moved aggressively into the legal market.  With the flexibility to offer lower fixed fees, they began to win a significant amount of legal work.  In recent years, their combined revenues have grown at double-digit rates.  In addition to being profitable for the MDP firms, these structures provide clients with comprehensive, integrated services that better and more efficiently meet their business needs.
  • Innovation in the U.S. legal industry is lagging. At ABA’s National Summit on Innovation in Legal Services, Avvo founder Mark Britton argued that innovative platforms would not be able to exist in the legal industry “without a change in the [professional regulation] rules.” In jurisdictions where ABS has been allowed, they have been able to provide or attract new investment into the firms.  That capital has funded important investments in technology and experimentation with new service delivery models. 

  The risks identified in the paper, we believe, are minimal, particularly as evidenced by the experience of jurisdictions that allow for alternative business structures.

  • There is no evidence that lawyer independence will be jeopardized.  ABS is not a new and untested idea.  In jurisdictions that allow for it, there has been no evidence that such arrangements pose a threat to the profession’s core values.  Nor has there been evidence that ABS leads to excessive financial pressure to act for the benefit of owners who are not lawyers.  In-house corporate counsel face similar dynamics, yet in the US, the practice of lawyers working in-house is well-accepted and growing.  Nonetheless, there have been no signs that in-house counsel are unable to exercise independent judgment.
  • There is no evidence that pro bono work will diminish. Pro bono work is a critical form of a firm's corporate social responsibility. Pro bono is a unique form of corporate social responsibility that only lawyers can provide, and will likely continue to provide, regardless of who has ownership in the firm. Indeed, corporations have significantly increased their philanthropic efforts and community engagement. They recognize that doing good for their communities also enhances customer loyalty and trust. Likewise, the success of law firms depends on customer loyalty and trust. Pro bono is a firm's most valuable and unique form of corporate social responsibility, as well as an ethical responsibility of the profession.
  • There is no evidence that attorney-client privilege will be harmed.  Jurisdictions that have adopted ABS have successfully protected the attorney-client privilege.  In Australia and England and Wales, the issue of privilege has been addressed through legislation.  In Australia, the law specifically provides that client legal privilege is not affected when a legal practitioner is acting as an officer or employee of an incorporated legal practice.  In England and Wales, client privilege applies to communications made by an ABS as long as those communications are made through or under the supervision of a relevant lawyer. 

We do not believe that passive investment by individuals who are not lawyers, which would allow for external ownership of law firms, is desirable.  We recommend that ownership in law firms by those who are not lawyers only be considered if the person satisfies the following criteria:

  • is a Certified Legal ManagerTM; or
  • passes the MPRE exam; or
  • has an advanced degree; and
  • passes a fitness-to-own test 

We also believe an owner who is not a lawyer should be required to abide by the Rules of Professional Conduct in the jurisdiction(s) of their office(s).

It is important to note that if individuals who are not lawyers are allowed to be owners, they still must be voted in by a firm’s ownership, as defined by its organizational document. The decision to allow such ownership remains entirely with current ownership.

As the premier association representing professional legal managers, we strongly believe that the legal industry as a whole will benefit from the opportunity for these business experts to have an ownership stake in the organizations they lead and manage.  Given the tremendous change the industry is experiencing, there has never been a greater need for innovation, exceptional leadership and business savvy.  ABS and MDP provide important platforms to attract and foster those skills.

We look forward to working with the ABA on advancing this issue.  Please let us know how we can best support these efforts.

Sincerely, 

2015-16 Association of Legal Administrators Board of Directors

 

 
 
 
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