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What could be the global impact of the UK’s Legal Services Act?

In 2007, the UK Parliament passed the Legal Services Act (LSA), with the goal of liberalizing the market for legal services in England and Wales and encouraging more competition—in response to the governmentally commissioned ‘Clementi’ report finding the British legal market opaque, inflexible, overly complex, and insulated from innovation and competition.

Among other salient provisions, the LSA authorized the creation of ‘Alternative Business Structures,’ permitting non-lawyers to take managerial, professional, and ownership roles, and explicitly opening the door to law firms raising capital from outside investors and combining with other professional services firms—even listing publicly on a stock exchange. All this has made the UK’s £25-billion/year legal marketplace “one of the most liberalized in the world,” according to the Financial Times.

gavel
Gavel and scales of justice, by pennstatenews. CC BY-NC-ND-2.0 via Flickr.

Our question for today is whether this bracing demolition of guild-like protectionist rules will stop at the English coastline—more specifically, whether it will leap the North Atlantic to the US, the single largest legal marketplace in the world by far, now just north of $250-billion (£150-billion) per year. It would be the irresistible force meeting the immovable object.

Two predictions may be made without fear of contradiction.

First is that the American Bar Association (ABA), with its 400,000 members, will resist any incursions into US lawyers’ monopoly over legal services with every weapon at their disposal short of, perhaps, violence. A core function of the ABA is promulgating the “Model Rules of Professional Conduct,” which have the force of law in 49 states. ABS’s would flatly offend Rule 5.4(a), prohibiting fee-sharing with a non-lawyer, and 5.4(d), prohibiting practicing in any organization where a non-lawyer owns an interest.

We know ABA opposition will be fierce because it happened once before.  In 2000, the ABA’s governing House of Delegates entertained a proposal to amend the ethical rules to permit “multidisciplinary practices” (consider them the functional equivalent of the UK’s ABS’s). This went down to “crushing defeat” as the state bars of Illinois, New Jersey, New York, Florida, and Ohio joined in “strident” denunciation of the heresy of fee sharing and vehement “reaffirmation of the core values of the law of lawyering.”

The horrified opposition cited fears of the invasion of the profession by predatory investors prepared to sacrifice clients on the altar of profits. Adam Smith – or for that matter Peter Drucker – might be skeptical of the long-run viability of a business premised on putting its clients last, but be that as it may, I’m reminded of the remark by American Lawyer editor-in-chief Aric Press some years ago that the magazine’s creation of the notorious profits-per-partner scorecard for law firms “did not introduce the profession to greed.”

justice
Themis, by RaeAllen. CC-BY-2.0 via Flickr.

Lest you believe the world might have moved on in the intervening decade and a half, and that we have learned guilds tend to collapse of their own sclerosis by now, permit me to disabuse you of that hope. Earlier this year the state bar of Texas issued a binding opinion that law firms there may not include the terms “officer” or “principal” in the job title of non-lawyer employees. “Don’t mess with Texas,” indeed.

Finally, note that the states leading the charge here are six of the ten largest in the US, comprising nearly one-third of the country’s total population. Their opposition will not be trifling: They have ground troops.

My second prediction: A barrier which will effectively halt the flow of money and ideas at any essentially arbitrary line—such as a national border—has yet to be invented. If you doubt this, I refer you to the extended and unblemished track record of abject failure in US attempts to control or limit political campaign financing.

If globalization stands for anything, it is the accelerating movement of capital, people, and ideas across jurisdictional borders – movement which, despite hiccups and speed bumps, is becoming steadily more frictionless and irreversible. In the case of Law Land, this would mean a UK-based ABS coming to our shores (and I devoutly hope their beach-head would be little old New York – I want a front-row seat to this brawl) with a checkbook and an appetite for expansion.

The moment the announcement is made, I predict that two inter-related dynamics would begin playing themselves out.

First, managing partners of US-based firms would go through the famous stages of grief: denial, anger, bargaining, depression, and ultimately acceptance. Acceptance here could only translate into a demand for a “level playing field” for their firms. Since, then as now, they presumably will lack the votes in Parliament to repeal the LSA, that would mean adopting a functional equivalent – permitting MDP’s – here in the US. And a level playing field is, after all, a bedrock imperative of fairness. They would be making a nice argument.

Second, someone would sue. It matters not whether it be the ABS suing for permission or an aggrieved US lawyer suing for prohibition; a “real case or controversy” would be presented for adjudication. I’m not going to practice antitrust or constitutional law in these pages, but my strong intuition is that a challenge to the bar prohibitions on non-lawyer involvement would prevail on a combination of antitrust and commerce clause claims (the “commerce clause,” Article I, §8.3 of the US Constitution, prohibits unduly burdensome state interference with interstate commerce, and since at least the era of the New Deal it has been given extraordinarily wide reach).

But the outcome really shouldn’t be determined by tidy legalities. At root, it should come down to a socioeconomic and ethical choice driven by which of these views of the legal profession is on the right side of history.

Do we prefer the cozy walled precincts of the guild, righteously defending its economic rents under the cloak of claims of “the best interest of the client,” “confidentiality,” “privilege,” and so forth? Or do we prefer Schumpeter’s, or Silicon Valley’s, bracing call for “creative destruction,” as messy and fraught with failed experiments as we can be sure it will be?

I certainly know where my heart lies, and it’s with the best interests of the client truly and rightly understood. Unleash the market’s Darwinian selection process.

Recent Comments

  1. Dan Pinnington

    Hi Bruce
    Good article. Nice to see some discussion of these issues in the US. It is always interesting to see how the ABA responds to changes that threaten status quo.
    Would like to suggest that the winds of change have already gone far beyond the shores of the UK, and indeed may have come from offshore. While ABSs have only been a reality on the ground in the UK since 2012, they have been permitted in New South Wales Australia since 2001 – and it took them about 10 years to get to that point. Several Canadian provinces have permitted MDPs for many years (although there are relatively few of them).
    And currently, several Canadian provinces are actively looking ABSs. The Law Society of Upper Canada – the regulator for Ontario lawyers – has a formal working group that has just issued a consultation paper to seek input from the profession on ABSs (http://www.lsuc.on.ca/ABS/). The LSUC has already started implement entity regulation.
    And going back to my first comment, I dare say ABSs have already come to US shores in all but name as some of the online legal service providers – which neither look nor operate like traditional law firms – are already providing at least some services that were once solely in the domain of the legal guild. Wonder if they will come into the guild at some point. And will membership in the ABA be opened to them at some point? From upon high, Darwin will be seeing some interesting changes in coming years.

  2. The UK’s LSA in the US?

    […] Shortening what was actually not even that long a story, over this past weekend they published my essay, “What could be the global impact of the UK’s Legal Services Act?” […]

  3. Legaldisruption

    The ABA can’t trump the market, “Life finds a way” and so does the market. Take Axiom for example. They claim not to be a law firm, just a company that hires lawyers to provide legal services for business clients. Since they market to in-house counsel and not to the non-lawyers they are covered in this innovative loop-hole. Thus they have been more than willing to accept venture funding.

    The new digital portals like Upcounsel and Rocketlawyer may not be technically considered law firms but they certainly take on several of the same roles that law firms provide to lawyers: branding, marketing, technical support. They collect fees from the customers/clients and are supported by venture funding.

    Investment in traditional may not be done in equity but the banks certainly provide hefty loans/credit lines to Biglaw firms, which could be considered a back channel type of investment. So whether you are in Newlaw or Oldlaw the market in the US has found a way to provide you money and services in exchange for fees from either the client/customers, the lawyers, or both. .

  4. […] Shortening what was actually not even that long a story, over this past weekend they published my essay, “What could be the global impact of the UK’s Legal Services Act?” […]

  5. […] of the day, what matters is what’s best for clients, and by extension, society as a whole? As Bruce MacEwen, President of Adam Smith, Esq., noted in his remarks on the UK’s Legal Services […]

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