Is it Time for Non-Lawyer Ownership?

non-lawyer-law-firm-ownership

Permitting non-lawyer ownership of law firms is a global trend. It is not really about access to justice, as I previously supposed. It’s about changing the law firm business model in a way that works for lawyers and clients.

At least, that is how Riverview Law’s North American VP, Andy Daws, sold the concept at the Clio Cloud Conference. Riverview Law is an alternative business service (ABS), a law firm incorporated under the UK’s Legal Services Act, which, essentially, allows non-lawyers to own and manage law firms, and apparently to perform some legal services. So he’s obviously invested in the idea.

Full disclosure: Clio wanted me to come to its conference so badly that it bought me a coach-class ticket to Chicago, put me up in a hotel room with a scenic view of two parking ramps, and made me sit through two days of Prezi presentations.

Is non-lawyer ownership working in Europe and elsewhere?

There are some early indicators that firms with non-lawyer ownership can be a good thing for consumers. In Australia, where the trend got going, incorporated legal practices (ILPs) (pdf) generated 65% fewer ethics complaints than traditional firms. That’s impressive, if you think ethics complaints are a good way to measure quality of service. There are now over a thousand ILPs in Australia, though, so it’s definitely working for someone.

As Daws points out, though, there is a global trend, only accelerated by market pressures. 30 of the top 200 UK law firms are in serious financial trouble. 1,200 UK law firms of all sizes are on a “watch list” for the same reason. Investment is seen as a way to bring some stability to the market. Recall that US law firms may be in a similar boat:

According to Noam Scheiber,writing for New Republic BigLaw is somewhere between 150 and 250 law firms, and “Within the next decade or so, according to one common hypothesis, there will be at most 20 to 25 firms … The other 200 firms will have to reinvent themselves or disappear.”

The trend towards non-lawyer ownership does seem to stop in the US, though. Last year, the ABA — apparently bolstered by 80% of its membership — decided not to pursue the issue. So for now, at least, the issue is not on the table for American lawyers.

Still, Daws sees evidence of “cracks” that may lead to non-lawyer ownership in the US, too. Law firms like Axiom and Clearspire are using similar practices even if they can’t officially get non-lawyer investment. And they are apparently succeeding at it. Daws also thinks that, when the CFPB decided it could regulate lawyers who collect debts, it was the beginning of federal regulation, which could be a step away from protectionists self-regulation. (I’m not sure that’s a good indicator, since debt-collection lawyers have long been regulated by various federal laws like the Fair Debt Collection Practices Act.) He also points to the New York courts’ plan (pdf) to use non-lawyers to help deliver legal services to low-income individuals. Finally, he thinks that if international corporations prefer the legal services they get abroad, they will probably want similar representation in the United States, which might finally sway the ABA.

On the other hand, maybe it’s too early to determine whether the model works. Most of the firms Daws held up as examples have been operating under this legal framework for less than a decade. That probably isn’t long enough for major problems to be revealed.

Why non-lawyer ownership?

So what are the advantages? I’m not super clear on this part, actually. I think the idea is that traditional law firms cannot adapt to a changing market, to the detriment of clients, so that a top-down change in business model is needed. Enter the non-lawyers, who can apply more efficient and effective business and pricing practices.

Here’s Riverview Law’s ad, which hints at the pitch:

So fixed fees, I guess, and a firm business model designed to support them. There’s got to be more to it than that, though. Law firms don’t need non-lawyer investment or management to offer fixed fees. Many already do.

Riverview Law is not the only model, however. Non-legal companies like retail stores and shipping companies are offering legal services as a value-added service to their customers. Imagine consumers buying wills at Wal-Mart, or companies getting employment contracts and advice from their temp agency.

Here is Daws giving a similar (albeit condensed) talk at ReInvent Law in May:

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). I could be way off base, there, but that’s what I’m reading between the lines.

I see the benefit to clients: cheaper legal services. Maybe that even explains the drop in ethics complaints seen in Australia. I don’t see the advantage to law firms, unless something about law firms makes them incapable of changing their business models without non-lawyer investment and control. That’s a scary concept without a strong justification. I did not get a strong-enough justification from Daws’s talk. [Edit: In fairness to Daws, this was not really the focus of his talk.]

Horizontal regulation

One of the perhaps-more-subtle changes non-lawyer ownership could bring about is to lump lawyers into the same category as other professionals. Daws said that, in the UK, at least, there is a movement to put lawyers in the same regulatory “bucket” as other professionals, subject to the same standards. He calls this “horizontal regulation.”

Will it work? There is no way to tell, but it seems obvious that it would have to involve a re-balancing of professional obligations. Not all professionals have the same high professional obligations as lawyers. Will all professionals have to come up, or will lawyers’ obligations be lessened? Either way, it seems fraught with problems.

Preparing for non-lawyer ownership

To wrap up, here is Daws’s checklist of things lawyers should know and be doing to prepare for the “liberalized” future of law practice (with my editorial comments):

  1. Online can’t be ignored — it changes everything.
  2. Invest in high-quality, long-term technology that makes you more efficient and helps you serve clients better.
  3. Marketing and branding matter more than ever.
  4. High-end, personalized service is still in demand (though presumably at a new price point).
  5. Democratized service can create new markets.
  6. Moving beyond trusted advisor to trusted curator (I have no idea what this means).
  7. Where services can be unbundled, they will be.
  8. Where prices can be fixed, they will be.

Do what you can with that.

(image: http://www.flickr.com/photos/pasukaru76/5014807561/)

, , ,

  • JJ

    Three things are almost always true about lawyers, They are (1) bad at math; (2) risk averse; and (3) terrible business people (usually due to a combination of points (1) and (2)). Perhaps the Brits and Auzzies are on to something: injecting fresh sources of capital and ideas into the American legal industry may be just what saves it from itself. No surprise that the overlords at the ABA, backed by 80% of the membership, are against non-lawyer involvement in “cosa nostra.” They fear (a) becoming irrelevant; (b) non-lawyers will be better at the law business then they are; and (c) the transparency that the free-market brings to any business/industry. Law is currently a differentiated product: you hire the lawyer more often than the firm. Compare this to medicine where when you are injured you rush to the closest hospital to receive care from whatever doctor is available. This similar approach to law would suffice for the vast majority of legal matters. Only where particular experience is required, for example when dealing with a FERC issue in law or brain surgery in medicine does a differentiated practitioner truly matter.

    • NorthernHick01

      You might be surprised at how important math is in law. Not to say that all lawyers are good at it – there is a demographic who will admit they went to law school to get away from math – but lawyers altogether are probably better at math than the general public. And I’m not sure it’s fair to say that most lawyers are risk-averse, but for many of them their raison d’etre is to limit the liability risks of their clients, and professional regulations do not mesh well with high-risk approaches. (For example, most business-people would say that it’s insane to maintain a liquid account with hundreds of thousands of dollars in it to pay for work on behalf of clients or to be applied against liabilities owed to clients – rather, you should be investing that money into growing your streams of revenue, and counting on the new revenue to ensure that you’re able to satisfy your client obligations as they arise. Try doing that as a lawyer, and you’ll be disbarred before you can say “abuse of trust funds”.)

      You’re right that a great many lawyers are terrible business-people, though imho the underlying reasons are different. Firstly, law school doesn’t teach you the first thing about running a business. Secondly, the personality profile of your ‘typical’ lawyer is completely adverse to competent human resources or management. Thirdly, lawyers tend not to be very introspective about their own business practices – even those lawyers who actually know about running a business, and give good practical advice to their clients as to how to do so, tend to live by a “do as I say, not as I do” philosophy. This isn’t entirely unrelated to point 2, but the bigger reason is that their role combines abstractly-valued management time with easily-valued production time – that makes it much harder to prioritize management time.

  • Andy Daws

    Sam,

    Good to meet you at the excellent Clio Cloud Conference and I appreciate the coverage in your post, but for the benefit of those who weren’t present, I’d like to clarify a few points:

    - ABS stands for “Alternative Business Structure” and while Riverview has an application pending, we are not yet a licensed ABS.

    - Access to justice is very much a benefit of non-lawyer ownership and explicitly an objective of the UK’s Legal Services Act 2007 which as mentioned was designed “to promote competition and innovation for the public and consumer interest” i.e. outside capital increases competition and lowers the cost of legal services. ATJ is a theme woven throughout Sir David Clementi’s review, which can be read in full here: http://www.jambar.org/clement_report.pdf

    - Clearspire and Axiom were cited as examples of new model service providers in the US who do have non-lawyer investment, rather than those who don’t. Readers might be interested to read a recent ABA Journal article on this subject: http://www.abajournal.com/legalrebels/article/silicon_valleys_biggest_investors_are_betting_on_alternative_legal_cos/

    - I referenced the CFPB’s regulation of lawyers as an interesting example of changing times, and don’t believe for a moment that it will lead to federal regulation of lawyers across the board. The new rule does, however, appear to be the first example of US lawyers being subjected to direct federal supervision: http://sbmblog.typepad.com/sbm-blog/2012/10/can-the-consumer-financial-protection-bureau-regulate-lawyers.html

    - The shift towards horizontal regulation is an EU one, not a UK one as such. The European Commission favors horizontal directives over sectoral ones wherever appropriate, because it takes fewer resources to deal with many together rather than singly one-by-one. The question is being asked as to whether lawyers are sufficiently different from other liberal professions to merit sector-specific EU regulation, although in the short-term at least it appears likely to remain as-is.

    - As mentioned in the talk, the list of change themes came from a co-authored paper specifically looking at lessons lawyers can learn from the paradigm shift the travel industry has experienced in the last two decades. For any who are interested, the paper is available at http://www.riverviewlaw.com/downloads/Draft_4-10-13_Georgetown_Paper_Daws_Hodges_Knake_Peters.pdf

    Thanks,

    Andy Daws

  • http://www.lapinlawoffices.com Jeffrey Lapin

    Personally, I do not believe that a non-lawyer should have complete ownership of a law firm, in part, because of the accountability and ethics issues. If the non-lawyer owner does something ethically wrong, such as an advertising violation, who would the court/ disciplinary authority hold accountable, if anyone? Would it be fair to discipline the authority for something his or her boss did?

    Partial ownership might be acceptable assuming that the lawyer has control of all things in which he or she is ethical duty about as well as some type of discipline that could be assessed against the non-lawyer.

  • Paul Spitz

    What’s the real motivation behind opening up ownership and control? Is it money, or is it introducing more creativity and competence into how law firms are run?

    At some point, once ownership/control are opened to non-lawyers, a law firm is going to file for an IPO. After all, what’s the point of being the managing partner of one the biggest law firms in the country, if your client Mark Zuckerberg is 1000 times richer than you? The lawyers will want to cash in for the big bucks. It certainly happened in the investment banking industry, with publicly-held investment banks like Goldman Sachs. Sixty-year-old lawyers HATE sitting in on meetings with 25-year-old investment bankers who make 10 times as much money.

    That will really shake up conventional notions of conflicts of interest. Can I buy a share or two of Skadden Arp and, by doing so, create a conflict of interest that would prevent Skadden from being on the other side of a lawsuit or transaction from me (or my client)?

    Maybe law schools should devote more of the curriculum to learning about business management. That would certainly help transactional lawyers in serving their clients, as well as anyone who wants to open a small or solo practice.

  • Paul Spitz

    I guess this whole discussion also raises the question of why on earth anyone who isn’t a lawyer would want to own a law firm! There are far better investments. It’s kind of like this joke — How do you end up with a million dollars? Start out with $50 million and buy a winery.

  • http://www.texasemploymentlawblog.com/ Christopher McKinney

    They call it “Alternative Business Structure” b/c they don’t want to call it what it is. Corporatization of the profession means that it will cease to be a true profession. This has already happened to medicine and I, for one, am sorry about that.

    Personally I don’t think letting big business take over legal services will lead to increased access to justice. I think that is what proponents will say b/c they want in. Big business is certainly not chomping at the bit to provide pro bono legal services to people with no money. Anyone who says they are is a liar and we all know it.

    I hope the ABA and the profession will not stand by and allow for the WalMarting of the American legal profession. Nothing good will come of it.

  • http://JamesBellefeuille.com/ James Bellefeuille

    I would also suggest that there may be some American examples of non-attorney firms in the US that offer legal advice and legal services. The largest that comes to mind is social security and disability behemoth Binder & Binder®.

    Many attorneys might be surprised to discover that Binder and Binder are a non-attorney firm, because some would suggest that their marketing via TV commercials and Findlaw (http://pview.findlaw.com/view/4128087_1), Lawyers.com (http://www.lawyers.com/hauppauge/new-york/Binder-and-Binder–158106325-f/) may be misleading. However, they have disclaimers informing their “sophisticated” clients that they are “…an Advocacy, Not a Law Firm.” What exactly is an “advocacy” that maintains a “Law Firm Profile” on Findlaw.com or Lawyers.com?

    They are at the very least a non-attorney firm that offers legal services to disabled people representing them in Disability hearings but not in Federal District Court. It appears they are owned (at least partially) by H.I.G. Private Equity. http://www.higprivateequity.com/

    I am not sure if Binder and Binder is good example of what we would like non-attorney owned firms to emulate, although considering there are few US examples of Large Non-attorney Legal services this might be something worth studying.

    I am open minded about law firms opening to non-attorney ownership, however I feel that it should done slowly and carefully to protect the profession and most importantly the clients of both attorney and non-attorney firms.

    - James Bellefeuille, a non-attorney, legal marketer.

  • Eric Cooperstein

    The problem with a lot of the discussion about non-lawyer ownership of law firms is that it tends to focus on large firms doing corporate work. People rarely consider the implications of chiropractors or banks being part owners of personal injury firms. What happens to the confidentiality of client information when a person or entity without a law license owns a law firm and has access to client information? Who gets to decide when a client should be advised to settle: the lawyer or the non-lawyer owner who has never conducted a trial? Pundits like to talk big about innovation and about lawyers being risk-averse but they rarely talk about the best interests of the clients.

    • Laurie

      I think confidentiality and especially a possible loss of attorney client privilege is the most important factor here. Agreed.

  • Laurie

    Although I believe that lawyers should be able to partner with other professionals, such as accountants, I disagree that non-lawyers should oversee/control attorney services. I have real proof that this could be a disaster in the making when you look at how large HMOs and insurance entities control the delivery of medical services in the US. They deny services, control medical decisions in order to reap profits. Seeing this model affect physicians first hand, I can emphatically say that lawyers would be fools to agree to any such change. I think the law firm market itself will get to the point of fixed fees (and already have) to stay viable. We don’t need huge corporate behemoths controlling how we deliver services, possibly sacrificing our ability to truly practice law. Clients can pick and choose and will make that decision whether to use a high priced firm or someone less expensive. Don’t make the mistake that the doctors did.