Our Changing Profession
The Association joins the debate over multidisciplinary practice
By Lee Smalley Edmon
Lee Smalley Edmon is president of the Association.
This President's Page was originally published in the May 1999 issue of Los Angeles Lawyer.
Last November, Ernst & Young shocked the legal community by luring Prentiss Willson Jr., a 30-year veteran of Morrison & Foerster's San Francisco office and its former managing partner, to develop the accounting firm's tax group. E&Y recently struck again by hiring Glen Kohl, the chair of Wilson Sonsini's tax group. Kohl will launch a federal tax group in Palo Alto, emphasizing technology companies. Both men were reported as saying they intend to hire more lawyers and will look to law firms for candidates.
The accounting firms are not interested in tax lawyers only. Last year litigator John Caderette, managing partner of Pillsbury, Madison & Sutro's Los Angeles office, left his firm for a job at Arthur Andersen. Nor is this trend limited to California. The Big Five accounting firms have been persuading prominent tax partners across the country to join them. For example, Baker & McKenzie lost three nationally known tax partners from its Chicago and its Washington, D.C., offices to Deloitte & Touche earlier this year. Moreover, law school recruiting by accounting firms has also increased. A dean of career services at Georgetown University Law Center recently reported to the ABA that the most sought-after interview slots on leading law school campuses these days are with accounting and consulting firms.
Indeed, the accounting firms have expanded their lawyer employees worldwide. The American Lawyer reported in November 1998 that Pricewaterhouse Coopers employed 1,663 non-tax lawyers in 39 countries; Arthur Andersen, 1,500 in 27 countries; KPMG, 988 in an unidentified number of countries; Ernst & Young, 851 in 32 countries; and Deloitte Touche Tohmatsu, 586 in 14 countries. In terms of numbers of lawyers, Pricewaterhouse Coopers now ranks as the third largest, and Arthur Anderson as the fourth largest, law firms in the world (behind Baker & McKenzie and Clifford Chance).1 The goal of these accounting firms-which prefer to be called "professional service" or "consulting" firms-is to offer their clients a one-stop shopping forum where they can get accounting services, consulting services, and legal support on matters concerning corporate finance and restructuring, mergers and acquisitions, and other business issues.
Few can deny that, as a result of the increasing size and complexity of business problems, corporate clients often need a team of professionals from different disciplines to address the many commercial and regulatory issues that may arise in a single transaction. The trend, however, raises an intriguing question: are the legal profession's existing rules of professional responsibility governing fee sharing with nonlawyers, attorney-client privilege, and conflicts of interest, many of which were adopted in the early twentieth century, now outdated, thus making it more difficult for lawyers to serve their clients?
For example, all 50 states have rules that prohibit, except in very limited circumstances, the sharing of fees between lawyers and nonlawyers. Should those rules be revised to permit the development of multidisciplinary partnerships (MDPs), owned jointly by one or more lawyers and professionals from different disciplines? Could changes be made to other rules of professional conduct that would cover MDPs and that would adequately protect clients and the public?
The organized bar has taken an active role in considering these questions. The ABA has formed a Commission on Multidisciplinary Practice, which has heard public testimony on this issue. (Written statements and summaries of the oral presentations can be found on the ABA Web site at www.abanet.org/cpr/multicom.html.) On March 24, 1999, this Association's Board of Trustees considered the positions of several sections and committees interested in the topic, as well as presentations by LACBA member Jay Foonberg and Joanne Garvey from San Francisco, who serves as the ABA Board of Governors' liaison to the ABA commission. The Association has referred the matter for further study to its Ethics 2000 Liaison Committee chaired by the Honorable Samuel Bufford. Many of our members believe this is one of the most important issues to face the legal profession during this century.
It certainly is not just a Big Five accounting firm issue. In fact, several members of small firms have indicated to the ABA that they believe clients could be better served if the rules were revised. For example, one lawyer in a two-person law firm specializing in elder law feels that he could better serve his clients by practicing in a consortium that included a CPA and a money manager, with fees split among the members of the consortium. Notably, however, our Small Firm and Sole Practitioner Section expressed strong opposition to any revision of the existing rules.
The arguments on both sides are so extensive that it is impossible to fully and fairly summarize them here. Even the highlights, however, convey the complexity of the issues.
Arguments against Changing the Rules of Professional Conduct
Arguments for Changing the Rules
- Placing lawyers under the economic control of nonlawyer employers will present unavoidable conflicts of interest and compromise the values and independent legal judgment of lawyers.
- Any change in the present rules of professional responsibility that would permit nonlawyer control, ownership, and association would also have to permit attorney associations that included nonattorney fields other than accounting, such as medicine and real estate and, as some have suggested, even auto repair and tow truck operators. Given these scenarios, issues concerning advertising, running, and capping would have to be addressed.
- Nonlawyer employers would not accept disciplinary responsibility for the ethical violations of their lawyer employees. For example, if Sears employed lawyers, it could avoid professional responsibility by simply terminating the employment of a lawyer found to have acted unethically and hiring another. This raises obvious concerns about client protection.
- An inherent conflict exists between the attorney-client privilege and an accountant's obligation to provide full disclosure to the public. Without a change in the attorney rules of professional conduct, reconciling these two antagonistic concepts presents a major impediment to any multidisciplinary practice model.
- The rules that govern client conflicts and knowledge imputed to other members of a firm form a major hurdle that must be addressed. In fact, many believe that this hurdle is impossible to overcome because nonlawyers will never agree to be bound by the conflicts rules of lawyers.
- Nonlawyers are unlikely to support the legal profession's commitment to public service. Accordingly, pro bono services, volunteer services for the organized bar, MCLE courses, and public education about the legal system all will suffer.
At the moment, it appears that the ABA Commission is considering three alternatives:
- Client service should be a lawyer's first priority. One-stop shopping provides better and more efficient services for clients. Refusal to amend the rules smacks of "protecting our own turf" to the detriment of our clients.
- There is an ever-growing number of lawyers already practicing in multidisciplinary practices-that is, lawyers who are working with nonlawyers and who are offering services that, if performed in a law firm, would be considered legal services. They presently claim not to be practicing law, because otherwise they would be in violation of the rules prohibiting fee sharing. Those lawyers should be brought within the legal profession's regulatory and disciplinary system. Put another way, multidisciplinary practice is a fait accompli; we should take steps to regulate it to ensure that clients and the public are protected in three key areas: conflicts of interest, client confidentiality, and lawyer independence.
- No testimony given to the ABA Commission regarding MDPs in countries that do not place restrictions on fee sharing has identified any significant problem resulting from lawyers and nonlawyers working jointly. There is a feeling that lawyers will "do the right thing" even when they are in business with nonlawyers, and they should be trusted to do so.
- The pressures brought to bear on a lawyer employed by nonlawyers are strikingly similar to those that in-house corporate counsel currently face, so no special rules are required.
1) Leave the rules alone. As provided by Model Rule of Professional Conduct 5.4, a lawyer can be a partner in some kind of other professional services organization (e.g. accounting or financial services), and other professionals can be employed by a law firm, but other professionals cannot be principals (partners in a partnership or shareholders in a professional corporation) in a firm representing itself as a legal services provider. Under this regime, MDP services will be rendered as coordinated services of separate organizations.
2) Amend Model Rule 5.4 to allow nonlawyer principals in a law firm but require that the legal profession's rules of conflict of interest (including imputation of knowledge) apply.
3) Amend Model Rules 5.4 and 1.10 (relating to conflicts of interest and imputation of knowledge). The imputation rules could be amended to provide that either 1) there is no imputation, only disqualification by personal participation, or 2) imputation exists only for those individuals who provide legal services. This latter formulation would require that "insulation walls" be erected around the legal department of the firm.
We expect the ABA Commission to issue its recommendations by the end of May, and the Association will provide written comment following further consideration of the issues at a meeting of the Board of Trustees in June. If you have any thoughts about this issue, please let us know.
One thing is certain: times are changing. It remains to be seen whether the changes will be good or bad and how our profession will react. Stay tuned.
1 ABA Commission on Multidisciplinary Practice, Background Paper on Multidisciplinary Practice: Issues and Developments 12 (Jan. 1999).