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Modern Law Firm Management:
Should Non-Lawyer Ownership be
Endorsed and Encouraged?
“Working Paper”
April 2015
Co-authored by
Andrew Grech
Group Managing Director
Slater and Gordon
Tahlia Gordon
Director
Creative Consequences Pty Ltd
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 1 of 18
MODERN LAW FIRM MANAGEMENT: SHOULD NON-LAWYER
OWNERSHIP BE ENDORSED AND ENCOURAGED?
Andrew Grech and Tahlia Gordon
Introduction
Over the past few years a succession of academic and discussion papers have been published
either forthrightly opposing or forthrightly supporting non-lawyer ownership of law firms.
1
The papers
opposing the concept of non-lawyer ownership hold to an outdated article of faith - that non-lawyer
ownership erodes core values of the legal profession and leads to a corporatized legal services
marketplace that sees business and profit motives taking precedence over professional obligations.
This outdated article of faith is not supported by any empirical evidence and amount to little more
than a self-serving argument designed to protect the status quo and regulatory structures that tend
to be more focussed on entrenching privileges of the legal profession much more for their own sake,
than for the sake of the community the legal profession exists to serve. It does the profession a
great disservice to dress the protection of self interest in the noble robes of ’protecting the proper
administration of justice, client confidentiality and conflicts of interest’ - particularly when those who
generally advance such arguments do so without the support of any, let alone, cogent evidence.
As lawyers we have a duty to seek out ways to provide meaningful, innovative and accessible
solutions to a key problem which undermines the proper administration to justice - the lack of
access to legal services. The key challenge faced in many jurisdictions is not one of defining rights
and obligations, but rather providing people with knowledge of and access to the legal system so
that rights and obligations can be enforced. Whilst it is not the panacea to ending barriers to the
justice system for ordinary citizens, liberalising the ownership structures of legal firms can contribute
to improving access to the legal system and can also place the profession in a better position to
compete with the current array of unqualified providers and new enterprises providing legal or quasi
legal services.
This paper argues that statements alleging that ethics and professionalism will be eroded as a result
of non-lawyer ownership are completely misguided. If regulated appropriately as Australia, England
and Wales has done, the authors argue that non-lawyer owners of law firms present no risk to the
professions core values and indeed reduces the risk to clients of unethical behaviour. The greatest
threat to the legal profession and the ethical practice of law is not the innovation and capital base
that non-lawyer ownership allows, but the steady increase in the market of legal service providers
and enterprises offering cheaper, unregulated legal services.
Part 1 of this paper commences by discussing concerns raised by critics of ABSs that focus on the
diminution of core values and professionalism as a result of non-lawyer ownership of law firms. It is
argued that these concerns are unfounded as they are not based on empirical evidence, but rather
emotion and fear.
Part 2 of this paper considers how Australia, England and Wales, the only jurisdictions that have
amended their legislation to allow non-lawyer ownership and regulate external investment in law
firms. This part discusses the particular regulatory framework in each jurisdiction and how these
frameworks have been designed to ensure ethics and professionalism is protected and encouraged.
1
The topic has been so hotly debated that a Google search of “non-lawyer ownership law firms” comes up with
4,820,000 results (as at 9 April 2015). See for example, B. MacEwen, M. Regan, L. Ribstein, Law Firms, Ethics and
Equity Capital: A Conversation (2007) 21 Georgetown Journal of Legal Ethics 61; M. Regan Jr, Commentary: Nonlawyer
Ownership of Law Firms Might Not Cause the Sky to Fall (2007) The American Lawyer; Paul Grout, ‘The Clementi
Report: Potential Risks of External Ownership and Regulatory Responses (July 2005),
http://www.dca.gov.uk/legalsys/grout.pdf ; S. Mark & T. Gordon, Innovations in Regulation Responding to a Changing
Legal Services Market 22 Geo. J. Legal Ethics 501 (2000); N. Semple, Access to Justice: Is Legal Services Regulation
Blocking the Path? (July 30, 2013); N. Robinson, When Lawyers Don’t Get all the Profits: Non
‐
Lawyer Ownership of
Legal Services, Access, and Professionalism (Harvard Law School, Program on the Legal Profession, Center for Policy
Research, August 27, 2014)
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 2 of 18
Part 3 of this paper argues that in addition to a robust regulatory framework, law firms can also
effectively mitigate any risk that ethics and professionalism will be eroded. As the first law firm in the
world to publicly list Slater and Gordon provides a case study of how a law firm which is externally
owned effectively safeguards ethics and professional standards. The measures implemented by
Slater and Gordon to protect ethics and professionalism are outlined.
Part 4 of this paper considers some of the challenges facing lawyers and identifies that, unlike non-
lawyer ownership of law firms, most of the legal services being provided by non-lawyers are
unregulated. This part discusses the ‘disruptors’ to the way law has been practised in the past and
in particular how innovation, technology and non-lawyer providers are taking over the routine tasks
that lawyers have traditionally undertaken. The authors argue that whilst the emergence of these
providers in the legal services market can be beneficial for consumers, they also present a risk to
consumers because they are generally unregulated.
The paper concludes with a discussion about how challenges facing the legal profession may also
present valuable opportunities for lawyers to survive and thrive.
Part 1: Concerns raised about non-lawyer ownership of law firms: protecting core values or
protecting core work?
“The fundamental problem with the opposition to external ownership is that ethics is a
state of mind, not a state of ownership.”
2
In Australia, like most other jurisdictions around the world, the cost of accessing the legal system
significantly limits the capacity of many to initiate action or respond to legal problems.
3
Access to
the legal system is an increasingly distant goal for many ordinary citizens, as recent studies have
shown.
4
There are many reasons why the legal needs of the community are not being met. Such
reasons include reductions in funding for legal aid and community legal centres as well as declining
revenue of law firms who can no longer afford to offer reduced costs or even pro bono. Regulations
prohibiting the involvement of non-lawyers in legal services, such as the rules in the United States
preventing lawyers from sharing fees
5
, also perpetuate the access to justice gap.
According to several academics, strict licencing regulations for the legal profession is another
barrier to providing affordable legal services.
6
The inability of law firms to obtain external investment
as a result of strict regulatory frameworks prohibiting non-lawyer ownership of law firms is
considerable. According to Noel Semple, the “insulation” of law firms from non-lawyer investment
impedes the accessibility of justice in three ways:
"First, they constrain the supply of capital for law firms, thereby increasing the cost
which the firms must pay for it. To the extent that this cost of doing business is passed
along to consumers, it will increase the price of legal services. Second, bigger firms
might be better for access to justice, due to risk-spreading opportunities and economies
of scale and scope. Individual clients must currently rely on small partnerships and solo
practitioners, and allowing non-lawyer capital and management into the market might
facilitate the emergence of large consumer law firms. Large firms would plausibly find it
easier than small ones to expand access through flat rate billing, reputational branding,
2
S.Mayson, External ownership and the forked tongue of ethics, May 2012,
http://stephenmayson.com/2012/04/13/external-ownership-and-the-forked-tongue-of-ethics/
3
See C. Coumarelos, Legal Australia-Wide Survey: Legal Need in Australia, Law and Justice Foundation of
New South Wales, August 2012, p.xiv, available at
http://www.lawfoundation.net.au/ljf/site/templates/LAW_AUS/$file/LAW_Survey_Australia.pdf
4
See for example, R.L Sandefur, Accessing Justice in the Contemporary USA: Findings from the Community Needs and
Services Study, American Bar Foundation, 8 August 2014 at p.3,
http://www.americanbarfoundation.org/uploads/cms/documents/sandefur_accessing_justice_in_the_contemporary_usa._a
ug._2014.pdf;
5
ABA Model Rule 5.4 prohibits a lawyer or a law firm from sharing fees with a non-lawyer.
6
N. Semple, Access to Justice: Is Legal Services Regulation Blocking the Path? International Journal of the Legal
Profession, Vol. 20, No.3, 2013.
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 3 of 18
and investment in technology. Finally, insulating lawyers from non-lawyers precludes
potentially innovative inter-professional collaborations, which might bring the benefits of
legal services to more people even if firms stay small.”
7
Semple is on the mark. Traditional professional partnerships within law firms do not typically
concentrate on capital growth and are therefore capital constrained. They focus on attempting to
maximise the income for the partners in each year, thereby reducing the opportunity for longer-term
planning and growth in the underlying value of the practice. According to Gillian Hadfield external
investment in law firms and expanded scale can produce benefits for individuals who need legal
services is great. As Hadfield writes:
“Expanded scale is necessary to accommodate branding, to support investment in the
research and development of products and processes, and to increase significantly the
scope for specialization in the component elements of legal service delivery and across
different market segments. Innovation and specialization need to extend the many non-
legal dimensions involved in ultimately producing the benefits of legal assistance for an
individual facing a legal situation.”
8
The notion that law firms could provide access to justice as result of external investment has
however been vehemently rejected and denied by ABS opponents. The latest manifestation of this
rejection is outlined in a submission by the Ontario Trial Lawyers Association (OTLA) which alleges
that ABSs do not improve access to justice. This assertion was based on research the OLTA
commissioned from Dr Jasminka Kalajzdic who on her own admission utilised “secondary sources”
to support this finding, and on Nick Robinson’s work assessing ABSs and access to justice.
9
Neither
rely on any empirical research to support the assertions they make.
One of the oft-cited reasons for rejection of external investment in law firms is that it threatens ethics
and professionalism. The submission by the Ontario Trial Lawyers Association (OTLA) in December
2014 to the Law Society of Upper Canada’s Inquiry into ABSs expresses this concern. OTLA’s
submission states as follows:
“OTLA is unequivocally opposed to unrestricted non‐lawyer ownership and particularly
to any change that would allow publicly‐traded law firms in Ontario. We believe that
lawyers should always maintain a controlling interest in law firms, in order to ensure that
the core values concerning conflicts of interest, client confidentiality and independence
of lawyers are maintained and protected.”
10
And:
“All law firms are businesses, to be sure. And all have financial pressures and
responsibilities, and must ensure a healthy cash flow in order to thrive or at least
survive. However, a publicly traded company whose principal responsibility is to
shareholders will necessarily operate in a way that sees the duties owed to clients
yielding to the financial pressures on lawyers to meet the demands of the shareholders.
OTLA is concerned that profits and dividends will trump professionalism and duty.”
11
7
Semple, n 12 at p.24.
8
G. Hadfield, The Cost of Law: Promoting Access to Justice through the (Un)Corporate Practice of Law (October 30,
2013). International Review of Law and Economics, Forthcoming; USC CLASS Research Paper No. 13-4; USC Law Legal
Studies Paper No. 13-16 at p.28, see http://ssrn.com/abstract=2333990
9
Submission by Dr Jasminka Kalajzdic on file with the author; N. Robinson, When Lawyers Don’t Get all the Profits: Non
‐
Lawyer Ownership of Legal Services, Access, and Professionalism (Harvard Law School, Program on the Legal
Profession, Center for Policy Research, August 27, 2014) at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2487878.
10
Ontario Trial Lawyers Association, Submission to Law Society of Ontario on Alternative Business Structures , 15
December 2014, at p.2, https://www.lsuc.on.ca/uploadedFiles/Ontario%20Trial%20Lawyers%20Association.pdf
11
Id at p.21.
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 4 of 18
This position is not uncommon. A cynical observer might suggest that such a stance is predictable.
This is because the legal profession has always been resistant to change.
The legal profession’s monopoly over the provision of legal services has seen relatively little
innovation until fairly recently. Lawyers have been slow to use technology to aid in the delivery of
legal services compared to other professional service providers. They have been slow to adopt
different billing models; and they have been slow to adopt new metrics to measure success.
12
The
delay cannot be attributed to the profession alone. Regulators of the legal profession too have
generally been hesitant to accept change. Except for Australia, England and Wales, no jurisdiction
has enacted legislation permitting external investment to date. Despite Australia having such
legislation for almost 15 years and England and Wales for close to eight years, concern about
external investment remains prolific. As the next section of this paper demonstrates, the regulatory
frameworks permitting non-lawyer ownership of law firms implemented in Australia, England and
Wales, were specifically designed to prevent the erosion of ethical and professional conduct. These
regulatory frameworks are achieving their objectives in the author’s view.
Part 2: Protecting core values: robust regulatory frameworks in practice
Australia
On 1 July 2001 legislation was enacted in New South Wales, Australia permitting legal practices,
including multidisciplinary practices (MDPs) to incorporate, share receipts and provide legal services
either alone or alongside other legal service providers who may, or may not be legal practitioners.
13
The rationale for introducing new forms of legal structures in 2001 was multi-fold. Reasons included
removing the regulatory barriers between states and territories to facilitate a seamless, truly national
legal services market and regulatory framework; providing greater flexibility in choice of business
structures for law practices; enhancing choice and protection for consumers of legal services; and
enabling greater participation in the international legal services market.
14
There was also a growing
perception in Australia that the traditional structure of law firms no longer met the needs of many
practitioners and clients.
15
The 2001 legislation in NSW introduced a number of unique regulatory amendments. Firstly, the
legislation required that on incorporation a legal practice must appoint at least one “legal practitioner
director”.
16
The legislation required that a legal practitioner director must be an Australian legal
practitioner who holds and unrestricted practising certificate. This was the first time law firms in
NSW were required to appoint such a person. The rationale for this requirement was to ensure that
a legal practitioner maintains a direct interest in and accountability for the management of legal
services of the practice.
17
12
See Georgetown Law, Center for the Study of the Legal Profession, 2015 Report of the State of the Legal Market, p.13-
15, https://peermonitor.thomsonreuters.com/wp-content/uploads/2015/01/2015_PM_GT_v10.pdf ; J. Moliterno, The
American Legal Profession in Crisis, Oxford Scholarship, 2013; T. Brown, “The Profession is Doomed”, 3 Geeks and a
Law Blog, http://www.geeklawblog.com/2015/02/the-profession-is-doomed.html
13
On 1 July 2001, the Legal Profession (Incorporated Legal Practices) Act 2000 (‘2000 Act’) and the Legal Profession
(Incorporated Legal Practices) Regulation 2001 came into force in New South Wales amending the Legal Profession Act
(NSW) 1987. The 2000 Act and Regulations amended the 1987 Act to enable providers of legal services in New South
Wales to incorporate by registering a company with the Australian Securities & Investment Commission (ASIC).
14
S, Mark and T. Gordon, Innovations in Regulation - Responding to a Changing Legal Services, 22 Geo. J. Legal Ethics
501 (2009)
15
Law Council of Australia, (2001) 2010: A Discussion Paper: Challenges for the Legal Profession,
http://www.lawcouncil.asn.au/shadomx/apps/fms/fmsdownload.cfm?file_uuid=0BE36A97-1C23-CACD-2225-
CBD6713A3E09&siteName=lca
16
Section 140(1) Legal Profession Act 2004 (NSW).
17
S, Mark and T. Gordon, Innovations in Regulation - Responding to a Changing Legal Services, 22 Geo. J. Legal Ethics
501 (2009), 506.
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 5 of 18
Secondly, the legislation mandated that all incorporated law firms must establish and maintain a
management framework, legislatively coined “appropriate management systems”, to enable the
provision of legal services in accordance with the professional and other obligations of lawyers.
18
The responsibility for establishing and implementing “appropriate management systems” rests with
the legal-practitioner director. The legislation provides that failure to establish and maintain
“appropriate management systems” is capable of being professional misconduct.
19
The introduction of legislation requiring “appropriate management systems” was unique, not only to
legal profession regulation but to regulation generally. It was not based on any pre-existing model
and the regulators were not given any guidance from the legislators as to what “appropriate
management systems” or a management based system for a law firm should comprise. The
regulator in New South Wales, the Office of the Legal Services Commissioner (OLSC), interpreted
the requirement to implement and maintain appropriate management systems as a way to
effectively “manage” law firm conduct and ensure that, notwithstanding the presence of non-
lawyers, law firms continue to act ethically and to the highest professional standards.
20
After an extensive period of consultation with the profession and key stakeholders the OLSC
created the content for “appropriate management systems” for law firms. They did so by considering
the types of complaints that were made against lawyers and what elements comprise sound legal
practice. The regulator came up with ten such objectives:
1. Negligence (providing for competent work practices).
2. Communication (providing for effective, timely and courteous communication).
3. Delay (providing for timely review, delivery and follow up of legal services).
4. Liens/file transfers (providing for timely resolution of document/file transfers).
5. Cost disclosure/billing practices/termination of retainer (providing for shared
understanding and appropriate documentation on commencement and termination of
retainer along with appropriate billing practices during the retainer).
6. Conflict of interests (providing for timely identification and resolution of “conflict of
interests”, including when acting for both parties or acting against previous clients as well as
potential conflicts which may arise in relationships with debt collectors and mercantile
agencies, or conducting another business, referral fees and commissions etc.).
7. Records management (minimising the likelihood of loss or destruction of correspondence
and documents through appropriate document retention, filing, archiving etc. and providing
for compliance with requirements regarding registers of files, safe custody, financial
interests).
8. Undertakings (providing for undertakings to be given, monitoring of compliance and timely
compliance with notices, orders, rulings, directions or other requirements of regulatory
authorities such as the OLSC, courts, costs assessors).
9. Supervision of practice and staff (providing for compliance with statutory obligations
covering licence and practising certificate conditions, employment of persons and providing
for proper quality assurance of work outputs and performance of legal, paralegal and non-
legal staff involved in the delivery of legal services).
10. Trust account requirements (providing for compliance with Part 3.1 Division 2 of the Legal
Profession Act 2004 (NSW) and proper accounting procedures).
21
18
Section 140(3) of the Legal Profession Act 2004 (NSW).
19
Section 140(5) of the Legal Profession Act 2004 (NSW).
20
S, Mark and T. Gordon, Innovations in Regulation - Responding to a Changing Legal Services, 22 Geo. J. Legal Ethics
501 (2009), 507-508.
21
Office of the Legal Services Commissioner, Appropriate Management Systems to Achieve Compliance,
http://www.olsc.nsw.gov.au/olsc/lsc_incorp/olsc_appropriate_management_systems.html
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 6 of 18
The regulator then developed a process by which law firms could assess themselves against the ten
objectives. The process was based on a self-assessment. That is, the legal practitioner director of
the law firm assesses the appropriateness of their management systems using a self-assessment
document (developed by the regulator) that is forwarded after completion by the legal practitioner
director to the regulator for review.
22
The self-assessment document takes into account the varying
size, work practices, and nature of operations of different firms. Legal practitioner directors rate firm
compliance with each of the ten objectives as either ‘Fully Compliant,’ ‘Compliant,’’ ‘Partially
Compliant,’ or ‘Non-Compliant.’
23
In addition to developing the framework for appropriate
management systems, the regulator in NSW also developed processes and procedures to assist
incorporated legal practices through the self-assessment process, and to improve their
management systems.
The purpose of the appropriate management systems framework, which still exists today, is to
ensure that every incorporated law firm considers and implements measures that support and
encourage ethical and client-focused behaviour. One of the most important features of this
framework, aside from the fact that it promotes ethics and professionalism, is that the framework
applies not just directly to lawyers directly within an incorporated legal practice but to all staff,
including non–lawyers (indirectly). Its intent is to curb any unethical behaviour from occurring and
promote a sound ethical culture.
England and Wales
Similar to Australia, England and Wales has also implemented a robust regulatory framework to
regulate ABSs and Legal Disciplinary Practices (LDPs). The Legal Services Act 2007 (LSA 2007)
established a regulatory framework that mandates a fitness test for non-lawyers seeking to be
owners of law firms and a law firm management structure that requires the appointment of persons
responsible for ensuring compliance with professional obligations. The Solicitors Regulation
Authority (SRA) commenced accepting applications from prospective ABSs in January 2012 and
licensed the first ABSs in March 2012.
Pursuant to the regulatory framework in England and Wales, a firm that wants to employ a non-
lawyer as a manager of a LDP or an owner or manager of an ABS must apply to the SRA for
approval of that individual and satisfy the SRA that the individual is fit and proper to assume that
role. The SRA’s “Suitability Test” outlines the necessary requirements for admission.
24
It forms part
of the SRA Handbook, published on 16 September 2011. The test is divided into two main sections:
Part 1: Basic requirements and Part 2: Additional requirements to become authorised under the
SRA Authorisation Rules. Part 1 applies to everyone i.e. student enrolment, admission, authorised
role holders and restoration. The basic requirements in Part 1 focus on 8 key areas. They include as
follows: criminal offences, disclosure, behaviour, assessment offences, financial evidence,
regulation history, evidence, rehabilitation, additional evidence.
25
Part 2 applies only to those applying for authorisation as an authorised role holder.
26
Part 2 states
that unless there are exceptional circumstances the SRA may refuse an application if:
The applicant is disqualified from being a charity trustee or a trustee for a charity under
section 178(1) (D) or (E) of the Charities Act 2011.
The applicant has been removed and/or disqualified as a company director;
Any body corporate of which the applicant was/is a manager or owner has been the subject
of a winding up order, an administrative order or an administrative receivership, or has
otherwise been wound up or put into administration in circumstances of insolvency;
22
Office of the Legal Services Commissioner, Self-Assessment Process,
http://www.olsc.nsw.gov.au/olsc/lsc_incorp/olsc_self_assessment_process.html
23
Ibid.
24
Solicitors Regulation Authority, Suitability Test,
http://www.sra.org.uk/solicitors/handbook/suitabilitytest/content.page
25
Ibid.
26
Ibid.
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 7 of 18
The applicant has a previous conviction which is now spent for a criminal offence relating to
bankruptcy, IVAs or other circumstances of insolvency;
The applicant is a corporate person/entity subject to a relevant insolvency event defined in
rule 1.2 of the SRA Authorisation Rules;
The applicant is a corporate person/entity and other matters that call your fitness and
propriety into question are disclosed or come to light;
The applicant has committed an offence under the Companies Act 2006; and/or the SRA
has evidence reflecting on the honesty and integrity of a person the applicant is related to,
affiliated with, or act together with where the SRA has reason to believe that the person may
have an influence over the way in which the applicant will exercise their authorised role.
27
In addition to the fitness to practice test for non-lawyers, law firms in England and Wales are
required to comply with a range of obligations set out in the Solicitors Regulatory Authority’s (SRA)
Handbook. The Handbook represents a complete re-writing of all of the SRA regulations for firms
that are subject to its jurisdiction and includes a revised Code of Conduct and Accounts Rules.
28
The Code is not proscriptive, but identifies ‘key behaviours’ as examples of how to achieve stated
outcomes.
Chapter 7 of the SRA’s Code of Conduct (set out in the SRA Handbook) and Rule 8.2 of the SRA
Authorisation Rules 2011 (“the Authorisation Rules”) require firms to “have effective systems and
controls in place to achieve and comply with all the principles, rules and outcomes and other
requirements of the Handbook” and to “identify, monitor and manage risks to compliance”.
29
The LSA 2007 requires that a head of legal practice (HOLP) and head of finance and administration
(HOFA) are appointed within each alternative business structure (ABS). This requirement today
extends to all firms. As a result of this extension the SRA has renamed the positions as compliance
officer for legal practice (COLP) and compliance officer for finance and administration (COFA). It is
the SRA Authorisation Rules for Legal Services Bodies and Licensable Bodies that outlines the
requirements for these roles.
30
The designated COLP or COFA must be an individual; be a manager
or an employee of the law firm; consent to their designation as the COLP and/or COFA; be of
sufficient seniority and responsibility to fulfil the role; and not be disqualified from being a Head of
Legal Practice (HOLP) or Head of Finance and Administration (HOFA) - as appropriate.
The Compliance Officer for Legal Practice (COLP) is responsible for overseeing risk and
compliance within their firm and be the SRA point of contact. COLPs are responsible for ensuring
that the law firm complies with relevant statutory obligations that are set out in the SRA’s Handbook;
recording any failure(s) to comply and informing the SRA of such noncompliance. The COLP must
report any material failure to the SRA as soon as reasonably practical.
31
The Compliance Officer for Finance and Administration (COFA) is responsible for the role and its
obligations. COFA’s are responsible for the overall financial management of the firm. COFA’s are
required to ensure that the law firm, including its employees and managers, comply with any
obligations imposed under the SRA Accounts Rules; keep a record of any failure to comply and
make this record available to the SRA.
32
COFA’s are also required to report any material failure
(either taken on its own or as part of a pattern of failures) to the SRA as soon as reasonably
practical.
27
Ibid.
28
Solicitors Regulation Authority, SRA Handbook Welcome,
http://www.sra.org.uk/solicitors/handbook/welcome.page
29
Clause 7.2, SRA Code of Conduct 2011. See Solicitors Regulation Authority, Code of Conduct 2011,
http://www.sra.org.uk/solicitors/handbook/code/content.page; SRA Authorisation Rules 2011,
http://www.sra.org.uk/solicitors/handbook/authorisationrules/content.page
30
See Solicitors Regulation Authority, COLPs and COFAs, http://www.sra.org.uk/solicitors/colp-cofa.page
31
See Solicitors Regulation Authority, Responsibilities of COLPs and COFAs, http://www.sra.org.uk/solicitors/colp-
cofa/responsibilities-record-report.page
32
Ibid.
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 8 of 18
Individuals who are COLPs and COFAs must be fit and proper to undertake the role/s.
33
Fit and
proper is assessed by taking into account the criteria in the SRA Suitability Test 2011 and any other
relevant information. The assessment as to whether an individual is a fit and proper person is
undertaken upon initial approval. If the COLP or the COFA is deemed unfit and improper, the SRA
may withdraw its approval.
The impact of these regulations on ethical and professional standards
Incorporated legal practices have now been permitted in New South Wales for close to 15 years.
During this period a number of remarkable things have occurred. Firstly, the legislation has now
been adopted by all States and Territories in Australia permitting the non-lawyer ownership of law
firms nationally.
34
Secondly, a considerable number of law firms Australia-wide (approximately 30%)
have incorporated.
35
Firms of all sizes have incorporated. This may be because there are a number
of benefits that can be gained as a result of incorporation. These benefits include asset protection,
greater flexibility for raising and retaining capital, greater flexibility for renumerating employees,
possible tax advantages, opportunity to introduce more effective management and decision-making
arrangements.
36
Third, the framework for regulating incorporated legal practices has resulted in an effective co-
regulatory partnership between the OLSC, the Law Society of NSW and the financial services
regulator and a reduction in red tape. It has not lead to a loss of self-regulation by the professional
associations. There has been no loss of regulatory control as feared by some.
37
Quite the contrary
has occurred.
Fourth, the regulatory framework, has been lauded for its ability to curb unethical behaviour and
improve law firm management because it is ‘proactive’ rather than ‘reactive’. The framework is a
radical departure from the traditional regulatory approach in which certain behaviours or conduct
standards are defined and lawyers are disciplined if the behaviours and standards are not met.
Rather than the regulator reacting after a complaint against a lawyer is made, the framework in
Australia is designed to help firm leaders detect and avoid problems by focusing on management
systems and processes designed to entrench ethical behaviours. This can occur because the
framework allows firms to develop their own process and management systems and develop
internal planning and management practices designed to achieve regulatory goals. This type of
framework is referred to as “proactive, management based regulation.”
38
33
See Solicitors Regulation Authority, What is a COLP and a COFA, http://www.sra.org.uk/solicitors/colp-cofa/ethos-
roles.page
34
Legal Profession Act 2006 (ACT) Part 2.6; Legal Profession Act 2004 (NSW) Part 2.6; Legal Practitioners Act 2006 (NT)
Part 2.6; Legal Profession Act 2004 (Vic) Part 2.7; Legal Practice Act 2003 (WA); Legal Profession Act 2007 (Qld) Part
2.7: Legal Profession Act 2007 (Tas) Part 2.5; Legal Practitioners Act 1981 (SA), Schedule 1.
35
Statistics obtained from the Law Society as at March 2015. On file with the authors.
36
See Queensland Law Society, Practice Structures, file:///C:/Users/Tahlia/Downloads/qls_factsheet_-
_practice_structures.pdf.
37
See Law Society of Ontario, Alternative Business Structures Working Group Report, February 2015,
https://www.lsuc.on.ca/uploadedFiles/ABS-full-report.pdf.
38
The term “proactive based management regulation” (PMBR), coined by Ted Schneyer, is characterised by the
appointment of one or more lawyer–managers by the firm to take enhanced responsibility for their firm‘s “ethical
infrastructure”. The term “ethical infrastructure”, again coined by Ted Schneyer refers to formal and informal management
policies, procedures and controls, work team cultures, and habits of interaction and practice that support and encourage
ethical behaviour: T. Schneyer, On Further Reflection: How “Professional Self-Regulation” Should Promote Compliance
with Broad Ethical Duties of Law Firm Management, 53 Arizona L. Rev 576; T. Schneyer, Proactive Management based-
regulation and the case for fresh thinking about how to improve “Professional Self-Regulation” for American Lawyers,
2013 Conference on Legal Ethics, Hofstra Law School, April 5, 2013.
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 9 of 18
The success of the framework is outlined in a series of research projects. In 2008, a research study
by Dr. Christine Parker of the University of Melbourne Law School in conjunction with the NSW
regulator assessed the impact of ethical infrastructure and the self-assessment process in NSW to
assess whether the process is effective and whether the process is leading to “better conduct” by
firms required to self-assess.
39
The research focused on the number of complaints relating to
incorporated legal practices after incorporation and comparing this with prior to incorporation. The
research found that complaints rates for incorporated legal practices were two-thirds lower than
non-incorporated legal practices after the incorporated legal practice completed their initial self-
assessment. The research also revealed that the complaints rate for incorporated legal practices
that self-assessed was one-third of the number of complaints registered against similar non-
incorporated legal practices.
Moreover, in another recent research study conducted on incorporated legal practices in NSW, by
Professor Susan Saab Fortney of Hofstra University, New York, in conjunction with the NSW
regulator, revealed that a majority (84%) of respondents reported that they had revised policies and
procedures related to the delivery of legal services. Seventy-one percent of the respondents
indicated that they had actually revised firm systems, policies and procedures. Close to half (47%)
of the respondents reported that they had adopted new systems, policies, and procedures. In terms
of encouraging training and initiatives, 29% indicated that their firms devoted more attention to
ethics initiatives and 27% implemented more training for firm personnel.
40
Finally, the framework regulating incorporated legal practices is being recognised by jurisdictions
around the world as the best way to curb unethical behaviour and increase professionalism. The
framework adopted in NSW has been replicated to varying extents in the United Kingdom
(discussed below) and Canada and is being considered by a number of jurisdictions in the United
States.
41
In England and Wales, as at May 2014, ABSs comprised over 2 percent of legal entities regulated
by the SRA in England and Wales.
42
Some firms that have gained an ABS licence have ceased to
operate but they are few in number. ABSs have become a popular option for law firms generally
because the ABS structure allow for the appointment or promotion of non-legal staff to managerial
posts; and, attraction of investment from non-legal individuals and organisations.
43
39
C.E. Parker, T. Gordon, S. Mark, 2010, Regulating law firms ethics management: an empirical assessment of an
innovation in regulation of the legal profession in New South Wales, Journal of Law and Society, Vol 37, issue 3, Blackwell
Publishing, UK, pp. 466-500.
40
S. Fortney & T. Gordon, Adopting Law Firm Management Systems to Survive and Thrive: A Study of the Australian
Approach to Management-Based Regulation, 10 St. Thomas L.J. 152 (2012).
41
The Canadian Bar Association has developed a management tool to embed ethical practice within firms called “The
Ethical Practices Self-evaluation Tool”: See The Canadian Bar Association, The Ethical Practices Self-evaluation Tool,
http://www.cba.org/CBA/activities/code/ethical.aspx; A. Salyzyn, Regulating Law Practice as Entities: Is the Whole Greater
than the Sum of Its Parts?, November 29, 2013, http://www.slaw.ca/2013/11/29/regulatinglaw-practices-as-entities-is-the-
whole-greater-than-the-sum-of-its-parts/; A.Salyzyn, What if We Didn’t Wait? Promoting Ethical Infrastructure in Canadian
Law Firms, July 25, 2013, http://www.slaw.ca/2013/07/25/whatif-we-didnt-wait-promoting-ethical-infrastructure-in-
canadian-law-firms/. Nova Scotia, Canada is also in the process of developing a similar framework as is Singapore: See
Nova Scotia Barristers Society, Transform Regulation, http://nsbs.org/transform-regulation and Ministry of Law, Second
Reading Speech by Minister for Law, K Shanmugam, on the Legal Profession (Amendment) Bill,
https://www.mlaw.gov.sg/content/minlaw/en/news/parliamentary-speeches-and-responses/2R-speech-Min-LPA-bill-
2014.html
42
Solicitors Regulation Authority, Research on alternative business structures (ABSs) Findings from surveys with ABSs
and applicants that withdrew from the licensing process, May 2014, p.9,
file:///C:/Users/Tahlia/Downloads/abs-quantitative-research-may-2014.pdf
43
Ibid.
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 10 of 18
The impact of ABSs to date on the legal services marketplace in England and Wales is interesting.
According to the SRA, research indicates that ABSs “have achieved a significant share of the
overall market in certain areas of legal work.” The SRA found that ABSs accounted for a third of all
turnover in the personal injury market; ABSs have captured a significant percentage of turnover in
mental health, non-litigation (e.g. mergers and acquisitions and probate), consumer and social
welfare; and, ABSs are spread relatively evenly across a range of different legal work types.
44
Of
most interest, the survey found that “[T]he most significant changes that ABSs have made, as a
result of their new business model, relate to how the business is financed and the attraction of new
investment.”
45
ABSs have not fundamentally changed the legal services marketplace in England
and Wales nor have they had any impact on professionalism and ethics as expected.
According to the Legal Services Consumer Panel in England and Wales “the dire predictions
about a collapse in ethics and reduction in access to justice as a result of ABS have not
materialised.”
46
(Emphasis added) The Panel state in their 2014 Consumer Impact Report,
released on 5 December 2014, as follows:
“There have been no major disciplinary failings by ABS firms or unusual levels of
complaints in the Legal Ombudsman’s published data. Our Tracker Survey isn’t able to
segment between ABS and non-ABS firms, but does show that overall consumer
confidence in the quality of work and professionalism of lawyers has held steady since
2011.”
47
Although it is only early days for ABSs in England & Wales, these statements by the Legal Services
Consumer Panel are an unequivocal affirmation that ABSs in practice do not pose a threat to ethics
or professionalism.
Like the regulatory framework in Australia the regulatory framework in England & Wales imposes
the same professional obligations on the entire law firm as it does on the individual lawyer. It also
imposes a statutory obligation on ‘non-lawyers’ not to do anything which causes or contributes to a
breach by a lawyer or the firm of the regulatory and professional obligations imposed on them. Non-
lawyers, just like lawyers, who behave inconsistently with professional obligations or inappropriately
pursue profit at the expense of professionalism and professional obligations, run the risk that their
opportunity to be an owner, officeholder or employee in a legal business will be taken away from
them.
Part 3: Managing ethics and professionalism: a firm responsibility
In addition to Australia, England and Wales’ robust regulatory frameworks, a number of incorporated
law firms themselves have adopted measures to curb the threat of unethical behaviour. Such
measures include adopting a statement of duties that stipulates that the primary duty of the firm is to
the Court, the secondary duty is to the client and the tertiary duty is to the shareholders. In addition,
enforceable practice standards, staff codes of conduct and value and mission statements uphold
professional standards and ethics. To illustrate, a number of measures have been deployed by
Slater and Gordon to ensure its staff maintain the highest attainable standards of professionalism.
44
Solicitors Regulation Authority, Research on alternative business structures (ABSs) Findings from surveys with ABSs
and applicants that withdrew from the licensing process, May 2014, p.3,
file:///C:/Users/Tahlia/Downloads/abs-quantitative-research-may-2014.pdf; See also ICF GHK, Qualitative Research into
Alternative Business Structures (ABSs), May 2014, file:///C:/Users/Tahlia/Downloads/abs-qualitative-research-may-
2014%20(1).pdf
45
Ibid.
46
Legal Services Consumer Panel, 2014 Consumer Impact Report, 5 December 2014, p.15,
http://www.legalservicesconsumerpanel.org.uk/publications/research_and_reports/documents/Consumer%20Impact%20R
eport%203.pdf
47
Ibid.
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 11 of 18
Case Study: Slater and Gordon
Hierarchy of Duties
The highest possible standards of ethics and professionalism are the first and highest priority for the
management of Slater and Gordon as a publicly listed law firm. Slater and Gordon, the first law firm
in the world to list its legal practice on the Australia Stock Exchange in 2007, has implemented
various measures to ensure that professionalism and ethics are upheld by all staff, irrespective of
whether the staff are lawyers or not.
48
In recognition of the possibility of a conflict between the duties
owed to the company and shareholders and the duties owed to the court and to clients, Slater &
Gordon outlined a hierarchy of duties prior to listing to ensure this issue was dealt with in its
prospectus and constituent documents. For instance, section 3.2 (‘Duties’) in Slater & Gordon’s
Constitution states:
The Company and the Directors must procure that, where possible, the Company fulfils
its duty to the Shareholders, to the clients of the Company and to the court. In the case
of an inconsistency or conflict between those duties of the Company, that conflict or
inconsistency shall be resolved as follows:
(a) the duty to the court will prevail over all other duties; and
(b) the duty to the client will prevail over the duty to Shareholders.
49
This hierarchy of duties also applies to Slater & Gordon’s practice in the United Kingdom and is
reinforced in many of Slater & Gordon’s key operating documents. Clause 4 of Slater & Gordon’s
Code of Conduct, for example, states as follows:
“4. Professional Obligations
You are expected to always:
1. Fulfil your duty to the Court;
2. Respect and act in the best interests of clients and treat them courteously and
consistently;
3. Respect colleagues and treat them fairly, openly and honestly; and
4. Select suppliers and vendors on quality, service and cost only. If there is a conflict,
the first duty is to the Court over all duties, and then the duty to the client will prevail
over the duty to shareholders.”
50
Similarly, the statement of the hierarchy of duties which is generally well understood by staff and is
also articulated in Slater & Gordon’s Principles of Good Practice as follows:
“2. My paramount duty is to the Court and to uphold the rule of law.
As officers of the Court, lawyers are obliged to serve the Court and the administration
of justice ethically and professionally. This is a paramount duty and informs all client
engagements. Staff are expected to provide clients with independent and honest
legal advice.
In exercising professional judgment, staff should ask: “Do my actions serve the
administration of justice and uphold the rule of law? Do my actions encourage public
confidence in the administration of justice and in the legal profession?”
51
The Principles of Good Practice are applicable in both Australia and the United Kingdom.
48
A. Grech & K. Morrison, Slater & Gordon: The Listing Experience, 22 Geo J. Legal Ethics 535 (2009)
49
Slater & Gordon Ltd, Constitution, https://media.slatergordon.com.au/constitition-of-slater-gordon-amg-11.pdf
50
Slater & Gordon Ltd, Code of Conduct, https://media.slatergordon.com.au/code-of-conduct.pdf.
51
Slater & Gordon, Principles of Good Practice, on file with the author.
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 12 of 18
Compulsory Practice Standards
Slater and Gordon has also adopted National Practice Standards which all staff are expected to
comply with. The National Practice Standards dictate a model for staff behaviour and include step
by step requirements on the processes and procedures to be followed in all dealings with clients. An
important feature of the National Practice Standards is that they assist in embedding a culture
where the ethical and professional responsibilities of lawyers are given primacy by all staff. Every
Slater and Gordon staff member is bound by his or her commitment to comply with the requirements
of the National Practice Standards and every practice group is subjected to an internal review for
compliance. The results of a comprehensive audit program are used to improve training and staff
development.
ASX listing and corporate governance regulations
As a publicly listed company, Slater and Gordon is subject to significantly higher levels of
accountability and audit. The obligations are in addition to all of the duties a lawyer has to the Court
and regulations imposed on the legal profession. One of the primary obligations for a listed
company is continuous public disclosure. Reporting provides greater transparency for clients’ and
staff in terms of the sustainability and accountability compared to non-listed law firms.
Listing also increases the focus on governance in comparison to non-listed law firms. The Australian
Securities Exchange Listing Rule 4.10.3 requires ASX listed entities to benchmark their corporate
governance practices against the Corporate Governance Council’s recommendations; and where
they do not confirm, to disclose that fact and the reasons why. The ASX Corporate Governance
recommendations cover a range of matters which include ethical decision making, remuneration
issues and risk management. Slater & Gordon, like all listed companies, is required to report in
relation to these issues and does so in its Annual Reports. Law firms that are not publicly listed have
no obligations to report such information and rarely do.
Code of Conduct and the protection of staff ‘whistle-blowers’
Slater and Gordon have instituted many measures aimed at protecting ethics and professionalism.
Directors and staff of Slater and Gordon, for example, are expected to adhere to the Company’s
Code of Conduct. The Code of Conduct sets out detailed standards of ethical behaviour. Slater and
Gordon also have a comprehensive range of policies covering equal employment opportunity,
discrimination, harassment, confidentiality, privacy and occupational health and safety. These
policies are aimed at ensuring the maintenance of standards of honesty, integrity and fair dealing.
Slater and Gordon have also developed a Whistle-blower Policy which encourages employees to
bring any problems to the attention of management. This includes activities or behaviour that may
not be in accordance with the Company’s Code of Conduct, financial reporting Policies, Insider
Trading Policy, other Company policies, or other regulatory requirements and laws.
52
Client focused complaints handling
Prior to listing, Slater and Gordon managed complaints through the Managing Director and/or the
senior lawyer in the relevant team. Slater and Gordon have now developed a comprehensive
process for dealing with client feedback with a dedicated Professional Standards and Risk team.
The team is responsible for addressing any client concerns as well as conducting an internal audit
program to monitor compliance levels. Client feedback (and the results of the internal audits) are
used to further improve practice standards, service design and to improve processes.
The impact of these measures on ethical and professional standards
The impact of the measures implemented at Slater and Gordon to mitigate the risk of eroding ethical
and professional standards appear to have had a significant impact. Since listing in 2007 there has
not been a single internal or external complaint to legal regulators alleging the firm has not upheld
its professional obligations as legal practitioners to the proper administration of justice or to clients.
Further, no shareholder has ever sought to influence the legal advice our legal practitioners provide
to clients or the manner in which it is provided.
52
Slater & Gordon, Annual Report 2010-11, p.32, available at
http://www.slatergordon.com.au/files/editor_upload/Flash/Flash/SGH-Annual-Report-2011.pdf
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 13 of 18
The impact of the measures implemented by Slater and Gordon to mitigate the risk of eroding ethics
and professionalism appear to have had a significant effect. Not one complaint has ever been made
to legal regulators in Australia or to Slater and Gordon themselves alleging Slater and Gordon have
actively ignored their primary duty to the Court in favour of a shareholder or shareholders.
The hierarchy of duties articulated by publicly listed law firms and other measures also appears to
demonstrate that there has been no diminution of ethical behaviour. In the years since Slater &
Gordon and the other two law firms have listed publicly, there has been no evidence to suggest that
external ownership has led to a lowering of professional standards. In fact, quite the opposite has
occurred. It appears that access to external capital and the sharing of fees with non-lawyers has
strengthened the ethical focus of publicly listed law firms.
Part 4 – Where are we now? The new legal landscape and the challenges for the legal
profession
“Historically, lawyers have been a conservative profession which has successfully
resisted change. However, if anything is certain about the future, it’s surely that lawyers
can no longer withstand the major forces that are reshaping all markets. In the past,
lawyers served local communities, disliked technology ….They were protected from
competition and clients were passive recipients of their advice. Today’s markets are
global, technology goes to the heart of all legal work and the problems lawyers are
asked to solve are multi-disciplinary and require them to interact with experts in other
fields. Competition is being fully unleashed and the consumer/business relationship is
getting turned on its head.”
53
In August 2009 the American Bar Association established the ABA Commission on Ethics 20/20
(the 20/20 Commission) to conduct a comprehensive review of lawyer ethics rules and regulations
across the United States in in light of advances in technology and the increasingly global nature of
law practice.
54
In 2012 the Canadian Bar Association formed a Committee called the Legal Futures
Committee to “examine the challenges facing lawyers and the legal profession, and to make
recommendations about the kind of organization the CBA should be in 2015 and what it would need
to offer lawyers and the legal profession in order to be relevant and vibrant."
55
The Legal Services Board in the United Kingdom have also been particularly interested in the
effects of globalization, commercialism and technology on the practice of law. Whilst the LSB has
not established a ‘commission’ or ‘committee’ to look at the future of legal practice, it has conducted
a range of research projects and commissioned research together with other regulators that look at
the effects of globalization, commercialisation and practice.
56
The primary goal has been to identify
impending trends of legal practice and assist the legal profession understand the many and varied
challenges ahead.
53
The Consumer Legal Services Panel, 2020 Legal Services How regulators should prepare for the future, November
2014,
http://www.legalservicesconsumerpanel.org.uk/publications/research_and_reports/documents/2020consumerchallenge.pd
f
54
Throughout its 3 year existence, the 20/20 Commission held many hearings, developed numerous draft statements and
ultimately produced a series of recommendations for the ABA House of Delegates to consider primarily related to
technology and the practice of law. For example, the 20/20 Commission recommended that the term “e-mail” in the
definition section of the Model Rules be changed to “electronic communications,” reflecting the advances in text
messaging and website submissions that didn’t exist when the Model Rules were first drafted. The 20/20 Commission also
recommended that the ABA Center for Professional Responsibility create a centralized user-friendly website with
continuously updated and detailed information about confidentiality-related ethics issues arising from lawyers’ use of
technology: see ABA Commission on Ethics 20/20,
http://www.americanbar.org/groups/professional_responsibility/aba_commission_on_ethics_20_20.html
55
Canadian Bar Association, “CBA Legal Futures Initiative”,
http://www.cba.org/CBA/sections_civil/newsletters2013/futures.aspx
56
Legal Services Board, Welcome to LSB Research, https://research.legalservicesboard.org.uk/
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 14 of 18
Technology
Advancements in technology have created a completely new paradigm for lawyers. Remote access
to one’s office, reliance on smart phones to share data, email and social media to communicate with
clients and other emerging technologies have transformed the mechanics of practicing law.
According to Richard Susskind, the most well-known and oft-cited legal futurist today, new
technologies such as online legal document websites and online dispute resolution; intelligent
computer systems that are able to manage and access data, solve problems, and draw conclusions
(Big Data); and, e-marketplace technology where sellers of legal services can present their
offerings, credentials and fee structures and buyers can choose the types of services they wish to
purchase, are already having an overwhelming impact of the practice of law globally.
57
Jordan
Furlong, another well-known legal futurist from Canada, agrees. For Furlong, the widespread
automation of legal services created by new technology is devaluing legal information and
knowledge and making it much cheaper.
58
Technology analysts suggest we are at the start of a third age of computing which will disrupt
information-intensive professions like legal services.
59
This is because technology is enabling
consumers to break down commoditised legal work into discrete tasks and decide which to do
themselves and which to use a lawyer for.
60
On-line providers
Online legal document providers such as LegalZoom and RocketLawyer, and Epoq, for example,
provide a versatile and very popular option for consumers seeking legal information and advice in
jurisdictions like the United States and the United Kingdom.
61
In March this year, for example,
LegalZoom announced that their network of lawyers had completed 200,000 consultations for
customers seeking legal assistance.
62
Clients are also turning to other more generalised online services offering free or inexpensive legal
advice through “ask an expert” websites. These sites allow consumers to post questions concerning
a legal issue and receive a response from a lawyer. Different business models offer either a one-off
payment or regular subscription payments or free advice. Justanswer.com and lawanswer.com.au
allow consumers to ask an online lawyer a question for a fee. There are also an array of websites
that offer free legal advice like LawPivot (which is now owned by RocketLawyer) and Avvo.
63
Lawyers answer specific and detailed questions for free, with the aim of generating business.
Lawzam.com allows clients to talk to lawyers online by video chat for free. In 2013, LawZam actually
released its mobile application for iOS, allowing attorneys to stay connected and available to chat
and videoconference virtually anywhere anytime.
64
57
R. Susskind, Tomorrow’s Lawyers: An Introduction to Your Future, Oxford University Press (2013).
58
J. Furlong, Transformation: Five Catalysts at Work in the Canadian Legal Services Marketplace (2010) Fordham Law
Review 7, p.3.
59
See for example, B. Szoka & A. Marcus, The Next Digital Decade Essays on the Future of the Internet, 2010,
http://www.nyu.edu/projects/nissenbaum/papers/The-Next-Digital-Decade-Essays-on-the-Future-of-the-Internet.pdf;
Deloitte, Digital Disruption Short Fuse, Big Bang?, 2012,
https://www2.deloitte.com/content/dam/Deloitte/au/Documents/Building%20Lucky%20Country/deloitte-au-consulting-
digital-disruption-whitepaper-0912.pdf; Nimbus Ninety IGNITE, Market Trends Report 2014,
http://www.je.logicalis.com/globalassets/united-kingdom/reports/market-trends-report/logicalis-marketing-trends-report-
2014.pdf (Nimbus Ninety, founded in 2005, runs communities for end-users of business technologies).
60
S. Kimbro, M.A., J.D., Using Technology to Unbundle in the Legal Services Community, Harvard Journal of Law &
Technology Occasional Paper Series — February 2013, http://jolt.law.harvard.edu/symposium/articles/Kimbro-
UsingTechnologytoUnbundleLegalServices.pdf
61
See generally, B.H. Barton, The Lawyer’s Monopoly—What Goes and What Stays, 82 Fordham L. Rev. 3067 (2014); J.
Flood, Will There Be Fallout from Clementi? The Global Repercussions for the Legal Profession After the UK Legal
Services Act 2007, 2012 Mich St. L. Rev. 537;
62
LegalZoom, LegalZoom Achieves Milestone of 200,000 Legal Plan Attorney Consultations, 24 March 2015,
http://www.businesswire.com/news/home/20150324005036/en/LegalZoom-Achieves-Milestone-200000-Legal-Plan-
Attorney?_ga=1.101562561.1550617856.1427354860#.VRO54_mUeRN
63
RocketLawyer, Rocket Lawyer Acquires LawPivot. The fast and easy way to get answers to your legal questions, 14
January 2013, https://www.rocketlawyer.com/news/article-Rocket-Lawyer-Acquires-LawPivot.aspx
64
PR Web, LawZam(R) Releases Mobile App for Legal Video Consultations on iPhone and iPad, 20 March 2013,
http://www.prweb.com/releases/2013/3/prweb10546948.htm
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 15 of 18
Online dispute resolution (ODR) is another addition challenging the traditional legal services
marketplace.
65
ODR is conducted by web-based, independent software systems created for the
purpose of dispute resolution and involve only the parties to the dispute and the computer. EBay’s
use of ODR sees millions of disagreements amongst traders resolved every year. SquareTrade,
eBay’s preferred dispute resolution provider, offers two services: a free web-based forum which
allows users to attempt to resolve their differences on their own or if necessary, the use of a
professional mediator.
66
This year the Civil Resolution Tribunal will be launched in British Columbia, Canada. The online
tribunal will be available as an alternative pathway to the traditional courts for resolving small claims
through a process that is expected to be more convenient and less costly. It will deal with claims
(under 25,000 Canadian dollars) relating to debts, damages, recovery of personal property, and
certain types of condominium disputes. ODR has also found acceptance in the United Kingdom
recently with Lord Dyson, the Master of the Rolls, supporting a Report that urges all political parties
to give their support in principle to new legislation to set up ‘Her Majesty’s Online Court’ (HMOC).
67
Machine intelligence
Machine intelligence is also being recognised as having a penetrable impact on the legal services
marketplace. According to McGinnis and Pearce, five areas of legal practice will change
dramatically in the near future as a result of machine intelligence.
68
These areas include as follows:
(1) discovery; (2) legal search; (3) document generation; (4) brief and memoranda generation; and
(5) prediction of case outcomes. The role of predictive coding in large scale litigation is becoming a
common feature in discovery.
The ability of machines to make “judgments” about the strength of precedents, and the future ability
of machines to identify the issues implicated by a given set of facts will be the new method for legal
searching. In relation to document generation, McGinnis and Pearce predict that within ten to fifteen
years, computer-based services will routinely generate the first draft of most transactional
documents.
Technology assisted review, also known as predictive coding or computer assisted coding has
already been adopted by law firms as an efficient and cost-effective way to manage litigation.
Predictive coding programs which can identify key strengths and weaknesses in a client’s case
during early case assessment and preliminary investigations; streamline aspects of document
review when responding to document requests; analyze a document received from an opposing
party or a third party and prepare for depositions, expert discovery, summary judgment motions and
trial, are poised to become a standard practice in e-discovery in the near future. McGinnis and
Pearce submit that using big data to guide decisions is one of the most important trends of the last
decade.
Lex Machina, for example, has gathered data from mining thousands of IP litigation cases. The
information is used by corporate counsel to “select and manage outside counsel, increase IP value
and income, protect company assets, and compare performance with competitors” and by lawyers
to “pitch and land new clients, win IP lawsuits, close transactions, and prosecute new patents.”
69
Similarly, Juristat, “transforms raw patent application data into actionable analytics allowing you to
optimize prosecution and marketing strategies.”
70
65
J.W. Goodman, The Pros and Cons of Online Dispute Resolution: An Assessment of Cyber-Mediation Websites,
2 Duke Law & Technology Review 1-16 (2003).
66
Ebay, Dispute Resolution Overview, http://pages.ebay.com/services/buyandsell/disputeres.html
67
Civil Justice Council, Online Dispute Resolution Advisory Group, Online Dispute Resolution for Low Value Civil Claims,
February 2015, https://www.judiciary.gov.uk/wp-content/uploads/2015/02/Online-Dispute-Resolution-Final-Web-
Version1.pdf
68
John O. McGinnis & Russell G. Pearce, The Great Disruption: How Machine Intelligence Will Transform the Role of
Lawyers in the Delivery of Legal Services, 82 Fordham L. Rev. 3041 (2014).
69
Lex Machina, What we do, https://lexmachina.com/what-we-do/
70
Juristat, Helping Patent Professionals Predict the Future, 21 January 2015, https://juristat.com/blog-2/page/3/
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 16 of 18
Separately, legal scholars have developed an algorithm that can predict outcomes. Two legal
scholars in the United States have developed an algorithm that can predict, with 70% accuracy,
whether the US Supreme Court will uphold or reverse the lower-court decision before it.
71
Outsourcing
Outsourcing has also fundamentally altering legal practice. Initially, outsourcing was used to perform
basic legal administrative functions, whereas today, complex legal research, due diligence, contract
management and negotiation, and intellectual property services are also being exported.
72
Today,
as the use of outsourcing continues to flourish, the work of lawyers, paralegals, legal secretaries,
and litigation support personnel are all under challenge
73
Non-lawyer providers of legal services
In addition to these “challenges” the use of limited licence non-lawyers to provide legal services
alongside lawyers has increased.
74
In Ontario, licensed paralegals can represent someone in Small
Claims Court; in the Ontario Court of Justice under the Provincial Offences Act; on summary
conviction offences where the maximum penalty does not exceed six months' imprisonment; and,
before administrative tribunals, including the Financial Services Commission of Ontario. A person
with a paralegal licence in Ontario can give legal advice concerning legal interests, rights or
responsibilities with respect to a proceeding or the subject matter of a proceeding; draft or assist
with drafting documents for use in a proceeding and negotiate on behalf of a person who is a party
to a proceeding in the above forums.
Paralegals who are licensed by the Law Society are also eligible to provide certain legal services in
the field of immigration law. Licensed paralegals can appear before the Immigration and Refugee
Board (IRB) to represent a client or clients in an IRB hearing, and can provide legal services to
clients for matters relating to an IRB hearing. Drafting of documents or other legal services practices
that are not related to an IRB hearing remain outside of a Paralegal’s scope of practice.
Washington State created a category of limited licence legal technicians who are permitted to
provide a limited range of legal services that were previously reserved for lawyers.
The rule is designed to assist otherwise self-represented litigants better navigate the court system.
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Washington’s legal technicians can, among other things, fill out legal forms, review and explain
pleadings, and apprise clients of procedures and timelines. The new rule explicitly prohibits legal
technicians from engaging in a variety of other activities, however, including “[r]epresent[ing] a client
in court proceedings, formal administrative adjudicative proceedings, or other formal dispute
resolution process,” “[n]egotiat[ing] the client’s legal rights or responsibilities, or communicat[ing]
with another person the client’s position or convey[ing] to the client the position of another party…”
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71
The algorithm predicts six decades of behavior of thirty Justices appointed by thirteen Presidents: Daniel Katz, Michael
Bommarito II, Josh Blackman, Predicting the Behavior of the Supreme Court of the United States: A General Approach,
July 2014, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2463244
72
See for example, M.C Regan Jr & P.T. Heenan (2010) Supply Chains and Porous Boundaries: The Disaggregation of
Legal Services, Fordham Law Review, 78(5), pp.2137, 2139, 2140.
73
M. Ross, Legal Process Outsourcing and the Technological Revolution in Legal Services Delivery, CIO Review, 8
December 2014, http://www.integreon.com/pdf/blog/CIO%20Review%20by%20Mark%20Ross.pdf
74
J.P Sahl, Cracks in the Profession’s Monopoly Armor, 82 Fordham L. Rev. 2635 (2014), p. 2654-2661; See generally
L.A Rigertas, The Legal Profession’s Monopoly: Failing to Protect Consumers, 82 Fordham L. Rev. 2683 (2014); L.C.
Levin, The Monopoly Myth and Other Tales About The Superiority of Lawyers, 82 Fordham L. Rev. 2611 (2014), p.2630-
2633.
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The Supreme Court of Washington, In the Matter of the Adoption of New APR 28 – Limited Practice Rule for Limited
License Legal Technicians Order N0. 25700-A-1005, filed June 15, 2012
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Washington Admission to Practice Rule (APR) 28(H)
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 17 of 18
The Rule also imposes licensure requirements. Applicants must have a college degree in
“paralegal/legal assistant studies” and a “minimum of two years’ experience as a paralegal/legal
assistant doing substantive law-related work under the supervision of a lawyer” or a “post-
baccalaureate certificate program in paralegal/legal assistant studies” and “three years’ experience
as a paralegal/legal assistant doing substantive law-related work under the supervision of a
lawyer…”
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Like lawyers, they also must pass a competency exam and will be subject to continuing
education requirements. Limited license legal technicians will also be held to the “standard of care
of a Washington lawyer,” and “ethical standards” that will be created for them.
California and New York are also examining this concept. The California State Bar Board
Committee on Regulation, Admission and Discipline Oversight created the California State Bar’s
Limited License Working Group, which on June 17, 2013 recommended that California offer limited-
practice licenses to non-lawyers.
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In New York, Chief Judge Jonathan Lippman formed the
Committee on Non-Lawyers and the Justice Gap in early 2013 to study the use of non-lawyers to
provide some assistance in simple legal matters.
That committee was expected to make recommendations for a pilot program to focus in the areas of
housing, elder law, and consumer credit before the end of 2013.
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The breath and range of new services being provided to enable consumers access the law is
impressive. Many of the enterprises involved in the delivery of such services have invested
considerable funds developing products to provide consumers with services that were once beyond
their means. The problem is however that these ‘disruptors’ are by and large, unregulated. The
Legal Services Board in the United Kingdom, for example, estimates that unregulated businesses
already account for some 20-30% of turnover in the UK legal services sector.
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Consumers utilising
these services do so with little, if any, regulatory protection and this poses obvious risks.
Non-lawyer ownership of law firms, on the other hand, as has been discussed in this paper, is highly
regulated. The regulatory frameworks in Australia, England and Wales regarding external
investment in law firms are specifically designed to protect consumers from risk.
Conclusion
“There are ethical and unethical lawyers, just as there are ethical and unethical ‘non-
lawyers’. Until the legal professions rid their ranks of the unethical, the high horse of
professional ethics is not a secure vantage point from which to resist ownership by those
outside the ranks. By siding with the status quo and suggesting that the case for change
is not made out, opponents of external ownership conveniently side-step their own need
to justify a restrictive practice whose public interest foundations and justification are
tenuous and for which the supporting case in the 21st century has also not convincingly
been made out.”
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No matter where you stand on the spectrum of views about the way in which law firms should be
managed and owned, the evidence is that changes in the ownership structures of law firms are
more likely to enhance rather than diminish the ability of the legal profession to be part of the
solution to improving access to the legal system. Embracing the liberalisation of ownership
structures as has been achieved in Australia, England and Wales provides for more agile business
models that are better capitalised and resourced. This has already been achieved without the
erosion of the great values upon which the legal profession has been established.
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Washington Admission to Practice Rule (APR) 28(D)
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The working group recommended that people without a law degree be authorized to provide “discrete, technical, limited
scope of law activities in non-complicated legal matters in 1) creditor/debtor law; 2) family law; 3) landlord/tenant law; 4)
immigration law”: See Memorandum from Staff, Limited License Working Group, Legal Aid Association of California to
Members, Limited License Working Group., Legal Aid Association of California, 17 June 2013, http://perma.cc/7WZ7-
NE7Y
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Joel Stashenko, Non-lawyers May Be Given Role in Closing ‘Justice Gap,’ N.Y. L.J., May 29, 2013, at 1.
80
Legal Services Board, Regulatory Information Review, September 2011.
81
S.Mayson, External ownership and the forked tongue of ethics, May 2012,
http://stephenmayson.com/2012/04/13/external-ownership-and-the-forked-tongue-of-ethics/
Modern Law Firm Management: Should Non-Lawyer Ownership be Endorsed and Encouraged? Page 18 of 18
It was just on 85 years ago that two young idealistic lawyers from Melbourne in Australia, Bill Slater
& Hugh Gordon founded Slater and Gordon, to ensure those injured in industrial accidents and their
widows got access to the legal system. Despite Hugh’s death in 1941 at age 34 while flying his 30th
mission for the allies over Europe, the firm has traded in that name since and will soon be the
largest consumer law firm in the world employing over 5,000 people in Australia and the UK.
Bill Slater who continued in practice also had a successful parliamentary career. He was an
advocate for woman’s rights and in 1942 Slater and Gordon became one of the very few law firms in
Australia to hire women as graduates. Even for the most accomplished female graduates securing
Articles was very difficult at the time.
The employment of women in the law and the idea of a law firm based on a mission of delivering
affordable legal services to working people caused a great deal of discomfort in Melbourne’s legal
profession of the 1930’s to 1950’s. The law was the domain of men and according to the “chaps” in
the profession – unless as a typist the law was not a proper place for women.
By a long, slow and ongoing process of evolutionary change our profession has had its horizons
expanded by the many great woman lawyers, jurists and law firm leaders now in its ranks.
It is hoped that those jurisdictions considering the question of non-lawyer ownership will not take the
same slow evolutionary path. The cost of not embracing change will impair rather than enhance the
ability of the legal profession to improve access to the legal system. Seizing the moment will be
critical, in order for law firms to continue to be relevant to meeting the growing legal needs of the
community they exist to serve.
Other professions have already changed the way they are owned and run. They have shifted out of
offices to cheaper service delivery online. Their customers and our clients are better equipped
these days to hold lawyers to account for the quality of our services, lack of choices and the cost.
In the years ahead, I anticipate that opposition within the legal profession to non-lawyer
management and non-lawyer ownership of law firms will fade, just as prejudices about women
working in the law have faded with time. However, opposition within the legal profession to non-
lawyer management and non-lawyer ownership of law firms will not fade unless the profession
accepts that non-lawyer ownership of law firms has and will continue to be effectively ‘managed’
through a robust regulatory framework that leaves the management and control of external
ownership to lawyers.
Society has changed, the market and consumer expectations are changing, globalization,
technology and legal training is changing. Regardless of the attachment of many to traditional ways
of viewing the practice of law, just as we could not afford to ignore the talents of women, the legal
profession will not stand still on the question of non-lawyer management because it can’t afford too.
Andrew Grech
Tahlia Gordon
Andrew Grech is the Group Managing Director of Slater & Gordon Limited.
Tahlia Gordon is the Co-Director and Founder of Creative Consequences Pty Ltd, a boutique
consultancy that advises organisations, regulators and governments in regulation, complaint
investigations, governance and ethics.
