This is the second of a two-part consideration of the affects of self-regulation on the legal industry. Last week’s post focused on retail law; this post examines the corporate segment.
To compare the impact of self-regulation on the corporate and retail legal segments is to invite the conclusion that lawyers operate under two sets of rules. This is especially so with respect to unauthorized practice. Last week’s post on Self-Regulation and Retail Law highlighted the vague–sometimes non-existent– standards by which “the practice of law” and, conversely, “unauthorized practice” is determined. Retail attorneys, not disgruntled clients, are the usual whistleblower, and legal service providers are the target, even if no harm has been caused to the client.
It’s another story in the corporate arena. Lawyers are rarely whistleblowers here, nor do corporate clients seem to be concerned about unauthorized practice even though they routinely work with service providers who might sometimes “push the envelope.” So why are things so different in this segment of the market? After all, “Lincoln Lawyers” (those who practice out of a car as Matthew McConaughey portrayed on screen) have to pass the same Bar Exam as their White Shoe brethren. These lawyers should–especially for something as central to legal practice as what it means to engage in the practice of law–be subject to the same regulatory and ethical standards as corporate lawyers. Leona Helmsley’s infamous take on taxes comes to mind: “We don’t pay taxes. Only the little people pay taxes.” And so it seems with unauthorized practice and corporate lawyers; they and the service providers who increasingly work with–or instead of them–are rarely flagged for it. Why not?
Axiom’s Coup and New Boundaries
Axiom’s recent $73M multi-year deal with a major (as yet unidentified) global bank serves notice on law firms that their model is under frontal assault by service providers. As a Forbes reporter noted: “the deal could be seen as outsourcing a fundamental process required to keep the bank in compliance with regulations.” This certainly sounds like being “engaged in the practice of law,” yet so far there is not even a whiff of unauthorized practice headed Axiom’s way. Axiom, of course, sees it differently, maintaining that by moving routine yet highly complicated transactions onto an IT platform managed by its lawyers and paralegals, the bank’s lawyers and executives are now liberated to focus on weightier, more “bespoke” matters. Axiom has pushed the ever-elusive line of what it means to engage in legal practice by: (1) characterizing complex transactions as “routine”; (2) “routinizing” their handling by placing them onto an electronic platform (e.g. assembling them, creating a centralized repository, and then reviewing them); and, critically (3) working under the direction of the client’s legal department. Translation: Axiom is not “engaged in the practice of law” because it is not bearing ultimate risk retention. Axiom’s co-founder, Mark Harris, put a clever spin on it, contrasting Axiom’s service model with BigLaw: “The incumbent model is largely artisanal; it’s perfect for novel challenges that are irreducibly complex, but it’s not necessary for the bulk of commerce.” Translation: there are very few things that constitute “the practice of law”, and we can do everything else faster, cheaper, and better than law firms.
This begs the question: why do retail lawyers cry foul on service providers charging $250 for name change documents when corporate lawyers (law firms) sit on their hands when Axiom lands a $73M deal that, until recently, would have gone to them? Answer: clients hold the power in the corporate segment of the market, and they are increasingly receptive to the lower-cost, faster, more efficient, and (generally) technologically superior alternative to BigLaw that (some) service providers offer. And just imagine what would happen to the lawyer/law firm who cried foul about the Axiom deal…..
Another–though far less compelling– reason why the disparity in regulatory enforcement exists between the retail and corporate segments is that corporate clients tend to be far more sophisticated consumers of legal services (spend far more money, anyway and usually have their own in-house lawyers) and, so, presumably do not need (“caveat emptor”) regulatory protection. Maybe so, but why should clients in the retail end be deprived of the options that are so readily available to corporate clients? If anything, there is a far more acute need for options among retail clients. Need proof? An absence of competition and self-regulation has created the access to justice crisis. No such crisis–with the same regulations theoretically applying–exists in the corporate segment where it’s a buyers market, both as to law firms as well as alternatives and/or supplements to them.
The Growing Wave of Service Providers
Axiom’s stunning win is a headline grabber (if not a clarion call that the law firm “monopoly” is under siege). Law firm vulnerability exists without full-blown regulatory change and the adaptation of the UK/Australian “ABS” model. The cry of “Unauthorized practice!” is faint, if not inaudible. If one were to look at the suite of service offerings listed by several large service providers (this cuts a wide swath that includes LPO’s and legal consulting companies, among others) and put them side-by-side with a law firm, it would be difficult to tell the difference. For example, many service providers offer litigation consulting, risk mitigation, M&A, corporate due diligence, cyber-security, IP, regulatory, and a host of other law firm practice area staples. A simple disclaimer that they “do not engage in the practice of law” appears to immunize them from unauthorized practice exposure. Surely, abdication of risk retention to a law firm or client’s legal department should not, without more, immunize a provider from the threat of unauthorized practice. But that appears to be where the Maginot Line has been drawn in corporate law. This is in stark contrast, of course, to the retail market.
Some Law Firms Are Hedging Their Bets
A few law firms, seeing the handwriting on the wall, have partnered with service providers in a variety of ways. One forward-thinking example is a law firm contracting with a service provider to white label its integrated suite of “back-end” services. This enables the law firm to retain some of the profit for “lower-end” work that was once its biggest profit source. Some is better than nothing……
Some other firms –with varying degrees of success–have launched ancillary business units that enable them to participate in additional revenue streams as well as to scale and leverage client relationships. Again, the regulators are silent….
Perhaps the most forward thinking law firm approach has been taken by Allen & Overy. Yes, they operate on the other side of the pond and, so, in a different regulatory environment, yet their model could certainly be reprised here. That strategy involves a recognition that the traditional law firm model, standing on its own, is unsustainable. In an effort to “re-bundle” disaggregated tasks, A&O is redesigning itself as a “hybrid” firm with five inter-related, technologically inter-connected parts: (1) the law firm; (2) a contract lawyer service (3) a consulting service; (4) an online legal service; and (5) a document review service.
Conclusion
Retail lawyers are playing on a different field than their corporate brethren, albeit with regulatory and ethical rules intended to apply to all lawyers. Selective enforcement of the rules–especially unauthorized practice– should cease immediately. This would serve the public interest, especially at the retail end. And while we’re at it, why not also level the playing field for corporate firms competing with foreign-based firms and adopt some form of the UK’s Legal Services Act of 2007. Canada is now considering it; Australia adopted it some time ago, and other nations will surely follow. It’s a global economy that law now serves, and the U.S. regulatory scheme should take that into account. If it fails to, perhaps the corporate end of the U.S. market will soon find itself in the same straits as retail lawyers. The difference will be that their global clients will simply take the bulk of their work elsewhere rather than go unrepresented.
