A capital opportunity
29 April 1997
Even if the opinion polls are only half right, we are now only a few days away from a Labour government. In its ranks will be a Minister of State at the Lord Chancellor's Department who will be charged with implementing the party's pledge to allow multi-disciplinary partnerships. But should we see this as a threat or an opportunity?
For the profession to start its relationship with a new government in an atmosphere of hostility is not very sensible. For the legal community to appear negative and defensive is simply asking for trouble. Fortunately, I do not believe the Law Society will fall into this trap.
Last summer, the society's council had a debate on MDPs that resulted in a significant softening of its approach. The society's outright opposition to the concept of MDPs, the policy that had been followed since the green papers of the late 1980s, was replaced by a willingness to review the matter further, with an open mind on the question of whether solicitors should be permitted to form partnerships with other disciplines.
This review is now under way and the matter will return to the council for a decision shortly. I hope we will regard change in this area as an opportunity and not as a threat. There is a danger that the entire debate will be overshadowed by the narrow question of whether solicitors should be able to form partnerships with accountants, immediately conjuring up the spectre of aggressive takeovers by global accountancy firms.
But there is a more appropriate way of looking at the matter. We are deluding ourselves if we think that a prohibition on multidisciplinary partnerships will remove the threat from accountants. They have already demonstrated their ability to provide an extensive range of legal services directly or through associated firms. If there is a demand for services that bring together solicitors and accountants, then entrepreneurs will find ways of meeting that demand, whatever the rules say.
The real question for the profession is whether our rules facilitate or hinder development of the most appropriate business vehicles for the delivery of legal services. Until 1990, mixed partnerships were prohibited by the rather opaque wording of section 39 of the Solicitors Act. It purported to ban fee-sharing with non-solicitors, but the opacity of the wording was such that there was considerable room for argument as to what it actually meant.
The repeal of section 39 removed both the doubt and the provision itself. The Government had intended the Courts & Legal Services Act 1990 to permit MDPs. However, the regulatory methods proved complex and the Government simply ran out of parliamentary time.
Section 39 was repealed, but the Law Society was granted a power to maintain a prohibition on mixed partnerships through its professional rules, and practice rule seven now contains an explicit prohibition on mixed partnership.
The basis of this prohibition remains that a solicitor shall not share his professional fees with anyone other than another practising solicitor, a registered foreign lawyer, an employee or a retired partner. And as such, it inhibits the development of alternative business vehicles for the delivery of legal services.
Far from being a threat, Labour's intention to legislate in this area offers an opportunity to review the types of business organisation that will be needed to deliver legal services in the new millennium.
The debate needs to be about using new structures and creating new opportunities to facilitate increasing market share in domestic and global markets.
The underlying issue is whether it remains appropriate for the services of solicitors to be available to the public only through businesses owned, funded and managed by solicitors themselves, and, if not, whether alternative forms of business organisation can be subjected to appropriate safeguards to maintain the independence and integrity of legal advice.
So should partnership be the only business model? The removal of the existing prohibitions might permit the following new models:
The partnership with minority specialist partners. Many firms now have non-solicitor specialists, such as patent agents and investment business managers, or senior administrators and strategists, who are not themselves solicitors. The status and rewards of partnership could be used to recruit and retain the best.
The multiprofessional partnership. This is the much vaunted "one-stop shop" where professionals from more than one field combine to provide an integrated service.
The non-legal partnership. Senior solicitors in firms of accountants or actuaries could acquire partner status without having to relinquish their existing professional title.
Non-lawyer investment. A removal of the ban on fee sharing could permit participation of outside capital in firms. A dividend could be paid on the capital employed. This could provide an attractive means of funding capital developments. An incorporated structure with share capital would be the likeliest vehicle, but with the voting rights of non-solicitor shareholders limited in order to maintain solicitors' control over issues involving professional legal judgement.
A joint venture might be the most appropriate vehicle to develop a new market. In a developing economy overseas, a joint venture company formed by solicitors and accountants, and funded by venture capital, might be the most appropriate vehicle to deliver a total business service in a new market subject to a very different regulatory environment.
A legal department of a non-solicitor institution could deliver legal services to the customers of that institution, subject to safeguards to prevent the independence of legal advice being compromised.
Partnership is likely to remain the business vehicle seen as appropriate for the delivery of legal services. However, it is sensible to review whether it can meet the challenges of a rapidly changing business environment.
New models may be needed for the new millennium if the profession is to thrive. In an increasingly competitive business environment, a cautious defence of the status quo is unlikely to provide a framework for success.
We may yet thank a new government for providing the impetus for changes that will enable the profession to face the future with confidence.