Counting on MDPs
6 October 1997
11 April 1997
21 October 1997
29 September 1998
11 November 1997
29 April 1997
The new Government has surprised its critics as much as its supporters with the energy with which it has struck out on a programme of broad reform. Liberalising the legal profession may not be an issue that leaps into newspaper headlines, but if the Government attacks it with the verve it has shown in other areas, the legal services in England and Wales are set for a vigorous shake-up.
Key targets will almost certainly be what Labour activists see as anti-competitive practices, in particular, restrictions imposed on multi-disciplinary practices (MDPs).
This was certainly the intention of barrister Paul Boateng, the outspoken MP for Tottenham and Labour's spokesman on legal affairs when the party was in opposition. He made no secret of his view that rules against MDPs are antiquated and clubbish, although he was parcelled off after the election to the Department of Health.
Geoffrey Hoon, who landed the job as parliamentary secretary to Lord Chancellor Lord Irvine, and who is now most likely to handle government policy on the issue, is an unknown quantity.
However, it seems unlikely that any individual will turn back the tide. Attitudes and opinions may vary, but it is almost certain that MDPs are the way of the future. In 10 years single-discipline practices may have been consigned to the dustbin of history. The question for lawyers is whether they will shape the future, or whether the future will shape them.
MDPs are of course perfectly legal. The basis of the historic restriction, section 39 of the Solicitors Act, was repealed in 1990, while its replacement, the Courts and Legal Services Act 1990 was explicitly intended to pave the way for MDPs. The reason usually given for the Government not achieving its purpose is that the regulatory framework proved too complicated and that time ran out before the 1992 election. A more realistic explanation might be that a government with a small majority had no stomach for upsetting powerful interest groups. That part of the equation at least is different now.
In the event, it was the Law Society that brought forward a specific ban. The Institute of Chartered Accountants insists only that registered auditors form the majority of partners in firms it supervises. According to spokesman Charles Wintle: "We have always been supportive of MDPs and a little upset at the Law Society's attitude."
In broad terms, the policies of the two bodies reflect the attitudes of their members. Accountants are eager to push into MDPs. All of the Big Six have established European legal services networks. Three have set up UK legal practices - Arthur Andersen with Garrett & Co in 1993, and more recently Price Waterhouse with Arnheim & Co, and Coopers & Lybrand with Tite & Lewis. Only Deloitte & Touche has decided against MDPs, while KPMG appears hard-pressed to make up its mind, with chairman Colin Sharman publicly dithering over what type of association would best suit the firm.
Lawyers, by contrast, largely appear to have set their minds against MDPs. Along with the arrival of increasing numbers of US law firms, MDPs are seen as a threat, and as another reason to make a defensive merger.
"Our intention is to stick to what we excel at," says Geoffrey Howe, managing partner at Clifford Chance, briskly dismissing the merest suggestion that his firm might consider offering non-legal services. "We see no added value in it. Our clients buy our services because that is what we are good at."
The MDP threat is directed in the main at second-tier City firms such as Simmons & Simmons, Denton Hall, Ashurst Morris Crisp and Wilde Sapte. They have the skills but not the profitability of their large rivals. For an accountancy practice, any of these firms would provide a quick and easy entrance into City-based financial and commercial law.
But it shows where the initiative lies that no one even begins to speculate on the vulnerablity of second-tier accountancy practices. Where is the law firm preparing to ambush Robson Rhodes or Spicer & Oppenheim, accountants that suffer from similar problems to second-tier law firms?
Peter Cole, previously managing partner at Eversheds, and now launching Eversheds Consulting, feels that this kind of approach will cost lawyers dearly. "The day of the MDP will come," he states. "Where it is appropriate to combine skills then it should be possible to do so. It should be market-driven, not determined by regulation. I do not subscribe to the view that it is an ethical issue."
According to Cole, resistance to MDPs is another case of lawyers falling behind accountants. "For a long time now accountants have been more innovative and, as a result, lawyers have ceded pole position to them in a range of activities."
In fact, perhaps seeing the inevitable, second-tier City firms are increasingly seeing the benefits of MDPs. "Change can only be positive," comments John Griffith-Jones, business development officer at Denton Hall, agreeing with Cole that development in the area should be market-driven.
Eversheds Consulting may be the nearest thing to an MDP so far launched by a law firm, but it will remain for the moment a halfway house. Rather than hiring people from other disciplines it will seek to form joint ventures with other consultancies, for example with Howarths, which has travel expertise that can be married to Eversheds' skills in franchising.
According to Griffith-Jones, who laughs at the suggestion that Denton Hall must be a prime target for one of the Big Six accountants, joint ventures are the best way forward. "Opportunities can only increase in areas where both parties can make a contribution," he says.
David Harrel, managing partner at SJ Berwin, is also keen to take a positive view of the possibilities of MDPs. Rather than joint ventures or mergers, however, he would like to bring in individuals with expertise in the employment, planning and tax areas. "The opportunity we see is to bring in people in areas allied to what we do," he says.
A merger with an accountancy practice, says Harrel, would open problems of professional control and standards. On the other hand, he is only half-joking when he says: "If anyone wants to call me, I am standing by the telephone."
The terms of such a merger would of course run to tens of millions of pounds - and almost all of it would go into the pockets of the law firm's partners.
Chris Arnheim, who set up Arnheim & Co as Price Waterhouse's (PW's) in-house London legal practice, argues that integrated services are what the market is demanding. "Clients want to buy complete solutions," he says. "They want to get all their advice in one place and have one guy to kick if it does not work." However, Arnheim is in no rush to lose his registration with the Law Society: "It makes clients feel better to know that we are actually solicitors."
The status of most accountancy-linked practices is itself something of a legal tightrope. PW provides office space at a commercial rent and office services, but is not allowed to put capital into the firm or to share earnings. Arnheim claims that only 30 per cent of its work is PW-related, but clearly the guarantee of PW referrals is underpinning the firm's rapid growth. In 15 months it has hired 29 lawyers. The objective is to be an international firm with a complement of around 400 fee-earners. Growth by merger, according to Arnheim, is "definitely an option".
The Law Society's ban on MDPs remains, but a research group has been established and told to look at the issue with an open mind. Whatever recommendations the group adopts, it's clear that with accountants moving forward regardless, the society is already being overtaken by events. If it does not jump, it will soon be pushed.
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