Invasion of the lawyer snatchers is nigh
25 August 1998
Mary Heaney finds that the increasing emergence of multidisciplinary partnerships is creating widespread concern among lawyers in the US.
The American Bar Association (ABA) may have been slow to get to grips with the threat of the Big Five accountancy firms to the legal profession. But when it did, it was in typical US crusading style.
At the ABA's annual conference in Toronto earlier this month, its new president, Philip Anderson, announced that he would be launching a high level commission to investigate multidisciplinary partnerships (MDPs).
Declaring that the ABA would "lead the Bars of this world in preserving the independence of a noble profession", Anderson queried whether the business lawyer of the 21st century could end up as the employee of an accountancy firm or even a financial services firm.
Anderson first became aware of the impending crisis last November at a meeting of lawyers in Paris who expressed their "deep concern" at the threat posed by the accountants.
Horror stories abounded at the conference on what this may actually mean for the legal profession. Albert Dreese from Dutch firm, Houthoff, who had spent two years at Arthur Andersen, painted a particularly glum picture of MDPs. He believed they needed to be regulated "in a manner that best serves the legal community". Advocates in these firms needed strict Bar guidelines to protect them from the accountants, he said.
Dreese left Andersens because "the overall legal environment of the MDP made me feel homesick for a regular law firm". He envisaged a host of problems which could arise for lawyers in mdps including management issues, conflicts of interest, securities regulations and fee arrangements. Accountants in mdps might want to overrule advocates and indeed "some accountants even view it as a welcome challenge to 'modernise' traditional-thinking advocates", he said.
He said another potential hazard was the exchange of information between accountants and lawyers working in MDPs. He asked whose opinion should prevail if there was a disagreement over a particular joint client matter.
Little wonder then that Pricewaterhouse Coopers' global head
Gerard Nicolay complained of negativity from fellow panelists during an ABA session on MDPs. He claimed that the Big Five accountancy firms were perfectly capable of delivering legal services as professionally as law firms and even had a competitive advantage. He pointed to one recent example when a pharmaceutical multinational company purchased a group of companies with locations in nine European countries. Pricewaterhouse Coopers won the tender as legal advice was needed in each of those countries.
Nicolay said that no Continental European firm was yet organised on a pan-European scale. "Law firms are born independent and they will die independent," he said, claiming that Pricewaterhouse Coopers Legal's only competitors were Clifford Chance, Freshfields, Allen & Overy and Linklaters in Europe, and White & Case and Baker & McKenzie in the US.
Tough regulations have so far largely insulated the US from the worldwide drive by accountancy firms to muscle in on the legal market. Professional conduct rules in most states effectively bar lawyers and accountants from practising in the same organisation.
But, according to Peter Moser of Piper & Marbury and a member of the ABA's standing commitee on ethics and professional responsibility, the accountants are getting round rules which forbid them from overtly practising the law. And they are now hiring swathes of lawyers. The accountants will have been encouraged by Arthur Andersen's court victory last month against the Texas Bar, which was attempting to prevent it from offering tax legal advice.
Other issues are also beginning to surface. Indeed, the spotlight is beginning to fall on auditors and their arrangements with consultants. The Securities and Exchange Commission is looking carefully at the relationship between the auditing and consulting arms of accountancy firms and asking if they are independent. To this end, it has set up a new body, the Independence Standards Board, to look at the problem. The first meeting in July looked at establishing a set of "core principles" reaffirming the independence of auditors which could become the basis of a new code set up by the accountancy firms themselves.
If the initiative succeeds, the accountants could extend their code to include lawyers, thereby neutralising the legal profession's most effective weapon against the accountants - that client confidentiality cannot be guaranteed in MDPs.
A second major development is the recent move by American Express to acquire some 50 or so fairly large accountancy firms. This has led to the prospect of accountancy firms being owned by financial services firms. Some lawyers fear they might soon start buying up law firms.
Clearly, the MDP debate in the US has just begun but already some onlookers are critical of the lack of vision shown by lawyers. Consultant Brad Hildebrandt for one, of Hildebrandt Inc, complains that the ABA has been unable to come up with a definition of the practice of law. He says the sooner the ABA realises MDPs are a fact of life, the better, and that many traditional areas of law no longer need to be carried out by law firms. "We need the profession to be deregulated."
The ABA is preparing for battle. Despite Anderson's feelings on the matter, however, market forces may well prevail.