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MDPs - threat or opportunity?

1 September 99

Author's view that there are good reasons to embrace thee opportunity MDPs present without compromising the distinctive values of legal practice

by John Elliot

The concept of the Multi-Discipline Partnership has been around for some time. Nearly twenty years ago the Royal Commission on Legal Services in Scotland recommended that MDPs be permitted. Over the intervening years, in this country, the topic has surfaced from time to time.

It is high time to seize control of the situation by creating the opportunity for Scots solicitors while maintaining consumer protection.

What the argument is not about is whether we should join accountants in providing services. Too often, the argument seems to be focused on this issue. It may well be that an MDP would include a lawyer and accountant but it might very well include others or not have a lawyer or an accountant at all. The origin of this mis-direction seems to come from the big firms and particularly the big firms of accountants who want to provide an overall business service to commercial clients on a national or international basis. For most solicitors, that simply is not an issue.

What is an MDP?

One thing that it is not is a multi-disciplinary practice. We have plenty of those in Scotland. Most law firms have highly-qualified non lawyers working for them in a fee-earning capacity. Such people are part of the fabric. In contrast, a Multi-Disciplinary Partnership allows non-lawyers to share in the profits of a partnership or a professional corporation with lawyers where at least one object is to deliver legal services.

The present rules

We all know that MDPs are not permitted in Scotland. The relevant rules are the Solicitors (Scotland) Practice Rules 1991 prohibiting the sharing of any profits or fees with “any unqualified person”; and the Solicitors (Scotland) (Multi-Disciplinary Practices) Practice Rules 1991 prohibiting a solicitor forming a legal relationship with a non-solicitor “with a view to their jointly offering professional services as a Multi-Disciplinary Practice to any person or body.”

Why MDPs?

The only justification for overturning a business and professional structure that has existed for a long time is if there is some good reason to do so. Let’s look at this from two points of view.

The clients

It would be difficult for anyone to advance the MDP case forcefully if MDPs were a disadvantage to clients. What might clients get out of a new business structure such as this? It seems to me that benefits include

  • The One-Stop Shop. Clients trust their solicitor and are willing to take advice from a solicitor’s firm on matters not strictly, or even, legal. They already do. An MDP broadens that opportunity by allowing the law firm to bring in the best people from other professions in order to provide a good service. Specialisms could develop in order to service clients.
  • The Seamless Service. Legal advice often flows into, or from, other advice and services. The client has to pick his way between the two at risk of falling into a gap.
  • Broader Expertise. The wider the experience and knowledge that the solicitor’s firm can bring to the client the better the service is likely to be. Problems are solved in a broader context.
  • Better Resourced Advisers. The small business unit (the average size of a Scottish law firm is 3 partners and 1_ assistants) can only provide a limited resource to heal with clients’ problems, whether from the point of view of technology, for example, or a library.
  • Choice. Clients might want to make use of some of these opportunities or they may not. At the moment they have no such choice. The legal profession denies them that choice and we have to look at whether we do so for good reason.

The lawyers

There are several good reasons for lawyers wanting to form MDPs.

  • More resources. One of the problems that bedevils the profession is lack of capital. Brining in non-lawyers would significantly increase the base of people who would be willing to provide the money. “We are just statistics, born to consume resources” (Horace).
  • Expanding and improving services. I take the two as inextricably linked, at least in this context. The firm which becomes an MDP would do so because it could expand its services. This would be an improvement and should lead to better profitability.
  • Sharing overheads. Clearly a bigger business unit is able to drive overheads down per fee earner.
  • Improve the career path for non-lawyer professionals.

One can see how many of these are interlinked – more capital can lead to the improvement of service, for example – and taken broadly I believe that it is difficult to argue from a business point of view against the MDP.

The incoming tide

I do question whether this debate is realistic. Is it not the case, in Scotland, that in one way or another non-solicitors are sharing in the firm’s profits? Few would doubt that that is the case or doubt that it is a trend that will continue. But as a tide laps the shore, so this tide is flowing towards us from overseas.

North America

In 1999 the American Bar Association established a Commission on Multidisciplinary Practice to decide what changes should be made in its Model Rules of Professional Conduct. It reported in June 1999 that “After extensive reflection and analysis, the commission has concluded that there is an interest by clients in the option to select and use lawyers who deliver legal services as part of an MDP.”

The Commission recommended that lawyers be permitted to practice in a wider variety of settings than currently permitted.

The New York Bar opposes the recommendation in relation to auditors and lawyers for reasons noted later. It does however concede the inevitability of MDPs. At the ABA meeting in August 1999 consideration of the issue was deferred. One opponent of MDPs said that it was not for the organised Bar to “advance the business expansion plans of non-lawyer organisations.”

In Canada, two recent influential reports from lawyers’ organisations have recommended relaxing the existing ban.

England

Similar restrictions apply in England, of course. There, the Council of the Law Society decided in 1996 that blanket opposition to MDPs could leave the profession unprepared to deal with changing market developments. The Society decided to review the ban and produced a consultation paper: “MDPs – Why? Why not?” Responses were due by 1st February 1999 and were apparently low in number but high in quality. The City of London Law Society’s response calls for MDPs to be allowed.

Germany

A limited form of MDPs is allowed, where lawyers may practise with tax advisers.

Elsewhere in Europe

Some form of MDPs are allowed in Switzerland and Italy. In the Netherlands Pricewaterhouse-Coopers and Arthur Andersen’s challenge against the ban on MDPs has been referred to the European Court of Justice. New legislation is Spain will also permit certain types of MDP. Denmark is reviewing the position.

New Zealand

The Law Society issued a remarkable in-depth Consultation Paper in April 1999. as it says, “it is an important issue for the coming decade and one which will leave few lawyers untouched”.

Australia

In New South Wales, MDPs are allowed in a somewhat restricted form, possibly soon to be loosened. In Victoria it is possible that they will also be allowed and the NZLA paid tribute to work done in Victoria in assisting the production of its Paper.

It is easy to read too much into what others do but MDPs seem to be becoming part of a worldwide trend. Scotland cannot easily stand out against this, Canute like, particularly if they should be allowed in England.

Regulatory hurdles

Earlier, I identified the restrictions made under the present rules. These rules are devised so as to prevent certain conflicts or to preserve what has seen to be essential features of lawyering. I agree absolutely that certain distinctive features of our professional service must be preserved provided that they are in the interests of our clients and of the rule of law and not intended to preserve professional privilege or monopoly.

Independence

This must surely be the most important tenet of lawyers. Within the concept, I include the avoidance of conflict of interest, which I take to be fundamentally the same thing. I am a hawk on Conflict: Prince Jefri notwithstanding, I do not believe in Chinese walls. An MDP has to observe the same strict rules on Independence and Conflict that solicitors do. The solicitor should regard every client of the MDP as his client. Further, the solicitor is part of the justice system and has a duty to observe as an Officer of the Court.

In order to meet concerns about independence, the ABA’s Commission has suggested that every MDP not controlled by lawyers would have to be audited as to compliance with the obligation of independence of professional judgment.

Confidentiality

…or privileged Communication. We have to be free to have communication with our clients which, as far as possible, is not capable of being opened up to anyone else.

Public protections

The protection to our clients before, during and after transactions is unique. Martin Mears has said: “Traditionally, a profession is identified by three characteristics. It puts its clients’ interests before its own.

“It has the highest standards of training and integrity. It accepts, so far as it reasonably can, responsibility for its members’ failures.”

Thus, for example, the protection of client money in solicitors’ hands must continue to be maintained.

Competence

Our profession has and aspires to the “highest standards” referred to by Martin Mears. We expect it of ourselves and each other and we are committed to compulsory education and training as one method of achieving it.

Advertising

Other professions have different rules on advertising. I think that we need to revisit ours in any case. Some recent marketing campaigns suggest strongly to me that our present rules are relatively useless and should either be strengthened or done away with.

I am confident that, with good will and imagination, these and other hurdles can be overcome. The ABA Commission “concluded that it is possible to satisfy the interests of clients and lawyers by providing the option of an MDP without compromising the core values of legal profession that are essential for the protection of clients and the proper maintenance of the client-lawyer relationship.”

The Canadian Bar Association report said that “it believes that a balance can be struck between the preservation of (the values underpinning the legal profession) and the promotion of choice, competition and freedom of association”.

The imperatives

I do see certain imperatives which govern the way that we should act. It is important to keep these firmly in the forefront of our minds and to avoid being knocked off the path by less important considerations.

Getting there first

If I am right – that there is an inevitability about MDPs or even, if you care to share my view, an opportunity – then it makes a good deal of sense for us to make up our minds about it sooner and to grasp the nettle/flower, depending on one’s view. Why? Simply, because if we don’t others will and the rules for MDPs are too important to allow non-lawyers to set them. We need to make sure that the “regulatory hurdles” are satisfactorily crossed.

Current breaches

If you accept my proviso that the rules, at least in the spirit if not the letter, are being breached at the moment, then does it not demean the authority of the Law Society and threaten the homogeneity of the profession? I think that it does. One person sees another breaching the rules and getting away with it…

The way forward

The working structure of an MDP has caused much angst. In their Consultation Paper, the Law Society of England and Wales described complex alternative structures. They have model A – three alternative structures in which the solicitors’ services would carry full consumer protections – and model B – less protection and less regulation. The amount of ownership and control exercised by solicitors varies.

This approach seems to me not only to be too cumbersome and rigid but also to miss the point that it is the individual solicitor who is regulated, not (save in certain limited circumstances) the practice unit. The lawyer owes his or her personal duty both to the profession and the public at large and should not shelter behind a structure. It is the individual who should be regulated, not the firm.

I am glad that the American Bar Association agrees with me on this as does the Canadian Bar Association. This solution suggests that clients would have to be clear as to the status of the person with whom they are dealing.

In one way, however, a systemic approach is valuable. Much is made of the conflict that would occur if auditors were part of an MDP with lawyers. An auditor has a public duty to disclose whereas our duty in most circumstances is the opposite.

Accepting that the auditor’s duty is a public necessity clearly points to the solution: solicitors and auditors cannot be part of the same MDP if they wish to carry out services for the same client. As I have said, the concept of Chinese Walls may be sufficient to some but not to me. If this makes MDPs less attractive then so be it: that basic core value of independence has to be maintained.

Then there is a spirited debate over which professional rules the members of an MDP must observe – theirs or ours? I am clear that, in respect of our duties to the public in Independence, Confidentiality, Public Protections and Competence, they have to be ours or higher. In other words, the highest common denominator. Thus, our Conflict of Interest Rule should be the one to be observed.

Finally, someone has to regulate all this. At one time, I thought that there should be a Super-Regulator, an overarching body capable of regulating all MDPs whatever their make up. I no longer think so. If our profession regulates individuals then we do not need anybody competing with our own Society and setting different Rules.

The market

The market will decide on all this. In the end, how consumers purchase professional services should be their choice and not one made for them by professions.

It is not in my view worthwhile market-testing the idea because what people say and what they do often differ. But practising law includes taking business risk, increasingly, and my very firm belief is that we must give our members the opportunity to practise in MDPs. Provided we preserve the elements of our profession which preserve the rule of law and pursue clients’ interests we should allow solicitors to market their services in a market-friendly way.

Of course, this may not be (exclusively, or at all) with accountants. I see an MDP as being more relevant in a small town, perhaps with a solicitor, a surveyor, an accountant and an undertaker than I do in most big city firms between solicitors and accountants alone. In a town, flexibility of service and the one stop shop is all the more valuable. I do not fear that the individuality and character of solicitors would be lost – our “brand” is a strong one.

Personally, I would not describe an MDP as “best”. It is one method of delivering services. It is an opportunity which our members should have.

And finally

The Society must lead. An MDP Working Party has been in existence for at least two years. We need the Council to grasp this opportunity on behalf of us all and to promote MDPs. The Council knows how much its actions can support and encourage the profession throughout Scotland.

John Elliot is Chairman of Lindsays WS, Deputy Keeper of the Signet and a Past President of the Law Society of Scotland