Will U.S. Lawyers Regulate Themselves Into Diminished Relevance?

Editor’s Note: The author of this post is the founder and CEO of Legal Mosaic, a strategic consulting firm and a regular contributor to Big Law Business.

By Mark Cohen, Chief Executive Officer, Legalmosaic

The Brits may be anachronistic when it comes to barrister attire, but they are certainly progressive in legal regulation.

And while the U.S. courtroom attire might be a bit more contemporary, the regulatory thinking is, as my younger daughter once described my musical taste, “so hopelessly last millennium.”

Clients Come First Across the Pond

The Competition and Markets Authority (CMA), a non-ministerial British government department responsible for strengthening business competition as well as preventing and reducing anti-competitive activities, announced recently its plan to examine legal services. This comes amid persistent concerns about the affordability and standards of service in the legal services industry. Several UK studies conclude that, as in the U.S., an alarming percentage of Brits with legal problems go unrepresented. And also like the U.S., the UK has a large pool of underutilized legal talent. The issue: lawyers are too bloody expensive.

But the Brits are doing something about it.

The forthcoming CMA market study will focus on three key legal delivery issues:

1. Assessing customers’ ability to drive effective competition by making informed purchasing decisions

• 3. Gauging the impact of the regulatory framework on competition for the supply of legal services

• 5. Assessing the adequacy of customer redress for unsatisfactory service

It’s telling that the forthcoming regulatory reassessment focuses exclusively on clients, not lawyers. How refreshing!

This is not a Case of First Impression in the UK

The CMA’s inquiry comes less than five years after the Legal Services Act of 2007 (LSA) took effect in 2011. And while differing views exist about its efficacy, it’s clear that the LSA has: (1) injected heightened competition into the UK legal market; (2) established it as the epicenter of innovation in the global legal marketplace; (3) ameliorated the access to justice crisis- though the problem persists; hence, the CMA study; and (4) made clear that customers, not lawyers, are the “protected class” of legal delivery regulation.

The CMA’s check up will assess how well the LSA is serving the public and what tweaks might be required to enhance customer satisfaction and access. Call it “legal re-regulation 2.0.”

A Quick Look in the Rear View Mirror

It’s worth taking a step back and revisiting briefly events that led to the passage of the Legal Services Act of 2007.

This enabled non-lawyers to invest, share profits, and manage law firms. ABS is the best-known portion of the Clementi Report and its legislative aftermath but it is by no means its centerpiece — clients are.

Public outcry against the legal service industry became so shrill by the early years of the new millennium that the British government appointed Sir David Clementi to undertake an extensive examination of the profession. Mr. Clementi, the former Deputy Chairman of the Bank of England and corporate CEO, is not an attorney. That helps explain the remarkable candor and withering criticism in his Report.

His two-year investigation concluded that: (1) a massive overhaul of the self-regulated legal industry was necessary; (2) inter-disciplinary practice should be sanctioned — meaning that lawyers be permitted to work with non-lawyers; (3) significant changes were necessary to restore public confidence in the profession; and (4)the interests of the consumer must be paramount in fashioning new regulations.

The British Government adopted Clementi’s recommendations and took them even farther, authorizing the creation of “Alternative Business Structures” (ABS). This enabled non-lawyers to invest, share profits, and manage law firms. ABS is the best-known portion of the Clementi Report and its legislative aftermath but it is by no means its centerpiece — clients are.

The LSA is About Consumers, Not Lawyer Protectionism

The crux of the LSA isto serve the public interest and to restore confidence in lawyers. And if you think this characterization is a matter of subjective interpretation, consider the Government Report that led to its enactment is entitled“ The Future of Legal Services: Putting Consumers First.”The Act’s executive summary states: “The changes will mean an end to the current regulatory maze. The aim is a new regulatory framework, which better meets the needs of consumers and which is fully accountable.”

The U.S. Regulatory Climate: Stasis

Meanwhile, on the U.S. side of the pond, stasis and regulatory paralysis prevail. And don’t expect the U.S. legal regulators to adopt a version of the LSA without a fight-to-the-death struggle.

The ABA Commission on Ethics 20/20 was formed a few years ago to examine how globalization and technology are transforming the practice of law and how the regulation of lawyers should be updated in light of those developments. That’s the good news. The bad news: lawyers, not consumers, are conducting the ABA examination. And while the consumer is certainly in the background, the ABA’s focus appears to be on the way lawyers practice rather than the impact of the current regulatory scheme on consumers.

Resolution 105

The recent hotly contested and narrowly passed ABA Resolution 105 provides a current snapshot of the U.S. legal regulatory landscape. Resolution 105 acknowledges — tepidly — the access to justice crisis by advocating that states consider whether non-lawyers can provide certain legal services.

Yet the self-regulated legal industry uses regulation not to advance client interest (as the British and others have) but to protect lawyers from the incursion of others.

The American Lawyerreported last week: “Resolution 105 finally passed on a voice vote … after it was amended to emphasize that the resolution did not overturn existing ABA policies barring non-lawyers from owning law firms and prohibiting lawyers from sharing fees with non-lawyers. “ It’s noteworthy that the powerful New York, Illinois, Texas and New Jersey Bars opposed the resolution as did the ABA’s Litigation Section as well as the division for Solo, Small Firm and General Practice.

While a kernel of encouragement might be drawn from the passage of this “baby step towards reregulation,” its fierce opposition and the amendment language inserted as a condition of its passage underscores the entrenchment of legal regulatory stasis. And the emphatic thumbs down to ABS makes clear that the ABA has no current intention to champion the kind of impactful legal service re-regulation undertaken by the British.

The balkanized state-by-state U.S. regulatory scheme, the conservatism of the ABA, and the powerful forces lined up against regulatory reform all point to regulatory stagnation. That might not be so bad but for the fact that clients- corporate and retail- are not very happy with lawyers. Yet the self-regulated legal industry uses regulation not to advance client interest (as the British and others have) but to protect lawyers from the incursion of others.

We are living in the era of the shared economy, and public acceptance of new models (think: Uber, Airbnb, and Zipcar) might ultimately be the ticket to re-regulation. Sound far-fetched? Consider the success of LegalZoom (Rocket Lawyer, AVVO, and others are noteworthy, too) that has successfully taken on the regulators and has gained overwhelming consumer support and loyalty. They are creating significant- though incremental- change in the retail segment of the market. Perhaps this will — as Clayton Christensen’s theory of disruptive innovation posits — filter up to the corporate segment in time.

One Size Does Not Fit All

Whether it’s Resolution 105 or determining what it means to “engage in the practice of law” (each State Bar decides), it’s neither a “one size fits all” nor a zero-sum game when it comes to re-regulation. For example, few would advocate that paraprofessionals should be permitted to try cases. But that’s an entirely different proposition than a paraprofessional assisting with a house closing, corporate filing, or simple contract.

The real issue iswho performs what tasks — what functions should be performed exclusively by attorneys; when is attorney supervision required; and how can attorneys work with other disciplines to most effectively respond to clients’ problems that involve the legal system?

Doctors now routinely perform only those tasks that require professional judgment as well as surgery and other specialized procedures. They do not draw blood or take x-rays. Why should lawyers not perform an equivalent narrower range of tasks?

Legal service regulations should protect the public, not lawyers. Certainly, they should proscribe lawyer conduct to protect the public. But they should create a barrier to “non-lawyers” undertaking certain tasks that do not require legal training simply to protect lawyers from (a putative) loss of revenue. And in the end, re-regulation and more clearly demarcated guardrails based upon tasks will benefit both clientsandlawyers. It will drive down cost and bring new clients into the marketplace.

Bottom line: the divide between lawyer and “non-lawyer” is archaic and meaningless absent task identification.Thatwould be a good start to legal re-regulation.

Sound far-fetched? Consider how this task differentiation has occurred in the delivery of medical service. Doctors now routinely perform only those tasks that require professional judgment as well as surgery and other specialized procedures. They do not draw blood or take x-rays. Why should lawyers not perform an equivalent narrower range of tasks?

Conclusion

Lawyers might just self-regulate themselves into diminished relevance.

Several other industries have been disrupted because new entrants have created models enabled by technology that are “better, faster, and cheaper.” LegalZoom and others are doing this in the retail segment of the legal market. Oh, and they work with lawyers when documents alone are not sufficient to resolve a client’s need. They are not taking away legal work;they are redefining the division of labor between technology and lawyers and applying metrics and process to gauge performance from the client as well as internal sides. This is bringing new clients into the marketplace as well as advancing an acute need for access to justice.

And on the corporate end, if law firms were to function this way, perhaps it would reverse the trend to take more work in-house.

Note to the U.S. legal regulators: focus on clients. It’s not just about lawyers anymore.