Future of Lawyers III
Is the practice of law a business or Profession?
20th September 2011, Geneva
Karen A. Monroe, Esq.
President, Foreign Lawyers Section of the Geneva Bar Association
Good afternoon and welcome. We thank you for taking the time from your busy schedules to join us today for our Third Annual Future of Lawyers Conference. I also take this opportunity to thank our three other panelists:Jean-Cédric Michel, Jeremy Lack, and David Lawson. You will find biographies of all our panelists at the end of these remarks.
Introduction for Future of Lawyers
I do not know if anyone else here read the lastThe Economist magazine (September 10, 2011 edition). There was a special report on the future of work and for those of you who did not read it I thought I would as an introduction to today’s conference summarize some of the thoughts and ideas presented in the articles which I think apply to the future of lawyers.
Firms are relying more on part-time, contract, and temporary workers. Anyone here doing that?
Manpower, outsourcing, and offshoring have continued to grow, despite reports that some jobs are being repatriated. Routine legal work has found its way from America and Europe to Asia. Anyone here doing that?
The article, quoting research from McKinsey Global Institute, reported that there are three main types of work: transformational (typically involving physical activity, such as construction); transactional (such as routine jobs in call centers or banks) and interactional (relying on knowledge, expertise, and collaboration with others, such as investment banking or management consultancy) and I would add here legal services. So, we, as lawyers, under these definitions are involved in interactional work.
The McKinsey research reports that transformational work is in decline by shifts to low wage markets, as is transactional work--substitution of technology for humans is eliminating routine white collar jobs, but positively the research reflects that interactional work is unlikely to go the same way because it is inherently difficult to standardize. Further, transformational and transactional work suffer stiff competition, and thus low margins; whereas interactional work continues to earn better margins.
The articles also report that whom you know has always played an important part in search for work, for us that means finding clients; and that social media is changing it from an art into a science. Anyone here on Linked In? I am. Anyone gotten work from contacts through Linked In? I am not sure I have but I do know that potential clients look at Linked In. According to the founder of Linked In, he predicts that members of the Linked In community doing similar types of work will “trade intelligence” about professional best practices with each other.I do know that Linked In is a valuable source of information about people and clients.
Another theme addressed in the articles is the growing need for workers, in our case, lawyers to keep upgrading and adapting their skills. The articles reference a new book entitled The Shift: The Future of Work is Already Here, written by someone from the London Business School. The author of this book argues that the pace of change will be so rapid that people may have to acquire a new expertise every few years if they want to be part of the lucrative market for scarce talent. I think we see this in the legal profession where there are new areas that over time mature and are replaced by newer areas—think software development in the 80’s, internet law in the 90s, corporate compliance in early 2000, and international law today.
That is good news for us here. I tell the story of when I was looking for a law school I already knew that international law is what I wanted to practice but there were very few law schools offering an international law program. I decided to attend the law school at American University in Washington, D.C. because there was to be a new dean who was active in international human rights law—Dean Thomas Burgenthal. Maybe some of you know him. Today American University has one of the leading international law programs. Also, when I graduated and wanted to find a job doing “international law” there were not many opportunities in the private sector other than maritime or admiralty law so I took an “international law job” doing some of that. What you may not know is that the lawyer I worked with in NY, David Brown, at the time was working with none other than David Lawson here in Geneva. I had no thoughts or intention of working in Geneva then. But ten years later when I came to Geneva, David was one of the first “foreign” lawyers I met. The rest, as they say is history. David is a great friend, colleague, and mentor.
When I started in the international field I wanted to do cross-border matters but most of the “international work” then was representing American subsidiaries of foreign companies. Now “many” years later most of my practice involves “cross-border matters” helping businesses do business outside their domestic markets.And I see international law, whether its corporate and securities, arbitration/dispute resolution, trusts and estates, employment or anything else as a huge growth area. This is good for us here in Geneva which is world known for international business and non-governmental organizations.
Getting back to The Economist issue, I have two final remarks. The author of “The Shift” calls the process of continuing new expertise “serial mastery.” I call this the practice of law. And maybe that is why it is a practice or an “etude.” I certainly have seen this over my career; we also refer to it as “client-driven” expertise. I am sure many if not all of you here have become an “expert” in a field because you needed to do so because of a client need or because of changes in the law. So based on this analysis I think we lawyers are ahead of “the shift” because our profession requires us to do so. Good news again for us.
Finally, the same author states that people will also have to invest more in their personal “social capital” which will involve three elements. First, to build a “posse” a small group of people you can turn to when the going gets tough, a group that shares some expertise, trusts each other and is able to work effectively together. What better place than the Geneva Bar Association to help you build your “posse”.
Second is a “big-ideas” crowd who can keep you mentally fresh; for example, sharing ideas in thought-provoking conferences. Well, this is exactly what weare trying to do today with our conference. More important than making presentations, we would like to share ideas about the questions on today’s agenda.
Third, a “regenerative community” to maintain “emotional capital” meaning family and friends with whom one can laugh, share a meal or drinks, tell stories and relax.We hope you will all join us for our “regenerative” networking cocktail after the conference.
We hope, too, that the questions we have presented on our agenda will help us all have a lively discussion on whether the practice of law is a profession or business, or as I look at it a professional business, with the advantages and constraints of doing business as a professional.
I thank you for your attention and now will explain our format for today’s conference. For each question one or more of our panelists will share information and his or her views and then we would like to have an open discussion with the views of you, the participants. Remember we are a “big ideas” group.
We will now turn to our questions.
1. STRUCTURE: How do today’s alternative business structures maintain standards of the profession? Which is best for your firm?
LLP vs. SA
As a corporate attorney I would like to share a few thoughts about the issues of the limited liability Partnership (LLP) structure and the société anonyme (SA) structure. I am addressing both of these from the American perspective.
Historically, in the United States, the only law firm “structure” was the partnership a “société simple” with a group of lawyers joining to work together as a partnership with or without a written partnership agreement. As law firms evolved and grew most partners in partnerships entered into formal partnership agreements. Each partner was fully liable for the professional liability of every other partner and also to all third-party creditors to the partnership. This may have worked when partnerships were small, but as firms grew it became impractical not only to know all your other partners but to know fully what professional services your partners were providing.
Thus, there was a need to develop other structures. Before the development of the LLP structure, there was also the possibility of a professional corporation or PC. This was a “corporation” which was permitted by statute solely for professionals, doctors, lawyers, accountants, and architects and others, typically those professions that require a license. It provided a corporation format for the firm, each lawyer was a shareholder in the corporation, it was a pass-through tax structure meaning revenue and expenses were handled at the partner level and not at the corporate level. Each partner remained 100% responsible for his or her own professional liability but third-party creditors were to look to the company only.
Actually when I first came to Geneva in 1993 we operated as a professional corporation. I remember having to meet with various members of the Geneva Bar Association to explain this “anglo” concept. And now 20 years later Swiss lawyers have adopted a similar SA structure.
This PC structure was in wide use until the adoption of the LLC and then LLP structures.From a professional liability point of view the LLP works the same as a corporation; that is, as a shield from other lawyer malpractice liability and third-party creditor liability but it is an improvement over the PC structure. In the PC structure each shareholder holds that number of shares of interest in the PC depending on the share ownership, and shareholders are essentially “employees” of the PC. With the LLP structure the rights, obligations, and ownership are set forth in the LLP “operating agreement” and this structure has nothing to do with stock ownership offering more flexibility in organizing and managing the LLP, and the members remain “partners.”
Because the LLP structure preserves the “partnership” concept, preserves lawyer malpractice liability, and preserves the historic attorney-client relationship, in my view it should be recognized in other jurisdictions, including here in Switzerland so long as, and what it does do, it maintains independence, ethical rules are followed and malpractice liability remains unlimited (although of course in reality malpractice liability is generally limited by the amount of insurance coverage.)
With respect to using a “purer” corporate form; such as the SA here in Switzerland and also the possibility that already exists in some European jurisdictions to have non-lawyers be “shareholders” in the law firm, a case pending before the Southern District of New York is illustrative of the view in the US regarding the “corporate form” and outside investors -- an issue that I understand is being discussed with respect to the Swiss SA for lawyers structure.
Jacoby & Meyers, which for those of you who do not know is a well- known U.S. personal injury and was a pioneer of television law firm advertising has filed a law suit attempting to overturn New York Court Rule 5.4 which prohibits law firms from accepting outside investment. Rule 5.4 says that a lawyer cannot practice in a partnership where a non-lawyer owns an interest, a non-lawyer is a member or corporate director, or a non-lawyer has the “right to control the professional judgment of a lawyer.” The firm argues that the rule infringes on its constitutional rights. Jacoby and Meyers also argues that the prohibition interferes with the business and professional interests of the firm, and ultimately harms the public by denying attorneys “a critical source of funding” that “dramatically impedes access to legal services for those otherwise unable to afford them.” Jacoby & Meyers claims the rule is outdated, unconstitutionally vague, and violates the commerce clause, the First Amendment, and the takings clause.
But the New York Attorney General has filed a motion to dismiss the Jacoby & Meyers case arguing that “the limitations on non-lawyer investments found in the Rules are necessary to ensure that the profession’s “complete independence and uncompromised loyalty to those it serves . . . the very foundation of the profession is not compromised by conflicts of interest that would arise whenever a law firm becomes financially beholden to its non-lawyer investors . . .the existence of such apparent conflicts could undermine the public’s trust in the legal profession.The Attorney General is also arguing that because Jacoby & Meyers is organized as a professional limited liability partnership, the statute does not permit it to add non-lawyers as partners, but I think this just raises the same question, only stated another way.
I now turn the presentations over toJean-Cédricwho willdescribe the société simple structure(the partnership formatis still in widespread use in Switzerland).
David Lawsonwilldiscuss a cost-sharing structure.
Finally,Jeremy Lackwill say a few words aboutsolo practitioners.
[Oral presentations omitted].
2. ETHICS AND CONDUCT. How do lawyers today reconcile professional ethics and conduct rules with the needs of their law firm’s business?
First: Jean-Cédricwill speak about conflicts of interest; LLCA rules and blogs.David will then present the ‘secret professionnel’ and Section 321 of the Swiss Penal code. [Oral presentation omitted].
The only other thing I would like to add to the comments is to make reference to the ABA Model Rule of Professional Conduct 8.5 Disciplinary Authority: Choice of law. I think this is particularly important for lawyers practicing international law:
This rule provides in paragraph (a) that a lawyer who is practicing in a certain jurisdiction will be subject to discipline in that jurisdiction, regardless of where his or her conduct occurs. A lawyer not admitted in the specific jurisdiction will nonetheless also be subject to discipline in that jurisdiction if he or she provides or offers to provide legal services within the jurisdiction. The Rule even explains that “a lawyer may be subject to the disciplinary authority of both this jurisdiction and another jurisdiction for the same conduct.”
Regarding choice of law, paragraph (b) explains that when the jurisdiction is exercising disciplinary authority, they will apply the rules of professional conduct in the following manner:
“(1) for conduct in connection with a matter pending before a tribunal, the rules of the jurisdiction in which the tribunal sits, unless the rules of the tribunal provide otherwise; and(2) for any other conduct, the rules of the jurisdiction in which the lawyer’s conduct occurred, or, if the predominant effect of the conduct is in a different jurisdiction, the rules of that jurisdiction shall be applied to the conduct.” The Rule does however state that “a lawyer shall not be subject to discipline if the lawyer’s conduct conforms to the rules of a jurisdiction in which the lawyer reasonably believes the predominant effect of the lawyer’s conduct will occur.”
We should all realize that we need to know and respect the local “us et coutumes”--the local ethical rules, although the debate continues whether one must comply with the rules of jurisdiction of one’s license, or the rules where the lawyer renders services. The foregoing Rule 8.5 is the ABA Model Rule.This was not an issue when international practice was not as prevalent and there were few lawyers from one jurisdiction or country practicing in another. It is certainly an issue today. I think here we need to work more closely with the Geneva Bar Association to educate all foreign lawyers regarding local rules and also to educate local lawyers about ethical rules in other jurisdictions. I think this is beneficial to us all and helps in the evolution and adaption of rules to reflect today’s reality.
The last two questions addressed at the conference will be:
LAW FIRM’S BUSINESS AND ROLE.
3. How does an independent lawyer properly manage a law firm’s business and be a judge, a mediator, an arbitrator, or a member of the board of directors of a client?
[Oral presentation omitted].
4. REVENUE MODEL: What alternatives are available for billing clients which both meet the client’s expectations and assure financing of the law firm’s business?
[Oral presentation omitted].
Thanks again to everyone for your time and participation. Thank you to everyone who has helped put today’s conference together especially my assistant Kyria Le Nouvel.
Anyone here who is a non-Swiss lawyer and is interested in joining our section, please let us know during the cocktail. I very much encourage you to join and help build your “posse.” This concludes the “big ideas” part of the program and we invite you across the street to the Soupçon for our “regenerative” networking cocktail.