Prediction About Non-Lawyer Ownership in the United States

Robert Carman and I created the following presentation in the Spring of 2012 for a class called Business, Law & Innovation at the University of Texas School of Law.

We made two predictions:

  1. The Quality Solicitor’s business model will disrupt the market for legal services in the United States.
  2. In the next 5-10 years the majority of jurisdictions within the United States will, like the United Kingdom, authorize alternative business structures (i.e. allow some form of non-lawyer ownership of law firms).

Our first prediction has already come true.

On February 6, 2013 Raj Abhyanker, the CEO of LegalForce, announced his plan to create a national brand for legal services in the United States. Specifically, he stated the following:

Today we announce a new brand for law. So, LegalForce is this new brand that we want to create to unite lawyers, to unite the public and create a brand that the world trusts to go to for law. Whether it is offline or online. So we have started today, not only here in the United States but also in London. We’ve re-branded a Quality Solicitors law firm. . . one of the founding firms,  the only firm in London that is in a shopping mall, where you can walk in and it is a book store meets law firm. . . and so Quality Solicitors – Freeman Harris is now LegalForce Freeman Harris.”

Therefore, no one can deny that US-based companies and law firms want to mimic the new business models being pioneered in the United Kingdom.

Will this lead to regulatory reform in the United States regarding non-lawyer ownership of law firms? – Yes!

(1) Economic Incentives Are Powerful

If the new business models developed in the United Kingdom are successful  then law firms and alternative legal service providers will want to apply those models to new markets. This is especially true for firms, like LegalForce, that are operating in both countries.

Companies that can provide valuable products/services to customers at a profit grow. They grow because they have an economic incentive to do so. The logic is simple. If more customers want a product/service and I can provide it to them profitably then I will want to grow to meet the excess demand.

The market for legal services in the United States is gigantic. Most importantly, a large segment of it is under-served. This means that there are billions of dollars on the table for innovative companies that can figure out how to access the “latent demand” for legal services in America. Is it realistic to believe that companies in the United Kingdom are going to stand idly by and not try to gain access to this market? Is it realistic to believe that lawyers in the United States will not put pressure on state bar associations to try and change the rules so they can take some of that money for themselves?

(2) The Legal Services Act of 2007 will prove that non-lawyer ownership is ethically feasible.

A common response to our second prediction is that the United States will never allow wide spread non-lawyer ownership because it is inherently unethical. Non-lawyer “business people” are supposedly too distracted by the profit-motive to respect a law firm’s ethical obligations to its clients. Therefore, we do not want them controlling or even being able to effect the professional judgment of lawyers.

My response is that the LSA of 2007 will put that assertion to the test. If the United Kingdom’s system operates without major ethical problems then people concerned about the ethics of allowing some form of non-lawyer ownership will not have a leg to stand on. I think certain safeguards are needed. But I do not believe that a full prohibition of non-lawyer ownership is necessary.

Ken Fowlie, the Executive Director of Slater Gordon – an Australian law firm that is publicly traded, argues that opposing alternative business structures on the ground that they are inherently unethical rests on the “naïve assumption that lawyers who currently own law firms are not motivated by profit.” See Selling Pieces of Law Firms to Investors – NYT (2011). His comment is directly on point. Lawyers are business-people that are attempting to sell their services as profitably as possible. Is it rational to believe that the managing partners of law firms are not profit maximizers? No. Therefore, the risk that ethics rules will be ignored in the name of profit is no greater in a non-lawyer owned firm than it is in a lawyer owned firm.

Maximizing profit is not a bad thing. In fact, profit maximization goes hand-in-hand with honoring the ethical obligations to a client. The better you serve your clients, the more your services will be sought after and the more money your firm will make. It is ironic that some lawyers in the United States believe we should prohibit non-lawyer ownership (something that could substantially benefit clients) but have no problem with hourly billing (a practice which puts the lawyer’s economic interests in direct conflict with the client’s interest). If hourly billing is ethical then some form of non-lawyer ownership should also be ethical.

We need to re-evaluate the assumptions on which our professional responsibility rules are based. The LSA of 2007 is providing the perfect platform to do so.

Disruptive Legal

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