The Bread Knife of Legal Reasoning

A casual tweet of mine about the Oxford vs Cambridge stabbing story gained unusual prominence (for a tweet of mine) and most of the people I have bumped into have wanted to talk about it. The story of the judge giving the student a second chance captured the imagination, or prejudices, of a great number of people it seems. The guts of the story are here from the Guardian story linked above:

Aspiring heart surgeon Lavinia Woodward, 24, punched and stabbed her boyfriend during an alcohol-and-drug-fuelled row at Christ Church College. She admitted unlawfully wounding the Cambridge University student, who she met on the dating app Tinder.

Judge Ian Pringle QC, sitting at Oxford crown court, said he would take an “exceptional” course and defer sentence for four months, hinting that Woodward will not be jailed because of her talent. “It seems to me that if this was a one-off, a complete one-off, to prevent this extraordinary able young lady from not following her long-held desire to enter the profession she wishes to would be a sentence which would be too severe,” he said.

A typically careful, lawyerly response to the story was posted by @secretbarrister. You can read it here and the comments are worth a look. It carefully rehearses why, on the facts as known, it is probably within the judges powers to order a suspended sentence once the judge actually comes to sentence the defendant (the sentencing has been deferred, for reasons which that post similarly explains).

Whilst the post admits that acting within the sentencing guidelines (when it happens) does not necessarily mean the sentence would be untainted by biases, I can’t help think that Secret did protest a little too much when arguing that, “Mercury scoots in with a message of justice gone wrong”. The Guardian produced what looks like a fairly straight reporting of the story, for instance. The judge himself said the case was exceptional, and –if accurately reported – also offered the defendant’s continued medical career as justification even though the defendant’s counsel acknowledged that her conviction would probably prevent that. Of course, it may be right that the Guardian picked this story up because the student was attractive, or a member of the elite caste, but it is also possible – given what we know about human decision-making – that the judge was similarly influenced by those or by the other social signifiers in the case. As Secret Barrister makes clear, we do not know what really influenced the judge but what we perhaps ought to acknowledge is, that however one tells it – it is a bloody good story.

My point is that defending the judge as potentially acting within the guidelines is really a rather minimalistic defence. Patting an irritated public on the head and saying, you don’t understand the law sweetypops doesn’t get you very far. That irritated public might not unfairly interpret that as saying, so potentially the law does not prevent these kinds of biases flourishing? Reason giving in accordance with rules is not much of a restraint in cases such as this: the factors at play are too malleable. We simply do not know, as Secret acknowledges, what impacted on the judge here. The law does not actually help much, if at all, with the central question this case raises.

Interestingly enough social scientists have from time to time studied sentencing and when they do they have tended to show evidence supporting the kinds of concern which Secret is trying to half-rebut here (class biases, race biases). The best study of its kind that I am aware of was Roger Hood’s on Race and Sentencing. It suggested, but of course could never prove, at least indirect discrimination in sentencing decisions. The senior judges went a little beserk, I am told, on being handed the handed evidence. When QASA was being considered, judges were going to assess advocates and I suggested that such judgments should be monitored carefully and – if possible – quantitatively to keep an eye on the quality of those decisions. It met with outrage in some judicial quarters and I lost the argument on the basis that it was inappropriate to subject to judgments of this kind because it would undermine their independence, and respect in them. All I will say about that is sometimes judges are a little bit Trumpian, albeit in a refined kind of way, about criticism. The decisions could be moderated it was argued. Data on their judgments risked undermining their independence (scrutiny of advocates did not). Moderation meant decisions could be reviewed and reasons could be given as to why the original judgements were okay (or not). The key question that everyone would have asked had the system gone ahead, and especially the advocates would have asked, and with good cause, would be who were the moderators? Not, will the judges be able to justify their decisions within the rules.

So my point is this, in the absence of a better evidence base, it is perfectly proper to raise questions about judgements such as these with evidence, and it is perfectly proper to rebut such questions with evidence; but seeking to neutralise arguments on the basis that the law has been followed is not much help, especially where it is not being alleged that the law has not been followed. It’s the discretion that is the issue here, and how it is applied.


Posted in Uncategorized | 3 Comments

Privilege Appeal

Mrs Justice Andrews has set the cat amongst the practitioner pigeons on legal professional privilege with her judgment in the ENRC case (SFO v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB).) ENRC have announced an intention to appeal, and the judgment does seem to raise quite a few appealable issues.

Herbert Smith Freehills have done a very decent job of summarizing the case here. In the broadest terms, the question was whether documents created by or for an investigation by solicitors (and others) in response to allegations that ENRC had been involved in bribery in Kazakhstan and Africa where protected by legal professional privilege. Initially, these investigations began before the SFO had heard of the allegations, but ENRC wanted to be ready should they mount a dawn raid and decide to investigate. There were claims of litigation privilege and advice privilege depending on the documents and the circumstances of their creation. You’ll all know already (won’t you) that advice privilege only extends to communications between lawyers and their clients (other rules apply, but essentially when the dominant purpose of the communications is for the giving of advice) and litigation privilege only applies between lawyers, clients and third parties where litigation is imminent (again other rules apply, I’m keeping it simple for now because I can’t remember those rules either):

HSF says that the High Court decision takes a restrictive approach to both litigation privilege and legal advice privilege. Judge Andrews says she is just applying the existing rules on privilege and that she is thus not extending the rules of privilege. I’m not so interested in whether it is an extension or business as usual, although HSF’s framing of it in this way does indicate the way the profession seems to approach the issue of legal professional privilege generally which is to thrash about with a foaming mouth if absolutely anything that they say or do, and particularly anything they take the trouble of putting down in writing on a file, is not protected from any scrutiny whatsoever. I’m exaggerating, of course, and HSF, in particular, are restrained in their comments. Indeed, in fact I have some sympathy with some of the anxieties that this judgment raises. The judgment needs careful and balanced consideration. The appeal will provide an opportunity, perhaps, to really start to thrash out some of the problems with privilege (and investigations) which Lord Neuberger touched upon, unsatisfactorily in my view, a year and more ago, but I want to begin (this is a very preliminary view) to mount a general defence of the ENRC judgment.

Let me use HSFs summary as a framework to give you a feel for what the court decided (I am quoting or paraphrasing from their blog unless it is in square brackets during these bullet points):

  • litigation was not in reasonable contemplation (so the first limb of the test for litigation privilege was not met) even though a criminal investigation by the SFO was reasonably contemplated [to be fair, the SFO had not even begun to investigate for much of the relevant period, so this finding is quite reasonable on the facts]
  • it is likely to be easier to establish that litigation is in reasonable contemplation in the context of civil proceedings than criminal proceedings [essentially because commercial opponents are likely to issue in circumstances where a sensible prosecutor would not]
  • Only a prosecution, not an investigation, amounts to “litigation” for the purposes of litigation privilege, and the contemplation of a criminal investigation does not necessarily equate to the contemplation of a prosecution. Prosecution only becomes a real prospect once it is discovered there is some truth in the allegations, or at least some material to support them [I suspect that it is harder than this to trigger the test and find litigation was in contemplation but it doesn’t much matter for now].
  • In any event, the court found that the primary purpose of the documents (which were produced for an investigation, were, “to find out if there was any truth in allegations made by a whistleblower and (if there was) to decide what to do about it. [The documents were not thus prepared for litigation anyway and Mrs Justice Andrews made something of the fact some of the documents were produced to be shared with the SFO and in those circumstances they cannot be privileged either].
  • Obtaining advice in relation to a criminal investigation so as to minimise the risk of it happening would not mean the documents were covered by litigation privilege.
  • Advising on and preparing for the settlement of litigation once it is in train is covered by litigation privilege but legal advice as to how best to avoid contemplated litigation is not. [HSF make quite a point of this difference between prevention and settlement “This seems a fine distinction, and an arbitrary one, which may give rise to significant problems in practice,” they say but we should recall that the advice would be protected by legal advice privilege, it is communication with third parties which is important here for litigation privilege].
  • Legal advice privilege only extended to communications with the client and [consistent with the recent RBS case], lawyers’ notes of interviews with their clients’ employees were not privileged because there was no evidence that the interviewees were authorised to seek and receive legal advice on behalf of the client company. A company giving permission for its employees to talk to a lawyer cannot claim that conversation is privileged unless the employee is the person (or one of the persons) instructing the lawyer for the company. [Privilege is only for the Captains not the cabin boys might be one interpretation, but this is really about ensuring that there is really a nexus between privilege and advice giving – whether this is the right way of going about it is moot].
  • The court also rejected an argument that the lawyers’ notes were privileged on the basis that they were lawyers’ working papers, endorsing the decision in RBS that lawyers’ working papers are privileged only if they would betray the trend of the legal advice.
  • A lawyer’s summary of the facts would be privileged if it is part of the continuum of communications between solicitor and client for the purpose of giving or receiving legal advice.
  • Communications with individuals who are qualified lawyers but are not employed in a legal role, even if they are in fact giving legal advice, are not privileged. Here privilege was denied to advice given by ENRC’s Head of Mergers and Acquisitions, even though he was a qualified lawyer, had previously been ENRC’s General Counsel, and subsequently reverted to that role.

Now put like that, the law of privilege looks a bit of a mess does it not? Yet, as the learned judge makes plain she is deciding the case on the basis of existing law and, she thinks (and my initial analysis would be to agree) consistent with the principal policy justifications offered for privilege in the case law. In broad terms, although the courts would not put it like this I don’t think, one can tell one’s story to a lawyer frankly and get advice protected by privilege if one is that lawyer’s client, and one prepare one’s case with the benefit of a lawyer and get privilege, but until a case is imminent one cannot use lawyers to help one prepare the facts of the future case (should it arise) with the benefit of privilege. Keen observers will have noted the Director of the SFO complaining about lawyers trampling over crime scenes through the conduct of such investigations and those of longer memory might remember British American Tobacco, where the tobacco company sought to protect its spring cleaning of documentation which showed they knew a lot about the ill effects of tobacco prior to litigation (which the court found was not yet in contemplation). The reason was pretty simple, although again the court did not put it in these terms: you cannot manage evidence (including destroying it) and claim litigation is imminent, because you would be perverting the course of justice in so doing. The courts use the temporal proximity of litigation as a prophylactic against such naughtiness.

We do not have a suggestion of such extremes in this case, as I read it, but one factor which I would suggest weighed heavily on the judges mind, and to which the bullet points above did not pay regard, was that the ENRC investigation was instigated with a view to forestalling an SFO investigation (or prosecution) and their lawyer (from a firm they subsequently fell out with) was in negotiations with the SFO towards the latter stages of the investigations on the basis that they were conducting investigations, the SFO should not launch an investigation, and ENRC would share the product of those investigations with them. ENRC could not be pro the having of cake and pro the eating of it. Furthermore, the SFO’s policy on investigations, which changed during the ENRC cases, is to look for self-reporting and maximum cooperation from potential defendants with which it engages. One cannot say one is cooperating fully and then pull the rug by saying all the material you were going to show by way of cooperation is privileged. One cannot be cooperating a bit, depending on what one finds out, and then withdraw that cooperation. One has to decide whether one is really cooperating or not.

So there might very well be good reasons for taking the line the judge did. There might also be problems too though. Let me deal with one that occurs to me:

  1. Imagine you are a corporate that knows full well it has, how shall I put it? “a high risk appetite in the Caucuses” And that you become aware that employee X is getting really hacked off with the Board and is likely to start leaking to the press, or the SFO, or both. Imagine you put in place an immediate investigation instructing a reputable firm of solicitors to investigate. Those investigations are more likely, under the bullet points above, to attract privilege because the SFO are highly likely to investigate and highly likely to prosecute, assuming they are successful in their investigation. It seems at first blush to offer more protection to the bad man corporate than the good, because only the bad man gets privilege, but that is contingent on a) the courts agreeing that the prosecution was really imminent (I agree it is more likely they would than in the facts as they were on ENRC. But that does not mean they will); and, b) it treats privilege as the central issue when what is really the central issue is more complicated, hence…
  2. The same company that is more likely to be able to claim privilege is less likely to be able to claim and demonstrate full cooperation. This might go to the eventual punishment it would be likely to receive and to its ability to mount defences – reputational or legal – that it took all reasonable steps to manage for, and tackle problems, when they became apparent. Also, there may be other reputational needs to attend to, like showing they are a well-run company.
  3. The only other benefit I can forsee is that the investigation genuinely does muck up the crime scene for the investigators and so makes it more genuinely difficult to prosecute. This depends a bit on the competence and ethicality of those conducting the investigation; an area where some lawyers have not always covered themselves in glory. Investigations can be managed for inappropriateness. Interestingly, only the SFO has made that argument though and they brought the ENRC case, and presumably takes the view that this is a risk worth taking. We may find out soon if the Court of Appeal agrees.

So, whilst I think there are lots of points to argue about in the ENRC judgment, and I have just scratched the surface here, I am not immediately persuaded that the criticism that is coming Mrs Justice Andrews way will be justified. Let me focus for a moment on the question of lawyers talking to other employees. Let us assume a company virtuous in intent, but somewhat lacking in competence and understanding of how it is running itself. On receiving news of a potential bribery problem it decides to find out more. Should involving a lawyer in that finding out elevate the secrecy with which that finding out is shrouded? Does that put them at an advantage over those who were more on the ball but are tackling the problem? The claim is that employee witnesses should have the protection of privilege to enable them to make a clean breast of it to the Company’s lawyer. But that privilege is the Company’s, it can be waived by the business and so the protection is not worth a lot – giving an employee witness apparent privilege may actively mislead them, and giving them nonwaivable privilege may put the lawyer in a conflict situation with the witness and the company. Put another way, and dealing with litigation privilege, litigation privilege is there to protect the production of the brief, it is not there to shroud the runnings of the company in watertight secrecy just because they pay outside lawyers to do their compliance and audit work. Corporate clients have to make a choice, and looking at privilege in the way the ENRC case does makes that choice a serious one, but also a real one. It is not a choice to be made just to test the waters, or the prosecutor’s mettle.

Posted in Uncategorized | 2 Comments

Wasted cost risks for ‘consultant’ advocates

A footnote, perhaps, in the ongoing debate about the boundaries between regulated advocates and litigators and the Others arises from a case drawn to my attention by Jamie Anderson (THANK YOU!). In the employment tribunal a judge makes a wasted costs award against a consultant (actually a struck-off solicitor) who failed to correct the impression of his client that he was representing her as her solicitor. The judge is concerned, I think, by the way in which his role as legal advisor might imply he is a solicitor, but also – most specifically – by the client indicating by email that she thinks he is a solicitor and him not correcting her.

He is apparently regulated by the Claims Management regulator. For me the question posed should also be, should there be an obligation on struck-off solicitors to advise their clients (and employers) that they were struck off? Whilst I do not doubt that striking off is a significant detriment, being able to then set up as an employment law consultant, take money on account of costs, and use a ‘I will charge you in the way most economically beneficial to me way’ fee agreement (as this consultant did), poses significant risks to consumers. It’ll be interesting to see if/how the Claims Management regulator acts and – indeed – if they knew this man had been struck off.

Whilst I do not doubt that striking off is a significant detriment, it is not such a serious punishment if one can set up in an unregulated, or de-regulated sphere of practice. Being able to then set up as an employment law consultant, take money on account of costs, and use a ‘I will charge you in the way most economically beneficial to me way’ fee agreement (as this consultant did), pose significant risks to consumers. It’ll be interesting to see if/how the Claims Management regulator acts and – indeed – if they knew this man had been struck off.

Here’s a key passage from the case:

30 The question for me is essentially whether Mr Oliver has acted either by omission or otherwise in such a way as is unreasonable, or improper within the language of rule 80(1)(a).

31 In my judgment the facts in this case sadly disclose that the unreasonable action threshold has been crossed. I say that for a number of reasons as follows.

32 The entering into a retainer for potentially incurring a large legal bill, in whatever form, is a matter not to be entered into lightly by lay and private individuals. In order to do so it is reasonable for them to have basic information and for that information to be comprehensible to lay parties.

33 I accepted Mrs Gooding’s evidence that she did not in fact know that Mr Oliver was not a solicitor on the roll, nor indeed insured and regulated as such, until it became apparent during the course of the hearing in August last year because I had identified that. He told me that he always identifies himself as a consultant on attendance sheets at the Tribunal, which is entirely proper: in doing so he informs both the Tribunal and the ushers that he attends and represents not in the capacity of either counsel or solicitor.

34 The subtlety of that information is not navigable to a lay client unless it is explicitly communicated. The use of the trade name “Robin Oliver Legal” and the use of e-mail and text communication with a letterhead that repeats simply that trade name and regulation by the Claims Management Regulator, is not such as to convey to a lay client that there is a difference between the individual advisor’s capacity and that of a solicitor. That is the starting point in this case.

35 The matter is then made worse by the exchanges about the retainer and that the draft retainer letter itself contains no description of the capacity in which Mr Oliver would appear as advocate or otherwise during the course of the proceedings. In this particular case a final retainer was not signed or sent, and the terms as to fees being incurred were only those set out in the e-mail.

36 Mrs Gooding confirmed her willingness to proceed on the terms as she had understood them. Implicit in those terms as she understood them, and as a result of the failure to make it clear that Mr Oliver did not act as a solicitor, was his capacity as her solicitor.

37 That was despite the e-mail signature deployed by Mr Oliver, or rather because of it, containing no appropriate information as to his capacity. Her genuine belief is evidenced by her question to him on 30 January which could not have been clearer, “In your capacity as my solicitor are you able to request them?” in reference to documents. The reply to that e-mail was woefully silent as to the capacity in which Mr Oliver acted and he failed to advise the claimant in reply that he did not and could not act as her solicitor.

38 I also take into account that the claimant’s circumstances included the wish to assert constructive dismissal, which often involves complex facts, and it is not a matter which lay people undertake with potential considerable cost, lightly. It was an unreasonable omission in my judgment for Mr Oliver not to make Mrs Gooding aware that he acted and practiced not in the capacity as a solicitor, nor regulated by the Solicitors Regulations Authority in these circumstances. I am satisfied that the omission on February 2 2016 was a cause of the claimant incurring costs going forward.

Posted in Uncategorized | Leave a comment

After the Rechtwijzer Energizer

Roger Smith has announced the end of Rechtwijzer 2.0, or rather the partnership between HiiL, Modria and the Dutch Legal Aid Board which brought us a cheap, well-designed, online dispute resolution platform. It garnered particular attention and praise for its divorce and separation platform. The basic structure of the system (intake of clients through managed pathways, online negotiation and mediation followed by online adjudication) is common to online dispute resolution generally, and in particular proposals for the online court in this country. This is a crucial moment for online dispute resolution and the public interest.

For those not familiar with it, there is a neat description in the Law Society’s innovation report (which reminds us that a version of Rechtwijzer has been operating since 2007):

An advanced version of the original platform, Rechtwijzer 2.0 is an online-based dispute resolution platform that supports people throughout their justice journey; the first implementation was launched at end of 2014. Rechtwijzer 2.0 is the first ODR platform for difficult problems such as divorce and separation, landlord-tenant disputes and employment disputes. The platform allows people to manage the process and desired outcome in their own home, using their own words and at their own pace. This puts the user in control when working towards an effective solution that safeguards their interests.

Through the platform, individuals can learn about their legal options while receiving support for an interest-based dialogue between the people involved. When users need more than this, Rechtwijzer 2.0 provides mediation, adjudication, and a neutral review of all agreements. Couples pay €100 for access to Rechtwijzer, which starts by asking each partner for their age, income, education, and other information, then guides them through questions about their preferences. Couples with children, for example, are asked whether they are seeking sole or joint custody. The platform uses algorithms to find points of agreement, then proposes solutions. There’s a tool to calculate child support and software for drafting agreements. Couples can request a professional mediator for an additional €360 or, if talks break down, a binding decision by an adjudicator, that happens in about 5% of cases.

I had the privilege, for a while, of being on HiiLs research Rechtwijzer board. They are an imaginative, energetic, practical and determined group. Rechtwijzer was, to my mind, well-designed and thought through. It took the basic truths of collaborative negotiation and the elegance of design thinking to produce a package which has fired imaginations of policymakers and new legal service types worldwide. If the old ways of doing things were too expensive, then the new ways probably looked like Rechtwijzer.

Roger suggests that things got difficult for commercial reasons. Hiil/Modria could not sell the system abroad and raise revenue that way. The Dutch government, Roger suggests, backed off from investing when investment might have helped them scale up. One can see the logic here, but I also suspect there was a more fundamental problem. I think it is because of what we learn from this one sentence in the Law Society report:

[Rechtwijzer] handles about 700 divorces yearly.

There are about 65,000 divorces in the Netherlands annually. So that’s about 1% of all Dutch divorces (my own information suggests Rechtwijzer may have been handling slightly more than that but not enough to make a big difference). That’s a small part of the market and a small footprint on which to fund the development of the site and the involvement of professional mediators and adjudicators. The Dutch government would need to be persuaded that they were making savings on other bits of the legal aid scheme as a result. Perhaps more importantly, is also raises the important question, why so few users? Maybe the Dutch legal aid board did not invest enough in publicising and encouraging people into the scheme. Maybe, users do not trust an online system or see the value in a system which depends upon a degree of collaboration from both parties. Maybe, the alternatives are relatively appealing and all perceived as good value for money. Maybe they are good value for money, in relative terms. I speculate without information. That absence of information is important.

Given the amount of effort and energy that has been put into promoting Rechtwijzer, it is to be hoped that similar effort and energy will be put into the post-mortem. There must be user feedback and research available already. There must be a good deal of knowledge in the Dutch legal aid board and Hiil itself about what went wrong. Roger suggests that perhaps private providers can make a success of what a public-private partnership appears to have failed in (here’s an interesting example of what it might look like). I am not so confident. The numbers don’t look like they will stack up and there are significant public interests in implementing wide scale dispute resolution systems that require greater openness and accountability. I do hope that the public base of the public-private partnership here speaks up, and lets us have some learning from the failure. Online courts have a compulsory element that Rechtwijzer did not but still there will be important things that need to be learnt if online courts are to work. This would not be to Rechtwijzer’s shame, far from it – it will be consistent with Rechtwijzer’s innovatory zeal, fail fast, learn from doing, build it again, build something different or build it better.

Posted in Uncategorized | 5 Comments

Corporate governance and senior lawyers, more evidence…

News of Tesco’s Deferred Prosecution Agreement promises me another day combing through meticulously negotiated documents to see if in-house, or outside, lawyers were involved in the latest corporate scandal. The reason I am on the look out is I have been reading several studies that look at the macro picture examining the impact of appointing lawyers to senior executive positions in US listed companies.  Earnings management (which the false accounting was an attempt at) is one of the ones that crops up.

In broad terms the studies are good news for in-house lawyers. They tend to show a positive impact on corporate governance where lawyers are in very senior roles in listed corporates in the US. One such study finds significantly reduced compliance breaches (related to accounting and insider training) and monitoring breaches (general  failures of legal risk management related to contract, antitrust, disclosure and so on) associated with senior lawyer appointments to companies (Morse et al, ‘Executive Lawyers: Gatekeepers or Strategic Officers?’). Another that companies with senior lawyers in the top management, “are more likely to issue forecasts, particularly bad news forecasts, than other firms.” (Kwak et al ‘The Composition of Top Management with General Counsel and Voluntary Information Disclosure’).

Interestingly too, share price reaction to disclosure from companies with senior lawyers in top positions is stronger (claims Kwak et al): either markets take disclosures from companies with lawyers more seriously or these are companies to whom the markets pay more attention. Although there is also evidence that credit risk analysts are sensitive to gatekeeping risk and think in-house legal teams become less effective gatekeepers as lawyers are promoted to senior management positions (Ham and Koharki, ‘The Association between Corporate General Counsel and Firm Credit Risk’). Ham and Koharki found credit ratings dropped quickly, and the riskiness of corporate debt increased significantly, in companies that promoted lawyers to their senior team. One question this raises might be, who is more astute, investors or credit risk analysts?

A further study shows that that, “the presence (and proportion) of directors with legal backgrounds on the audit committee is associated with higher financial reporting quality.” (Krishnan et al, ‘Legal Expertise on Corporate Audit Committees and Financial Reporting Quality’) It is this study that suggests that legal expertise and accountant’s expertise each benefits from the presence of the other in this context. The presence of a lawyer on the audit committee reduces earnings management.

The evidence supports the idea that lawyers have an impact independent of a board’s other strategies to improve governance, “individual lawyers matter.” (Morse et al again). Such attempts to disentangle and measure the influence of individual lawyers appointed to seniority are necessarily crude and difficult to disentangle from other possible influences on compliance. It is not possible to say, for instance, whether such data tells us something about lawyers in companies generally, or lawyers in senior roles in companies, or companies that appoint lawyers to senior positions. Often the studies only focus on those lawyers who are in the top 5 earners in a company. The studies do a decent job of trying to disentangle these factors, but more work would be required to be certain they had succeeded. The indicators of success are also quite general: is reduced enforcement against a company because there are fewer breaches or because they are better defended in the early stages? Nonetheless, there is a gathering set of studies, albeit quite similar methodologically, suggesting in-house lawyers in senior roles can and do improve corporate governance in certain circumstances.

The evidence also suggests that one influencing behaviour might not be seniority per se but accentuated personal responsibility for gatekeeping functions. Jagolinzer et al look at corporate policies on insider trading, and find requiring GC approval for potential insider trades is associated with, “a substantial reduction in informed trading by insiders”(Jagolinzer et al,  Corporate Governance and the Information Content of Insider Trades). Their results also suggest that Sarbanes-Oxley may have amplified the positive effects of legal expertise in this process.  Similarly, requiring GC sign-off was an important factor driving SEC compliance in Morse et al’s results.

Conversely, the way in-house lawyers are managed and incentivised appears to be important. “Contracting of lawyers into strategic activities” (through higher levels of equity-based remuneration) can reduce that gatekeeping effort in relation to monitoring (Morse et al). They estimate that, “on average the hiring of a [senior] lawyer implies a 31.4% reduction in securities fraud …[but] when the lawyer is hired with high equity incentives, she only reduces fraud by 6.6%.” And Hopkins et al suggest gatekeeping behaviour is moderated by senior lawyer compensation structures: firms with highly compensated GCs had, “lower financial reporting quality and more aggressive accounting practices” but also that, “GCs play an important gatekeeping role in keeping the firm in compliance with generally accepted accounting principles” (Hopkins et al, Corporate General Counsel and Financial Reporting Quality (2015) 61 Management Science 129). The implication they draw is that, “GCs appear to tolerate moderately aggressive behavior but constrain it such that it would not result in violation of securities laws and jeopardize their standing within the firm”.

Thus the risk of compliance being personally attributable to them by regulators is in tension with incentives, some of which may be economic and some reputational. Looked at in this way Goh et als finding that, “the inclusion of general counsel in top management is associated with a firm’s tax avoidance”looks less contradictory (Goh et al, ‘The Inclusion of General Counsel in Top Management and Tax Avoidance’).  GCs do not need to personally certify tax compliance to regulators, the risks of advising on tax policy can be more easily shared with external advisers (see, Rostain and Regan, Confidence Games: Lawyers, Accountants, and the Tax Shelter Industry), and the potential for significant commercial benefits from tax minimisation alter the reputational calculus. The result? Where lawyers are part of the top management team those firms, “have lower GAAP effective tax rate, more uncertain tax positions, a higher likelihood of engaging in tax shelter activities, and more tax haven countries in which the firm reports a significant subsidiary, relative to firms without a general counsel in top management.” Also, “tax avoidance is greater when (1) the general counsel has tax-related expertise, (2) the firm hires an external auditor with tax expertise or purchases more tax services from its external auditor, and (3) the CEO has more power over the general counsel.” Increases in tax avoidance are also shown to be related to certain GCs who move from one firm to another (they appear to carry the strategy with them).  The potential for diffusion of responsibility by engaging external consultants on matters of law is further emphasised by evidence that the retention of “top-tier” outside lawyers reduced the completeness of SEC mandatory disclosures (see, Choudhary et al, ‘Boards, Auditors, Attorneys and Compliance with Mandatory SEC Disclosure Rules’ (2013) 34 Managerial and Decision Economics 471). So, as a parting shot, that study suggests that, while private practitioners like to hold themselves out as more ethical than in-house lawyers, the evidence suggests a more complicated picture.

Posted in Uncategorized | Leave a comment

SRA, lacking the confidence not to spin?

The SRA’s latest SQE press release caught my eye. It starts like this:

Our proposals to introduce a centralised assessment for would-be solicitors could lead to improved diversity in the profession and increased social mobility, a new report says.

An independent study published by the Bridge Group considers our plans for the Solicitors Qualifying Examination (SQE) and the impact it could have on diversity in the profession. The report said: “The proposals are highly likely to increase the number, and broaden the range, of training providers in the market, and provoke new models of training including online provision.

What the report makes clear, though, is this:

This report is neither a review of the proposed SQE reforms, nor an equality and diversity impact assessment; these areas are to be covered by the wider consultation process being led by the Regulator.

The report suggests the need for all to work together on diversity and education, to build trust and shared solutions. It also suggests the significant risks and work the SRA has to do to give the proposals a chance of improving things. Leading with spin is not the way to do this. Leading with spin is a way to build on the considerable cynicism that exists about the SRAs proposals. The report is, in fact, more of a recognition of the considerable risks entailed in the proposals. Better to accentuate that understanding, if the regulator is to produce proposals that people will and can work with.


Postscript: one of the fullest reviews of the report his here on Legal Futures.

Posted in Uncategorized | Leave a comment

Some perspective on the McKenzie Friends Marketplace (Guest Post, Dr. Leanne Smith, Cardiff Uni)

This week Twitter has been alive with sharp criticism of University of Westminster undergraduate Fraser Matcham’s new McKenzie Friends Marketplace (https://mckenziemarketplace.co.uk). The concerns (to use a mild descriptor) highlighted are numerous and well outlined on blog posts by Giles Peaker (https://nearlylegal.co.uk/2017/03/bpp-fee-charging-mckenzie-friends-errors-judgment/) and Lucy Reed (http://www.pinktape.co.uk/rants/a-little-knowledge-is-a-dangerous-thing/#comments). The criticisms highlight important issues but I don’t need to rehearse them here.

As a teacher of law students, I would like to sound a strong note of disapproval in response to the MFM’s encouragement to law undergraduates to become fee-charging McKenzie Friends. I suspect that most involved in delivering clinical legal education for undergraduates (I am not one of them, though colleagues at Cardiff oversee a range outstanding opportunities for our students) would acknowledge the reality that students who work with real clients on pro bono schemes require intensive supervision and, often, direct assistance to ensure the work is of an acceptable standard. I doubt even the strongest undergraduate could offer something sufficiently valuable to a litigant to justify charging for her support (mature students might be an exception here, depending on their prior experience). In any event, I will be advising my own students to boost their student bank account balances with more mundane part-time employment and to obtain their legal experience in well-supervised placements and pro bono schemes. I will go further, recommending that they give this and any similar initiative a very wide berth.

There is in any event an oddity in the MFM’s facility for registration of ‘student traders’ to register and provide services at a lower rate than ‘business traders’. There is nothing whatsoever to prevent students from acting as fee-charging McKenzie Friends and, given that the discount on commission that the MFM offers to students is unlikely to offset the reduction in fees that the site permits them to charge, as compared with the ‘business’ members, I see no reason whatsoever why students inclined to explore this line of work would avail themselves of the student trader option. Enough on the negatives though, because the real purpose of this post is to attempt to insert some nuance into and soften some of the sharper edges of discussion of the MFM.

I have two motivations for contributing to the debate. First, and principally, I am currently leading an independent research project (funded by the Bar Council) exploring the work of fee-charging McKenzie Friends in private family cases. In the coming weeks I and the research team, which includes Dr Emma Hitchings (Bristol University) and researcher Mark Sefton, expect to share the final report on that research.  In the meantime, as someone who has spent much time recently reflecting on the range of issues presented by fee-charging McKenzie Friends, I’d like to pick out some elements of the MFM initiative that merit consideration but have not yet featured in discussion.

To begin, I will raise a few hackles with a disclosure: I do not see that the emergence of a body of non-lawyers as advice givers is self-evidently a bad thing. That is not to say that fee-charging McKenzie Friends operating within (or rather outside of) the context of our current regulatory frameworks pose no concerns or problems; clearly they do. But there is plenty of research indicating that non-lawyers, particularly specialist non-lawyers, can provide competent legal advice and support within considered frameworks that involve training and supervision. Does the MFM provide such a considered framework? Absolutely not, in its current form. But does that mean it should be rubbished entirely? On this question I am more circumspect.

Let’s take the indication that the MFM will in October ‘provide a training programme with the assistance of one of its supporting universities’ (since the University of Westminster has not actually indicated unequivocal support for this initiative, I assume BPP, whose logo appears on the MFM website, is the supporting university alluded to). It is not at all clear what form the ‘training’ will take, and BPP has not exactly covered itself in glory in publicly allying itself with an initiative that has undoubtedly been launched prematurely (see Lucy Reed’s list of formal and presentational steps that ought first to have been addressed). I am, however, at least willing to entertain the idea that useful training could be provided by an institution with genuine expertise in law and delivering legal education, and that such training could be the first step in establishing the sort of framework that underpins successful non-lawyer supporters elsewhere. Bespoke McKenzie Friend training courses exist already, as advertised on the websites of a couple of experienced fee-charging McKenzie Friends, most notably this one: http://www.mckenziefriendtraining.co.uk/index.php. So Fraser Matcham is not a pioneer in proposing this but, if the training is going to be designed and delivered by a higher education institution, he might have hit on a way to raise the standard a few notches and thereby increase the potential plausibility and utility of the course(s).

Moving on, I note that the MFM website includes a nod to the recent recommendation of the Competition and Market Authority that ‘aggregate online reviews’ might be used to boost transparency and service quality in relation to unregulated legal services (see chapter 7, CMA, Legal Services Market Study: final report, December 2016). The MFM says it will present a reviewing system that enables clients of fee-charging McKenzie Friends to leave a star based review of their McKenzie Friend to help inform the decisions of others (information, though notably not the review facility itself, buried in this page: https://mckenziemarketplace.co.uk/guideforsellers).

That’s not going to be a fix-all in terms of rooting out bad fee-charging McKenzie Friends,  and it is notable that the CMA stressed the need for a ratings system to be ‘implemented thoughtfully’ – preferably with advice from regulators, but the MFM proposal is a start at least. Further, it shows some effort to engage with those (few) recommendations that have been made with a view to increasing the likelihood that litigants seeking the services of a fee-charging McKenzie will make positive and informed choices. The other recommendation that appears to be reflected in this initiative is the Legal Services Consumer Panel’s 2014 suggestion that fee-charging McKF’s should self-regulate. That, I suspect, is what underpins the presentation of a (very rudimentary and rather untidy) code of conduct and complaints procedure and perhaps also the planned training.

Fraser Matcham has taken much flak for his claim that the MFM will function as a ‘quasi regulator’. I don’t necessarily disagree with the anxieties about the potential for that claim to provide a cloak of respectability for services that are not regulated in any really meaningful sense. That said, it is hardly Fraser’s fault that self-regulation is thus far the only option available to fee-charging McKenzies who might welcome the development and imposition of objective standards and oversight. Worth noting here, is the prior existence of a self-regulatory body for fee-charging McKenzie Friends, i.e the Society of Professional McKenzie Friends (http://www.mckenziefriends.directory). The SPMF describes itself as ‘a self-regulatory body’. The language is slightly different but, to my mind, the terms ‘self-regulator’ and ‘quasi-regulator’ amount to much the same thing. Their value, of course is open to debate (here’s an essay title for somebody: ‘The terms self-regulator, quasi-regulator, and unregulated are distinctions without a difference. Discuss’). The point I want to make though is that, if when it was launched the SPMF’s efforts met with the same public opprobrium as the MFM did this week, I missed the furore. It’s possible that the apparent affiliation of two reputable Higher Education institutions with the MFM increased levels of surprise and concern so as to make this initiative more noteworthy. But those affiliations are precisely what could make the MFM – amateur though its website, materials and underpinning goals do indeed look at this stage – hold more promise than the SPMF. It would be a pity if the premature launch of the initiative overshadowed that.

Of course, viewed from another angle, all the questions about the value (or lack thereof) of attempts to construct pseudo regulatory structures for unregulated legal services point to the fundamental inadequacy of the underlying regulatory framework. It would be great to see as much criticism targeted at that as has been levied at this 19 year old student. Which brings me to the my second motivation for writing this blog. Like most academics, I teach as well as research. Consequently, I confess to harbouring pastoral instincts in relation to 19 year old undergraduate students and their work, instincts that have kicked in and incited sympathy and concern for Fraser Matcham, who has been publicly and mercilessly subjected to the ire of so many this week.

So, notwithstanding that I share many of the concerns about the MFM that have been raised  this week, I’ve tried to highlight the some seeds of merit that had hitherto been ignored. In closing, I have a few words for Fraser Matcham himself…

This week, Fraser, you’ve had a particularly brutal exposure to the fact that the wider world is altogether less forgiving and less interested in constructive feedback than educational institutions are. Of course, you decided to play in that wider world of your own volition, and if you intend to continue doing so you must accept that this is the level of scrutiny and criticism to which you will (rightly) be subjected.

For now though, let me say that if the MFM was just an undergraduate project it wouldn’t be bad at all. In fact it would be pretty great. You’ve taken steps to research an issue that is unlikely to have featured on your core courses, and you achieved a good level of knowledge for a second year undergraduate. It looks like you also took steps to consult more appropriate individuals/institutions to fill gaps in your own knowledge (albeit that it’s unclear whether you were given entirely adequate counsel), and that can only be a positive thing. You’ve shown initiative, tenacity and conscientiousness in realising this idea and, if those qualities are applied to your academic studies, I expect you will do very well. I admire your gumption in taking hold of an issue so contentious as fee-charging McKenzie Friends. Finally, although your Twitter offer to have a publicly streamed discussion on Facebook about the concerns of some of your critics was not apparently taken up, I note that you made it. It was probably a bit impractical, and might have been interpreted as an attempt to avoid rather than engage with criticism but it suggested a leaning towards candour that, in my view, bodes well for you.

It seems to me that you’ve got a lot going for you but now you need to add evident self-reflective capacities to your skill set. My own feeling is that you’d be better off dropping this hot-potato, particularly if you are serious about wanting to become a real lawyer. Pop it on the CV of failures, own it and return to entrepreneurialism when you have more knowledge and experience and a bit more capacity to judge and navigate sensitive issues with a bit more sophistication. Pay attention to detail in your future work; there is a chance (just a chance) you might have had a slightly easier ride in relation to all this if your website had been more polished (you really do need to work on your grammar). If you want to attract more respect in future endeavours, don’t over-estimate your abilities, never oversell your credentials and know that a little humility can carry you a long way.

But do keep up the energy and the creative ideas. I wish you the best of luck and I hope I’ll see your name pop up in connection with something equally new but more positive in a few years time.

_______

This is a guest post from Dr. Leanne Smith, Senior Lecturer in Law, Cardiff University. She is on twitter @leanneslaw [Disclosure: Leanne and I are married – isn’t she lucky?*]

*N.B. Yes, there is a question mark.

Posted in Uncategorized | 5 Comments