ABSs: some professional myths

Lord Falconer has apparently said today that ABSs are likely to lead to pressure on lawyers’ ethics and that legal education needs to be adapted to cope with it. Now, leaving aside the fact that the Act which leads to more ABSs was sponsored by the Ministry of Justice when Charlie F was Lord Chancellor, this is a rather uncontroversial position to take. Most lawyers I meet suck through their teeth at the prospect of ABSs. Allow grubby non-lawyers to invest in law firms, or to manage law firms or – somehow worse – provide services which are not legal services to Joe Public (or UK plc) and those firms are, ipso facto, more likely to be unethical.

Now I am not so sure about this. One reason is that who is to say lawyers are more ethical generally than any other professional or business group? Christine Parker and colleagues did some very interesting research on this in the context of relationships between business and lawyers. What they found is that, often (but not always) it was the lawyers who encouraged their clients to take a ‘gamester’ approach to legal compliance: that is client’s were encouraged by the lawyers to push the boundaries of what constitutes legally compliant behaviour. Take that analogy into the professional conduct sphere and it is far from clear that ABSs would make legal services providers less ethical.

A second point is that it is assumed that the commercial interest of the non-lawyer will drive unethical behaviour. When this is put in its simplest form, it strikes me as, well, a bit bonkers. The commercial interests of non-lawyers are a bit sinister whereas the commercial interests of lawyers are pure and uncorrupting. Partners? Now they’re particularly virtuous.  This is an untenable position to take: research demonstrates over and over that lawyers do respond to financial incentives and sometimes this has clearly driven unethical behaviour.  I do not understand how anyone who has worked in private practice can say otherwise. Sometimes I am pointed towards ‘factory firms’ as an example, but for me that suggests that the objection is to high volume operations and/or the inadequate checks that the profession provides of their own quality. Certainly, if such firms give rise to problems, they are problems which predate ABSs. Enron-style conflicts of interest are also an issue, but the kinds of conflict which occurred there are of the kind that City firms have been getting their clients to waive through for years.

What really matters is the nature of the financial incentives operating in any one business structure. ABSs come in all sorts of shapes and sizes, with all sorts of internal incentive mechanisms and so do firms. If I had to guess, I would say that the business models most vulnerable to ethical pressure were where individuals within those firms were most at risk of insolvency and/or had most to gain by acting unethically. This would usually, but not always, suggest smaller firms. A second category would be where firms are vulnerable to client dominance (be they influenced by one funder or one very large client or the impact of a very big deal or trial).  That is, it may not just be the structures of the firm, but their patterns of work which are important. It will be interesting to see if regulators adopt any financial indicators as part of their risk monitoring system to cope with these problems. None of them are specific to ABSs.

2 thoughts on “ABSs: some professional myths

  1. Couldn’t agree more, Richard. The notion that ABSs are inherently – or in any way intrinsically – unethical is a nonsense proposition. There are unethical lawyers, and there are ethical non-law businesses. The incentives that drive unethical behaviour exist in both: the issue is how individuals and regulators respond.

    In any event, the LSA has requirements to maintain professional principles, and for non-lawyer owners, managers and other staff not to interfere with lawyers’ ethical obligations. ABS’s reserved activities have to be provided by those who are appropriately qualified (as in a law firm), overseen by a legally qualified Head of Legal Practice (as will be the case for non-ABS law firms), and – if the SRA has its way – the separate business rule will bring the non-reserved activities of ABSs within the regulatory net (as with law firms). I struggle to see where the additional ethical risks of ABSs are going to come from.

    For the former Lord Chancellor to suggest otherwise, in the context of legislation that his Government and department sponsored through Parliament is quite extraordinary!

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