This guest post by Ciarán Fenton first appeared on his blog.
On the morning of June 11th. 2020 The Centre for Ethics and Law, University College London, published a report written by Professor Stephen Mayson with the title: “REFORMING LEGAL SERVICES – REGULATION BEYOND THE ECHO CHAMBERS – FINAL REPORT of the Independent Review of Legal Services Regulation”.
This Report almost certainly did not form part of the bedtime reading of most CEOs, board members and management teams that evening.
It should have done.
Or, at the very least, they might have read or yet might read to their advantage pages 147 to 152 which relate to “Corporate legal departments and in-house lawyers”.
Even if you are a “COVID-19 CEO” – i.e. a CEO trying to get your business through the pandemic – with no legal department or in-house lawyers you should read these few pages because many of your customers and/or your suppliers will have law departments.
In any event, you will have dealings with private practise lawyers. These are connected to in-house lawyers with whom they maintain almost umbilical cord closeness because most in-house lawyers started their careers in private practice and because the system does not allow that cord to be cut for reasons which become clear if you read the other 315 or so pages of the Report.
These pages also go some way to explaining why you call your in-house lawyer your “in-house lawyer” a term you do not use for any other executive in your business. For example, you don’t call your CFO your “in-house accountant”, do you?
So what is this Report about?
Helpfully, Professor Mayson includes a section headed “In a nutshell” in his Preface as follows:
“The current framework for the regulation of legal services in England & Wales has its origins in the self-regulation of the legal professions. As a result, it is superbly (and rightly) designed to preserve and protect those legal services that are critical to the rule of law and the administration of justice, and the integrity of the practitioners who provide them. The downside is that this regulatory approach is then applied to all other legal services and all other providers. In practice, lawyers have consistently estimated that on average only about 20% of their work falls into the category of services that are ‘reserved’ exclusively to them – though it will be higher for most barristers…The conclusion of this Review is that the regulatory framework should better reflect the legitimate needs and expectations of the more than 90% of the population for whom it is not currently designed. The current arrangement of ten front-line regulators, plus an oversight regulator, is cumbersome…this Report proposes that we should in future allow the registration and regulation of all providers of legal services, whether legally qualified or not. Registration and regulation should be the responsibility of a single, sector-wide, regulator to ensure a common, consistent and cost-effective approach, subject to a statutory duty to apply only the minimum necessary regulation. The nature of the regulation applied to registered providers would be founded on the public interest of furthering the rule of law and administration of justice…”
I suspect the 90% revelation will shock you as much as it shocked me as will as the ten plus one regulators involved who I expect will be a bit cool about the suggestion that they should be replaced by just one.
In his Preamble, he goes on to say, inter alia:
“… The legal profession’s echo chamber is a comfortable and comforting place for many of its members and representatives. The reverberating belief is that all is fine, that citizens are best served by qualified lawyers, and that the world would be a better place if all providers were like them – in fact, better still if they were the only providers…There is talk of lawyers versus the rest – ‘us’ and ‘them’ – where the latter are variously described as ‘non-lawyers’, the ‘unregulated’, ‘para-legals’, and ‘support staff’. In short, they are labelled by reference to not being lawyers. The individuals who provide legal services in law firms are more likely to be introduced as ‘fee-earners’ rather than as legal advisers, who will work ‘chargeable’ hours. They do so in order to generate ‘profit per equity partner’. The insidious consequence of this language is that employees appear to clients to be engaged to baffle them with technicalities and to earn money from them rather than advise; to maximise time that can be charged to clients (often at the expense of developing relationships, support, and meaningful and timely communication); and to charge for the input of time, irrespective of the value of the outcomes of that effort. The problem with the lawyers’ echo chamber is that its beliefs and opinions are shared by so few others. It matters not whether those beliefs and opinions are ‘right’…
Lawyers may agree or not with Professor Mayon’s tough analysis but if he is right, shouldn’t that worry you, yor board and management team?
There then follows a list of 13 “Findings” and then no less than 46 “Recommendations” in respect of which Recommendation 20 on page 151 will be or should be of interest to you, your board and management team for it states:
“An in-house legal department should be capable, for regulatory purposes, of being registered as a distinct business unit, so that the department’s delivery of legal services would be subject to the same regulatory obligations as any other registered provider. Individuals within such a registered in-house unit should also be registered personally if they carry on activities for which before-the-event authorisation or personal accreditation would otherwise be required.”
Professor Mayson sets out his reasons for this Recommendation on pages 147 to 151. Of these, the following points may be of particular interest:
Most of the organisations that maintain in-house legal departments will not regard ‘legal services’ as their main activity. However, the principal activity of the in-house legal team will certainly be the provision of legal services to their organisation. Analysis of the legal services market shows that a significant and increasing volume of lawyers (about 20%) and legal services are now in in-house settings. There is little doubt that a tension is inherent in this relationship when the client for legal services is also the adviser’s employer. The usual expectation of ‘independent’ legal advice is often stretched….”
Think about that statement for a minute. Your company is your in-house lawyer’s client, not you. Yet they report to you, or to your CFO. You control their pay and rations, and you mark their homework in their annual performance reviews. Isn’t he right that there is an “inherent tension” here? If he is, shouldn’t that bother you?
He goes on to say:
“… those in-house advisers who are professionally qualified would typically prefer to maintain their professional independence, ethics and standards and not bow to any organisational or commercial pressures to modify their advice to make it more palatable to their internal clients. In these circumstances, it is arguable that those with professional obligations might benefit from further regulatory support… In principle, they should not be at risk of dismissal or disadvantage simply for observing their professional obligations….”
Is your in-house lawyer “at risk of dismissal or disadvantage”? Then think about his next statement:
“Further, effective corporate governance should ensure that in-house lawyers are able to function effectively and are supported in doing so….This might entail express conditions in their employment contract, and a direct reporting line to the Board (or to the chairman or a senior independent non-executive director)…”
Can you imagine that? Your in-house counsel not reporting to you and with different a contract to everyone else? How does that suggestion make you feel?
He goes on to say:
“..we should not presume that “corporate governance alone is sufficient to address the public interest – there will be times when general counsel need recourse beyond their board, to their regulator (e.g. when the concerns derive from, or are perpetuated by, behaviour at board level)”….[and]…since the officers are not the lawyers’ clients, we would expect lawyers to take steps to protect the company, which has no legitimate interest in violating the law or in becoming the victim of management illegality. But lawyers will be reluctant to antagonize corporate officers because their jobs, assignments, or retentions depend on their good will. Yet their duty is to protect their client….”
Can you see how some high and indeed low profile corporate collapses may have been avoided and may be avoided if a regulatory environment existed where it was easier for in-house lawyers to have “recourse beyond the board”? Maybe the collapse of your business could be thus avoided.
Professor Mayson goes on to say:
“… These are not just private or commercial matters, and we cannot afford to assume that effective corporate governance always exists and is always effective. Constant vigilance, and robust independent advice from in-house lawyers, is required….For a discussion about best practice, see Moorhead et al. (2019). “a tension is inherent in this relationship when the client for legal services is also the adviser’s employer”…As we have seen in recent years, corporate failures can lead to consumer and societal detriment. In-house lawyers have to be able to sound alarm bells without the chilling effect of potential reprisal. The public interest in effective and fearless legal representation is engaged in much the same way as it is in private practice….”
Note the words: “chilling effect of potential reprisal”. Are these words not chilling? Is it not shocking that the public interest, which lawyers are required to protect, is potentially not being protected in your organisation?
Section 4.12 goes on to explore how a separate legal business unit might operate. So what should you, your board or management team do about this Report, if anything?
Option 1: Don’t wait for any change in the law; voluntarily implement at least “the separate unit” aspect of Recommendation 20 as soon as possible because it makes sense for your organisation and for society for the reasons set out in the Report and especially at a time of pandemic and then actively promote the entire Recommendation to lawmakers.
Option 2: Ignore the Report until you have to deal with it when or if the law changes by which stage the more robust aspects of the Recommendation may well have been watered down by those who prefer the status quo.
Option 3. Actively protect the status-quo and lobby hard against Recommendation 20.
I’m sure there are other options and to that end and to discuss Section 12.4 in detail I am hosting a Webinar on September 17th. 2020 – details here: https://www.eventbrite.com/o/ciaran-fenton-8237635611.
Professor Mayson has kindly agreed to be the principal speaker on the webinar and he will be joined by panellists and attendees drawn from the C-Suite, law departments and law firms.
Meanwhile, I encourage you to think the unthinkable and choose Option 1 now. Why?
Because if the Legal Services Act is as dated as stated and if the context in which your in-house lawyers operate is as dysfunctional as this Report asserts then you should be afraid. Very afraid because it means that a system that is meant to protect your business and society doesn’t. And if you care only for your business’ profitability only in the short-term, you will find that COVID-19 has created an environment in which you will be out of step with the public mood in short order.
If you do decide to voluntarly implement the “separate busieness unit” aspect of Recommendation 20 now, I suggest you sit down with your in-house lawyers and their favourite our-of-house lawyers and together create a new target operating model for your law department.
Over several years I have piloted such units with in-house teams and have developed a framework which you can use here: https://ciaranfenton.wordpress.com/2020/03/22/in-house-tom-index/
But even if you decide to do nothing, decide to do nothing with full information and read the Report. Then, at least, you can justify your decision to do nothing, and you won’t fall into the compound ignorance trap of not knowing what you don’t know.
Ciarán is an experienced Leadership & Behavioural Change Consultant with many years’ experience in business before that.
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