Regulation Of Lawyers Research Paper

Traditionally, such regulation has been written and enforced on a local (state or national) basis, such that the rules varied significantly from jurisdiction to jurisdiction. Regulators and scholars have focused primarily on the regulation of lawyers’ individual conduct by way of professional ethics codes.

Recently, however, rapid changes in the legal services market have strained this local, individualistic approach to lawyer regulation. Lawyers increasingly practice in firms, rather than alone or in two-person partnerships; thus their professional conduct increasingly is shaped by firm-level policies, procedures, and culture.

Further, firms themselves have grown exponentially and expanded geographically, such that lawyers increasingly practice across state and national borders. The emergence of a global economy and the growth and globalization of law firms have made the facilitation of ‘transnational’ practice a central regulatory issue.

Finally, lawyers increasingly practice in firms staffed by other types of professionals, such as accountants and management consultants; and accounting firms increasingly are seeking formal and informal alliances with law firms. The emergence of ‘multidisciplinary’ practice and its associated organizational forms has created a host of regulatory issues outside of the traditional regulatory paradigm.

Bar associations and other regulators are in the process of responding to the many challenges presented by the changing conditions of law practice. In 1988, the Council of the Bars and Law Societies of the European Community (CCBE) adopted a common Code of Conduct for Lawyers to facilitate transnational practice with in the European Union (Goebel 2000, Terry 1993). State and national bar associations have been hotly debating the regulatory issues raised by multidisciplinary practice—particularly whether lawyers should be permitted to form partnerships with other professionals (e.g., see ABA Commission on Multidisciplinary Practice 2000).

Scholars, too, have begun to call for a rethinking of the traditional regulating paradigm. Rather than focusing only—or primarily—on professional self-regulation by way of ethics codes, scholars have called for increasing attention to other sources of regulation, such as judicial and administrative action, malpractice liability and risk management, and constitutional and international law (Cone 1996, Davis 1996, Schneyer 1998, 1999, Wilkins 1992). In the USA, the field of study that used to be called ‘legal ethics’ is increasingly referred to more broadly as ‘the law governing lawyers.’

Scholars have also called for increasing attention to the organizational contexts in which lawyers practice, and the effects of organizational structure and culture on lawyers’ individual conduct (Chambliss 2000, Nelson 1988, Wilkins 1998). Given that lawyers increasingly practice and are socialized within firms, both regulators and scholars have begun to focus on how such firms are managed and what firm-level regulatory controls, if any, should be required (Schneyer 1991, 1998). The emergence of new organizational forms, such as multinational and multidisciplinary partnerships, has only underscored the need to develop a strategy for firm-level (or ‘entity’) regulation (Chambliss 2000).

Thus, while the ‘regulation of lawyers’ traditionally has focused on the local regulation of lawyers’ individual conduct, both the regulatory system and regulatory scholarship are in the midst of dramatic development and change. As lawyers increasingly practice in firms, across jurisdictional borders, and with other professionals, the regulation of lawyers increasingly will demand collaboration between nations, professions, and regulators. This essay provides a brief overview of regulatory debates for the beginning of the new century.

1. A Threshold Issue: Defining ‘Lawyer’

Comparing the regulation of lawyers from different jurisdictions requires a shared definition of ‘lawyer.’ Yet the Anglo-American, common law concept of ‘lawyer’ has no counterpart in civil law countries because most civil law countries do not have a unified legal profession. Instead, civil law countries recognize multiple legal occupations, such as judge, prosecutor, civil servant, and private practitioner, with private practitioners typically constituting a relatively small proportion of the total. Further, in civil law countries the list of ‘legal’ occupations includes jobs that in common law countries would be performed by those without legal training, such as notaries (everywhere), police chiefs (in Brazil and Norway), and bailiffs and process servers (in France). None of these groups sees itself as part of a unified legal ‘profession’; typically, each group has its own occupational associations and licensing criteria (Abel 1988). Thus, while it is relatively easy to compare ‘lawyers’ from the USA, the UK, Canada, Australia, and New Zealand, there is no comparable professional group in most other countries.

This research paper focuses on the regulation of private practitioners in the USA, Europe, and the financial centers of the Pacific Rim (e.g., Australia, Japan). It focuses specifically on regulatory issues arising from the increasing globalization and consolidation of professional services, such as the regulation of trans-national and multidisciplinary practice.

Although only a small fraction of all lawyers practice in large, global firms, transnational practice is one of the fastest growing sectors in the legal services market (Abel 1994, Cone 1996, Terry 1999). Likewise, though only a small fraction of lawyers practice in multidisciplinary partnerships, the emergence of multidisciplinary practice raises fundamental questions about the definition of ‘legal’ services and the boundaries between law and other occupations and professions (e.g., see Abbott 1988, Daly 2000). Regulatory developments regarding transnational and multidisciplinary practice therefore promise to have a significant impact on the organization and regulation of lawyers around the world.

2. An Overview Of The Regulatory System At The End Of The Twentieth Century

Theoretically, the power of self-regulation is a defining feature of the ‘professions.’ Because there is an ‘asymmetry of expertise’ between professional and client, clients and nonprofessional regulators may be ill-equipped to monitor professional standards or the quality of professional service. As a result, professionals must regulate themselves—ideally, in view of the public interest. (This justification for self-regulation is associated with ‘functional’ theories of the professions.)

In the USA and other common law countries with strong national professions, private practitioners historically have enjoyed substantial powers of self-regulation. US lawyers are regulated primarily by way of ethics codes promulgated by state bar associations and enforced by professional disciplinary authorities. Professional associations control the criteria for admission to practice, including the accreditation of law schools and the substance of bar examinations; and professional ethics codes (though they try to avoid it) shape the standards for malpractice liability. Likewise, in England and Wales, the regulation of solicitors is controlled substantially by the Law Society, a voluntary association formed by solicitors in the 1820s.

In civil law countries, private practitioners are regulated primarily by the state, which controls the number of university places and the difficulty of qualifying exams. Though bar associations may play an important role in promulgating ethical rules, they tend to be subordinate to the state in the disciplinary process. In Denmark, Norway, and Sweden, for instance, professional associations have no coercive authority; disciplinary sanctions must be enforced by the state. In Germany, Italy, and Switzerland, most disciplinary bodies are state agencies or contain only a minority of private practitioners (Abel 1988).

In both common law and civil law countries, the professional regulatory system was established during a time when most lawyers practiced alone and within the boundaries of a single jurisdiction. As a result, much professional regulation is out of step with the conditions of modern law practice—especially the conditions of large firm practice in the global legal services market. Meanwhile, external regulation (by government agencies, malpractice insurers, and international trade organizations) is proliferating. It remains to be seen whether bar associations can adjust to the changing conditions of law practice in time to prevent their own marginalization in the regulatory process.

3. The Growth Of Transnational Practice

The export of US legal services increased from $97 million in 1986 to $1.9 billion in 1996, while the US import of legal services increased from $40 to $516 million (Terry 1999 [citing US Department of Commerce Statistics]). In both the US and Europe, large law firms increasingly are hiring foreign lawyers, establishing foreign offices, and merging with foreign law firms to create multinational partnerships (Abel 1994, Terry 1999). In 1999, UK firm Clifford Chance merged with US firm Rogers & Wells and German firm Punder, Volhard, Weber and Axster to become the largest law firm in the world (Terry 1999).

The rapid growth of ‘transnational’ practice has created enormous pressure on bar associations to relax local restrictions on the admission and practice rights of foreign lawyers. In general, however, local regulation has not kept pace with market demands. While some jurisdictions have relaxed restrictions on foreign lawyers in recent years, many continue to impose significant barriers to cross-border practice, and there continues to be significant jurisdictional variation. Lawyers have responded to the complexities of local regulation in part by non-compliance (Abel 1994, Bevernage 1995) and many scholars and regulators urge deregulation (e.g., Goebel 2000). In the coming years, this promises to be an important arena for regulatory reform.

3.1 Regulation At The End Of The Twentieth Century

All countries regulate the admission of lawyers from other countries. The rules vary enormously, but in general there are two categories of ‘admission.’ First, foreign lawyers may seek admission to the local profession. Such admission confers full practice rights but typically is difficult to attain. Members of the European Community are required to admit lawyers from other member states subject only to an aptitude test or three years experience, but some countries (France, Spain) have been slow to comply. Outside of the European Community, most countries require foreign lawyers to re-qualify completely—that is, to satisfy all of the criteria for the admission of new lawyers—unless there is a reciprocity agreement between the home and host countries (Abel 1994).

Foreign lawyers also may seek admission to practice as ‘foreign legal consultants.’ Typically, such admission requires foreign lawyers to: (a) register as foreign legal consultants and pay a registration fee; (b) have three to eight years of experience in their home countries (most countries also demand reciprocity with the home country); and (c) comply with local rules of professional conduct, especially rules governing advertising and fees (Abel 1994). Most countries limit the areas in which foreign legal consultants can practice, reserving for local lawyers such areas as litigation, advocacy, conveyancing, domestic relations, wills and trusts, and advice on local law. In some jurisdictions, foreign lawyers can practice only the law of their home country (Abel 1994).

In general, the European Community offers the most liberal regulatory regime. EC lawyers and law firms may establish a permanent office in any member state and practice most areas of law under their home title. This rule eliminates the need for EC lawyers to become members of the local profession. EC lawyers also may form multinational partnerships with other EC lawyers in any member state (Goebel 2000).

Some EC countries also have liberal rules regarding the admission of non-EC lawyers. England allows non-EC foreign lawyers to set up permanent offices and practice under their home title, as long as they do not practice local law. In 1995, there were over 120 foreign law firms practicing under their home title in London (including over 60 US law firms) (Adamson 1995). Both England and Belgium allow multinational partnerships between local lawyers and foreign lawyers from outside the EC (Adamson 1995, Bevernage 1995).

Other countries are more restrictive. Until 1980, most US states treated any Activity by foreign lawyers as the unauthorized practice of law (Abel 1994) and as of 1998, only 21 states had rules recognizing foreign legal consultants (Needham 1998). New York’s rules are the most liberal, allowing foreign lawyers to set up offices under their home firm name and practice local as well as national and international law (Cone 1995). California, on the other hand, prohibits foreign legal consultants from giving advice on anything other than the law of their home country. State-by-state variation makes it difficult for US representatives to negotiate reciprocity agreements with representatives from other countries (Needman 1998). State-by-state variation also makes it difficult for US lawyers who engage in multistate practice domestically.

In Japan, foreign legal consultants must have five years of experience in their home country and that country must offer reciprocity. Foreign legal consultants are prohibited from practicing under the name of their home firm, prohibited from advising on any law other than the law of their home country, and prohibited from hiring or entering into partnerships with local private practitioners. In response to these restrictions, most foreign law firms handle their Japanese business from home (Abel 1994, Myerson 1995). France allows foreign law firms to hire local lawyers and practice local law, but in 1992, France introduced more stringent requirements for non-EC lawyers, which has obstructed the establishment of US law firms (Abel 1994).

3.2 Likely Twenty-first Century Developments

The primary justification for restricting the admission and practice rights of foreign lawyers is to insure the quality of professional services. Because ‘foreign’ lawyers by definition practice in jurisdictions other than the jurisdiction in which they were trained, foreign lawyers may be less competent than local lawyers in matters involving local law. Because clients are presumed to lack the training to judge the quality of professional service, they must be protected, so the argument goes, by professional and state regulation.

Restrictions on foreign lawyers also serve an obvious anti-competitive function, because they restrict foreign competition with the local profession. To the extent that foreign lawyers seek to practice foreign or international law—and to the extent that sophisticated clients manifest a demand for foreign lawyers— restrictive practices are difficult to justify (especially when they are more restrictive than the rules of competing jurisdictions). Restrictive practices that are more burdensome than necessary to ensure the quality of professional services may violate international trade agreements, such as the General Agreement on Trade in Services (GATS) and the North American Free Trade Agreement (NAFTA) (Terry 1999).

In 1999, representatives from 29 national and international bar associations met in Paris to discuss regulatory issues raised by transnational practice, and to consider various strategies for reform. In general, participants in the ‘Paris Forum’ urged greater cooperation between national bar associations, and greater uniformity in the rules governing foreign legal consultants. In 2000, the American Bar Association established a Commission on Multijurisdictional Practice to reconsider the state-by-state system for licensing lawyers in the US. Concerned in part with remaining competitive with other professionals providing multijurisdictional service (such as accountants), the Commission is considering a variety of proposals to facilitate multistate and transnational practice (including a proposal to establish a national licensing system for foreign legal consultants).

Eventually, the current decentralized system for the regulation of foreign lawyers promises to give way to a more centralized system governed in part by external regulators (such as the World Trade Organization). Meanwhile, however, bar associations are scrambling to respond to the increasing demand for transnational legal services.

4. The Emergence Of Multidisciplinary Practice

Since the mid-1990s, the ‘Big-Five’ accounting firms (Arthur Andersen, Deloitte Touche Tohmatsu, Ernst & Young, KPMG, and PricewaterhouseCoopers) have been aggressively expanding their capacity to provide integrated professional services—including legal services—on a transnational basis. They have done so, first, by employing lawyers to perform ‘consulting’ services: as of 1998, the Big Five collectively employed over 5000 lawyers in the area of tax consulting and approximately 5500 lawyers in areas other than tax (Terry 1999). Ernst & Young alone employs approximately 3300 tax lawyers worldwide (Farrell 2000). Currently, the Big Five accounting firms are among the largest employers of lawyers in the world.

The Big Five also have led recent efforts to establish ‘multidisciplinary partnerships’ (MDPs) between accountants and other professionals, such as lawyers, investment bankers, and management consultants. MDPs differ from other forms of multidisciplinary practice (including the employment of lawyers as consultants), in that they explicitly offer legal services and therefore implicate lawyer regulation (Daly 2000).

The move to integrate legal and other professional services has prompted heated debate among lawyers in the US and elsewhere. Opponents argue that lawyers’ participation in multidisciplinary partnerships threatens core values of the legal profession, such as lawyer independence, competence, confidentiality, and loyalty to clients (NSBA Special Committee 2000). Opponents argue, further, that some ‘consulting’ services currently offered by the Big Five—such as litigation support, estate planning, and some forms of business planning—constitute the unauthorized practice of law.

Nevertheless, client demand for multidisciplinary services is increasing. Regulation that inhibits lawyers’ participation in—and ownership of—firms providing such services threatens to compromise lawyers’ competitiveness in this growing and lucrative market.

4.1 Regulation At The End Of The Twentieth Century

Only a few jurisdictions expressly allow multidisciplinary partnerships (Germany; Switzerland; New South Wales, Australia; Spain; and, to some extent, the UK), though some countries (Canada, France) appear to be on the verge of allowing them (ABA Commission on Multidisciplinary Practice 2000). Meanwhile, however, various forms of (informal) multidisciplinary practice are proliferating and for the most part have escaped regulation (Daly 2000). The tension between bans on multidisciplinary partnership and the evident increase in multidisciplinary practice threatens to undermine the authority of professional regulation.

In the US, for instance, all states prohibit the formation of multidisciplinary partnerships, if any of the activities of the partnership involve the ‘practice of law.’ (The District of Columbia is an exception: DC permits MDPs if the sole purpose of the partnership is the delivery of legal services.) Yet the enforcement of such regulation depends on a distinction between what lawyers in law firms do and what lawyers in non-law firms do—a distinction that often is difficult to maintain (Daly 2000). When does the ‘practice of tax’ become the practice of tax law? When does business consulting that includes strategies for legal compliance (for instance, with environmental regulation or antidiscrimination law) become the ‘practice of law’? Though state bar associations have challenged accounting firms for engaging in unauthorized practice, such challenges have been unsuccessful.

In 1998, the American Bar Association established a commission to study the emergence of multidisciplinary practice in Europe and make recommendations regarding the recognition and regulation of MDPs in the US. After a year of study, the Commission unanimously recommended that MDPs be allowed; but that non-lawyer controlled MDPs be subject to annual certification and audits by state bar associations (ABA Commission on Multidisciplinary Practice 1999). The ABA House of Delegates rejected this proposal and directed the Commission to engage in further study.

In 2000, the Commission again recommended the recognition of lawyer-controlled MDPs, accompanied by the elaboration of firm-level controls (to be defined over time by the states). The Commission noted the increasing demand for multidisciplinary services, especially in the areas of tax, estate planning, and business and management consulting (ABA Commission on Multidisciplinary Practice 2000). The House of Delegates again rejected the Commission’s recommendation—and disbanded the Commission. As a result, the US debate over MDPs has shifted to the states.

4.2 Likely Twenty-first Century Developments?

Proponents argue that MDPs offer unique benefits to clients, such as the benefits of one-stop shopping and integrated professional advice; and that clients should have the opportunity to choose multidisciplinary service. Proponents note, further, that many of the ethical challenges associated with MDPs are handled effectively in other settings (such as when lawyers are employed as house counsel); as well as in other jurisdictions that allow MDPs (e.g., see ABA Commission on Multidisciplinary Practice 2000). Most pointedly, perhaps, from the perspective of lawyers’ collective economic interests, proponents argue that multidisciplinary practice, in some form, is here to stay; and that the main challenge for lawyers is to remain competitive in a multidisciplinary market.

One potential benefit to lawyers of forming MDPs is that MDPs provide lawyers with greater access to capital for technological development and geographic expansion. Most jurisdictions forbid non-lawyer investment in law firms (though legislation was introduced in New South Wales, Australia that would allow passive investment in law firms, and allow firms to sell shares on the Australian Stock Exchange). Some argue that restrictions on non-lawyer ownership limit law firm productivity and the efficiency of law firm management (Adams and Matheson 1998). MDPs also offer opportunities to ‘cross-sell’ professional services, and to capitalize on investments in professional reputation (Ribstein 1998).

Abbott (1988, p. 2) argues that the professions ‘make up an interdependent system’ whose ‘boundaries are perpetually in dispute.’ The dispute over the recognition and regulation of multidisciplinary partnerships promises to be a fascinating moment in the history of the legal profession. Its resolution will shape the organization of law practice and the boundaries of lawyers’ monopoly in both local and global markets for years to come.

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