Regulating a Changing Profession

Speaker’s Corner From The Practice January/February 2016
A conversation between William Hubbard and David B. Wilkins

William Hubbard, a partner with the Columbia, S.C., office of Nelson Mullins Riley & Scarborough, is immediate past president of the American Bar Association. Hubbard recently sat down with David B. Wilkins, faculty director of the Center on the Legal Profession, for a one-on-one conversation on the reemergence of the Big Four in law.

David B. Wilkins: As you know, in the 1990s, there was a big debate around multidisciplinary practice. At that time, the then-Big Five accounting firms were developing large and expensive legal networks. And there was a big debate in the American Bar Association about whether or not this kind of structure, where legal and non-legal services are offered by the same entity and there can be nonlawyer owners or managers, should be permitted. After being recommended by a multidisciplinary practice commission, it was eventually voted down on the floor of the House of Delegates. Then we had the accounting scandals of Enron and WorldCom and got Sarbanes-Oxley—and I think it’s fair to say that most people thought the issue of the accounting firms in the market for legal services really was dead. However, in an article I just wrote with a colleague, we suggest that really never happened and that the accounting firms have been very active outside of the United States, particularly in Europe and in other parts of the world in the legal space. Moreover, they are bigger and stronger in many ways than ever before.

Are you surprised about that and were you one of those who thought that after Sarbanes-Oxley that the accountants were really going to exit the legal services market?

William Hubbard: My first inkling that there was a move afoot by the accounting firms came from communications that I received from some lawyers who were in tax law firms when I was President-elect of the American Bar Association. They were concerned that the accounting firms had expanded their territorial reach into places where it was understood that they should not be practicing. That being said, I did not recognize the extent of the growth until I read your article, which lays out very thoroughly how extensive this growth has been and the extent of their territorial expansion, especially in emerging economies. It was new information to me despite being a person who tries to stay on top of developments affecting the legal profession. I knew the efforts were there, and I knew the accounting firms were expanding, but I did not have a firm grasp on the extent of that expansion.

Wilkins: How does what the accounting firms are doing fit in with what you’ve been doing with the Futures Initiative that you instituted as president of the ABA?

Hubbard: I think it’s consistent with what we’ve seen in the marketplace generally—even in the marketplace to reach consumers and others who need legal services. Our best studies indicate that about 80% of the American population is not having its legal needs met. We have a structural problem in that we have an oversupply of lawyers and an underutilization of lawyers, at the same time. Smart people have seen this latent market for legal services, and venture capitalists and some angel investors have begun to finance technology companies to address this unmet need. In 2012, we saw $66 million of venture capital money going to these technology companies. In 2013, it went to $456 million. And in 2014 it went over $1 billion. We don’t have the 2015 figures yet, but it wouldn’t surprise me if that amount doubled because there’s been tremendous growth in the number of these companies.

It’s hard to get a firm count on how many of these technology companies are in the marketplace delivering what are purported to be “legal services.” The low-end estimate is about 600, and the high-end estimate is about 1,000. The best information that I have is that at least 40 of these companies have capitalization of at least $5 million. There is change afoot. There’s actually a seismic shift, I believe, in the way that we deliver legal services.

Those companies have tended to focus on what has become, in some circumstances, more of a commodity practice—the day-to-day nuts and bolts of partnership agreements, simple wills, or simple incorporations, and more recently, resolution of smaller disputes. But they’re moving into the higher levels of work as well. From this perspective, it is not surprising to see that on the highest end of this spectrum the accounting firms are seeing an opportunity to synthesize legal work into the larger approach of providing “integrated business solutions.” Rather than just having the law as a separate piece, you see more integration. That’s the selling point for the accounting firms, and I see that as a logical extension of what we see in the consumer marketplace. Everything is shifting because of the benefits of technology and because of innovation and not being place-bound in how we deliver professional services from whatever platform.

Wilkins: As somebody who has spent so many years really thinking about how we regulate the legal profession, what challenges does this raise in terms of regulation? How do you think that organizations like the ABA might begin to respond to these challenges?

Hubbard: The ABA Commission on the Future of Legal Services, relying heavily on the ABA Center for Professional Responsibility, has developed a set of proposed model regulatory objectives that would apply to the current regulatory regime, but also would guide a State Supreme Court or other regulatory body in the regulation of non-lawyer providers. Interestingly, some of the more developed non-lawyer providers such as LegalZoom embrace the idea of regulation because it’s consistent with their belief that they provide a quality product and that their business model would be hindered if there were less sophisticated and developed technology companies providing services in a way that doesn’t provide quality.

The courts and the law, I believe, are often unable to keep up with technological changes. We know that. We see that every day in the law. Courts do need some guidance. Even though these guidelines are in proposed form and have not yet been voted on by the ABA House of Delegates, they’ve already been utilized in some states as they look at different types of providers who may be able to deliver legal services. I think the courts and regulators want to see this kind of leadership and guidance from the ABA.

As you know, the ABA promulgates the Model Rules of Professional Conduct. We occupy a space of great responsibility to the profession and to our justice system to make sure that there are rules in place and regulations in place to protect the public. We know that, in the past, that only meant regulating lawyers. That’s simply not the new reality. There are non-lawyer providers in the marketplace. To pretend that they’re not is missing an important point. Lawyers need to understand the scope of this development, how it might impact their practices, and how their clients may be gravitating in substantial numbers to the internet-based providers. It’s a time of upheaval. It’s a time of disruption, as Clayton Christensen would say. The legal profession is not immune to it. The question before us is whether, as the leaders of the justice system, we will try to lead through this time of disruption, or whether we will sit on the sidelines and let it evolve on its own. If we sit on the sidelines and pretend it’s not taking place, we will do a disservice to the public and undermine lawyers’ ability to compete in the marketplace in the future.

Moreover, to the extent that we do not close this justice gap that we have in America, I think we risk our ability to retain our system of state-based judicial regulation of the profession. We know from the 2007 passage of the Legal Services Act in England and Wales, that a driving force behind taking the ultimate regulation away from the lawyers themselves was the fact that there was a justice gap. It was believed that the consumer’s needs were not being met in a cost-efficient and effective way. I think we could see that happen in the United States. I could see potentially other branches of government or even federal agencies coming in and saying that these kinds of online services have to be provided. It’s up to lawyers and the courts to make sure that the profession responds to these challenges and leads towards solutions.

Wilkins: Do you think that there will be a regulatory difference drawn between services that are aimed at consumers and what the Big Four are offering, which is more business-integration services?

Hubbard: I do believe that regulators would probably be a bit less concerned with the choices that are made by corporations or sophisticated clients than they would for consumers and their needs. There’s greater risk for consumers than there are for the more sophisticated purchasers of legal services. There may be some distinction by regulators. For example, there may be more tailored standards for the Big Four and other accounting firms as they move into these areas. I think the premise would be that they are not so much seeking the lower price work, but they’re seeking to represent significant and large business interests and work on sophisticated problems.

Having said that, we’re regulated state-by-state in the United States. The ABA puts forth model rules for the courts to adopt, but the ABA is not a regulator. The Model Rules of Professional Conduct don’t generally differentiate between a lawyer’s work, be it on a small matter or a large sophisticated matter. I believe that it’s going to be difficult to get changes to our Model Rules that would allow multidisciplinary practice or other kinds of alternate business structures. If the ABA House of Delegates continues to be the gatekeeper in the promulgation of model rules, I don’t see any appetite to modify or relax the prohibitions against multidisciplinary practice or alternative structures. There may be great opportunity for the big accounting firms outside the U.S. in countries where it is allowed, such as England, or perhaps in emerging countries. And there may be some creative ways to create structures to allow them to do what they want to do indirectly in the U.S. in terms of providing legal services as we know it. But I think obstacles will remain.

Wilkins: Have you seen law firms moving in the opposite direction, so to speak? One of the stories in this issue of The Practice is about a U.K. firm called Eversheds, which you may know has now established a consulting practice inside the law firm. Their goal is to compete, essentially, with the accounting firms in offering that kind of integrated business service package. And, if you have, how do you think the regulatory agencies and bodies might respond to that sort of development?

Hubbard: I believe we’ll see more and more of that. I do think that global U.S.-based law firms are very sophisticated in coming up with creative ways to meet their clients’ needs. It’s going to be an evolution. I think you’ll see “work-arounds” to get by some of the regulatory restrictions. At the end of the day, there will be creative ways to allow big law firms to meet the needs of the clients. I don’t think the major law firms will simply cede the playing field to the big accounting firms.

Wilkins: One other thing that we’re seeing is a more active competition in the hiring market. As we interview lawyers who work in the accounting firms (see “Life in the Big Four“), there is a rather consistent notion that these firms are “better” places to work than what people perceive to be the average large law firm. For instance, they consistently win awards as being best places to work. They have lots of initiatives around professional development that you really don’t see in the typical large law firm. I wonder how do you see that war, the war for talent?

Hubbard: The evidence indicates that in law firms, the hours are long, the stress levels are high, and often unfortunately the associates and others are often treated as if they’re fungible. But, there’s only so much high-quality talent to go around. It is a zero sum game, and these high-quality associates are, in my judgment, not fungible.

Younger lawyers are willing to put in long hours if there’s real hope of partnership. What concerns me now is that you can work very hard in the big law firms, but the chances of making partner are diminishing. Only in limited circumstances do you see someone come out of law school or a clerkship and work for seven or eight years, I’m talking about in the top tier law firms, and make it to partner. The funnel is a lot narrower. I think that’s an inhibiting factor for big law firms in the U.S. It makes these firms vulnerable to losing quality associates to a better lifestyle and better opportunities if that’s provided by the accounting firms.

Wilkins: How do you think about the central question that informs the debate between those people who think that we needed to modernize the way in which we think about regulation in order to allow for new forms of practice and those who think that allowing multidisciplinary practice or the like would really undermine the core values of the legal profession? How do you think the regulators, or other organizations like the ABA that are going to face these questions, ought to think about balancing those two considerations?

Hubbard: I think consumers of legal services, regardless of whether they are individuals or sophisticated corporate law departments, are looking for efficiency and cost-effectiveness. They’re looking for lawyers who understand their business, understand their problems, and who can devote their full attention and loyalty to that client. I think the risk that especially the large accounting firms may run into is conflicts of interest. At the end of the day, I think that loyalty concerns and conflict of interest questions may be the governor on some of this expansion. Certainly, I’m one who believes that you have to have loyalty: you can’t be loyal to two masters.

One beautiful thing about the legal system in the U.S. is we have clearly proscribed rules that guide us in deciding whether we can take cases or not take cases. As a lawyer who gets conflicted out of probably more cases that I actually am able to take, it can be quite frustrating. But, at the end of the day, it’s what sets us apart as a profession. Any new developments that impinge upon that loyalty are going to create problems for those who would seek to expand their territories.

William C. Hubbard, a partner with the Columbia, S.C., office of Nelson Mullins Riley & Scarborough, is immediate past president of the American Bar Association. David B. Wilkins is the Lester Kissel Professor of Law, vice dean for Global Initiatives on the Legal Profession, and faculty director of the Center on the Legal Profession at Harvard Law School.