THE FUTURE OF THE GLOBAL LAW FIRM
GEORGETOWN UNIVERSITY LAW CENTER
CENTER FOR THE STUDY OF THE LEGAL PROFESSION
APRIL 17-18, 2008
Panel 3 - Ethics and Professional Values
Comments of Anthony E. Davis
I would like to begin by expressing my thanks to Professor Regan for having the
foresight to recognize the importance of the issues, for convening this Conference, and for
inviting me to participate.
I have been asked to comment on the papers submitted by Professors Parker, Flood and
Chambliss, and will make three points, one with reference to each of their important
contributions.
First, I take as my starting point Professor Flood’s article on the implications of the
changes in lawyer regulation in England and Wales, in conjunction with something Bruce
MacEwan said earlier today regarding the virtues of a regulatory structure that will create, as he
said, a “level playing field.” Well, I suggest to you that because the absurdly outmoded,
balkanized, 50 state regulatory structure in the US (not to mention a number of other federal
agency regulators such a the US Patent and Trademark Office), the new English regulatory
structure will not create any such thing as a level playing field as far a US based law firms are
concerned. On the contrary, I suggest to you that the Legal Services Act will in fact provide a
launching pad for the Magic Circle (and other English based) firms to eat our lunch. I say that
even though it requires me to violate my normal rule of not making predictions about the future.
In fact I claim only to have made one prediction that has proven accurate: at the time of certain
troubles besetting former President Bill Clinton, I predicted that very few mothers of the next
generation would name their daughters Monica. So why do I venture onto such uncertain
ground, especially to make such a Cassandra-like prediction? Because, on the one hand, the
Legal Services Act will permit the English firms to enter into what we used to call
multidisciplinary practice, and what the Act defines as Alternative Business Structures, in ways
that the current regulatory scheme in the US makes completely impossible for firms based here.
Please note, it is not the capital raising elements of the Act that will, in my view, give the English
firms the advantage, but the ability to enter into business arrangements and develop new
structures for the provision of professional services that are unthinkable here. We heard earlier
today of the possibility of Google investing in a major law firm in order to provide virtual leal
services, but let me suggest a model closer to hand. What if a Magic Circle (or even a second
tier English) firm were to be merged into an investment bank? The benefits to clients are
obvious – one stop shopping for completing financing of M&A transactions. The benefits to
lawyers are obvious too – getting paid at investment bankers’ rates, rather than the paltry (by
comparison) remuneration that they can command as mere lawyers. But such a venture, which is
clearly within the purview of the Legal Services Act, would be quite impossible for any firm, or
lawyers who are subject to regulation by any US jurisdiction – let alone all 50. And so, I suggest
to you, while it won’t happen overnight, unless we recognize what the Act may mean in terms of
creating an enormous competitive advantage for the English firms, then our American gooses are
going to be cooked. There is, of course, a solution – but it has hitherto seemed so radical that
people were scared even to mention it, namely the uniform, national regulation of the US legal
profession. How might that be accomplished? Realistically, we cannot expect the US Supreme
Court to sweep away overnight the rights it has historically afforded to the courts of the states to
regulate lawyers by a precedent shattering decision based on the Commerce Clause (although
such a decision would be perfectly rational). So I suggest to you that it will take federal
legislation to accomplish a single national regulatory structure for the leal profession. In the face
of such legislation, I think the Supreme Court might have the necessary cover to apply the
Commerce Clause over our current system. But I end this comment by saying that the time is
now – in a few years it will be too late; the English firms will have eaten our lunch (and our
dinner too)! In the context of the debate that foreshadowed the ABA’s creation of the
Multijurisdction Practice Tak Force (which in due course led to the adoption of Model Rule 5.5)
I wrote an article entitled “The Sky Is Falling.” Well, now I say to you, the sky really is falling.
My second point is addressed to Professor Parker’s superb article. I want to endorse, and
commend your attention to her view that the conflicts of interest that derive from public, or any
non-lawyer investment in law firms is, in fact, far less significant (and entirely manageable) in
comparison to the conflicts that exist in many law firms as a result of the internal competitions
that are created by “eat what you kill” compensation structures. In that context it is only right to
pay homage to what is undoubtedly by far the best work on that subject, written by Professor
Regan himself, his book “Eat What You Kill,” about the story of Milbank Tweed and John
Gelene. If there is anyone here who has not read it, I urge you to do so. It describes in
horrifying detail the way in which the Milbank internal tournament for clients and compensation
entirely undermined the conflict management processes at the firm. While I acknowledge that
lockstep compensation has its problems, from a risk management perspective the lockstep
system removes the internal competition from client development, and enables firms to act for
the collective and institutional good. But no firm that has moved away from, or has never had a
lockstep system is going to adopt it now. And as to all firms where compensation is based to any
great extent on “eat what you kill,” as Professor Parker clearly and correctly demonstrates in her
article, the internal competition creates at least as great a risk of serious conflicts of interest (and
conflicts that are likely to be hidden until too late), as the risks of conflicts – that will necessarily
be public and self-evident – which derive from outside investors owning a stake in law firms.
And my third point is addressed to the vitally important work of Professor Chambliss.
She has demonstrated and documented the crucial importance of the office and role of General
Counsel to the good management of – and to effective risk management within – large law firms.
But I want to emphasize something that is essential if we are to understand what makes for the
necessary foundation for effective risk management in large law firms. The creation of the role,
and the appointment of a general counsel alone is not enough. The office, and the office-holder’s
ability to function effectively, depends on the existence of two other crucial prerequisites for
effective risk management. Those other two components are, first, a culture, beginning at the top
with the firm’s leadership, that is absolutely and very publicly committed to the principle that the
firm and its lawyers will at all times act in accordance with the relevant and governing principles
of professionalism and professional responsibility, and a culture and a leadership which is
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entirely supportive of the role of the designated general counsel. The second prerequisite for risk
management in large firms is the one I addressed earlier – namely a compensation system that
rewards ethical and appropriate behavior by lawyers individually, rather than one that fosters a
climate of “every person for him – or her – self. It is quite clear from every sociological study
ever performed that, where culture and compensation structure are in conflict, compensation
wins; people act and behave in whatever way is most likely to be rewarded. Thus it is that these
three complimentary elements, culture (supported by leadership), compensation structure, and
the designation of a general counsel, must exist and operate together and in unison if firms are to
have any prospect of gaining the undoubted benefits that effective risk management can afford
them.
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