ABS – the Fear in Canada Is Palpable

The ABS debate continues among many Canadian provinces. The Law Society of British Columbia has already made the same mistake as the American Bar Association recently made by declining to allow outside investment in law firms. One of LSBC’s reasons was that local lawyers didn’t feel a need for it; this reminds me of a comment made by a lawyer in the UK and likely echoed by some in Canada, “We’re smart people. If there was a better way to do things we would have already figured it out.” Or to more bluntly put it, LSBC’s rationale is like asking Rogers or Bell if they feel a need for more competition in wireless service…..but I digress.

However law societies want to cloak their decisions to prohibit outside investment (and I fully expect other law societies to follow LSBC’s uninspired lead) the actual reason behind prohibition is fear, some of it quite irrational. One lawyer told me that he feared outside investors would create a monopoly through buying up all family law or insurance defence practices. According to this lawyer, law societies should be worried about monopolies in law – something far beyond their mandate and which ignores that law firm consolidation regularly happens across every province without comment by any law society.

The reality is that backward-thinking lawyers fear losing a monopoly that has given many of them a very comfortable lifestyle without worrying about silly things like the need to innovate, or to be efficient or cost-effective. Outside investment will force lawyers to act like business people, something we’re woefully unprepared for.

Missing in law society discussions is the fact that outside investment has an excellent chance of creating better access to justice through greater investment in process and technology that in turn will lower prices for the average Canadian. Law societies are dismissive of this perfectly logical concept; failing to understand that it was the rationale behind the UK allowing outside investment. But what do the Brits know anyway? And also ignoring that outside investment has been permitted in Australia for over a decade without ill-effect. But what do those Aussies know anyway?

“Show us first,” Canadian Benchers clamour, “before we dare allow outside investors into our private party.”

In the type of twisted logic that only makes sense to those holding a monopoly, a profession that has failed quite miserably to provide access to justice now demands clear and irrefutable proof that new investors will definitely provide better access to justice before they are permitted into the game; in the minds of Benchers, it is far better to have a proven broken legal system, than to take a chance allowing lawyers access to capital that can only improve the way legal services are delivered.

The “prove it first” approach, presupposes that the current arrangement is already the very best way to provide legal services and the very best way to provide access to justice.

We already know that this is untrue – otherwise we wouldn’t have an access to justice problem in this country.

So as Benchers ignore their obligation to regulate in the public interest, choosing instead to side with the personal interests of the lawyers who elected them, Canadians are left with a justice system that steadily grows farther and farther out of reach.

Shameful.

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Comments

  1. Law Society of BC

    As a point of clarification to the opening paragraph of your post, in fact, no final decision has yet been made concerning outside investment in law firms or whether or not to permit alternate business structures in BC.

    The Benchers accepted the report of the Independence and Self Governance Advisory Committee on its examination of ABSs in 2011, including its conclusion that the Law Society should give serious consideration to ABSs, noting:

    “….the form of structure through which legal services are offered is less important than it is to ensure that the services that are offered can be properly regulated. Consequently, the Committee believes that the Law Society should not take a position against ABSs solely on the basis that they may involve outside interests of ownership of business entities that deliver legal services.

    Rather, the Law Society should consider ways to encourage innovations in providing legal services, provided that:

    1. core values of the legal profession are protected, and
    2. access to legal services can be improved through the new forms created.”

    The Benchers of the Law Society are mindful of the potential benefits of ABSs and, in particular, improved access to legal services. These benefits, however, remain speculative and are based more on surmise than actual evidence.

    The Benchers are also aware of the potential harm of ABSs, including the quality of advice consumers may receive. The Committee reported that it should be possible to address the alleged harm that ABSs present through appropriate regulations, if the perceived benefits are considered worthwhile.

    As you correctly point out, the Benchers have elected to wait to see if, based on experience in England and elsewhere, the case for improving access to legal services through ABSs can be more clearly demonstrated. It is our contention that such a move must be known to be in the best interest of the public before it is implemented.

    The Committee continues to monitor the development of ABSs and expects to consider this matter more fully later this year.

  2. The writer seems not to know that most law firms already have outside investments: they are called bank loans. Most firms have no problem accessing credit at reasonable rates, and that is sufficient for their needs. The incentive for using forms of outside investment that involve sharing ownership is to solve problems of undercapitalization, but I have never heard anyone make the argument that the legal industry is undercapitalized. Seriously, the writer thinks that lawyers don’t have enough money to run their business? The writer himself probably does not think that, since he also says the real problem is that managers have chosen not to make firms more efficient, choices based on preference, not lack of capital.

  3. Gary Luftspring

    Everything is relative. In fact given tax laws in this country there is a disincentive for partners in law firms to leave money in for “R&D” and for the most part it is not done. Strange as it may seem the structure of firms of which Mitch Kowalksi and Jordan Furlong among others have written conspires against investment both as a matter of governance and finance. I believe that only from this type of change will you get true innovation in firms and the profession and I am not only talking about efficiencies.

  4. I thank the Law Society for responding – and reinforcing the point in my piece.

    The Law Society indicates that it will only “consider ways to encourage innovations in providing legal services, provided that:

    1. core values of the legal profession are protected, and

    2. access to legal services can be improved through the new forms created.”

    In other words, as I stated in my piece, the Law Society assumes that the current model is the best way to deliver legal services.

    There is actually no evidence to support that conclusion. The Law Society makes a huge leap in logic in automatically accepting this. Just because we are using the current model does not validate it as the best model.

    Further we are told that:

    ‘The Benchers of the Law Society are mindful of the potential benefits of ABSs and, in particular, improved access to legal services. These benefits, however, remain speculative and are based more on surmise than actual evidence.

    The Benchers are also aware of the potential harm of ABSs, including the quality of advice consumers may receive. The Committee reported that it should be possible to address the alleged harm that ABSs present through appropriate regulations, if the perceived benefits are considered worthwhile.”

    In other words, the potential benefits are speculative, but the potential harmful threats are not. Again, a huge flaw in reasoning and one that clearly indicates that the Law Society was desperately searching for reasons not to permit ABS.

    As I state in my article, fear, not logic, is driving the discussions on ABS among Canadian law societies.

    Unfortunately, fear, coupled with the fact that Benchers continually act in the self interest of the lawyers who elected them, rather than acting in the public interest, is a deadly combination for access to justice in Canada.

  5. Ian,

    I often scratch my head when lawyers say they don’t need any more money to run their business or that they would not know what to do with the money if given to them.

    No other business that is looking for better ways to serve its clients would make such a statement. But perhaps that’s the point you were trying to make. Canadian lawyers assume that there is no better way to deliver legal services.

    Thanks for also proving my point on the lack of business skills among Canadian lawyers. Debt is never considered to be capital. The two concepts are vastly different and always have been.

    Also the fact that you have never heard of someone claiming that law firms are under-capitalized does not mean it is not true.

    Lawyers have enough money to run their businesses – just not enough to run them efficiently.
    Which is why we have an access to justice problem in this country.

    Lawyers rely solely upon their monopoly over legal services to make money, not good business practices.

    Take a look at Riverview Law or The Coop Legal Services (both in the UK) if you want to see what sound business practices coupled with capital looks like.

    The reality is, ABSs will create competition and innovation in legal services, the likes of which Canadian lawyers have never seen or imagined. And it is that fear of competition that is driving the discussions here, not rational thought.

  6. Gary,

    Thanks for the support. Let’s keep working to get the regulators to do the right thing.