http://blogs.wsj.com/law/2012/02/14/ibm ... onstarter/
In December, we reported the news that the American Bar Association is considering a proposal that would allow nonlawyers to own a stake in law firms, with certain restrictions. More precisely, the ABA has issued a paper for comment that could lead to a proposal, which would then have to pass muster with the ABA’s House of Delegates.
Anyway, at the time we spoke with WilmerHale partner Jamie Gorelick, who co-chairs the ABA ethics committee that is spearheading the review. She said she hadn’t “heard a big outcry on this one way or another.” But as the ABA gets deeper in the issue, and as state bars start studying it for themselves, a big outcry seems inevitable.
I.B.M. General Counsel Robert Weber, for one, is emerging as a loud voice in opposition.
Weber, who spoke with Law Blog Tuesday, said the idea is gaining purchase for the wrong reasons: Firms are looking for interest-free capital in tough economic times.
“I don’t know if I’d call it greed, but it’s in the greed ball park,” he said. “When the world was such that lawyers were able to raise their rates 5%, 6%, 10% a year…and profits per partner at big firms and small were outpacing the GDP, you didn’t hear about this.”
He said the profession has grown more selfish in recent years and less focused on clients, which, in turn, has given the idea of outside ownership room to grow.
“Now it’s not ‘I’m doing something good for society and my clients’ — it’s ‘How far can I push things to maximize my personal potential,’” he said. “All you need to do is open the paper and read about groups of partners jumping from one firm to another. The notion of partnership has degraded at these mega law firms.”
The purpose of the rules of professional conduct for lawyers is to protect the integrity of the attorney-client relationship and guide decision-making based on the client’s best interest, Weber said.
“Lawyers have a separate set of rules that are used as a defense of the profession policing itself. Once we get to the point that we start behaving like any other business, then I would take the position that we are forfeiting our right to self-regulation,” Weber said.
The ABA proposal imposes limitations on outside ownership to guard against conflicts. Nonlawyers could own stakes in law firms, but lawyers would still have to maintain a controlling financial interest and voting rights in the firm, and nonlawyers couldn’t have their own clients or offer nonlegal services to clients.
Weber said that was no assurance.
“We’ve got a real incrementalism problem right now,” Weber said. “I can tell you the way of the world is that incrementally those protections will begin to go away and nonlawyers will have more and more say, and this profession will have given up not only our independence but our rightful differentiation from a business.”
He went on, “The only way you could say that’s not going to happen is to ignore human history, to ignore the example of the investment banks and to say lawyers really are different, better people by nature than others. As much as I love lawyers, that isn’t the case.”
Lawyers should draw wisdom from the example of the investment banks, he said. When they shifted from partnerships to corporations, they increased their access to capital, but they also stopped managing their risks as carefully, Weber said.
The plaintiffs firm Jacoby & Meyers has filed lawsuits claiming that state laws prohibiting nonlawyers from owning a stake in law firms unconstitutionally restrict interstate commerce. The firm has said it needs an infusion of capital to expand its operations into lower-income communities, and to represent their interests against well-funded corporate firms.
Weber said the firm could find capital elsewhere, without sacrificing ownership. “There is a wealth of extraordinarily capable” plaintiffs firms doing contingency work, he said. “They’re doing quite well, thank you, and they’re smart, and they analyze cases well, and they’ll take on anybody. And if they need money, they’ll get it from a bank because they want to maintain control over what they’re doing.”
Weber told Law Blog he has broached the issue with about 10 general counsel from large institutions. “I can’t say I’ve had one of them argue me on this,” he said.
Weber said he hasn’t started building a coalition against the proposal, but he promised he would if it starts to gain enough support.
“When I see something like this that I think is fundamentally at odds with what has made this profession special, and I see that it comes at a time of economic hardship, it gives me real concern,” he said.