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What's So Scary About Non-Lawyer Firm Ownership?

Law firms are for lawyers. Allowing non-lawyer ownership and investment compromises a lawyer's independence and dilutes her commitment to the client. Or so the story goes.

But evidence from countries that actually allow non-lawyer ownership indicates that non-lawyer owned firms might actually be more ethical and somewhat more independent, at least when it comes to funding. Is it time to stop worrying about non-lawyer ownership?

Down Under and Across the Pond

Non-lawyer ownership is verboten in most of the U.S., though D.C. allows some limited non-lawyer involvement. But that's not the case in Australia and England. Our fellow lawyers suffering under Her Majesty's tyranny have recently begun experimenting with alternative ownership forms.

In 2011, England and Wales introduced alternative business structures (ABS), allowing anyone deemed "fit or proper" to own a firm. The change was not-so-lovingly deemed the "Tesco law," after the English grocery chain. That switch came about a decade after Australia began allowing incorporated legal practices, or ILPs.

So, how have things gone? Well, according to Lawyerist, Australia's ILPs have generated 65 percent fewer ethics complaints than traditional firms. In the U.K., interest in ABS focused initially on highly commodifiable, non-complex legal services like injury, property transfer, wills and probate.

Tesco hasn't started hiring lawyers, but its main competitor did. The Co-op, a consumer cooperative offering everything from groceries to insurance, recruited 3,000 lawyers to put in its stores, according to Andy Daws of Riverview Law, another alternative legal service provider. Forget those lawyers opening law offices in Walmart. In England, Walmart is the firm.

More Independence -- From Banks

One of the biggest fears is that non-lawyer investment in firms will leave attorneys beholden to shareholders, rather than their clients. These are the same concerns that make litigation investment raise so many ethical concerns. The main concern is that financiers will interfere with representation in order to get the best return on their investment. (The lower rate of ethics complaints for ILPs in Australia may indicate that such is not the case, however -- or at least that clients are satisfied enough to not complain.)

But those who advocate for non-lawyer investment note that it allows firms another form of independence, this time from banks. Many large firms rely on financing from banks, which tends to be inflexible. The collapse of several large firms like Howrey, Heller Ehrman and Dewey & LeBoeuf, can partially be pinned on their bank financing, according to Duane Morris partner Jonathan Armstrong and New York lawyer James Duffy. Those firms were dependent on bank loans that came with strict terms -- terms the struggling firms violated, resulting in the loans being pulled.

Non-lawyer investment would provide greater flexibility, the argument goes, potentially allowing troubled firms to weather market difficulties more easily.

For now though, the debate is largely academic. The ABA rejected non-lawyer ownership just two years back and it did so with the support of 80 percent of its membership.

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