LSB and laying down the rules

The Legal Services Board has recently been consulting on the independence of approved regulators and whether to push further on the need for independence.  Their preference would be for a change of rules to require that the chair of a regulatory board should be a lay person (in the same way that the Legal Services Act requires that the chair of the LSB must be a lay person).

I have broadly welcomed the policy of the Legal Services Act’s reforms of the regulation of legal services, and largely supported the LSB in its implementation of those reforms.  That is one reason why I have been surprised by the strength of my fundamental opposition to the LSB’s preference for this rule-change.

Make no mistake: I am not arguing against independent regulation or even a perception of independence.  Indeed, in my recent response (para 4.3.2) to the Ministry of Justice review of the regulatory framework of legal services, I argued for greater separation of the representative and regulatory functions than we have so far achieved.

The LSB has (rightly) placed great emphasis on regulation being a last resort, and for it to be risk-based and evidence-based.  It has also (again rightly) sought to remove discrimination in the legal services marketplace.  These touchstones therefore make the proposal for lay chairs all the more extraordinary.

It strikes me that the real risks in issue here are either ‘regulatory capture’ of the regulator by the representative bodies or the perception of favour by the regulator towards the regulated.  The premise seems to be that either or both of these outcomes is more likely – that is, that there is an unacceptable risk – if the chair of the regulatory body is a current or former member of the regulated community (or a related one).  Of course, there is a risk.  But the mere fact of professional qualification (in some cases, a fact of history rather than present or recent practising status) does not substantiate that risk.  Only the actual behaviour of the chairs or their boards can do that.  Equally, there is no guarantee that the actions of a lay chair (or their board) would never in reality or perception demonstrate regulatory capture or favouritism.  The status of the chair as a qualified individual does not create the risk – or, more importantly for present purposes, the absence of professional qualification does not remove the risk: only their actions will, and these cannot be determined at the time of appointment.

I cannot see how the fact of prior qualification creates an unacceptable risk – or at least one that is so comparatively greater, relative to another individual who is not legally qualified.  To my mind, introducing a rule requiring chairs of regulatory boards to be lay people is not founded on risk, and would therefore represent a disproportionate response (thus itself offending one of the principles of the Legislative and Regulatory Reform Act 2006).  This would then be further exacerbated by not applying the proposed change to all approved regulators (by excluding the Master of the Faculties): if the proposal were sound, exclusions based on pragmatic difficulties or historical anachronism would not feature.

As for being an evidence-based proposal, that is quickly dismissed by the LSB’s own hand, since they acknowledge in their consultation paper that the preferred rule-change is not based on empirical evidence.

Which brings me to discrimination.  I cannot avoid the conclusion that for internal governance rules to require that the chairs of regulatory bodies be lay persons would be to discriminate against those who are legally qualified (or who have ever been qualified, since the definition in the Act does not allow one ever to shake this off).  Declaring my own interest as someone who is not a lay person within the terms of the Act, I find this forced conclusion and discrimination disappointing and offensive – just as I do other forms of discrimination.  I am not swayed by the argument that the Legal Services Act requires such a conclusion in relation to the chair of the LSB, since I find that provision equally offensive!

In the absence of evidence (admitted by the LSB), the proposal for lay chairs is not risk-based; it is, at best, a policy objective not supported by much substance at all.  Unfortunately, at worst, the proposal might also be interpreted as a personal slight against current ‘non-lay’ chairs.  Either way, the LSB seems to me to be in a vulnerable position.

There is undoubtedly a debate to be had about regulatory independence and whether the current framework does all it can to achieve it, both in structure and execution.  Had the consultation paper been framed in those terms, it might have attracted more widespread support.  To focus on the background and qualification of the chairs of regulatory boards is to choose the wrong target and offer a misguided solution.

Restoring a future for law

I was privileged earlier this month to be invited to deliver the keynote address at the 2013 Futures Conference organised by the College of Law Practice Management and held at the Chicago-Kent College of Law.  My theme was the future of law.  The speech is available as a video (starting about 15 minutes in and with microphone on at around 16:30 minutes!).  However, I also thought it would be worth writing it up as a paper (which is not a direct transcript).  It’s available here.

In summary, the paper addresses three themes: (1) What is Law for?  (2) What are lawyers for?  (3) The Future.  The first two questions to my mind provide necessary answers to the fundamental question, What next for Law?  For each theme, I suggest a proposition.  The substance of the argument is that both law and lawyers have lost sight of their true purpose and that reconnecting with both is essential to enabling a meaningful and worthwhile future for law.

My approach to answering the question, What is Law for? (or alternatively, What is Law’s Purpose?) is to address it as an aspect of the public interest – that is, maintaining the fabric of society itself and enabling the legitimate participation of citizens in society.  My first proposition is that governments and lawyers have lost sight of what Law is for.

Working from the proposition that Law’s Purpose is to maintain and protect the public interest, then the core purpose of lawyers is to advise and represent citizens and institutions in the working out of Law’s Purpose.  But lawyers have created an artificial market for their services.  In all, this false market amounts to a departure from Law’s Purpose.  This leads to my second proposition that governments, regulators and lawyers have lost sight of what lawyers are for.

If we have lost sight of what Law and lawyers are for, a new approach is needed to ensure a decent, meaningful and sustainable future for Law, lawyers and legal services.  However, there are two significant obstacles to this new future: a broken business model of legal practice; and the closely connected issue of inappropriate regulation of legal services and the practice of law.

The business model of the future must focus on creating value for clients, and then resource the firm with the appropriate facilities and technology, people (lawyers and others), and organisational elements of structure, processes, culture, and market profile to do so.  It must also be open to more options for finance, ownership and structure.  Also, the current model of law practice pays out too much money, too quickly, as income, to the wrong people, for doing the wrong things: it is a short-term income extraction model that benefits a select few people disproportionately and inappropriately.  The business model of the future will take a broader view of who should be rewarded for what, and when and how they should be rewarded.

The second obstacle to the future is regulation.  I have come to the conclusion that all legal services that are provided for reward should be regulated – though this still leaves open the questions of how and by whom.  There are four forms of regulation for legal services: the market; accreditation; redress and discipline; and standards.  This can result in a framework for legal services regulation which is a particular and healthy mix of rules, values, and markets.

Accepting (as I do) that law is a business, the market has a role in regulating legal services.  But law is not just a business.  We cannot rely entirely on the market to regulate legal services.  Formal regulation can provide both before-the-event assurance (to stop things going wrong, or at least to reduce the risk) and after-the-event ‘insurance’ (to put things right if they do go wrong).  The deliberate creation of barriers and costs should lead us to question carefully whether before-the-event regulation is justified.

My view is that these barriers should only be erected for two purposes.  The first is to secure public good benefits, such as the maintenance of an effective justice system.  The second purpose is where after-the-event redress or compensation are inadequate, such as when a citizen’s life or liberty is at stake.  In my view, the English notion of reserved legal activities provides too narrow a basis for determining the need for before-the-event assurance, while the US notion of the unauthorised practice of law is too broad.

After-the-event regulation in legal services is usually targeted at a formal complaints process that dissatisfied clients can use, combined with remedies for redress, compensation and disciplinary processes.  In light of the asymmetry between legal adviser and client, giving rise to a general need to protect clients from incompetence and exploitation, I would be in favour of all providers of legal advice and representation (at least where they do so for reward) being subject to after-the-event regulation, irrespective of whether or not they are otherwise regulated.

Finally, we should not overlook the powerful effects of culture and socialisation in ‘regulating’ the behaviour of practitioners.  A set of professional standards and ethics that is followed or enforced offers a strong underpinning to legal practice.  However, these standards should be applied to all those who provide legal services for reward and not just those who happen to be legally qualified.

The thrust of this paper, therefore, is that the best future for law requires us to re-establish sight of some fundamentals because, as a society, we are in danger of forgetting what Law is for and what lawyers are for.  We need to reconnect with Laws Purpose, and properly pursue the public interest.  We need to reconnect with providing value to clients, and properly pursue the client interest within the context of the public interest.  We need to reconnect with a set of values, and properly pursue the professional interest within the context of the public interest and the client interest.  In other words, we need to recalibrate the public interest, the client interest, and the professional interest and the relationships among them.

So my conclusion and third proposition is that the future of law depends on finding a new and proportionate balance of the public interest, the client interest, and the professional interest.

What I am driving at here is the achievement of Law’s Purpose in a business context and with professional integrity – it could be expressed as profitable ethics and ethical profits.  As someone who is passionate about the independent, cost-effective and ethical realisation of Law’s Purpose, I would encourage all those involved – government, regulators and practitioners – to work towards this new balance.

ABS two years on: cautiously optimistic

We are just at the second anniversary of licences being issued for alternative business structures (ABSs).  In the first year, about 40 licences were issued, and progress seemed slow. A year later, there are still only two licensing authorities, but there have been roughly another 200 new licences. The licences we expected for Abbey Protection, AIM-listed Quindell, Knights (backed by James Caan), and BT Law have all emerged.  Conveyancing Direct (connected to Connells estate agency and Skipton Building Society) and Jordans (the publisher) have gained licences, as has DAS Law (Bristol law firm acquired by the legal expenses insurer, itself part of insurance giant Munich Re).

The rate of ABS adoption is hotting up.  Or is it?

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