You’ve Got The Soul Of The Profession In Your Hands
Thank you for the chance to appear before you and to follow up my testimony with these written remarks. Your work is the most critical our profession is undertaking and in your hands reposes the collective mind, heart and soul of the lawyers of America.
As I approached my appearance I did not think I exaggerated when I viewed my speech as the most important I’ve ever delivered. I cannot tell you how many times I thought and rethought what I would say. I was inspired by the fact that among your illustrious group sits Robert Mundheim, my law professor, my dean, my mentor and a man whose career and philosophy are synonymous with what it means to be a lawyer -- not just another service provider to the world of commerce -- but a man dedicated to the ideals of service, improvement of the law, the quest for justice and ethical principles of the highest order.
Along the way to this presentation I also had nightmares. It was five years from now, the ABA was in steep decline and I had fallen into the annual meeting of the National Association of Multi-Disciplinary Professional Firms. Well-dressed individuals with badges scurried about, and the hail-fellow-well-met greetings in the corridors had a familiar ring, but after an exhaustive search no programs on pro bono were to be found, the crisis in death penalty representation went unnoticed, free speech only referred to the charge for attending the programs, not the cherished civil liberty, and no one was worrying about the independence of the judiciary despite President Quayle’s recent call for the impeachment of seventeen federal judges who granted habeas petitions in the last twelve months. In their place I found programs featuring
"Medicine: the Next Multi-disciplinary Frontier," "Leveraging Your Audit Services into Profits in Legal Services" and "Eliminating Confidentiality: Improving Society." Then I woke up and realized I had to persuade you here and now why you should reaffirm our values and ethical commitments to our clients.
The issue before you is the independence of our profession. Though this critical value finds its expression in Rule 5.4’s prohibition on sharing fees with non lawyers, an interdiction that sounds strangely as if it is designed to protect our profession’s turf, the rule in fact embodies the only prohibition that is likely to be effective in maintaining our professional independence. If for President Clinton it was "It’s the economy, stupid," for our profession the watchword is "It’s the money." Follow the money and you’ll follow the power. Follow the power and you’ll know whose in control. And as soon as the power rests with non-lawyers not trained in, not dedicated to, and not subject to discipline for our ethical principles, you will see the independence of the profession fall away.
"Oh no," shout the Philistines at our gates. "Even if lawyers are controlled by non-lawyers the results will be the same." Who should you believe? The hysterics like I who see the destruction of the profession? Or the wing-tipped shod accountants who call us alarmists and proponents of antiquated notions of professional responsibility?
The great news is that your Commission need not decide which side’s rhetorical excess is more charming. Nor need you rely on idle speculation. No, the real world has already offered us a laboratory where you can learn just how fragile a value professional independence is and how assiduously we all must work to defend it.
To what do I refer? Where have these experiments been going on unnoticed by the profession? The answer: right in front of our very eyes. First, look at our colleagues in the medical profession. A decade ago they relaxed the rules on physicians working for non-physicians. Suddenly a flood gate of pseudo-prosperity opened up and a tidal wave of cash spread across the land, offering the docs thousands, even millions for their practices. I remember myself looking longingly at my physician friends as they cashed out their patient lists. Why did I decide I hated the sight of blood, I thought.
But where are the physicians today? Can you find a happy doc? Of course not and why would one expect to? Having sold out to Mammon they now find themselves acting as supplicants in endless phone calls with high school clerks who decide for the physicians which medicine to prescribe, which procedures to undertake and how soon their patients are thrown out of their hospital beds. If this is what happens to a vulnerable value -- professional independence -- when literally matters of life and death are on the line, can we expect a different result when the issue is the preservation of important, if less cosmic values like loyalty, confidentiality and client autonomy?
Nevertheless, some might argue that all that organic chemistry and ninety hour weeks as residents have left the medical professional more likely than tough lawyers to lose their independence. To them I point to my second example: lawyers hired by insurance companies to represent the insureds. Nowhere to date have we seen more interference with independent professional judgment than what has occurred as these economic behemoths have retained counsel, on a take it or leave it basis, to undertake these important engagements. Here its not billing clerks but claims adjusters working on compensation incentives that have nothing to do with effective representation and everything to do with minimizing costs on a macro basis who tell lawyers if and when they can take depositions, whether they can engage experts, what motions to file and whether they can bill for in-house conferences. Some insurance companies even insist that lawyers misrepresent their status to their insured clients by establishing fake law firm names, letterhead and office décor to hide the fact that these "independent" lawyers work full-time for the insurance companies. The drive to interfere with professional independence went so far that when the august American Law Institute sought to address the role of the lawyers hired by the insurance companies to represent the insured in drafting the Restatement of the Law Governing Lawyers, the insurance industry’s representative (a most articulate and independent lawyer himself) fought to have the words "professional independence" removed from the applicable provision, § 215!
While I would disagree, some might assert that insurance is also a special case. What happens there is unlikely to be a precedent for what would happen if lawyers went to work for a prestigious professional service firm like Arthur Anderson. Which brings me to the third example and the one the proves the point. We don’t have to speculate on whether lawyer’s would lose their professional independence if they became a part of KPMG. The lawyers have already done so. While we slept the Big Five have systematically hired thousands of our best and brightest. Look at that result, Honorable Members of the Commission, and you will find all the proof you need that this road leads to perdition.
First, these lawyers are violating Rule 5.4 by sharing fees with non-lawyers. Recognizing the impediments presented by Rule 5.4, the accounting firms argue these lawyers are not practicing law – no, they are practicing tax or investigations or mergers and acquisitions. But not law. The argument that these lawyers are not engaged in the practice of law has as much merit as President Clinton’s that he did not engage in sex. The contention relied upon – that a law degree is not required to do the things these lawyers are doing -- in some cases is simply false and in others irrelevant. There are many activities lawyers undertake that non-lawyers are free to do. But, this does not mean that when lawyers do them they are not the practice of law. The construct invented by the accountants is worse than fallacious – it is cynical, insensitive and speaks volumes about the attitude those in control of accounting firms take toward the precious commodity we call being a lawyer. To compound the error these firms tout these individuals as lawyers in all their advertisements and promotional literature, the lawyers turned Big 5 employees maintain their bar membership and a visit to their offices reveals their bar admission plaques proudly displayed on the walls. But, remember, they are not practicing law. They cling to the valuable designation as lawyers: they simply ignore the concomitant ethical responsibility that gives that status real meaning.
The fact that many talented lawyers would erect such a disingenuous argument to rationalize their unethical conduct should alone demonstrate how quickly lawyers who work for non-lawyers become beholden to their masters. But there is more, so much more. While a Kathryn Oberly may appear before your Commission to declaim that the Big 5 seek to preserve our core values, one learns on even a quick examination that in fact the accounting firms are a one profession wrecking crew, destroying any ethical rules that stand in their path.
Take confidentiality. Our rules preserve confidential treatment for all information learned in the course of a representation. What an uncomfortable notion that must be when a lawyer works at an accounting firm. By definition the core value of the attest function of an accounting firm is the public disclosure of material information. While the accounting firms grate at the strictures this audit role places on their ability to grow, since providing too many consulting services, to say nothing of legal services, to their audit clients will undoubtedly compromise their independence, the Big 5 don’t want to give up auditing entirely. Because of the oligopoly power, the entire world of public companies must hire one of the Big 5 as auditors, which of course provides these firms with their wedge into this cohort of the biggest enterprises and permits them to leverage that presence into a vast array of other engagements.
But in the legal arena the attest function presents special problems. Just when a legal client may most want to preserve a confidence, lawyers working at these accounting firms will be compelled to disclose it – running directly afoul of our most cherished professional value. Recognizing the fact that their lawyers really are practicing law and the inherent conflict in roles and rules, the Big 5 responds by explaining that they receive waivers of confidentiality from their clients before each engagement. But this is no cure. A lawyers duty of confidentiality is not waiveable for the benefit of the lawyer and, even if it were, a prospective waiver would be void since by definition it could never be knowing and intelligent.
Demonstrating both the weakness of their waiver argument and their callous disregard for our values, the auditors then argue that confidentiality is really no big deal. After all, if a public company has a duty to disclose, all that Big 5 lawyers are getting their clients to agree to is the disclosure by the lawyer of information to the auditors that the client would be obliged to tell the auditors anyway.
The argument is as outrageous as it is indifferent to our core values. All lawyers know that in order to be effective at what we do a client must know that the lawyer-client relationship is sacrosanct. One need look no further than how we viewed Ken Starr’s attack on the deceased Vince Foster’s privileged communications to understand how fragile our assurances of confidentiality can be and how jealously we must guard them. The profession rightly rose as one to argue that our clients will be inhibited even by knowing that disclosure of their confidences will only follow death. Here the possibility of disclosure is more likely, guaranteed to be timely, and obviously something that the client will be forced to live with.
Moreover, information is ambiguous and materiality a term of art, not a mathematical formula. To place a lawyer in a trap between a duty to a client and a duty to his non-lawyer auditing masters creates an impossible dilemma whose only product can be second-rate legal services and a compromise of ethical principles. Advocates (and by that term I include all lawyers, transactional and trial), and auditors, as in that old Sesame Street song, don’t "go together," especially when the topic is preserving confidences.
The Big 5’s response to our other core value – loyalty – is even more troubling, in part because it affects every representation. Quite simply the accounting firms don’t recognize, clear or care about conflicts of interest. This is so because in their view all conflicts are personal, limited to the individuals working on an engagement. And could it be any other way if they are to divide the entire corporate world in cinque partem? Which is fine, one would suppose, (or at least none of our business) if the services being offered are in the audit arena. But when it comes to lawyering, we promise and deliver far more. We impute one lawyer’s conflicts to all lawyers in the lawyer’s firm. Our clients need not worry that while we are suing A on behalf of B that our tax department is developing a new pension plan for A, unless B is told of the representation of A and consents to waive the conflict.
A recent personal example should dramatize the problem. I was representing an organization in a tax dispute with one of its partners. The organization had been audited by a Big 5 accounting firm for a decade or more, though its tax returns were prepared by a smaller firm. Right before trial we learned for the first time that this same Big 5 firm was providing litigation assistance to the other side. The accounting firm defended the conduct saying different personnel were involved in each engagement!
Kathryn Oberly, before this Commission, defended this loosey-goosey approach to conflicts of interest by arguing that "firewalls" erected by the accounting firms would guarantee that no confidential information from one client would infect another. Of course, I do not need to explain to this Commission how this assertion does not solve the loyalty problem. But, even if it did, her use of the word "firewall" does not mean that anything like that exists. There are no firewalls at any law or accounting firm. In fact, our profession’s word, "screens," is much more apt since it refers to those items we install in the spring to let in light, air and sound. The truth is the only protection against the misuse of information is the integrity and diligence of the individuals involved. They have to be honest and they have to remember that they are screened, in an office setting in which there might be hundreds or thousands of screens over long periods of time. As you consider how sanguine you would be in endorsing screens to provide any protection for clients, I ask you to think of the most scoundrel law firm you know and then ask yourself how you would feel if they told you "Don’t worry. We have erected a screen."
The truth is that accountants, in order to guarantee their ability to hire and retain lawyers to work for their firms, actually have the chutzpah to ask us to destroy what they refer to as our "antiquated notions" of loyalty, to eliminate imputation and embrace their more "enlightened" views on this topic, views that have made it possible for them to employ more lawyers than our largest law firms. As a reward for their blatant violation of Rule 5.4, we should now accommodate them further by repealing Rule 1.10!
This Commission, this profession, must not fall into this trap. It is the fact that some have argued "why should I, a lawyer in the D.C. office of a 500-lawyer twelve-office law firm, be restrained by representations in our Hong Kong office? I’ve never been there, I’ve never met most of the lawyers there and what do I care what representations they undertake. They wouldn’t compromise me."
But those who advocate this position are wrong and the answer to this too-clever- by-half assertion must be delivered loud and clear. So long as lawyers hold themselves out as one firm, tout to their clients the vast resources of their far-flung offices and the ability to call on anyone in any office to assist with the client’s representation, and share fees among all, then it is the firm, not individual partners, that must deliver complete loyalty to the firm’s clients.
The Big 5 retorts that, more important than loyalty, we give the clients freedom of choice. If they don’t like the fact that we undertake conflicting representations they can take their business elsewhere. Has there ever been an argument that more sublimated client protection to business expansion? If they ever tell the client of the conflicting representation at all (something the accounting firms do not even attempt to assure) examine carefully the choice of the Big 5 Offers. A client hires a lawyer at the Big 5. The lawyer performs services for eighteen months. The client is now told the auditing firm is taking on the client’s adverse party in a (let us hope) unrelated matter. What is the choice? The client can accept the fact that its multi-disciplinary provider is working for the other side and worry how many punches will be pulled to assure that the new offending representation stays put. Or the client can fire the Big 5 firm, waste the fees, time and learning curve the firm provided, and look for another firm to represent the client. The only choice presented is the one our friend Hobson was given. Yet the Big 5 proudly proclaim this choice as a preservation of our core values. Ladies and Gentlemen of the Commission: Orwell lives.
On the other hand, we lawyers provide our clients with real choice. We disclose all potential conflicts before the representation, and if we think they will not interfere with the representation (and only then), we may ask for a waiver. But if the prospective client rejects the proffer, that is the end. If the conflict arises after the representation begins, we still provide full information to the client. And if the client states that the lawyer may not take on the new representation, the lawyer does not take it on. That is real choice and reflects a truly enlightened system in which the client is in control, granting waivers when the client chooses, withholding them when the client determines its interests are not served.
Some have suggested, including an esteemed member of the Commission (one of my heroes) that we should abolish imputation, at least in the non-litigation arena. Permit me to give this accommodating argument the respectful interment it deserves. Nothing would be more divisive for our profession than two different imputation rules. It would make partnerships between litigators and business lawyers economically disadvantageous for the latter. Why associate with trial lawyers if they burden you with their conflicts. Second, it would be impossible to administer. When does a matter transmogrify into one that must be imputed? When nasty letters are sent? When mediation is tried? Third, law firms would lose representations mid-stream as a conflict that was allowed to be ignored in a transactional context suddenly had to be identified and acted upon with the filing of a complaint. Fourth, the whole concept confuses adverseness of interests with decibel level. Clients often care just as much, if not more, about a sale, merger, loan or new contract than they do about a small litigated matter that may be just a cost of doing business: for example, product liability suits for manufacturers of heavy equipment. In other words, the worries about a lawyer’s loyalty and protection of confidential information that imputation is supposed to put to rest are just as likely to arise in a non-litigation context as in a contested civil proceeding.
Another major problem with the relaxation of imputation is that it creates a division of our professional standards based on firm size. Sole practitioners must live with all their conflicts and must turn away every conflicting representation. But under the Brave New World envisioned by the fans of MDP’s, as firms get larger and establish more offices or separate practice departments, conflicts within the enterprise can be ignored, while all happily share the fees, prestige and name recognition a giant firm conveys. What such a construct conveys in terms of elitism and large firm bias is too unflattering and unseemly to contemplate.
The frontal attacks on our core values of confidentiality and loyalty are not the end of what we find occurring at the laboratory of the Big 5 accounting firms. Far from it.
1. Non-competition Agreements. Professionals at the accounting firms are asked to sign agreements not to compete after they leave the firms. An American Express-owned accounting firm is seeking to enforce one of these against a former employee lawyer right now. The seeking or providing of such a restriction on the right to practice law is an assault on client autonomy that our ethical rules to not tolerate. The accountants apparently don’t care.
2. Steering. The power of the Big 5 cannot be overstated. Without their unqualified opinion, companies cannot go public, have difficulty raising money and often cannot survive. Only these five entities can provide the Good Housekeeping Seal of Approval, and without the seal….well, nobody wants to find out. This entrée into the rarefied world of the world’s largest enterprises has been the fuel behind the vast expansion the Big 5 has enjoyed. While auditing is a slow-growth line of endeavor, the Big 5 have increased their non-audit services in consulting to the point that the Chief Accountant of the SEC has expressed the Commission’s concern that the independence of the audit function may be compromised. Yet we learned in a MDP forum in Toronto at the ABA Annual Meeting that the Big 5 in Europe are using their audit power to steer clients to hire their lawyers as well. Such a steering strategy is quite troublesome, certainly flying in the face of our rules about paying anyone something of value for referring business to lawyers.
3. Advertising. Our profession has so carefully circumscribed what advertising of legal services is permissible. We may not promise results. We may not tout past success. We may not use the identity and experience of our clients. It will come as no surprise to the members of the Commission, who cannot miss what the Big 5’s awesome ad budgets buy as you flip the channels or race through airport concourses, that those firm’s advertisements violate all these principles. Slick. For sure. Ethical for lawyers. Certainly not.
4. Business with Clients. My reference to the Big 5 entering the medical service field may have been facetious. But there are few areas of financial endeavor the Big 5 don’t think they can enter. We have learned how the Big 5 now seeks to sell insurance, annuities and other investment "opportunities" to their accounting clients. The rules governing lawyers doing business with their clients are elaborate, designed to provide meaningful safeguards if lawyers dare to enter this fray. The Stanley Commission, in examining professionalism, argued that the one of the greatest threats to this value was lawyers engaging in business with their clients. Lawyers working for accounting firms, for whom doing business with clients is an ever-expanding profit center of the firm, are confronted with grave ethical questions under Rule 1.8.
The Big 5 approach to the evisceration of our ethics rules relies in part on the notion that anything that occurs between consenting adults is perfectly OK. The Big 5 can ask for anything, the argument goes. If they get it from a sophisticated client, why should we bother prying into their bedroom? This commission is far too smart to accept such glib nonsense. The bedrock foundation of our profession is that there are some things lawyers may not seek. Clients cannot be asked to waive the protections of confidentiality or of Rule 4.2, contacts with represented persons. Some conflicts of interest are unwaiveable, including those that no reasonable lawyer would pursue. Lawyers may not avoid malpractice liability nor limit their personal liability for their misconduct in any way. Do these rules make us less profitable? Less flexible? Less able to achieve the maximum amount of business? Of course they do. But that is a small price to pay to deliver the quality of representation that makes us lawyers, not just vendors of services.
One final note on the Big 5 entering the law world, if you will. Some, including one member of your Commission has argued that there is no difference between the conduct of the Big 5 in hiring lawyers and the movement by corporations to hire in-house counsel. In each case the lawyers are employed by non-lawyers, so the syllogism apparently goes.
To which I say balderdash. In one case a client hires a fulltime lawyer to represent the client. While it is true that this lawyer, in order to exercise the ultimate act of professional independence – withdrawal – must lose her job. But that lawyer deals with no conflicts (she only has one client), has no need to compromise the client’s confidentiality, and does not represent a profit center for its employer, but rather a cost. On the other hand, when lawyers are employed by non-lawyers to deliver services to third party clients all of the issues on imputation, confidentiality and independence of professional judgment arise.
You remember I began this discussion about what was happening at the accounting firms as proof that professional independence was fragile and that when non-lawyers were in control the lawyers not only might but would lose independence. And after listening to this litany—from the willingness to argue they are not practicing law to the catalogue of ethical violations those lawyers routinely engage in -- the point cannot be disputed. It’s a sad story, the discussion of our lapsed brethren and sisters, but it is not speculation, it is fact.
It is the Big 5 that has triggered your Commission’s activities, but as you confront the issues raised by their assault on our ethical rules, you must remember we are not crafting rules for five globe-girdling accounting firms. If we say lawyers can share fees with non-lawyers we cannot, despite Kathryn Oberly’s attempts otherwise, limit that fee sharing to the very prestigious partnerships of these so-called MDP’s whose principles dress like us, have names like law firm names, employ cushy stationery and feature hunting prints on their walls. I have remarked in the past the only difference between KPMG and my firm DB&R is an ampersand and $4,000,000,000 in revenues. The rule would have to be that anyone and any entity, regardless of its purposes or area of endeavor, could employ lawyers and offer their services to clients at a profit. The same broad side destructive result obtains if we permit the accountants to perpetuate their current nullification of imputation. If the Big 5 need not impute conflicts among their professional personnel, no other entity that employs lawyers could be shackled with a contrary result. Even existing law firms would suddenly be free to erect "firewalls" between every lawyer’s office in the law firm!
This last point demonstrates why the accounting firms are particularly inappropriate stalking horses for the untimely demise of our professional independence. While they certainly seem high-faluting enough, only the accounting firms, among the potential employers of lawyers, have a public disclosure obligation that conflicts with the lawyers’ ethical duty of confidentiality. Similarly, though many possible owners of legal service firms might like to destroy our rules of loyalty in order to make their businesses expand faster by never turning away business (heaven forefend!), only the Big 5, of necessity, must ignore our ethical mandate on conflicts of interest because they are so big and perform services for such a vast array of individuals, companies and organizations. This is not an invitation, needless to say, to destroy our ethical fabric for non-lawyers other than the Big 5, but simply to note with irony how bizarre it really is to have these firms leading the charge.
As you consider the attempts by the Visigoths to simply reduce lawyers and lawyering to their lowest common denominator – just another set of service providers providing just another service all to be offered at a one stop shop -- I ask you to cast your eyes toward the ballroom at the Mayflower Hotel in Washington, D.C. Recall with me, if you will, the ten years the august American Law Institute has spent considering the Restatement of the Law Governing Lawyers, a project now nearing completion. Tens of thousands of hours, thousands of pages, thirty drafts to achieve a codification of the special law that governs lawyer conduct and lawyer responsibility. You cannot find better "proof" that lawyers are anything but generic service providers and that what is in peril here is so much more important and worth preserving than any benefits that could possibly be achieved by destroying our ethical foundations. Yet all of that work is trivialized by those who would treat us like a stockbrokers, insurance salesmen and business consultants to our "customers."
Before I appeared before your Commission, I had always defended our Model Rules and particularly Rule 5.4 in the name of clients. And I remain convinced that client protection alone provides more than enough justification for our present regulatory framework. Not one of the ethical rules I have discussed is designed to protect lawyers. We would all be far better off economically if each of them was discarded. But it is for the clients that they were crafted and it is for the clients that they should remain in place.
There is another important argument, however, which deserves great weight. The independence of our profession has significant institutional value for our American society. Whatever may be the role of lawyers in these other countries where the Big 5 have swallowed law firms with nary a whimper, our profession in America is different. Each of us is an officer of the court, each of us is licensed with power to start law suits, subpoena witnesses, opine regarding transactions, stand between our clients and the awesome power of the state. It is we who are charged with undertaking pro bono services, defending the independence of the judiciary, accepting court appointments, providing volunteer services for our bar associations, recommending discipline of our own, teaching continuing legal education courses, explaining our system to the public and working to improve the laws and legal institutions. What will happen to these values when lawyers work for others in for-profit enterprises providing legal services to the world? Can we expect Arthur Andersen to take a tolerant attitude toward a death penalty representation? Or Sears to be pleased its lawyer employees are supporting the Legal Services Corporation, the funder of consumer complaints on behalf of the indigent?
This is not, like the destruction of our ethics rules, a cataclysmic point. This one reflects more likely a slow death. It reminds me of what happens when the biggest company in a town gets purchased by folks from far way. The new buyer may give lip service to giving back to the community. But the reality is the town will soon learn it has lost its soul.
Members of the Commission, you have a golden opportunity to reaffirm our professional values and assure that the profession does not simultaneously lose both its independence and its soul. Don’t miss this chance. For you should issue the clarion call, to our disciplinary officials to enforce Rule 5.4, to our profession to defend our ethical integrity, to the clients of America to understand how much is really at stake. One stop shopping, you must announce, is just a benign way of describing the destruction of everything lawyers should and must stand for.