Petrillo & Powell, P.L.L.C.
Attorneys at Law
1101 15th Street, N.W.
Washington, DC 20005-5002
July 2, 1999
Sherwin P. Simmons, Esquire
Commission on Multidisciplinary Practice
c/o Arthur Garwin
Center for Professional Responsibility
American Bar Association
541 North Fairbanks Court
Chicago, IL 60611-3314
Re: Comments on Commission's Report on MDPs
Dear Chairman Simmons:
I am writing to comment on one of the premises appearing in the Commission's report. The Commission has recommended a broad imputation rule as a device to protect MDP clients from conflicts of interest when they receive legal services from an MDP. Conflicts of interest between the clients of a law firm, as well as between the client and its lawyer members, can erode the lawyer's duty of loyalty and diminish the lawyer's ability to provide effective advocacy. Recognizing the value of the legal profession's rules regarding conflicts of interest, the Commission is recommending a broad imputation of conflicts rule be applied to MDPs as one price for allowing MDPs to provide legal services. However, the Commission failed entirely to develop any evidence that its imputation rule is workable, or that it would even be accepted, and honored, by existing accounting and consulting firms in exchange for the ability to provide legal services.
Unfortunately, there is timely evidence that the "big 5" accounting and consulting firms are already unable or unwilling to comply even with their own professional rules regarding conflicts of interest. A case in point is the recent SEC action brought against PricewaterhouseCoopers, alleging conflicts of interest. As reported in the media, the SEC censured the firm for a failure to comply with SEC regulations forbidding the firm or its partners from participating in audits of publically traded companies in which they also hold a financial interest. The Wall Street Journal reported on Thursday, July 2, 1999 that as part of its remediation efforts, PricewaterhouseCoopers was requiring certain managerial level employees and consultants to divest their holdings in firm audit clients. The Journal reports that this policy is meeting resistance from the affected partners and consultants. An unidentified consultant of the firm was quoted as saying:
"So, I'm a consultant in the Midwest and [neither] I nor anyone in my office gives any services to, nor does any audit work for, an audit client. But I or my wife or kids still have to dump investments in that company if some other guy in a West Coast office is doing this work . . This is just outrageous."
Outrageous? Maybe, but it happens to be the SEC's rule. How do we think the same and similar individuals will react when they are told by their big 5 employer that the Midwest office cannot represent certain clients because their West Coast brethren are providing legal services giving rise to a prohibited conflict of interest? As the Pricewaterhouse Cooper's case shows, the accounting profession is already having difficulty enforcing its own conflicts rules. How can the Commission sanguinely believe that the broad imputation of conflicts rule they are recommending as the price for forming an MDP will fare any better? And why should the ABA membership believe that accounting and consulting firms will be any more successful than PricewaterhouseCoopers in enforcing a broad imputation rule.
As Mr. Lynn Turner of the SEC stated in his January 22, 1999 letter to the Commission, "The [Securities and Exchange] Commission's auditor independence regulations specifically state that the roles of auditors and attorneys under the federal securities laws are incompatible," because the advocacy role compromises an accountant's duty of independence in performing audits. This inherent incompatibility, coupled with the kind of imputation rule urged by the Commission, would indicate that an MDP following the Commission's recommendations would be dangerously uncompetitive and financially weakened. Do we really believe that any of the big 5 would give up their current market position so they could provide "legal services" by lawyers, instead of their present practice of providing "consulting services" by lawyers C who just happen not to be "practicing law"at the time?
Despite the Commission's claim that small firms and solo practitioners are clamoring for the right to join forces with their neighborhood real estate agents and bookkeepers, what the recommendation, if adopted, would really do is simply legitimize the existing business model of the big 5 based on the unsupported belief that the lawyers will be able to beat the accountants at their own game. Unfortunately, under the MDP rules recommended by the Commission, few such entities would have the capability or financial wherewithall to compete let alone beat the Big 5 at their own game.
Karen D. Powell