October 05, 2011

Summary of the Testimony of Ward Bower - Center for Professional Responsibility

Summary of the Testimony of Ward Bower

Before the Multidisciplinary Practice Commission

The next speaker was Ward Bower, a lawyer and a principal in Altman Weil Pensa, Inc., management consultants to the legal profession. Since October 1996 Mr. Bower has been Chair of the Multidisciplinary Practice Committee of the International Bar Association. He believes the MDP issue involves more than just the accounting firms as the Citibanks, Merrill-Lynches, insurance companies and estate planners are also players. He mentioned the thousands the Big Five employ in the U.S. in areas such as employee benefits, environmental, real estate, corporate securities and labor. Accounting firm lawyer partners in practicing tax or consulting violate Model Rule 5.4 without challenge. The term MDP for multidisciplinary practice or partnership encompasses not only partnerships but also those law firms that are networked to accounting/consulting firms. In Germany these are a fait accompli between tax agents, accountants and lawyers whereas in Japan, the other extreme - lawyer monopoly - is preserved. He identified 4 objections to MDPs: 1) unauthorized practice of law (yet MDPs usually use a lawyer to perform legal work and the practice of law has not been defined), 2) MR 5.4 mandates a lawyer’s independence (there is oftentimes a contractual alliance of a law firm network with the Big Five rather than fee-splitting), 3) conflicts of interest (screens and Chinese Walls are constructed and, even if the provision of legal services to audit clients is absolutely prohibited, the Big Five, each of which audits approximately 20% of the major publicly held U.S. corporations, would look to the remaining 80% of the market and in each of these instances one of the four remaining is likely to be conflicted out of the legal representation on the basis of their audit work), and 4) privilege (only the client can waive privilege, not the lawyer independently). At the September 1998 meeting in Vancouver the IBA adopted a resolution on multi-disciplinary practices. In 1993 the World Trade Organization in Geneva determined that GATS (General Agreement on Trade in Services) covers the professions, and has since adopted guidelines for the accountancy sector. Mr. Bower echoes the IBA resolution in its lawyer directive to the WTO that considers client protection and public interest the only legitimate grounds for regulation. If there is regulation he suggests provisions such as a ban on provision of legal service to audit clients, special rules on restriction of access to confidential information, provisions setting out minimum degree of ownership and/or voting control that lawyers must hold in the organization and the requirement that in case of inconsistent or conflicting rules of conduct between lawyers and other regulated professionals in the organization the rule providing the greatest protection of client and public interests should prevail. He commented that it is difficult to shut down an ongoing practice, that the number of lawyers in the U.S. probably equals the total elsewhere in the world and that MDPs present potential abuses to the client because of their compromise in the areas of conflicts and privilege. Clients do, however, want services better, faster and cheaper.

Upon request Mr. Bower did agree to share with the Commission the MDP survey Pensa Altman Weil plans to conduct in the first quarter of 1999 and he will request of the IBA whether he can share its survey of IBA Councilors regarding the status of MDPs in their jurisdictions published in the IBA 50 th anniversary celebration compendium in June 1997. Forty jurisdictions responded to that survey. To the question whether clients, depending on size, experienced different problems he said that smaller clients do not recognize risks vs. benefits of a MDP whereas the larger clients do. There should, in any case, be identification of the legal provider if the MDP includes legal services, somewhat on the order of a law firm properly identifying an ancillary business. Although the claims of better, faster, cheaper are anecdotal the accounting/consulting firms do effectively use technology and systems integration in practice reengineering. He responded to Ms. Lamm that the existing lawyer regulatory authority in the jurisdiction enforces an IBA resolution and added that he and the IBA thought it impractical to try and regulate nonlawyers. Rather than the regulatory approach that would disclose and defend against the risk up front Mr. Bower’s inclination is to deal with the consequences of risk afterwards, as he thinks there is a systemization and economies possible of many lawyer actions. He thought Mr. Rosner’s estimate that a half billion dollars of legal fees are currently being included in consulting bills was conservative. Mr. Bower believes that lawyers can compete if they find a niche based on quality.