Statement Of Neil Cochran - Center for Professional Responsibility



FEBRUARY 4, 1999

 My name is Neil Cochran. I have been a practising solicitor since 1972, and am a partner in Dundas and Wilson CS, an independent law firm that is in a network with almost 30 other firms in Europe, Asia and elsewhere. This network is associated with Andersen Worldwide. Thank you for your invitation to address this Commission on Multi-Disciplinary Practice.

Much attention has been paid to the arrangements between law firms and multi-disciplinary service organisations in Europe. There appears to be a common perception that all, or at least most, such arrangements amount to full multi-disciplinary associations between lawyers, accountants, and other professionals, including auditors. Based on my experiences and observations, I believe that partnerships between lawyers and non-lawyers in one firm are the exception, rather than the rule, in Europe. That being said, lawyers in Europe have been quick to recognise the synergies of working with other qualified professionals, and have established numerous relationships short of multi-disciplinary partnerships to provide better coordinated services to clients. However, even these types of relationships could carry risks and uncertainties for lawyers and law firms in the United States. In addition, our rules and your rules contain prohibitions that impede the seamless provision of services to clients.

I would like to share with the Commission my perspective as a solicitor in an independent law firm associated with Andersen. I hope that this explanation may assist your consideration of the issues.

Dundas & Wilson has a proud history as one of the oldest law firms in Scotland. Established more than 230 years ago, the firm constitutes the largest legal practice in Scotland. We represent many of Scotland’s leading corporations and institutions, as well as leading global companies with Scottish interests, and we have offices in Edinburgh, Glasgow, and London. We are a firm of solicitors and, at the close of last year, we had 55 partners, and 158 other fee earners. I am the Chair and Practice Director of the firm, which means that, inter alia, I bear responsibility for the quality, ethics, and regulation of all solicitors in the firm.

Dundas & Wilson, and its solicitors, are regulated by the Law Society of Scotland, and are subject to the Solicitors (Scotland) Practice Rules. These rules are substantially similar to your model rules of professional conduct. Among other things, the rules do not permit a solicitor to share legal fees or profits with unqualified individuals. Nor do the current rules permit solicitors to practise in a multi-disciplinary partnership.

In September 1997, Dundas & Wilson entered into an association with Garretts, an independent English firm which was established in 1992 in London. Garretts is also a firm of solicitors, and has 52 partners and 176 other fee earners. I am a partner in Garretts as well as in Dundas & Wilson, as are 8 other Dundas & Wilson partners.

Garretts and its solicitors are regulated by the Law Society of England and Wales, with the relevant regulations set out in particular in the Solicitors Practice Rules 1990. Like the Scottish rules, these rules currently prohibit fee sharing and partnerships with non-solicitors. The association between our two law firms permits us to market to clients, to introduce clients to, and receive introductions from, solicitors in the other firm, and to work together on discrete client engagements. Except for those occasions when the firms work together on an engagement, with client agreement, client confidences are not shared among different partners of the two firms. The firms have separate accounting and client records. Electronic and hard copy client files are maintained separately by each firm. However, because there are a number of dual partners in the two firms and because we cooperate on a number of client engagements, we clear potential conflicts in relation to clients and matters of either firm through both firms.

Dundas & Wilson and Garretts are in an international network of almost 30 firms. Each of these firms is owned by its partners; is independent of each other; is separately managed; is fully regulated by the local bar; and services its own clients. The network facilitates cooperation among the associated firms so that each firm can better serve its clients, and, when appropriate, can team with other firms in the network to service clients with matters which touch on multiple jurisdictions. Firms in the network also refer business to one another, but the referral arrangement is not exclusive, and each firm refers matters to firms outside the network when, in its judgment, doing so is in the client’s best interest. The network firms sponsor training programmes, and contribute to the cost of the training and to the overhead costs associated with the network.

Client identities and client confidences are not shared among the law firms in the network, except to the extent that two or more network firms work together on a particular engagement. Because the law firms are separate and independent partnerships, we do not clear conflicts through each firm in the network, and, certainly, under Scottish and English rules, are not required to do so. That being said, we are mindful of business conflicts and seek to avoid accepting an instruction from one client which may lead to loss of business or material goodwill from a client of another firm associated with the network. However, our ability to screen for business conflicts is materially limited by our current ethical obligations which do not permit us, in most circumstances, to disclose the identity of the client who is instructing us. For example, if Dundas & Wilson was approached to represent a potential client in a complicated transaction involving a French company, we would ask our potential client whether the French company was represented by the associated law firm in France, or, if necessary, for permission to disclose the potential representation to the French law firm. Absent of such consent, we could not, and would not, be able to screen for potential business conflicts with other law firms in the network. This is a problem shared by traditional law firm networks in Europe. While not obligated to do so as part of the process of checking for legal conflicts of interest, law firms in our network check new engagements against the Andersen client list, to determine, among other things, whether a conflict with business could exist, and whether acting for any particular client would give rise to concern about audit or SEC independence issues.

Dundas & Wilson and Garretts have a close association with Andersen, as do all of the law firms associated with the network. This association has a number of components. For example, Andersen provides "back office" services to Dundas & Wilson and Garretts, such as computer systems and support, voice mail, and training services, and we pay for the costs of those services. Andersen operates a secure e-mail and database computer system so that lawyers in the network can communicate securely among themselves and with Andersen professionals. These types of services are, of course, readily available to law firms from third-party suppliers, and we have taken appropriate steps to safeguard confidentiality.

For us, the key part of the association is the ability to serve clients better by working more effectively on client projects. The firms are able to market, and to make proposals for, professional services. Because the firms are independent, each proposal sets forth the role of each service provider, and, if engaged, each firm sends out a separate retainer letter and separately bills the client. At all times, the solicitors from a law firm working with Andersen are governed by and comply with applicable Law Society rules. In such teaming arrangements, we have found that it is necessary to share confidential client information with non-solicitors. Accordingly, we clearly must, and we do, obtain from the client, at the outset of the engagement, authority to share client information, and we discuss with the client any implications of sharing such information.

I understand that the Commission is analysing whether provision of legal services by multi-disciplinary service firms impacts adversely on "core values" of the U.S. legal profession -- loyalty, preservation of confidences, and conflict-free advice. Let me be clear: these core values are central to me, to my partners, and to the legal profession in England and Scotland. I do not favour erosion of them and would not practise in an environment where these values were not observed and preserved. As the Chair of Dundas & Wilson, I am intent on retaining our independence as solicitors and on ensuring that Law Society rules are followed. Indeed, I am not prepared to jeopardise our relationships with clients by compromising to any extent the advice which our firm provides. Importantly, however, I do not believe that these values are impaired when professional firms work together in teaming arrangements, such as the ones that I have discussed.

During the period that Dundas & Wilson has been associated with the international legal network and with Andersen, I have noticed strong client demand for the teaming arrangements which these associations encourage. This is not surprising, for several reasons. Competition in today's markets is increasingly driven by international considerations. As consumers and businesses become more international and more mobile and as newer communications and trading technologies develop, markets are subject to competitive pressures from new sources. As you would expect with our practice in Edinburgh, a significant part of our firm business involves acting for banks and insurance companies and other financial services companies. Those clients now operate in the global market and require international legal and business advice.

As you are aware, international competition often involves tangled legal and non-legal elements, and clients seek comprehensive solutions from teams of professional advisers in multiple competencies and countries. These professionals -- including lawyers, financial planners, accountants, investment advisers, and tax consultants -- have diverse skills and expertise. Together, such a team of advisers can establish common methodologies to deal with an issue, and can generate stronger arguments, richer analysis, and sounder advice than any one professional. At Dundas & Wilson, we offer the services of excellent solicitors, but we do not have, by ourselves, global reach and expertise. By both joining the network and entering an association with Andersen, we can offer our clients access to the resources of more than 50,000 professionals worldwide, with expertise in just about every business-related area imaginable, offices in every major market worldwide, an international knowledge database, state-of-the-art technological and information management systems.

What does this mean for our practice? Let me give you an example.

A multinational corporation seeks to adopt a stock option plan for a large number of employees in a number of countries in a manner that is tax efficient for the corporation and its employees. The client seeks a detailed analysis of the tax and legal consequences in these countries, and development of a global stock option plan that takes account of all of these potential consequences. The client may lack relationships with professionals in many of the countries potentially implicated by the stock plan, but quickly needs to assemble a team of professionals with substantial, specialised knowledge respecting stock option plans in their respective jurisdictions. The associations between Andersen and the network of law firms enable an engagement team to be promptly assembled, comprised of tax and accounting professionals from Andersen and of lawyers from a number of law firms in the network. This team can harness their collective knowledge to develop the necessary product; can communicate views and opinions, propose solutions, and address problems, all through a secure, established communications system; can provide the client with a central point of contact on all aspects of the project; and can ensure quality standards on a global basis. The client no longer has to worry about receiving advice from different firms and different jurisdictions. Instead, the client obtains a single, high quality result which matches his strategic objective.

In my experience, the need for integrated teams of diverse professionals is not limited to engagements for international transactions. I have observed client demand for integrated professional teams on discrete projects because such arrangements are usually more cost-effective and lead to improved client service. Transaction costs are reduced because teaming arrangements allow a client to communicate with all professionals as a group, often through a single project manager and because, at the end of the project, the client receives a single, integrated work product that takes into account all aspects of the matter. Teaming often lowers out-of-pocket costs because the professionals can work together in an efficient and coordinated fashion. One avoids wasting time on division of tasks among different, and often competing, professional firms, and there is little or no duplication of effort. I have also observed that teams often complete the transaction with quicker response time. Let me give you an example.

A government body seeks to privatise a utility in one jurisdiction. This project requires involvement of different professionals, including corporate finance experts to advise on how to structure the public offering and the new company’s finances; lawyers to advise on the legal and disclosure aspects of the public offering and to draft the necessary documents; and consultants to design an accounting system to be used on a going forward basis. Andersen, and law firms in the network, can assemble a team of individuals with substantial expertise in different areas, and this team, working together, can handle the whole transaction.

Much has been made of the potential conflict between the obligations of lawyers and auditors in respect of their clients. Some contend that this potential for conflict makes it inappropriate for law firms to associate with multi-disciplinary service firms that include audit practices. In my experience, which I will describe, the different obligations have not created any conflict.

As a starting point, most of my firm's clients are not Andersen clients. Of the clients that are also Arthur Andersen clients, the substantial majority are not audit clients. This is hardly surprising. Auditing is a vital part of Arthur Andersen's practice, and they are committed to it. At the same time, Arthur Andersen, as well as the other Big Five firms, are also multi-disciplinary professional service organisations. They provide a variety of services for companies which they do not audit -- business consulting, corporate finance, tax, and corporate recovery, to name just a few. Some context here may also be useful. As of 31 August 1998, I believe that Arthur Andersen firms were the auditors of record for approximately 2,600 SEC registrants. Worldwide, Arthur Andersen has more than 100,000 clients.

An audit client can determine for itself whether to use a professional services firm to provide audit services and an associated law firm to provide legal services. For those clients who make this election, we honour our professional obligations in the same way as a law firm without any association with Arthur Andersen would. We advise the client free from any internal or external constraints. We respect the client's confidences. We avoid acting in any conflict of interest. As you are aware, a lawyer is often asked to provide the auditor with his opinion respecting material issues, including litigation, where the outcome could affect the financial statement. In that instance, where the lawyer has information which may call for financial statement disclosure, such as a matter that involves an asserted or unasserted possible claim or assessment, the lawyer cannot provide this information to the auditor without the consent of the client. Our practice is no different. A lawyer in our firm may hold confidential or privileged information which may be relevant to an auditor's inquiry respecting material contingencies. The lawyer, of course, cannot disclose this information, but must advise the client concerning the client's duty of disclosure. Based on the client's decision, the lawyer must determine whether he can continue to act and, if so, on what basis.

With respect to audit independence, the restrictions, if any, on performing legal services for audit clients depend on professional standards, regulatory rules and laws of the country in which the client is incorporated or listed. The accounting professions and audit regulators vary widely in assessing what effect the provision of legal services has on audit independence. In the United States, the assessment turns, in part, on whether the company is private or public. For privately-held companies which are Arthur Andersen audit clients, the audit firm cannot function as the general counsel or in another quasi-management capacity but would be otherwise free to perform legal services, subject, of course, to applicable bar regulations. Because of our association with Arthur Andersen, we have determined to comply with this restriction.

While it may not be strictly relevant to the Commission, I think it may be useful if I set forth the scope of legal services that can be provided to an SEC audit client or its affiliates by a law firm outside the United States which is associated with an accounting firm that provides attest services to that client. For SEC registrants or other companies subject to SEC regulation which are Arthur Andersen audit clients, we operate under guidelines reviewed with the SEC staff in 1993. In short, the associated law firm must limit advice to an SEC attest client to matters that are not material to the consolidated financial statements of that SEC registrant, and must satisfy certain other requirements. We have relied, as have other law firms in the network, on these guidelines in structuring our legal services practice. In addition, other Big 5 associated law firms have similarly relied on these guidelines for several years.

For every Arthur Andersen audit client, we review whether our proposed legal services could give rise to audit independence issues. It is simply not in the interests of the clients of our law firm, or of Arthur Andersen, for us to take on a legal services engagement which could give rise to an independence concern. Accordingly, as I hope that I have made clear, audit independence issues play a role in our initial determination whether or not we can act in a matter, but such issues have not significantly restricted our ability to act for clients.

I have focused on what we do, and how we do it. I would now like to discuss the implications that this may have for U.S. bar and U.K. Law Society regulators. As I indicated, Dundas & Wilson and Garretts are independent law firms that have formed a working relationship with the Andersen network under existing U.K. regulations. Other law firms in our network have done the same in the context of their own regulations. The services and teaming arrangements which I have described have not given rise to regulatory issues under the Law Society regulations. We are in full compliance with the Law Society regulations.

I talked before about the uncertainties and risks for law firms and lawyers that services and teaming arrangements could create in this country. I am not a U.S. lawyer, and am not well placed to interpret your existing Model Rules. Some U.S. lawyers have indicated to me that the Model Rules should permit a U.S. law firm to join our network and enter into arrangements comparable to those enjoyed by my law firm. At the same time, I understand that some members of the bar could assert that such arrangements violate current rules, and any law firm or lawyer which participates in such arrangements could face exposure to disciplinary proceedings. Comments I have read from others in the U.S. bear witness to this point, and illustrate the hurdles that may exist to creating associations in this country like those that Dundas & Wilson and Garretts currently enjoy.

Moreover, even the current structure in both Scotland and England is not ideal. As you are aware, the Law Society of England and Wales is presently considering changes to its rules to authorise multi-disciplinary practices. Just last month, a spokesperson from the Law Society of England and Wales, commenting on multi-disciplinary firms, stated that "We’re looking not at if they will be introduced but how they will be regulated. So, yes, MDPs are definitely on their way."

Against this background, it is appropriate to set out one's priorities. It is particularly important to change the current Law Society rules that prohibit sharing of fees with non-lawyers in order to enhance provision of integrated services to clients. Among other things, the ability to share fees and profits would allow us to work more efficiently in joint teaming arrangements; would permit joint proposals to clients at fixed fees; would permit the client to negotiate more flexible fee arrangements; would permit us to share the risks among team members; would facilitate our investment in developing joint products and services; and would result in improved service for our clients. In my view, sharing of fees and profits between associated, but separate, professional service firms does not threaten any of the core values of the legal profession. Each lawyer in such a law firm would be bound by bar rules governing confidences, loyalty, and professional independence.

We also favour more substantial changes. We have advised the Law Society of England and Wales that we favour the implementation of multi-disciplinary partnerships. We have not determined whether we would make use of such a structure, but we believe that this option is particularly important from the standpoint of: (a) traditional law firms which are not associated with a multi-disciplinary network, and must bring in non-lawyer professionals as partners in order to provide clients with integrated services; and (b) small law firms and sole practitioners who seek to provide comprehensive, cost-effective professional services to small business and individual clients. We recognise that multi-disciplinary partnerships with lawyers may raise different regulatory issues than associations among separate professional firms, but we do not believe that any of these issues are insurmountable.

I do not believe for a moment that the discussions about multi-disciplinary practices are in any way to be fought out as a war between the legal profession and other professions. Instead, the challenge is for we lawyers to reform our rules so that we can satisfy the market demand for integrated, comprehensive professional services -- a demand that this Commission recognised quite clearly in its recently issued background paper. These reforms can be accomplished without damage to the core values of the legal profession. And without these reforms, lawyers in traditional law firms will find it increasingly difficult to compete in performing one of the most critical roles: as a trusted business adviser to counsel clients in implementing broad-based, cost-effective solutions to business problems.

Thank you for the opportunity to address the Commission.