October 05, 2011

Oral Testimony of Gerard Mazet - Center for Professional Responsibility

Oral Testimony of Gerard Mazet,

President of the International Commission of the French National Bar Council

Gerard Mazet, President of the International Commission of the French National Bar Council, was the first speaker. He had previously chaired the French Association of Business Lawyers, that had started an attempt to identify how the legal and the accounting profession might work together because as professionals they shared a common approach as well as certain ethical concerns. He is a member of the French National Bar Council, a body of 18 lawyers who represent the entire French Bar; that group in February 1999 voted on rules defining an MDP and how an MDP and the lawyers working within it should be regulated. They concluded lawyers could only belong to an MDP that included only regulated professionals. The influence of MDPs in France was demonstrated by the fact that the chair of the National Bar Council Committee on MDPs was the representative of a large MDP. Except for the MDP representatives - who resigned - the decision of the Bar Council was unanimous. In France it is unrealistic to say MDPs should not operate as they are basically part of the economic structure. Rather than pretending that they can stop the tide of MDPs the legal profession in France presents what it considers a justifiable reason why some regulatory response is needed to preserve professionals who practice law rather than totally unregulated persons who give undifferentiated advice in different fields.

Professor Daly asked about the content of the National Bar Council rules for lawyers within MDPs. An MDP is a group of people who pursue a common business and share an economic interest. Each component of the business promotes the other’s business. It does not encompass lawyers getting together with others to satisfy a specific client need, a temporary venture. The group considered of primary importance not letting the client believe he had somebody totally independent in a situation in which he did not. Thus the conflict of interest concept is pivotal and it is analyzed at the entity level of the MDP and not at the level of each MDP component. The rules of ethics are also reviewed at the level of the overall group. Not only do different components of the MDPs not have the same rules of ethics, in France the notaires and avocats are different legal professionals. Notaries, who are involved with estate matters and land conveyancing, very frequently appear as the common advisor for both parties and their rules of ethics reflect a shared responsibility and an obligation to tell everybody everything. On the other hand avocats are lawyers for one party so their rules of ethics differ. One of the common elements is transparency - telling the client who you are and what your duty is. To facilitate disclosure of what an MDP is the National Bar Council asks that in addition to filing its charter the MDP answer an economic-based questionnaire that is geared to the substance of what an MDP is, that asks such questions as who makes the decisions, who receives the decisions, how the MDP operates, and what percentage worldwide of its income it gets from different clients. For example, they ask a French MDP-affiliated law firm claiming to be totally independent, "How is it that when two accountants in the U.S. decide that two large accounting firms should be merged suddenly in a weekend it dawns upon lawyers worldwide, in spite of their independence, that they should also merge?" The issue is how is the decision made, how is it relayed, how are the instructions followed? The law firm assures that had they not wanted to merge in France they would not have merged, but presumably they would have ceased using their brand which everyone knows has some value. Unable to resolve the issue of how to regulate people who are totally unregulated the National Bar Council determined that a lawyer could be a member of an MDP that only included regulated professionals. This is a position that may be difficult to maintain yet there remains concern that the MDP not circumvent rules and do through unregulated people what they could not do directly. (Mr. Mazet believes the MDPs will strongly lobby the local bars against this provision.) He believes that MDPs should be required to A) disclose what, in fact, they are, B) identify the ways internally they organize themselves in order to abide by lawyer rules of ethics, and C) authorize independent people to review the way internal procedures are followed. Asked by Mr. Traynor whether there are practice areas reserved to lawyers Mr. Mazet said it is legal professionals, avocats and notaires, whose principal activity is the rendering of legal services for others. Yet the question is, what is principal rather than ancillary activity? Is the creation of a company ancillary to the ongoing function of preparing its financial statements? To a large extent the legal profession in France has not been capable of preventing the accounting profession from practicing law - it’s been done openly as accountants and indirectly through MDPs. As law becomes more pervasive it becomes more difficult to draw a clear line between advice and legal advice. Asked whether accountants openly admit to performing legal services Mr. Mazet distinguished tax, the first field in which accountants were extremely present, from other areas. Even in the tax area the distinction between advice on what the law says and advice on implementation of the law was too subtle and could not be maintained. The agreement between the French Association of Business Lawyers and the accounting profession states that a client who works with a lawyer and an accountant who both know each other and are independent will receive the best accounting and the best legal advice; the agreement evidences that the accounting profession in France realizes that it too is vulnerable to MDPs. Mr. Mazet responded to Mr. Rosner that conflict of interest rules governing lawyers and accountants in France prevent a Big Five MDP firm from representing both the buyer and the seller in a M&A or several bidders for the same target company. The difficulty with an MDP, however, is that the larger part of the iceberg is not regulated. A large MDP today can use an unregulated part of its structure to do things that the lawyers and accountants are not permitted to do. It is the lawyers who would determine whether their independent advice is jeopardized and Chinese walls would suffice. Disclosure and consent of the client would usually be required. This last comment was accompanied by the explanation that France is a strange country and one of its strange things is that it has 180 bar associations; that’s why the National Bar Council was established to create a common body of ethics rules. Most of the MDPs have located themselves just outside of Paris in a place called LaDefense and they basically control the local bar. Mr. Mazet thinks that between the law profession and the accounting profession they could reach an accommodation to set up a super structure that would regulate MDPs. A main concern in France is that auditors certify accounts of companies and then receive significant fees from the audited company for other services. The accountants initial argument was, if the client isn’t concerned, it doesn’t really matter. But it’s not the management of the audited company that the regulatory scheme is trying to protect, it’s the public. The accounting profession in France would be extremely relieved if it were made clear that accountants have to be totally independent from the companies they audit. He urged that if an MDP wants to certify accounts it should not render legal services to that company. MDPs tell lawyers to mind their own business on this issue which shows it is an argument they are concerned about. Also, in many civilized countries, what is in the interest of the public as a whole is a lawyer’s business. Ms. Garvey’s question whether there are other regulatory bodies that might reach out to govern professionals in an MDP, other than lawyers and accountants, elicited an explanation of the current events in France. The National Bar Council in February set forth rules indicating the manner in which lawyers should be allowed to take part in MDPs. The accounting counterpart must now be engaged in discussion (The legal profession convinced the non-MDP related accountants of a need for oversight). A mediator, appointed by the government, is starting investigations and will decide what should be done. Mr. Mazet doubts that the mediator will accept the Bar Council’s position that regulated professionals should not be in MDPs that have non-regulated people. He hopes the mediator requires MDPs to set up clear rules and accept the role of an independent body. He prefers a body grouping professionals and representatives of clients or consumers rather than a body representing only the state. Responding to an antitrust concern question Mr. Mazet spoke about deregulation, a context for his comment on law as a profession. In his words, are lawyers socially, politically justified in preventing other people from doing what they think they can do or is law just a trade? He thinks regulated professions are essential not only in the medical area but also in consultancy activities because as our social organization becomes more complex people are going to need advice, someone to turn to who knows more than he knows. In addition to competency an advisory function implicates ethics and the professional organizations are the only ones that have shown an ability to monitor that. Asked about the imputation of knowledge in French law firms Mr. Mazet said the issue is not yet important because French law firms are smaller. The Big Five law firms rank among the top 7 in France. In response to Professor Haddon’s question, control of these organizations was acknowledged as one of the most difficult things to identify - a power chart not a corporate chart was needed. For many years the practice of law was not a regulated activity in France; use of the title avocat was what was regulated. Legal consultants (conseil juridiques), an unregulated group, gave business law advice. In 1990 these two professions were merged. It’s in the last ten years that the MDP problem has become more difficult. The MDPs present a competition different from the large American and English law firms that more or less play by the same law rules. It is not only business lawyers who express concern regarding MDPs as family lawyers and criminal lawyers found people identifying themselves as consultants giving advice on an unregulated issue and eventually presenting the legal advice as a free bonus. Under existing French ethics rules a lawyer would not be held accountable in discipline for the act of a nonlawyer member of an MDP. Mr. Mazet doesn’t see the client demand for one stop shopping. Asked by Mr. Nelson his estimation of the impact of MDPs on the institution of the legal profession for the protection of the rule of law Mr. Mazet said more and better organized lawyers strengthen the image of the profession (conseil juridique becoming lawyers and in-house counsel being recognized as members of the bar) but this is a short term view. In France there is no difference between an MDP related lawyer and an independent lawyer regarding obligations to the bar. The legal arm of an MDP, as well as the MDP lawyer, can be sanctioned but Mr. Mazet noted the difficulty in a client identifying what is wrong. Transparency is needed. Rather than malpractice he thinks the issue is one of conflicts of interest and non-disclosure.