Predators and the Public Interest — the ‘Big Four’ and Multi–Disciplinary Practices
| Author | Harry McVea |
| Date | 01 November 2002 |
| DOI | http://doi.org/10.1111/1468-2230.00411 |
| Published date | 01 November 2002 |
THE
MODERN LAW REVIEW
Volume 65 No 6November 2002
Predators and the Public Interest – the ‘Big Four’ and
Multi-Disciplinary Practices
Harry McVea*
This article explores the growing body of professional and academic support for
Multi-disciplinary Practices (MDPs) which combine the provision of legal,
accounting, financial, and other `professional'services. In doing so, it traces the
development of MDPs in the UK and assesses the leading claims which have been
advanced in favour of these `one stop'providers. It is suggested that support for
MDPs is located within the emergence of a new professional paradigm which
places a high premium on quality of service and the resolution of complex
problems and is based on a narrow conception of the public interest which is
closely if not solely associated with promoting consumer welfare. This, itself, is
rooted in a deregulatory vision of the world – that is, the view that the breaking
down of barriers (professional, legal, and cultural), which restrict competition
and impede consumer choice, is in the `public interest'. The article challenges
these views, arguing that many of the alleged consumer benefits which are said to
flow from the formation of MDPs are at best speculative and that, in any case, a
proper conception of the public interest is one which extends beyond a narrow
concern for consumer interests.
Introduction
One of the most important issues currently facing the legal profession in the UK
1
and, indeed, elsewhere,
2
is its response to the development of multi-disciplinary
practices (MDPs) combining the provision of legal, accounting, financial, and other
‘professional’ services. Until the recent Enron-Arthur Andersen debacle, where
ßThe Modern Law Review Limited 2002 (MLR 65:6, November). Published by Blackwell Publishers,
108 Cowley Road, Oxford OX4 1JF and 350 Main Street, Malden, MA 02148, USA. 811
* Lecturer in Law, University of Bristol. I would like to thank my colleague Gwynn Davis and two
anonymous referees for helpful comments on earlier drafts of this article. The usual caveats apply.
1 See, for example, Law Society of England and Wales, The MDP Working Party – The Fourth Interim
Report (hereinafter, Fourth Interim Report). The report – which endorses MDPs – was approved by
Council on 15 March 2001. And Report by the Multi-Disciplinary Practices Working Party of the
Law Society in Scotland on Multi-Disciplinary Practices in Scotland (January 2000). The latter report
– which rejected MDPs – was approved by the Council of the Law Society of Scotland and adopted as
policy on 29 June 2000.
2 For example: Canadian Bar Association, Striking a Balance – Report of the International Practice of
Law Committee on MDPs and the Legal Profession (August 1999) at 11 (Canada); American Bar
Association (ABA) Commission on Multidisciplinary Practice, Report to the House of Delegates,
Recommendation (USA); ‘PwC Triumphs
Against Paris Bar in Landmark MDP Ruling’ The Lawyer 24 April 2001 (France); and A. Townsend,
‘The Inevitable Rise of the Multidisciplinary Partnership’ The Lawyer 10 January 2000 16 (Holland).
Andersen’s dual role as auditor and consultant to Enron was the focus of world
attention,
3
the formation of these ‘one stop providers’ has, in many ways, been made
to seem almost inevitable. The elite accountancy firms,
4
which are generally credited
with being the driving force behind MDPs,
5
have for a long time been keen to break
free of the low margin audit work with which they have traditionally been
associated, and establish themselves as the providers of an increasingly wide range
of professional services, including corporate finance, management consultancy and
litigation support, to name but a few.
6
In the UK, backing for MDPs comes from the
Law Society of England and Wales,
7
the City of London Law Society,
8
the Institute
of Directors,
9
the Consumers’ Association,
10
the Office of Fair Trading (OFT),
11
the
Director General of the Confederation of British Industry (CBI),
12
and even the
Labour Government.
13
It is widely argued that MDPs will not only result in valuable
efficiencies, such as economies of scale and scope,
14
but that they will also promote
better client care and consumer choice.
15
In essence, two issues arise in the debate over the formation of MDPs. First, and
stated at the broadest of levels, is the question of whether MDPs are socially
desirable. This not only involves an assessment of whether MDPs benefit
3 Andersen has admitted destroying documents and email messages relating to its work for Enron and
faces allegations that its auditors verified accounts which concealed Enron’s financial problems. See
G. Rosenberg, ‘Scandal Seen as Blow to Outlook for MDPs’ (2002) 24 National Law Journal at A1.
4 The ‘Big Five’ were: Arthur Andersen, Deloitte & Touche, Ernst & Young, Pricewaterhouse Coopers,
and KPMG Peat Marwick. Andersen’s US network has been dissolved following the Enron debacle
and Andersen UK has recently been taken over by Deloitte & Touche – hence the Big Five have now
become the Big Four. See ‘Commission Clears the Takeover of Andersen UK’s Business by Deloitte
& Touche’ at
968|0|RAPID&lg=EN>. The Big Four may, however, face further scrutiny by the UK Competition
authorities: J. Eaglesham and A. Parker, ‘Big Four May Face Watchdogs’ The Financial Times
Wednesday 3 July 2002.
5 See Law and Economics Consultancy Group (LECG), Restrictions on Competition in the Provision of
Professional Services – A Report for the Office of Fair Trading (December 2000) 93 (hereinafter, the
‘LECG Report’); R.A. Stein, ‘Multidisciplinary Practices: Prohibit or Regulate?’ (2000) 84 Minn L
Rev 1529 1530; and L.J. Fox, ‘Accountants, the Hawks of the Professional World: They Foul Our
Nest and Theirs Too, Plus Other Ruminations on the Issue of MDPs’ (2000) 84 Minn L Rev 1097.
6 For example in the US, the Securities and Exchange Commission (SEC) reported that last year
auditors received $2.69 for non-audit services for every $1 spent on audit fees: ‘Facts and Figures of
Enron’s Collapse’ The Yorkshire Post 25 February 2002. In the UK, the profession has recently been
attacked for ‘low balling’, that is deliberately using audit services as a ‘loss leader’ in order to secure
lucrative non-audit consultancy work. See, A. Parker, ‘Accounting Profession Clashes with Regulator
over Attack on ‘‘Low Balling’’’ The Financial Times 29 June 2002.
7 See Law Society of England and Wales, Fourth Interim Report, n 1 above.
8 See M. Trebilcock and L. Csorgo, ‘Multi-Disciplinary Professional Practices: A Consumer Welfare
Perspective’ (Report prepared by Charles River Associates Canada Ltd for the Big Five, August 1999)
20–21 see .
9 ‘Business Calls for Lawyers and Accountants to Unite’ AccountingWEB 13 December 2000 < http://
www.accountingweb.co.uk>.
10 See N. Rose, ‘Lawyers on the Move – MDP Paper Welcomed’ Law Society Gazette, 21 October 1998
5 (quoting A. Holmes, Head of Legal Affairs at the Consumers’ Association: one stop shops will
benefit consumers).
11 The OFT has recently declared that professional rules which prohibit MDPs are anti-competitive. See
Office of Fair Trading, Competition in Professions – A Report by the Director General of Fair
Trading (OFT 328, March 2001) (hereinafter, the ‘OFT Report’).
12 J. Ames and N. Rose, ‘Industry Chief puts weight behind MDPs’ Law Society Gazette 7 January 2000 1.
13 See Lord Chancellor’s Advisory Committee on Legal Education and Conduct, Multi-Disciplinary
Practices (July 1999) 10–11 (hereinafter, Lord Chancellor’s Advisory Committee); and K. Roach and
E.M. Iacobucci, ‘Multidisciplinary Practices and Partnerships: Prospects, Problems and Policy
Options’ 79 (2000) Canadian Bar Review 1 13, fn 34.
14 n 11 above, 11; LECG Report, n 5 above, 93.
15 ibid.
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consumers, but also whether MDPs will threaten other ‘core’ values which are
expected and required of an independent legal profession in a mature liberal
democracy.16 And, secondly, assuming that MDPs should not be prohibited, there
arises the issue of how best they should be regulated. This article addresses the first
of these two issues.
The question of the desirability of MDPs is difficult to grasp fully without an
appreciation of the context in which the debate has been set. The backdrop is one
of increasing commercialisation of both the legal17 and accounting18 professions
generally. Within both domains, and especially amongst the ‘elite players’,
traditional professional values of public service and collegiality have been
increasingly displaced by a new professional paradigm which elevates quality of
service and the resolution of complex problems (the so called ‘commercial
ethic’).19 The recent Enron, WorldCom20 and Xerox21 scandals, however, under-
score some of the fears to which the growing commercialisation of professional
service providers has given rise and raise new question marks over the viability of
MDPs. These scandals have inflamed a debate which in the US had been
smouldering for some time, concerning the decoupling of the ‘audit arm’ (with its
emphasis on objectivity at all times) from accountancy firms’ consultancy
operations (where the emphasis is on client loyalty). Not only would this involve a
major restructuring of the accountancy profession in the US, but it could in fact
alter some of the arguments regarding the merits or otherwise of MDPs. Although
in the UK, the main consultancy arms of the leading accountancy firms had pre-
Enron almost all been ‘spun off’22 – thus leaving audit ostensibly ‘independent’ –
new consultancy functions have been developed within these demerged audit units,
thus giving rise to similar conflict of interest problems as those which arose in
relation to Arthur Andersen’s dealings with Enron and WorldCom.23 Yet while it is
16 See Report by the Multi-Disciplinary Practices Working Party of the Law Society in Scotland on
Multi-Disciplinary Practices in Scotland (January 2000): ‘[A]n independent legal profession has a
vital democratic function in any state, and is essential for the defence of individual liberties’ (at 2).
17 See, for example, M. Galanter and T. Palay, Tournament of Lawyers: The Transformation of the Big
Law Firm (Chicago: University of Chicago Press, 1991) (the increasing pressure to market legal
services raises serious questions about the impact of commercialisation on professionalism).
18 See for example, G. Hanlon, The Commercialisation of Accounting: Flexibility, Accommodation and
the Transformation of the Service Class (London: Macmillan, 1994) (‘the emphasis is very firmly on
being commercial and on performing a service rather than being public spirited on behalf of either the
public or the state’ (at 150)). Abbott asserts that amongst accountants in large accountancy houses
their allegiances are to the firm first and the profession second. See A. Abbott, The System of
Professions: An Essay on the Division of Expert Labor (Chicago: University of Chicago Press, 1988).
There seems little reason to doubt the extension of this analysis to large law firms.
19 Y. Dezalay, ‘Territorial Battles and Tribal Disputes’ (1991) 54 MLR 792 at 793. See also A. Paterson,
‘Professionalism and the Legal Services Market’ (1996) 3 International Journal of the Legal
Profession (rejecting the notion that professionalism is in decline and arguing that what has happened
in recent years is the replacement of one professional paradigm with another – the ‘new
professionalism’).
20 See for example, .
21 See N. Pratley and J. Treanor, ‘Xerox in $2bn Scandal’ The Guardian 29 June 2002.
22 For example Andersen’s consultancy arm was spun off with much acrimony a year or so ago. It is
now known as Accenture. Ernst & Young have set up a separate consulting arm called ‘Cap Gemini
Ernst & Young’ and PwC intends to float ‘PwCC’, its consulting arm, in the very near future.
However, in the UK, it would seem that up until recent scandals these ‘demergers’ were not so much
for regulatory/ethical reasons, but rather to do with a clash of cultures and personalities. This seems
especially true of the Andersen/Accenture split: see, for example, L. Kem eny, ‘Andersen’ The Sunday
Times 20 January 2002.
23 See ‘Consultancy Revenues Grow Despite Enron’ Accountancy Age 27 June 2002 (‘UK firms have
been remarkably resilient and untouched by the controversy . .. consulting revenues of the Big Four
have continued to grow’ (at 20)).
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probably too early to assess precisely what impact Arthur Andersen’s involvement
in these scandals will have on the development of MDPs either in the UK or in the
US, recent events undoubtedly bring into sharper focus many of the issues
canvassed in this paper and provide a timely reminder of the potential predatory
instincts of the Big Four accountancy firms.
In assessing the desirability of MDPs, I begin my task by tracing developments
within the UK which have made it possible for the leading accountancy houses to
form what are in essence de facto MDPs. Next, I address the key arguments
advanced in support of MDPs, and subject these arguments to critical scrutiny.
Finally, I consider some of the most serious concerns which have surfaced in
relation to the formation of MDPs and assess their significance for the provision of
legal services.
Tracing the development of MPDs in the UK
Although an MDP may be described as any business arrangement in which
individuals with different professional qualifications practise together, it is the
relationship between lawyers and accountants in large international consulting
services firms which has generated widespread controversy.24 This issue has, in
fact, been simmering for some considerable period of time.25 As long ago as 1979,
The Royal Commission on Legal Services addressed the question of the formation
of MDPs as part of its overall inquiry into the level and quality of legal services
provided to the public.26 Although the Report acknowledged that ‘divisions of
function between professions were the result of historical development and need
not be fixed for all time’, it ultimately concluded that it ‘did not think that . .. the
public interest [would be served] if partnerships were permitted between solicitors
and other professionals’.27 Despite this the scene was set for change. The emerging
trends of internationalisation, globalisation, and deregulation provided the largest
accountancy firms not only with an unrivalled position from which to advance their
case for fully blown MDPs, but with an opportunity to diversify away from their
core business of audit into more lucrative, not to mention more prestigious,
consultancy work.28 At the same time, a consensus was emerging in some quarters
that these global, well diversified business enterprises could be regulated more
effectively by the discipline of the market than by professional codes of conduct.29
Ever since the so-called Entities Report in 1986, the OFT had been in favour of
removing restrictions on the formation of MDPs where these were thought to
restrict competition unnecessarily.30 The Report recommended that in advance of
changes to the Law Society’s practice rules, the Solicitors Act 1974 should be
amended to remove statutory barriers to fee sharing by solicitors. However, it was
not until 1990 – with the enactment of section 66 of the Courts and Legal Services
24 See Canadian Bar Association, Striking a Balance – Report of the International Practice of Law
Committee on MDPs and the Legal Profession (August 1999) 11.
25 See G. Hanlon, ‘A Profession in Transition? – Lawyers, The Market and Significant Others’ (1997)
60 MLR 798.
26 Cmnd 7648 (October 1979). The following year the issue received consideration in Scotland: The
Royal Commission on Legal Services in Scotland Cmnd 7846 (May 1980).
27 See Lord Chancellor’s Advisory Committee, n 13 above, 27.
28 M.C. Daly, ‘Choosing Wise Men Wisely: The Risks and Rewards of Purchasing Legal Services from
Lawyers in a Multidisciplinary Partnership’ (2000) 13 Georgetown Journal of Legal Ethics 217 231.
29 See Canadian Bar Association, Striking a Balance, n 2 above, 27.
30 OFT Report, n 11 above, 7.
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Act 1990 – that this was finally achieved.31 The only remaining restrictions on
lawyers taking part in MDPs were the Law Society’s own professional rules.32
Although these rules – which are currently under internal review – prohibit lawyers
from sharing fees and forming partnerships with non-lawyers and from sharing
ownership in an incorporated practice with non-lawyers,33 the Law Society has,
since the mid 1980s, introduced a number of changes. The effect of these changes
has been to allow solicitors to work more closely with non-lawyers. Of particular
significance to the formation of MDPs has been an amendment to the Law
Society’s Practice Rules which permits solicitors to accept work from a firm of
non-lawyers. This has resulted in the formation of a number of law firms which are
affiliated to accountancy firms – the so-called ‘captive’ law firms. As yet, the
adoption of the accountancy firm’s trade name is prohibited, but the association
with the accountancy firm can, for example, be recorded on the law firm’s letter
head. Arthur Andersen was the first of the then ‘Big Five’ firms to enter into this
type of arrangement, teaming up with Garrett & Co in 1993 and subsequently with
Dundas & Wilson, in Scotland (though both associations have been dissolved in
the wake of Enron).34 Most of the other leading accountancy firms either followed
Arthur Andersen’s lead, or are currently in the process of doing so.35
Yet despite the above developments in the UK, support for MDPs has not gone
unchallenged. At an international level, the International Bar Association’s
Standing Committee on Professional Ethics gave a lukewarm reception to the idea
of MDPs, observing that they threatened to ‘endanger . . . distinctive principles of
legal ethics . .. namely the preservation of lawyers’ independence, the avoidance of
conflicts of interest and client privilege and confidentiality’.36 And in the US, the
American Bar Association has recently disregarded the recommendations of its
own MDP commission, voting to retain its rules prohibiting profit-sharing and
partnerships with non-lawyers.37 Similarly, at a European level, the Council of the
Bars and the Law Societies of the European Union has suggested that MDPs
represent an unacceptable threat to the legal profession. And, more recently, the
European Commission has called for tougher restrictions on MDPs following the
completion of its post-Enron investigation into auditor independence.38
However, notwithstanding these expressions of unease, pressure for further
deregulation continues to mount;39 and while it seems almost certain that in the
31 It also established that no rule of common law could prevent barristers from entering into
unincorporated associations with non-barristers.
32 Note however, that the Solicitors Act 1974 constrains the Law Society as to the form of regulatory
model which can be adopted in relation to MDPs. See Fourth Interim Report, n 1 above and, also D.
Pannick QC and B. Jaffey’s Joint Opinion ‘The Law Society and Multi Disciplinary Practice for
Solicitors’ (contained therein) paras 15–17.
33 See Solicitor’s Practice Rules 1990, Rule 7. See also Rules 4 and 5.
34 See S. Marks, ‘Last man standing at Andersen Legal’ Evening Standard 18 June 2002. In any case,
Arthur Andersen’s association with Garrett & Co did not flourish in the way it had originally been
anticipated. See Townsend, supra, note 2, 16. See also, S. Bain, ‘Dundas & Wilson brings tie-up with
Arthur Andersen to an end’ The Glasgow Herald 11 June 2002.
35 See Townsend, n 2 above. For example in the UK, KPMG is affiliated with K Legal; Ernst & Young
with Tite & Lewis; and PricewaterhouseCoopers with Landwell. As yet, Deloitte & Touche have not
formed an affiliation.
36 Quoted in Report by the Multi-Disciplinary Practices Working Part of the Law Society in Scotla nd on
Multi-Disciplinary Practices in Scotland (January 2000) 5.
37 S. Allen, ‘ABA Votes to Retain Ban on MDPs’ Law Society Gazette 13 July 2000.
38 See ‘EC Issues Voluntary Independence Code’ Accountancy June 2002 11.
39 ‘Competition in professions – improvement but more action needed’ M2 Presswire 26 April 2002
(OFT continuing to work for free competition in professional services). See:
nexis.com/professional/form?_index=pro_en.html&_lang=en&_secure=on&ut=3203588488>.
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near future the link between audit and consultancy work will be more tightly
regulated, this alone is unlikely to derail the formation of MDPs, which are still
very much perceived as part of an evolutionary trend towards greater diversi-
fication.40
In the next section I identify the main arguments advanced in support of MDPs
and subject them to critical scrutiny. These arguments can be said to rest upon
three major claims – these are what I have called the ‘consumer demand’ thesis;
the ‘economic benefits’ thesis; and the ‘consumer benefits’ thesis.
What’s so good about MDPs?
The consumer demand thesis
According to neo-classical economic thinking, the theory of consumer sovereignty
asserts that consumers – because of their purchasing power – are effectively able to
require companies to produce goods or services of a requisite level of quality and
at a competitive price.41 Proponents of MDPs claim that the development of multi-
service firms is nothing more than a response to growing consumer demand, since
clients are increasingly seeking comprehensive, multi-professional advice.42 In one
recent survey by Customer Satisfaction Surveys – backed by The Financial Times
and by a group of leading law firms – half of the 100 senior executives interviewed
said that they would be willing to use a firm that combined lawyers and
accountants. Among US financial organisations, the figure was as high as 75 per
cent.43 Furthermore, research carried out by Trebilcock and Csorgo on behalf of the
then ‘Big Five’ accountancy firms indicates that there is client demand for the
services of MDPs.44 And in a recent Institute of Directors survey, more than two
thirds of respondents said that they should have access to the services of MDPs.45
However, the argument that the formation of MDPs is client-led has not gone
unchallenged. Fox, for example, has remarked on the paucity of available
empirical data. Moreover, he is deeply sceptical about the reliability of that which
does exist:46
[C]lient groups, by and large, [say that they] want choice . .. [but this] does not substitute for
evidence of client demand . . . [W]hen asked whether they prefer more choices, consumers
40 Despite Aurthur Andersen’s implosion in the wake of Enron some commentators still think that MDPs
will adapt and survive: see Marks, n 34 above (the concept of MDPs should not be tarred by the Enron
/Andersen affair) and Rosenberg, n 3 above (quoting sources which say that Enron merely delays the
evolutionary trend). Some commentators even believe that the imminent loss of audit by the global
consultancy firms will make them even more keen to branch into law (see Rosenberg ibid). For a pre-
Enron analysis, see J. S. Dzienkowski and R. J. Peroni, ‘Multidisciplinary Practice and the American
Legal Profession: A Market Approach to Regulating the Delivery of Legal Services in the Twenty-
first Century’ (2000) 69 Fordham Law Review 83 (‘the role of the global economy has forced the
organised bar [in the USA] to recognise that whatever it does, multidisciplinary practices are
inevitable’) (at 88); and Townsend, supra, note 2, 16.
41 See J.E. Parkinson, Corporate Power and Responsibility (Oxford: OUP, 1993) 13 (and sources cited
therein).
42 Remarks of Steven Alan Bennett Former General Counsel Of Banc One Corporation, available at
43 J. Kelly, ‘Big Five: Long Arm of the Law’ The Financial Times 9 September 1999.
44 See n 8 above, 15 et seq. The authors do, however, accept that their findings are based on a less than
representative sample.
45 ‘Business Calls for Lawyers and Accountants to Unite’ AccountingWEB 13 December 2000. < http://
www.accountingweb.co.uk>.
46 See Fox, n 5 above, 1109.
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will always say yes . . . but none of those who are polled are ever told the consequences of
the added choices [since] that would be too difficult to explain . . . [Consequently,] full
disclosure of the implications does not occur and the results of this unscientific testing is a
clear (but uninformed) vote for choice.
This view is also echoed in the Law Society of Scotland’s Report on Multi-
disciplinary Practices:47 ‘[W]hat evidence there is suggests that there is no great
demand from consumers for MDPs’. The Report goes on to cite various studies
which undermine the ‘client demand’ thesis. The American Bar Association
Commission on MDPs has, for example, expressed the view that ‘detailed
empirical data [as to whether clients really want MDPs] is not available’.48 And in
a recent survey carried out by the Commercial Lawyer, it was found that the great
majority of corporate counsel would not instruct an MDP.49
In view of the fact that there is no compelling evidence that clients want firms to
provide a full panoply of services, proponents of MDPs often fall back on the claim
that clients will come to expect such services – that MDPs are anticipating
demand.50 This seems plausible in light of the challenges posed by rapid
technological advances, the globalisation of capital and financial markets, and the
increasing regulation of commercial activity throughout the world. Since ‘all of
these challenges are multi-disciplinary – involving economic issues, financial
issues, technology issues, and legal issues – [firms] must draw on the talented
resources of all these professions in order . ..’51 to be able to respond effectively to
what will become increasingly sophisticated client needs.
Yet despite the plausibility of such claims, it can be argued that the presence of
this expectation amongst consumers has been generated by the elite accountancy
firms themselves. As Galt says, ‘[i]f you have achieved maximum growth in one
discipline, expansion means spreading the service range, as illustrated by
accountants’ expansion from audit services into business and consultancy
services’.52 Naturally, with fully blown MDPs the list of services on offer will
continue to grow. Support for this view can be found within the upper echelons of
City law firms. For example, Ian Terry, a Managing Partner at Freshfields, has
gone on record as saying: ‘I don’t believe it is about clients, it is about the Big Five
trying to move into higher level law’.53 Moreover, since audit work is used as an
entre
´efor selling other consultancy services,54 it is likely that one reason why
accountants wish to establish links with law firms is their desire to sell these
services to a new client list.55 Such marketing techniques are reinforced by
‘branding’ which helps firms differentiate their products from those of their
competitors.56 Although branding can be understood as ushering buyers through
47 See, n 1 above, 5.
48 As quoted, ibid, 6.
49 ibid. See also ‘Spoilt for Choice’ The Economist 7 July 2001, 87: ‘There are no corporate bodies
noisily clamouring in favour of MDPs. A survey earlier this year found that for strategy advice, more
than three-quarters of a sample of large global businesses used different consulting firms from ones
that they used for advice and electronic business – services that they could easily, if they so wished,
purchase from the same vendor’ (at 89).
50 See S.I. Galt, ‘Multi-Disciplinary Practices and Networks’ (1998) Scots Law Times 95 96; and n 43
above.
51 See Stein, n 5 above, 1532.
52 See Galt, n 50 above, 96.
53 Cited in Report by the Multi-Disciplinary Practices Working Party of the Law Society in Scotland on
Multi-Disciplinary Practices in Scotland (January 2000).
54 See Fox, n 5 above, 1099. See also material cited in n 6.
55 Galt, n 50 above, 97.
56 See n 11 above, 7.
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the purchase decision process – in that ‘[i]ndividual purchasers will filter out
unfavourable or unknown brands’57 – the elite accounting institutions have massive
potential to create demand through advertising and branding. According to
Parkinson, ‘if [consumer] tastes have been generated by companies in the first
place then the idea of consumer sovereignty is overthrown .. . consumers are
instead the manipulated subjects of producer domination’.58 In this respect it is
noteworthy that the leading accountancy firms have a name/brand recognition
amongst the general public which far exceeds that of the leading City law firms.
These entities have, therefore, a strong incentive to capitalise on this strength by
expanding the range of services to which they can lend their names – thus raising a
question-mark against whether the consumer really is sovereign.
The economic benefits thesis
In addition to the ‘client demand’ thesis, it is widely believed that the formation of
MDPs will result in (a) economies of scale; (b) economies by way of ‘substitution
of functions’; and (c) economies of scope.59 Economies of scale arise when the
‘average cost of producing a good [or service] decreases with increased production
of the good [or service]’.60 Regarding such economies, it is claimed that MDPs will
enable firms to capture managerial and administrative efficiencies, for example,
through shared over-heads,61 or the employment of more specialised personnel.62
Yet, according to Gormley, referring to law firm mergers, ‘[e]conomies of scale
are widely held to be non-existent since a professional services firm’s fee-earning
potential is fundamentally governed by its professional head count.’63 The same
point would seem to hold good for MDPs. For example, Quinn, referring to
developments in Canada, argues that there is a:
[W]eak link between scale economies in management and administration, and multi-
disciplinary practices . .. [S]cale economies in administration and support staff functions are
rather speculative for most kinds of professional practice; they depend on many unique
variables, such as the specific nature of the practice, type of client etc. [In Canada] there is
presently no legal . . . impediment to joint utilisation arrangements and [support services.
Thus, if there] were substantial economies to be realised in this area, one would expect cost-
sharing agreements between unaffiliated professionals to be much more prevalent than they
are now, especially in rural areas.64
Whatever the merits of the argument regarding scale economies, the formation of
MDPs may allow for economies by way of ‘substitution of functions’ in that there
57 A.R. Morden, Elements of Marketing (London: D P Publication, 2nd ed, 1991) 268.
58 n 41 above, 13.
59 See n 11 above, 7 and LECG Report, n 5 above, 82. It is believed that the savings derived from these
efficiencies will, in turn, be passed on to consumers. See, Trebilcock and Csorgo, n 8 above: ‘These
reduced production and transaction costs may in turn translate into lower costs to consumers by
reducing further consumers’ transaction costs, by lowering the price paid by consumers, or by
increasing the quality and variety of services made available to them’ (at 4).
60 Trebilcock and Csorgo, ibid, 4.
61 See n 11 above, 7; and LECG Report, n 5 above, 93. See also J.S. Dzienkowski and R.J. Peroni, n 40
above, 121 et seq.
62 See Trebilcock and Csorgo, n 8 above, 4.
63 See P. Gormley, ‘Partner Caught in Computer Squeeze’ The Financial Times 27 October 1998. See
also S. Mayson, Making Sense of Law Firms (London: Blackstone Press, 1997) 125–126 (and sources
cited therein).
64 J. Quinn, ‘Multidisciplinary Legal Services and Preventative Regulation’ in R.G. Evans and M.J.
Trebilcock (eds), Lawyers and the Consumer Interest: Regulating the Market for Legal Services
(London: Butterworths, 1982) 329 334 (footnote omitted).
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may be a comparative advantage in reallocating tasks between lawyers,
accountants, bankers etc on the basis of aptitude or experience. This is a point
conceded by Quinn:
A lawyer practising in an multidisciplinary firm might discover that his accountant partners
are more proficient at some aspects of taxation or corporate planning, even though these
functions arguably fall within the ‘practice of law’ . .. This type of reallocation of functions
between lawyers and accountants could reduce the costs of professional services, or increase
their overall quality.65
He argues, nonetheless, that the scope for efficiency gains of this type is probably
quite limited:
They will arise only within narrow areas of function where the skills of particular
professions and occupations overlap in some substantial way. Thus, lawyers and accountants
are likely to reallocate task responsibilities only in fairly specialised areas of
multidisciplinary practice, like tax or estate planning, where their skills and training are
highly similar and their work experiences are likely to at least partially overlap.66
Quinn concludes that ‘the case for reform would .. . be weak if it depended only on
those benefits derived from the substitution of functions’.67
Although it would appear that the possibility of securing efficiencies by way of
substitution of functions may well be limited, it has been argued that MDPs will,
nevertheless, provide opportunities to derive economies of scope – sometimes
referred to as synergies.68 Economies of scope are cost savings derived from the
use of various inputs, such as information/expertise, in different ways within the
one organisation without the value of that input in any one application being
substantially reduced. Quinn offers an example:
[T]he services of both lawyers and accountants may be required for the planning and
incorporation of a new business enterprise. Much of the information which the lawyer must
obtain from the client and from other sources concerning the business objects of the firm, its
financial structure, etc will be of equal importance to the accountant in advising on tax
consequences or designing an accounting system for the firm. Collaboration between the
lawyer and the accountant, practising as a multidisciplinary team, could permit the reduction
of transaction costs in acquiring the information; eg the lawyer could interview the client
and transmit the appropriate data to the accountant.69
In short, this 2 25 argument suggests that pooled resources can be used more
efficiently than would be the case if individual firms provided their services
separately. It also helps facilitate cross-selling, whereby clients of the law arm can,
for example, be sold accountancy or financial services.
Although the existence of scope economies may well prove to be a welcome
result of the formation of MDPs, the existence of these benefits is as yet
speculative. It is, for example, interesting to note that studies in the financial
services industry (where mergers have been predicated on similar grounds) suggest
that there is no conclusive evidence that diversified firms are able to secure
efficiencies on any appreciable scale.70 What is more, scope economies will be
65 ibid, 331.
66 ibid, 332.
67 ibid.
68 See Trebilcock & Csorgo, n 8, 4.
69 See n 64 above, 333.
70 See for example, Koguchi, Financial Conglomerates (1993) 23. See also n 49 above: ‘Why are the
[big accountancy firms] so keen to become broadly diversified conglomerates when, as a strategy,
diversification has such a poor track record? . .. ‘‘Stick to your knitting’’, the consultants are advising
their clients, even though they are themselves energetically ignoring their own advice’ (at 87).
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more difficult to secure to the extent that MDPs rely on information blocking
devices such as Chinese walls71 (as they most certainly will) to resolve legal
problems concerning conflicts of interest and former client confidentiality. In so
far as Chinese walls work effectively, they will tend to militate against some of the
economic benefits which firms seek to secure. Valuable information (or expertise)
may, for example, be ‘trapped’ behind a wall, to the firm’s disadvantage. This need
for ‘smallness within bigness’ (to offset fears concerning conflict of interest abuses
and to promote clear lines of administrative authority within a large organisation)
will make synergies more difficult to secure.
The consumer benefits thesis
Perhaps the most powerful argument in support of the formation of MDPs is that
they will bring considerable consumer benefits. There are, in essence, three
interrelated strands to this claim – a ‘freedom of association’ strand; an ‘anti-
protectionism’ strand; and a ‘free competition’ strand. With regard to freedom of
association, the argument is that solicitors (or indeed other professionals) should be
free to choose the type of business structures through which they provide their
services to the public.72 Any attempt to curtail this element of choice is viewed as
an unwarranted and unnecessary restriction of a person’s moral right to decide how
best to conduct their business affairs.73 In relation to the second strand, the
underlying idea is that professional rules which are antagonistic to fully blown
MDPs are in essence protectionist, thus thwarting innovation, restricting choice,
and generally providing poor value for money. This view that professional rules are
often protectionist is of course far from new and can be traced back to Adam
Smith’s famous observation that:
People of the same trade seldom meet together, even for merriment and diversion, but the
conversation ends in a conspiracy against the public, or in some contrivance to raise prices
.. . [T]hough the law cannot hinder people of the same trade from sometimes assembling
together, it ought to do nothing to facilitate such assemblies; much less to render them
necessary.74
The first and second strands of the consumer benefits thesis come together in the
third strand, which points up the consumer benefits that flow from increased
competition in the provision of professional services.75 Well equipped MDPs, so the
argument runs, will be able to offer clients the specialisation and expertise
necessary to carry out complex business transactions on a global scale, and this will
71 A Chinese wall is a mechanism designed to stem the flow of confidential information between firms
or between different units within the one firm and to reconcile conflicting interests and obligations
more generally. Typically, the wall technique consists of detailed monitoring of the transfer of
personnel from one side of the wall to the other; ongoing educational and training programmes;
disciplinary sanctions in the event of a breach occurring; and, on some occasions, even physical
compartmentalisation, with different departments being housed in separate buildings. See generally
Law Commission, Fiduciary Duties and Regulatory Rules (Consultation Paper 124, 1992) at para
4.5.2; and Law Commission, Fiduciary Duties and Regulatory Rules (Law Com No 236, 1995).
72 Report by the Multi-Disciplinary Practices Working Party of the Law Society in Scotland on Multi-
Disciplinary Practices in Scotland (January 2000) 2.
73 See n 41 above, 33 (albeit in the context of legitimising corporate power).
74 A. Smith, The Wealth of Nations (Oxford: Clarendon Press, 1880) Vol I, Ch X 135–136.
75 Advocates of ‘political liberalism’ suggest that freedom to choose is a value in itself so ‘that if two
people are happy with their transactions, [then] that is justification enough for its validity, even if both
are . .. worse off as a result.’ See P. Kellner, ‘The Limits of the Market’ (1990) 11 Policy Studies 14
18. ‘Economic liberalism’, on the other hand, posits that market based exchanges will maximise
society’s wealth in a way that is consistent with maximum freedom.
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help firms respond to clients’ needs in a cost effective manner.76 Moreover,
consumers will benefit from a reduction in ‘search, contracting, co-ordination,
monitoring, and information costs’.77 For example, in the absence of MDPs,
consumers who are engaged in complex, global transactions which require a variety
of expertises, need to search out the relevant specialists in each discipline. Having
these services provided under one roof is likely to reduce the search costs associated
with such transactions, thus saving consumers time and money. Similarly, the
consumer who uses an MDP will be able to reduce the contracting costs associated
with entering into contracts with all the relevant experts in each of the required
disciplines. He will also be able to reduce his co-ordination costs, since the
consumer will no longer have to provide the same information to many different
providers. Finally, consumers will be able to reduce monitoring costs either by
‘monitor[ing] randomly across the services and imput[ing] the verified quality to
the entire integrated firm . .. or [by] rely[ing] on substantial brand name capital that
would be at risk if the integrated firm were to fail to deliver its promised quality’.78
The OFT’s work on competition within the professions (in conjunction with the
Law and Economics Consulting Group (LECG)) is premised on the above view
that competition will produce consumer benefits, thus promoting the public
interest.79 The OFT’s starting point is that:
Restrictions on supply in the case of professional services, just as with other goods and
services, will tend to drive up costs and prices, limit access and choice and cause customers
to receive poorer value for money than they would under properly competitive conditions.
Such restrictions will also tend to inhibit innovation in the supply of services, again to the
ultimate detriment of the public.80
And in another passage:
How goods and services are supplied is generally best determined by unfettered competition
between producers for the custom of consumers [and] unrestricted competition from new
suppliers and new forms of supply.81
In line with the modern orthodoxy, the OFT acknowledges that restrictions may
nevertheless be desirable – and can be justified under competition law – if ‘they are
in the public interest, if they serve economic progress, if the benefits are shared
with consumers and if the restrictions do not go further than is necessary’.82 In
applying the above principles, the OFT’s conclusion is clear: rules which prevent
the establishment of MDPs restrict competition.83
76 See n 43 above. See also Dezalay, n 19 above, 793.
77 Trebilcock and Csorgo, n 8 above, 2.
78 ibid, 3.
79 Although the views expressed in LECG’s Report do not necessarily reflect the OFT’s views, both
organisations are agreed that professional rules which prohibit MDPs are anti-competitive. See also A.
Paterson, ‘Multi-disciplinary partnerships – a critique’ (2001) 8 International Journal of the Legal
Profession 161 162–163 (‘the notion that the public interest in relation to legal services can best be
served by unrestrained competition smacks more of dogma and financial economics than a proper
appreciation of the complexities of the legal services market.’)
80 See n 11 above, 1.
81 ibid, 1–2.
82 ibid, 1.
83 Interestingly, a recent ruling by the European Court of Justice found that although a ban imposed by
the Dutch Bar Association on MDPs was anti-competitive in terms of EU Competition law, the ban
could nevertheless be justified on the basis that there was an incompatibility between the advisory
duties of lawyers and the supervisory role of accountants. Ultimately it was for each Member State to
decide for itself whether a prohibition was justified. See, Case C-309/99 Wouters, Savelbergh,
PriceWaterhouse Belastingadviseurs BV vAlgemene Raad van Nederlandse Orde van Advocaten
[2002] ECR I – NYR.
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It is, of course, hard to dissent from the view that the ‘consumer benefits’ thesis
will generate benefits in terms of price, choice, innovation, quality, and reduced
search costs – at least for some consumers. Nevertheless, the OFT’s apparent
methodological starting position – that competition is prima facie desirable – is
problematic. To begin with, the paradigm within which the OFT’s work has been
conducted involves a misunderstanding of the way in which markets should
properly be characterised. The paradigm assumes, for example, that ‘free’
competition is the ‘natural order’ of social organisation.84 Under this charac-
terisation, those who seek to tamper with the ‘natural order’ must bear the burden
of proving why interference is necessary or legitimate.85 This is done by
identifying a ‘market failure’ – typically, the existence of information asymmetries
or externalities – so that regulation can be employed to ‘correct’ the identified
failing.
However, the idea that free competition is the natural order – that it is a natural
form of social organisation – is not at all self-evidently the case. As Sunstein
claims: ‘markets should be understood as a legal construct, to be evaluated on the
basis of whether they promote human interests, rather than as part of nature and the
natural order, or as simply a way of promoting voluntary transactions’.86 In other
words, this dichotomy between unfettered competition and state intervention –
which lies at the centre of the OFT’s work in this area – is false, since there is in
fact no inevitable tension between the efficient operation of markets on the one
hand and intervention on the other.87 Rather, regulation and competition are
complementary, the one providing a framework within which the other can
operate.88
What is more, the approach adopted by the OFT is essentially reductionist.
89
It operates on a wildly simplistic assumption that because some goods and
services are better supplied under market conditions presumptively all goods
and services should be so allocated. Such an approach gives insufficient weight
to the distinctive character of legal services which go beyond the mere
facilitation of commercial expectations to, for example, the protection of
democratic freedoms in a liberal state.
90
The OFT’s approach reduces legal
84 See generally, E.L. Rubin, ‘Deregulation, Reregulation, and the Myth of the Market’ (1988) 45
Washington & Lee Law Review 1249; and C. Sunstein, Free Markets and Social Justice (Oxford:
OUP, 1997).
85 See for example, Trebilcock and Csorgo, n 8 above: ‘In our view, regulation of quality, cost, and
performance of professional services . . . must find a justification within the market or contracting
failure framework in order to satisfy a public interest (or as we would prefer to characterise it,
consumer welfare) test.’ (emphasis added) (7). And see generally, A.I. Ogus, Regulation: Legal Form
& Economic Theory (Oxford: OUP, 1994) chapters 1–4. For a critique of the ‘market failure’
approach, see P.G. Brown, ‘The Failure of Market Failures’ (1992) 21 Journal of Socio-Economics 1
(arguing, inter alia, that the market failure approach ‘can shed little or no light on the question of
which externalities should be controlled [since] one person’s behaviour affects the well being of
others in ways which are difficult for the market to capture.’) (16–17).
86 Sunstein, n 84 above, 5. See also Rubin, n 84 above, 1265 (‘Early civilisations were not unregulated
or partially regulated cultures, but tightly organised islands walled off from the surrounding chaos by
an elaborate and intricate set of social organisations.’)
87 See Sunstein, ibid, at ‘Afterward’.
88 Committee to Review the Functioning of Financial Institutions (Cmnd 7937, 1980) at para 1071 (the
so-called Wilson Report).
89 See generally, E. Andersen, ‘The Ethical Limitations of the Market’ (1990) 6 Economics &
Philosophy 179.
90 See Report by the Multi-Disciplinary Practices Working Party of the Law Society in Scotland on
Multi-Disciplinary Practices in Scotland (January 2000) 2 (an independent legal profession is
essential for the defence of individual liberties).
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services to that of a commodity, much like any other, to be traded in the
market.
91
Yet as Fox claims:
[L]awyers are not just another set of service providers .. . [W]hat separates usfrom a world
of auditors, investment bankers and insurance salesmen is our commitment to a higher set of
values . . . [P]lacing lawyers in alternative practice settings in which they were mere
employees or even partners of others would destroy the bulwark that has been our
profession’s best defence against the compromise of these values .. .92
These professional values which Fox alludes to have been characterised in many
ways, but are said to include putting clients’ interests first, promoting high
standards of training and integrity, and accepting, in so far as is reasonable,
responsibility for members’ failures.93 In contrast to the view which links the
public interest solely to consumer welfare, the above view rests on a different and,
I would argue, more appropriate characterisation of the public interest, which
focuses on the lawyer’s role in the administration of justice, and embodies ideas
such as solicitor-client privilege, confidentiality, the avoidance of conflicts of
interest, and the fulfilling of duties owed to the court.94 Under this conception,
reward is not an end in itself, but is merely an incidental benefit of carrying out
these obligations, thus helping to distinguish a lawyer from someone who is an
employee in what is merely a commercial enterprise.95
Of course, this appeal to professional values can be understood as amounting to
nothing other than a thinly veiled attempt at protectionism, enabling the legal
profession to secure monopoly privileges in order to advance its own economic
self-interest.96 What is more, it could also be characterised as unduly limiting
freedom of choice, freedom of association and competition in general.97
Yet while one should neither automatically accept the view that the provision of
legal services as traditionally conceived was primarily concerned with the
protection of the interests of the public, nor be blind to the profession’s undoubted
failings over the years, the view that the provision of legal services should be
exposed to even greater commercial pressures than those which currently exist is a
worrying trend. The fact remains that, in order to make the best use of the market
as a mechanism for social planning and decision-making, all sophisticated societies
must make choices about the appropriate role of competition within a ‘liberal’
state.98 This is not just because markets are apt to fail, but because there are
important values which properly functioning markets are unlikely to promote.99 In
91 See Paterson, n 19 above, 138. See also Brown, n 85 above. Brown argues that even in western
societies many goods and services are allocated by way of non market criteria, such as merit or need,
and that market based allocations are less extensive than the rhetoric would imply.
92 See L.J. Fox, ‘Dan’s World: A Free Enterprise Dream; an Ethics Nightmare’ (2000) 55 Business
Lawyer 1533 1534.
93 See M. Mears, ‘Foreword’ in The Guide to the Professional Conduct of Solicitors (7th edn, 1996)
referred to in M. Seneviratne, The Legal Profession: Regulation and the Consumer (London: Sweet &
Maxwell, 1999) 5.
94 See Canadian Bar Association, n 2 above, 24.
95 See D. Nicolson and J. Webb, Professional Legal Ethics: Critical Interrogations (Oxford: OUP,
1999) 52–53.
96 See Trebilcock and Csorgo, n 8 above, 2; D. Fischel, ‘Multidisciplinary Practice’ (2000) 55 Business
Lawyer 951 at 969; and J.S. Dzienkowski and R.J. Peroni, n 40 above, 94–95.
97 See Canadian Bar Association, Striking a Balance, n 2 above, 25.
98 See Brown, n 85 above.
99 See for example, S. Kelman, ‘Cost-Benefit Analysis: An Ethical Critique’ (1981) 5 Regulation 100
101 (arguing, inter alia, that what we value most is often outside the market, since such things are
difficult to price and that pricing something decreases its perceived value).
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relation to legal services, three examples can be offered.100 First, as the Model
Rules of the American Bar Association state, lawyers should be encouraged to
‘cultivate knowledge beyond its use for clients, employ that knowledge in reform
of the law and work to strengthen legal education’.101 Although such activities are
in the collective interest, they are activities which are likely to be ‘under-produced’
under market conditions.102 Secondly, greater competition in the provision of legal
services could mean that firms will be disinclined to take on unpopular cases
because of the fear of adverse publicity and the resultant impact on profits.103 This
is especially so where the firm has a very strong brand image which will be the
case when law firms team up with the elite accountancy firms. Finally, greater
commercialisation could inhibit the provision of voluntary legal services through
pro bono work. To the extent that firms continue to perform such work, it is likely
to be done purely as a ‘means to an end’ (ie promoting the firm’s image with the
aim of longer term profits) rather than as an ‘end’ in itself. At the margins, certain
work which does not meet an MDP’s cost/benefit criteria will go undone.
The conclusion from all of this is simple: it does not follow that just because
competition often brings social benefits (usually in terms of price, quality,
innovation and so on), it will always bring social benefits. And although it would
be disingenuous – not to mention unwise – to ignore the consumer interest, it again
does not follow, as the OFT report once more seems to assume, that even if MDPs
bring substantial consumer benefits, the public interest should be equated with the
consumer interest – which in any case is not uniform or homogenous.104
Major areas of concern
Leaving aside for one moment the question of the appropriate role of markets in
the provision of legal services, there are a range of consumer related, as well as
broader public interest, concerns which are raised by attempts to remove barriers to
the formation of MDPs. Although these concerns are to some extent relevant to the
provision of accounting, financial, and other services, I am mainly concerned, as
before, with how these difficulties affect the provision of legal services –
especially in the light of recent scandals which have implicated at least one major
accounting house in fraudulent practices. In discussing this issue, the point is not
that the problems identified are incapable of resolution, but that the suggested
solutions either give rise to problems of their own or undermine the pursuit of other
social goals which reflects an understanding of the public interest extending
beyond the overly narrow fixation with consumer interests. Despite the existence
of these wider public interest concerns, my discussion begins by challenging
claims that MDPs will inevitably advance consumer interests.
100 These examples are drawn from R. Cranston, ‘Legal Ethics and Professional Responsibility’ in R.
Cranston (ed), Legal Ethics and Professional Responsibility (Oxford: Clarendon Press, 1995) 1 28–
29. Although Cranston does not use the examples to show how greater commercialisation will
impoverish the provision of legal services, he does offer them as examples of the profession’s ‘wider
responsibilities’.
101 ibid, 28, citing the American Bar Association’s Model Rules of Professional Conduct (1983)
Preamble, para 5, s 6.1.
102 Neo-classical economists ‘redefine’ such a weakness as a ‘market failure’ which establishes a prima
facie case for regulation.
103 Currently solicitors (but not members of the Bar) are free to decline instructions provided that the
relevant decision is not based on racial, sexual or religious grounds. See n 100 above, 29.
104 Insofar as there will be consumer benefits these are most likely to be enjoyed by elite groups.
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There are in fact good grounds for suggesting that rather than increasing
consumer choice, the formation of MDPs will limit it in a number of ways. First,
MDPs could ultimately lead to the formation of cartels, thereby resulting, over
time, in a reduction in the quality of services offered and/or an increase in price
charged for those services.105 Although the competition authorities would, no
doubt, be alert to this possibility, their intervention in this arena is likely be delayed
and to take place only in the most blatant cases of abuse. Secondly, it is likely that
MDPs will attract the most talented professionals (through offering better rates of
pay and quality of work). Thus, although the creation of MDPs may improve the
quality of legal services at the upper end of the consumer spectrum (ie for the most
sophisticated and wealthy clients, who are already well served), the overall quality
might diminish, ultimately impeding access to justice.106 And even if overall
quality is improved, it is entirely possible – indeed likely – that the quality of
service at the bottom end will fall to an unacceptably low level, thus denying those
who are in greatest need of protection access to quality legal advice.107 Thirdly,
although independent niche providers will continue to operate, the formation of
MDPs is likely to mean that, overall, the pool of independent providers of legal,
accountancy, and financial services will shrink.108 And where circumstances
dictate that, say, only the auditing services of one of the elite accountancy firms
will suffice, client choice will effectively be zero, since none of the other Big Four
auditing firms will be truly independent unless and until significant restructuring
takes place. The customer who wants – and for market reasons may need – to be
audited by a Big Four firm, is faced with an unpalatable ‘take it or leave it’
choice.109
A number of additional concerns spill out from this shrinkage in the independent
provision of legal, accountancy, and financial services.
First, there is likely to be a diminution in consumer safeguards as a result of the
reduction of coherent professional control currently provided by a single, discrete
regulator.110 For example, in relation to the provision of legal services, the Law
Society has sought to ensure that the public is adequately protected by an array of
different safeguards.111 To begin with, clients are protected from professional
negligence by way of a compulsory professional indemnity fund. Likewise, clients
have recourse to a statutory compensation fund in the event of dishonesty by a
solicitor; and there are, in addition, special measures – the Account Rules – which
protect clients’ money and trust money.112 Although all of the above consumer
105 In Italy, for example, the then Big Five were at one stage under investigation in relation to an illegal
price fixing cartel. See J. Kelly, ‘A Conflict Within These Walls’ (1998) October Accountancy and
Business 12.
106 See Law Society of England and Wales, Multi-Disciplinary Practices – Why? Why Not? (October
1998) 17.
107 See M. Galanter and T. Palay, ‘Large Law Firms and Professional Responsibility’ in R. Cranston (ed),
Legal Ethics and Professional Responsibility (Oxford: Clarendon Press, 1995) 189 193.
108 Linked to this is the idea that an independent legal system performs an ‘important democratic function
in any state to defend individual liberties’. See n 106 17.
109 See n 92 above: ‘With only five choices [now four], sometimes you have no choice at all’ (1535).
110 See Galt, n 50 above, at 98.
111 See generally E. Deards, ‘MDPs: A Cause for Concern or Celebration?’ (2001) 8 International
Journal of the Legal Profession 123 132.
112 These rules are reinforced by the Law Society’s statutory powers to monitor compliance, require
production of documents and to intervene in a solicitor’s practice – including, if necessary, the right to
require a bank to freeze a solicitor’s client account, as well as giving rights of forced entry to
premises. See n 106 27.
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protections could, to some extent at least, be accommodated within a new
regulatory framework established for the operation of MDPs, this would involve
MDPs securing their own separate insurance for things such as indemnity cover.
While these arrangements would necessarily follow, practical problems concerning
harmonisation, coordination, and risk assessment within a more complex
bureaucratic structure, could ultimately leave the public worse off. McGee, for
example, has commented that ‘it seems unlikely that the insurers . . . would be
prepared to cover all the activities of an MDP without considerable revision to the
policy, range of exclusions and, most important of all, the premium’.113 To the
extent that solicitors will have to pay higher insurance premiums – because of the
increased risks undertaken by an MDP – these costs will in turn be borne by
consumers.
In addition to the charge that existing consumer safeguards will be weakened, it
can be argued that there is a fundamental incompatibility between accounting
services – in particular, audit – on the one hand and legal/advisory services on the
other. These concerns revolve around conflicting interests and duties generally and
the maintenance of former client confidences in particular. This alleged
incompatibility stems from the fact that a solicitor is the client’s specific advocate
and, save in exceptional circumstances, is under a duty not to disclose material
which would prejudice his client.114 By contrast, an accountant’s primary function
– the auditing function – in effect requires auditors to act like an ‘economic
judge’115 exercising objectivity at all times.116 Most importantly, an auditor is
under a public duty to reveal specific problems discovered during the course of the
audit which might in fact be prejudicial to her/his client’s interests.117 This
distinction was highlighted by the Report by the Multi-Disciplinary Practices
Working Party of the Law Society in Scotland on Multi-Disciplinary Practices in
Scotland (January 2000):
[I]t is clear that, in relation to the role of an Accountant acting specifically as an auditor,
there is a very obvious and fundamental conflict of duty, compared with the duty of a
Solicitor. Legal privilege attaches to all the lawyer’s discussions with his client, but the
auditor’s function requires him to report on his client and to disclose, where appropriate,
information provided to him by that client.118
113 A. McGee, ‘The Impact of Multi-Disciplinary Partnerships on Professional Indemnity Insurance’
[1991] Professional Negligence 45, as quoted in Roach and Iacobucci, n 13 above, 22.
114 Admittedly, in view of the fact that lawyers owe an overriding duty to the court, the operation of this
principle is limited. See n 95 above, chapter 9. See also n 100 above, 32–33. Nevertheless, the
lawyer’s duty to keep confidences is a fair characterisation in most circumstances.
115 W. Bower, ‘The Case for MDPs: Should Multidisciplinary Practices be Banned or Embraced?’ (1999)
July/August No 5 Law Practice Management 61 65.
116 ‘[T]he status of company auditors has, in the course of [the twentieth] century, been transformed from
that of somewhat toothless strays given temporary houseroom once a year, to that of trained
rottweilers, entitled to sniff around at any time and, if needs be, to bite the hands that feed them’: P. L.
Davies, Gower’s Principles of Company Law (London: Sweet & Maxwell, 6th ed, 1997) 561.
117 Auditors are, by virtue of s 235 of the Companies Act 1985, under an obligation to report to the
members of a company commenting on whether the accounts in question have been prepared in
accordance with the Companies Act and whether they give a true and fair view of the health of the
company. In so far as there are discrepancies, these must be identified in the auditor’s report. See J.H.
Farrar and B.M. Hannigan, Farrar’s Company Law (London: Butterworths, 4th ed, 1998) 482.
118 This distinction in roles between lawyers and auditors has also been highlighted in the US by Chief
Justice Burger in United States vArthur Young & Co: 465 US 805, at 818: ‘[T]he private attorney’s
role [is] the client’s confidential adviser and advocate, a loyal representative whose duty it is to
present the client’s case in the most favourable possible light. An independent certified public
accountant [on the other hand] performs a different role. By certifying the public reports that
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Opponents of MDPs claim that this clash of cultures could result ‘in a severe loss
of confidence in [both professions] and the creation of confusion about the roles of
professionals handling their cases’.119 In particular, fears have surfaced that the
formation of MDPs will lead to multiple conflicts of interest and that professional
advice will become polluted by a lack of objectivity because of commercial
obligations owed to other arms of the MDP. As Fox claims:
For lawyers, professional independence is a completely different concept [than for
accountants. It] means we give our clients our best advice, even if it is not what the
client wants to hear. But it also means that we are free from outside influences – especially
government, other clients, third party payers and our own self-interest – to permit us to
exercise unbridled loyalty and zealous advocacy on behalf of our clients .. . It is pressure
from non-client [and] non-lawyers that we must be ever vigilant to guard against and it is
precisely those influences that compromise our professional independence.120
That these influences are present and competing is evident from a number of
incidents over the last few years. First, a recent Securities and Exchange
Commission (SEC) report discovered that over half of the partners at
PricewaterhouseCoopers (PwC) had broken SEC rules on share ownership in
companies which were audited by PwC, thus raising the spectre of conflict of
interest abuse.121 In total there were a staggering 8,064 violations, leading the SEC
to conclude that such widespread non compliance reflected ‘serious structural and
cultural problems at the firm’.122 More recently, concerns that auditors will fail to
fulfil their public duty to reveal adverse information (or not to embellish positive
news) due to a personal interest in the firm being audited, have been exacerbated in
the light of Arthur Andersen’s high profile involvement in both the Enron and
WorldCom scandals. In as much as these events presage major structural changes
in the US which involve the decoupling of audit and consultancy/litigation support
services as being incompatible, some of the worries involving the development of
MDPs and the accentuation of the risk of conflict of interest abuse will no doubt
recede. Although in the UK, almost all of the Big Four firms had, pre-Enron,
already ‘spun off’ their consultancy practices, leaving audit ostensibly inde-
pendent, new consultancy practices have nevertheless developed around the audit
arms. The long term viability of such arrangements is however unclear, and calls
for reform are growing by the day.123 Significantly, the European Commission’s
post-Enron investigation of auditor independence, has resulted in the publication of
new guidelines which recommend that ‘auditors should be prohibited from
carrying out a statutory audit . . . if the auditors have any relationship with their
client that might compromise the auditor’s independence’.124 Although the
collectively depict a corporation’s financial status, the independent auditor assumes a public
responsibility transcending any employment relationship with the client. The independent public
accountant performing this special function owes ultimate allegiance to the corporation’s . . .
stockholders .. . This ‘public watchdog’ function demands that the accountant maintain total
independence from the client at all times and requires complete fidelity to the public trust.’ Cited in
Fox, n 5 above, 1100.
119 See Stein, n 5 above, 1534.
120 ibid 1103–1104; and Report by the Multi-Disciplinary Practices Working Part of the Law Society in
Scotland on Multi-Disciplinary Practices in Scotland (January 2000) 4.
121 ‘Auditing the Auditors’ The Financial Times 10 January 2000. See also n 92 above, 1535 (and sources
cited therein).
122 Quoted by E. McDonald and M. Schroeder, ‘Report by SEC Says Pricewaterhouse Violated Rules on
Conflicts of Interest’ Wall Street Journal 7 January 2000.
123 See for example, A. Mitchell, ‘Reform or Nemesis?’ Accountancy May 2002 1.
124 EU Institutions press release: ‘Commission Issues Recommendation on Independence of Statutory
Auditors’ 16 May 2002.
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recommendation is not legally binding, the Commission has declared its intention
to review, in three years time, how the recommendation has been implemented
with a view to assessing whether binding legislation is necessary.125
Yet while such structural reforms – if in fact implemented – will address, in part,
the argument advanced by writers such as Fox concerning the incompatability of
audit and advisory work, the debate over the merits or otherwise of MDPs does not
hinge solely on the question of whether audit should be decoupled from
consultancy/advisory services. Rather it extends to other fears which relate to
independence and conflicts of interest more generally.126 At a broad level, there is
the worry that the creation of MDPs will exacerbate pressures for lawyers to direct
clients towards choices which reflect the firm’s interests rather than those of the
client.127 For example, a lawyer when undertaking one service as part of an MDP
will have an incentive to cross-sell other products, such as insurance or financial
advice, even when these are not necessarily in the client’s best interests.
Alternatively, the lawyer may refer the client to the partner in the MDP engaged in
the discipline in respect of which the client seeks advice, even though the partner
might not be the best person to solve the client’s problem.128 The incentive to
‘steer’ clients in this manner might stem from commission payments which the
lawyer receives as a result of the sale/referral, or because the sale/referral of more
products promotes the overall interests of the firm, with a consequent ‘trickle
down’ indirectly to employees. To the extent that lawyers refuse to engage in such
practices, they could risk being viewed as unable to see the ‘big picture,’ that is to
say the firm’s overall interests.129
As well as the risk of inappropriate steering, there is the possibility that when
giving advice the lawyer may be reluctant to reveal the full truth to the client –
again, because truthful advice could prove detrimental to the MDP’s overall
economic interests.130 As Fox, in explaining how a lawyer’s obligation for candour
could be comprised in the context of an MDP, puts it:
If the client who is about to be disappointed . . . is also receiving a broad range of other
services or products from the lawyer’s MDP employer (and, of course, that will be the MDP’s
goal, indeed its reason for being) how much pressure will the lawyer be under to keep the
client happy[?] . . . [P]ressure [will be] exerted by the lawyer’s MDP colleagues[,] who are
providing the client with lucrative consulting services, investment advice, insurance, financial
products and other goods and services. Suddenly the fulfilling of an ethical mandate becomes
not just the risk of the loss of a client but the destruction of the MDP’s business plan, the loss
of commissions, the cutting off of the consulting fee spigot, financially jeopardizing the
lawyer’s non-lawyer colleagues who are not schooled in, subject to, or sensitive about the
lawyer’s obligation to independently provide candid advice to the client.131
Although supporters of MDPs recognise these dangers,132 they nevertheless argue
that few if any of these concerns are ‘novel or sui generis to the multi-disciplinary
form of practice’,133 since similar conflicts already occur in existing law firms.
125 Though the Commission is also on record as saying that it will act earlier if it is not satisfied with
Member States’ application of the recommendation, ibid.
126 See also J. Vasagar and R. Evans, ‘KPMG Conflicts of Interest Revealed’ The Guardian 1 July 2002.
127 See n 111 above, 136.
128 The Royal Commission on Legal Services Cmnd 7648 (October 1979) as cited in Roach and
Iacobucci, n 13 above, 26. See also Trebilcock and Csorgo, n 8 above, 9.
129 See Roach and Iacobucci, ibid, 23.
130 See Lord Chancellor’s Advisory Committee, n 13 above, 14.
131 See n 92 above, 1538.
132 See Trebilcock and Csorgo, n 8 above, 8–9.
133 Ibid, 9.
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However, it does not follow that merely because similar problems arise in other
contexts, we should facilitate arrangements under which conflict of interest
problems would be compounded. Indeed, the fact that these conflicts exist under
current arrangements might well cause us to reflect upon the wisdom of the status
quo.134
A much more powerful argument raised by supporters of MDPs is that informed
clients should be allowed to decide for themselves from whom they wish to
purchase services, since they can be presumed capable of looking after
themselves.135 It has, for example, been suggested that some clients may be more
than willing to relinquish the traditional protections offered by the legal profession
– and run the risk of inappropriate ‘steering’ or loss of impartial advice – in order
to secure the perceived advantages of purchasing services from a MDP, and that
they should not be denied the freedom of choice to do so.136 Central to this
argument is the suggestion that markets will in any case provide sophisticated
clients with adequate protection, since it is those sophisticated clients who are most
likely to need and therefore to use MDPs. Underlying this point is the view that in
the long run the incentive to exploit a conflict of interest does not exist. It is said
that an MDP – much like any business – will not risk the long term profits which
are bound up in honest work and good reputation for the short term gains to be had
from abusing conflict of interest situations. The ‘invisible hand’ of market forces
will mean that when faced with a conflict of interest, an MDP will handle that
situation in a scrupulous manner, since the market will impose such a discipline.
This argument can in fact be taken even further. Some argue that the fact that a
conflict of interest situation has been abused is not in itself a sound basis for
regulatory intervention, since regulation is not costless.137 According to this view,
there may be instances when the systematic abuse of conflict of interest situations
will be tolerated on the basis that it is more efficient to permit the abuse than to
eradicate it. The decision about whether or not to intervene is determined by way
of a cost-benefit calculation which focuses on efficiency rather than on some
vague, fuzzy notion of fairness. If the cost of abuse is less than the cost of
implementing and enforcing regulatory structures in preventing the abuse, there is,
under this paradigm, a prima facie case for doing nothing – at least on a preventive
level. Instead, so the argument runs, resources should be used to limit known
abuses or to facilitate redress when abuses take place.
All of the above points are, however, open to challenge. The problem with the
‘client choice’ argument is that it is linked to the debatable assumption that choice
– provided that it is real,138 even if poorly exercised – is everything.139 In other
words, under this view, autonomous choices are said to represent a person’s right
to self-government. For some, this freedom of choice is valued on non-
consequentialist grounds (ie not because it inevitably leads to good results, but
134 See generally H. McVea, ‘‘‘Heard it through the Grapevine’’: Chinese Walls and Former Client
Confidentiality in Law Firms’ (2000) 59 CLJ 370 (questioning the rationale for law firm mergers).
135 For empirical work which supports this claim, see G. Hanlon and J.D. Jackson, ‘Last Orders at the
Bar? Competition, Choice and Justice for All – The Impact of Solicitor-Advocacy’ (1999) 19 OJLS
555 563–564.
136 See M. Trebilcock, C. Tuohy and A. Wolfson, Professional Regulation (1979) at 374 as cited in
Roach and Iacobucci, n 13 above, 32, fn 113.
137 The argument is often attributed to the ‘Chicago School’.
138 By ‘real’ I mean that the choice is based on adequate information.
139 The argument here is that clients have a ‘moral right’ to view professional services, such as legal
services, as just another commodity. There is empirical evidence to indicate that is in fact how
‘organizational clients’ tend to view professional services: see n 135 above.
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because it is a good in itself).140 Yet although the autonomy argument is qualified
to the extent that the choices made must not harm or jeopardise others’ interests,
this view does not take us very far. Other interests are almost always harmed.141
Consequently all ‘liberal’ societies recognise that only certain types of
autonomous, exchange-based choices are deemed valid.142 In other words, it does
not necessarily follow that informed clients should be free to make certain
exchange-based choices if the freedom they seek to enjoy leads to outcomes which
jeopardise, or are at the expense of, other values (such as the value of having a less
commercially orientated legal profession).
The related argument that clients will be protected by market forces also has
weaknesses, since this is only the case insofar as there exists perfect competition
(eg clearly defined property rights; no natural monopolies; no barriers to entry; no
transaction costs and so on).143 However, in view of the fact that the assumptions of
perfect competition are rarely if ever found in practice (the so-called ‘market
failure’ thesis) there are legitimate concerns that the interests of an MDP will not
always be aligned with the interests of its clients and that consequently the client
will not always receive the quality of advice they expect or deserve. In particular,
there may well exist significant information asymmetries which leave the
consumer in a vulnerable position. Although such problems exist even where the
consumer purchases what are called ‘search’ good (eg goods whose value/quality
can be ascertained in advance, such as accommodation or catering services), the
problem is particularly acute in relation to what are known as ‘credence’ goods,
which are difficult or expensive to judge both before and after purchase. Given that
the purchase of professional services are best characterised as credence goods – in
that consumers of professional services are essentially purchasing the specialised
skill and knowledge of the professional adviser, the quality of which is difficult to
assess144 – such consumers will be especially vulnerable and are unlikely to be able
to tell whether they have been treated fairly by the MDP. Although clients can rely
on reputation to overcome information problems,145 this is not always reliable.146
Even leading firms with excellent reputations and branding potential act in a lax
manner at times, as Arthur Andersen’s high profile involvement in both the Enron
and WorldCom affairs illustrates.147
Finally, the claim that some abuses should simply be accepted because they are
too costly to eradicate is open to challenge on the basis that the terms ‘cost’ and
‘benefit’ are defined in an overly narrow way, ignoring difficult to quantify, yet
important, costs and benefits (eg in our context, relating to such matters as
confidence in or respect for the legal profession and the general administration of
justice).148 What is more, this crude utilitarian calculus ignores the fact that law is
about notions of justice rooted very often in single instances, rather than issues of
cost based on the general as opposed to the particular.149
140 See Kellner, n 75 above.
141 A major dilemma here is, of course, determining which harms are legitimate and which are not.
142 See J. Gordley, ‘Equality in Exchange’ (1981) 69 California Law Review 1587 1617–1625.
143 See n 41 above, 132.
144 See C.E.A. Goodhart, ‘What is the Purpose of Regulating Financial Services?’ mimeo (London:
London School of Economics, 1986) 18–21.
145 See n 135 above, 564–566.
146 See Fox, n 5 above, 1101.
147 See also KPMG’s controversial involvement in the Xerox saga, n 21 above.
148 See generally n 99 above.
149 In any case, the position adopted by the Chicago School is almost certainly politically unacceptable. It
is widely recognised that politicians who focus on overly narrow issues of cost at the expense of
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Concerns relating to independence and conflicts of interest are, however, not the
only difficulties posed by the formation of MDPs. Perhaps the most significant
worry is that former client confidences will not be properly maintained.150 And
where the information is not merely confidential but also privileged, issues arise
which pertain to the proper administration of justice.151 There is, for example, a
public interest in ensuring that those who relay information in confidence to a legal
advisor (or someone owing similar duties) feel sure that the information will
remain secret and that no action will be taken which jeopardises – or appears to
jeopardise – the integrity of the confidence reposed.152 Legal rules which do so
will, in turn, help ensure ‘a free and full exchange of information essential for the
conduct of legal affairs’.153 Clearly, such a view puts a high premium on
‘traditional standards of probity and the appearance of probity’.154
These difficulties have already surfaced in the context of the recent spate of law
firm mergers and are likely to be of continuing significance in the run up to the
formation of MDPs. In view of the volume of business which is at stake, it comes
as no surprise that the biggest market players have preferred to strike their own
balance in relation to these concerns. With experience in protecting client
confidences and with vested interests in maintaining their international reputations
for probity, they claim to be best placed to resolve potential problems. Specifically,
the argument is made that market-based solutions – such as Chinese walls, whether
between departments or within departments, ad hoc or permanent – enable firms to
secure economic benefits without imperiling former client confidentiality or indeed
any wider public interest concerns.
The logic of this argument has an undeniable appeal: legal rules which are
antagonistic to the formation of MDPs are open to the objection that they are
antiquated since they fail to reflect commercial reality and serve only to impose
unwarranted costs on firms and on society. Support for this view comes not only
from influential elements within the accounting profession, but also from some
academic commentators,155 and even some members of the Court of Appeal,
notions of justice or equity can very quickly get themselves unelected. See G.P. Shultz and K.W.
Dam, ‘Economic Policy Beyond the Headlines’ The Portable Stanford (Stanford: Stanford Alumni
Association, 1977) 3: ‘Most politicians will nod to efficiency, but it is usually little more than a nod.
The drummer that the politician marches to is equity.’ (quoted in W.W. Hogan, Equity and Efficiency
(Putnam, Hayes & Bartlett: Economic Management Counsel, 1988) 1.
150
The Big Four firms have already found themselves embroiled in this issue. See for example Prince Jefri
Bolkiah vKPMG [1999] 2 AC 222 (hereinafter Bolkiah), where Lord Millett discussed the nature of the
former client confidentiality problem:‘Where the court’sintervention isby a formerclient . . . [t]hecourts
jurisdiction cannot be based on any conflict of interest, real or perceived, for there is none. The fiduciary
relationship which subsists between solicitor and client comes to an end with the termination of the
retainer. Thereafter the solicitor has no obligation to defend and advance the interests of his former client.
The only duty to the former client which survives the termination of the client relationship is a continuing
duty to preserve the confidentiality of the information imparted during its subsistence’ (235).
151 See also n 111 above, 134.
152 See Bolkiah 236, per Lord Millett. See also n 95 above, 259–262, where it is recognised that there are
limits on this principle, since if taken too far it could lead to social harm.
153 Russell McVeagh McKenzie & Co vTower Corporation [1998] 3 NZLR 641 at 665 per Thomas J
(dissenting). Although most clients probably do not have as their first concern client confidentiality
when they relay confidential information to a professional intermediary, as Mitchell says, this is
probably ‘because it is assumed that confidences are [indeed] protected’: see A.D. Mitchell, ‘Chinese
Walls in Brunei: Prince Jefri Bolkiah vKPMG’ 243 254 (footnote 64, and material cited therein).
154 See F.M.B. Reynolds, ‘Solicitors and Conflict of Duties’ (1991) 107 LQR 536 539 (emphasis added).
155 See Mitchell, n 153 above, 254: ‘It is submitted that the balance adopted by the Court of Appeal [in
Bolkiah – which was favourable to KPMG] better reflects modern day realities’, and J. Griffiths-
Baker, ‘Further Cracks in Chinese Walls’ (1999) NLJ 162 at 175 (in the context of law firms): ‘Given
the creation of mega-firms and the complexities of modern day practice, what other options are
realistically available?’.
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including the Master of the Rolls, Lord Woolf.156 Similarly, legal rules which are
overly strict might too readily be employed to ‘conflict out’ or ‘disqualify’ firms
and restrict a client’s right to choose his or her preferred legal representative.157
Furthermore, it can be argued that judicial antipathy towards Chinese walls is at
odds with statutory endorsement of these arrangements, as is the case in the
financial services sector.158
However, leaving client confidentiality issues to be resolved by the market and
market-based solutions, such as Chinese walls, is problematic, as the recent House
of Lords decision in Prince Jefri Bolkiah vKPMG159 illustrates. In Bolkiah, which
involved the provision by accountancy firm, KPMG, of litigation support services
akin to those provided by solicitors,160 their Lordships held that ad hoc Chinese
walls within a single department were ineffective to maintain former client
confidences, since there remained a ‘real’ risk that confidential information would
seep. Accordingly, they granted an injunction to restrain KPMG from continuing to
act in the disputed investigation. Laddie J’s recent ruling in Young and others v
Robson Rhodes (a firm) and another,161 does admittedly challenge this reading of
the case, by suggesting that ‘[t]he crucial question is [whether the] barriers [will]
work .. . [and not] whether they were created before the problem arose or are
erected afterwards’.162 Yet while this offers a glimmer of hope to those who desire
a more prominent role for the ‘wall’ technique,163 I would argue that Laddie J’s
remarks are out of step with the tenor of Lord Millett’s dicta and are probably best
confined to the particular facts of that case.164 Although both decisions involved
accountancy firms, it is clear from the forensic nature of the work undertaken in
each, and the principles of law which the judges applied, that the rulings have far-
reaching implications for the formation of MDPs which seek to rely on Chinese
walls to resolve problems associated with former client confidentiality. And while
it is difficult to disagree with the suggestion that modern solutions should be
fashioned for modern times, the proposition that commercial practice ought to
dictate the content of legal rules is open to challenge: society will not necessarily
be best served by rules which are designed to facilitate market developments.
156 Prince Jefri Bolkiah vKPMG, (CA): ‘To continue an injunction [against KPMG] would be to set an
unrealistic standard for the protection of confidential information which would create impediments in
the way .. . large international firms conduct their practice which are not justified.’ (Otton LJ
concurring, Waller LJ dissenting) (Lexis).
157 Re a Firm of Solicitors [1992] 1 QB 959 at 974: ‘the choice of solutions open to the public should not
be unduly and unnecessarily hampered’ (per Staughton LJ, dissenting). See also, Griffiths-Baker, n
155 above, 175, and n 154 above, 537.
158 See the Financial Services and Markets Act 2000, s 147 (endorsing ‘control of information’ –
otherwise known as Chinese wall – rules). See also, Financial Services Authority’s, Conduct of
Business Sourcebook (applicable to authorised firms conducting ‘designated investment business’)
Rule 2.4 (‘Chinese walls’) and Rule 7.1 (Conflict of interest and material interest).
159 [1999] 2 AC 222. For an analysis of the case, see n 134 above (and sources cited therein).
160 Some of the information obtained by KPMG was likely to have attracted litigation privilege, albeit not
solicitor client privilege, and it was conceded by KPMG that an accountant who provides litigation
support services of the kind which were provided to Prince Jefri had to be treated in the same way as a
solicitor. See Bolkiah 234.
161 [1999] 3 All ER 524.
162 Ibid at 539.
163 See, for example, City Disputes Panel, Review of Conflicts and Duties in Relation to Confidential
Information (London, April 2000) para 10.8. For further endorsement of Laddie J’s approach see
Halewood International Ltd vAddleshaw Booth & Co [2000] Lloyd’s Law Reports 298, per
Neuberger J, discussed in H. McVea ‘‘‘Ad Hoc’’ Chinese Walls’ (2002) 2 Journal of Corporate Law
Studies 25.
164 See n 134 above, 382–385.
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Conclusion
The Big Five (now Four) accountancy firms have played a key role in the
development of MDPs. However, the Enron, WorldCom and Xerox affairs – and the
conflict of interest issues they have raised – have undoubtedly tarnished the repu-
tations of these elite players and have in turn placed a question mark over the future
development of professional practices offering a range of different professional
services. Yet while these scandals are almost certain to lead to a restructuring of the
accountancy profession both in the UK and US, involving a more tightly regulated
independent audit regime, such changes are unlikely to derail the evolutionary drift
towards MDPs. The philosophical forces underpinning the formation of these one
stop providers are part of a global trend towards deregulation,
165
embodying the idea
that the public interest is best served by the dismantling of barriers which stifle
competition, impede efficiency and restrict consumer choice. In many ways this trend
is as much a response to, as it is a cause of, the unravelling of what has been described
as the ‘traditional’ concept of professionalism, rooted in public service and
collegiality.
166
Market ideology has moved in to fill the vacuum left by the public’s
disillusionment with, and growing distrust of, professional service providers. And
central to the ‘deregulatory vision’ is the idea that if the consumer benefits outweigh
the consumer costs, then MDPs will be in the public interest.
However, there is little convincing empirical evidence which demonstrates that
MDPs are sought after by clients; that they will result in significant efficiencies; or
that the relative substitution of market controls for professional codes of conduct
will ultimately improve the lot of most consumers of legal services. The evidence,
such as it is on all of these points is at best speculative. Despite the fact that the
leading accountancy firms have sought to justify the formation of MDPs by
reference to a set of claims rooted in consumer demand and consumer benefits,
there is every reason to suspect – especially in the light of recent high profile
auditing scandals – that they are in fact driven by baser motives inspired by self-
interest and governed by the desire for growth, turnover, and size.
The paradigm upon which this deregulatory movement is based – that unfettered
competition promotes consumer welfare – for all its elegance, simplicity, power,
and rhetorical appeal, is ultimately unconvincing. Under this vision, legal services
are conceived of in largely, if not exclusively, private terms. This ignores the larger
public dimension upon which a proper conception of the provision of legal services
– despite its drawbacks – ultimately rests.167 How the legal profession responds to
the formation of MDPs will have an enormous impact on the way in which the
profession views itself and the way in which it is perceived by the general public.
My prediction is that the untrammelled pursuit by firms of the profit maximising
objective, which the formation of MDPs entails, will exacerbate rather than
alleviate the existing power imbalances within society, and impoverish rather than
enrich the quality of our legal services. In short, while the formation of MDPs
which are dominated by the Big Four is likely to prove advantageous for some
consumers, their development is likely to prove harmful for others; and perhaps
more importantly, is likely further to undermine society’s faith in a legal profession
committed to a higher goal than its own commercial self-interest.
165 See Dezalay, n 19 above, 793.
166
See Paterson, n 19 above, 140. See also R.G. Pearce, ‘The Professionalism Paradigm Shift: Why Discarding
Professional Ideology Will Improve the Conduct and Reputation of the Bar’ (1995) 70 NYUL Rev 1229.
167 See n 92 and accompanying text.
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