Regulating Law Firm Ethics Management: An Empirical Assessment of an Innovation in Regulation of the Legal Profession in New South Wales

AuthorChristine Parker,Steve Mark,Tahlia Gordon
Publication Date01 September 2010
DOIhttp://doi.org/10.1111/j.1467-6478.2010.00515.x
JOURNAL OF LAW AND SOCIETY
VOLUME 37, NUMBER 3, SEPTEMBER 2010
ISSN: 0263-323X, pp. 466±500
Regulating Law Firm Ethics Management: An Empirical
Assessment of an Innovation in Regulation of the Legal
Profession in New South Wales
Christine Parker,* Tahlia Gordon,** and Steve Mark**
The Australian state of New South Wales (NSW) was the first jurisdiction
to fully deregulate law firm structure and allow alternative business
structures in the legal profession. At the same time it also introduced an
innovation in regulation of the legal profession, requiring that incor-
porated legal practices implement `appropriate management systems'
for ensuring the provision of legal services in compliance with profes-
sional ethical obligations. This paper presents a preliminary empirical
evaluation of the impact of this attempt at `management-based
regulation'. We find that the NSW requirement that firms self-assess
their ethics management leads to a large and statistically significant
drop in complaints. The (self-assessed) level of implementation of ethics
management infrastructure, however, does not make any difference. The
relevance of these findings to debates about deprofessionalization,
managerialism, and commercialism in the legal profession is discussed,
and the NSW approach is distinguished from the more heavy-handed
English legal aid approach to regulating law firm quality management.
466
ß2010 The Author. Journal of Law and Society ß2010 Cardiff University Law School. Published by Blackwell Publishing
Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
*Melbourne Law School, University of Melbourne, Victoria 3010, Australia
c.parker@unimelb.edu.au
** Office of the Legal Services Commissioner, GPO Box 4460, Sydney, NSW
2001, Australia
olsc@agd.nsw.gov.au
This paper is based on an online research report published by the NSW Office of the
Legal Services Commissioner: C. Parker, T. Gordon, and S. Mark, Research Report:
Assessing the Impact of Management-Based Regulation on NSW Incorporated Legal
Practices (2008), available at ink.nsw.gov.au/lawlink/oOOLSC/
ll_oOOLSC.nsf/vwFiles/Research_Report_ILPs.pdf/$file/Research_Report_ILPs.pdf>.
We would like to acknowledge the hard work and expert assistance of Malcolm Anderson
in preparing the statistical analyses reported here, and also the work of research assistant
Caitlin Hamilton in preparing the data for analysis. We would also like to acknowledge
the very helpful comments and assistance of Esther Bedggood, Molly Hutcherson, and
Lynda Mustyn of the Office of the Legal Services Commissioner, and also the comments
and advice of John Gray, Linda Haller, Gillian McAllister, Vic Marles, and the anony-
mous journal referees. This research was made possible by funding from a Melbourne
INTRODUCTION
The regulation of the practice of law traditionally focused exclusively on
individual legal practitioners. Lawyers were allowed to practice only alone
or in partnership with other individual lawyers. It was feared that alternative
business structures might dilute individual responsibility for the competent
and ethical provision of legal services and put competing commercial
pressures on lawyers.
1
In 2001, however, Australia's most populous state,
New South Wales (NSW), became the first jurisdiction in the world to
completely deregulate the structure of legal practice. The full incorporation
of legal practices ± under the ordinary company law and without any
restrictions on who may own shares or what type of business can be carried
on ± is now allowed in seven of Australia's eight states and territories.
2
At the same time that the various Australian states and territories
deregulated permitted legal practice structures, they simultaneously intro-
duced new legislative provisions that require incorporated legal practices
(ILPs) to implement and maintain `appropriate management systems' to
improve the management and culture of each firm as a whole and prevent
ethical risks associated with multidisciplinary practice and the commercial
pressures of external investment in legal practice.
3
These new provisions
radically expand the traditional focus of professional regulation on
disciplining individual legal practitioners and resolving individual lawyer-
client disputes.
4
In the United Kingdom there is a tradition of heavy-handed contractual
regulation of law firm management processes and quality in the legal aid
sector.
5
In NSW, by contrast, the independent complaints-handler, discipli-
467
Law School Faculty Small Grant to Dr Christine Parker, for which she is grateful, and
was conducted by her in collaboration with the New South Wales Office of the Legal
Services Commissioner. It was not a paid consultancy.
1B.MacEwan, M. Regan, and L. Ribstein, `Law firms, ethics, and equity capital'
(2008) 21 Georgetown J. of Legal Ethics 61; C. Parker, `Law firms incorporated: how
incorporation could and should make firms more ethically responsible' (2004) 23
University of Queensland Law J. 347.
2C.Parker, `Peering over the ethical precipice: incorporation, listing and the ethical
responsibilities of law firms' in Reaffirming Legal Ethics: Taking Stock and New
Ideas,eds. K. Tranter et al. (2010).
3 id.
4S.Markand G. Cowdroy, `Incorporated legal practices ± a new era in the provision of
legal services' (2004) 22 Penn State International Law Rev. 4; S. Mark and T.
Gordon, `Innovations in regulation ± Responding to a changing legal services market'
(2009) 22 Georgetown J. of Legal Ethics 501; J. Briton and S. McLean, `Incorporated
legal practices: dragging the regulation of the legal profession into the modern era'
(2008) 11 Legal Ethics 241.
5H.Sommerlad, `The implementation of quality initiatives and New Public Manage-
ment in the legal aid sector in England and Wales: bureaucratisation, stratification
and surveillance' (1999) 6 International J. of the Legal Profession 311.
ß2010 The Author. Journal of Law and Society ß2010 Cardiff University Law School
nary prosecutor and regulator for the whole legal profession (not just legal
aid), the Office of the Legal Services Commissioner (OLSC), has put the
new legislative provisions into practice via a light touch `education towards
compliance strategy'. This strategy requires firms to self-assess and report on
their implementation of appropriate management systems.
6
This paper
presents a preliminary empirical evaluation of the impact of NSW's regula-
tion of law firm ethics management on practice.
The first part of the paper contrasts two different ways in which we might
interpret, and predict the effects of, the NSW approach to regulating law
firms' management of their own ethics: the first, more optimistic, inter-
pretation is to see the NSW initiative as a natural experiment in regulatory
encouragement of the implementation of effective `ethical infrastructure' in
law firms. This interpretation would predict that the NSW initiative should
substantially improve ethical practice in law firms. A second, more pessi-
mistic, view suggests that the NSW initiative represents the furthering of a
more general trend towards the commercialization and bureaucratization of
legal practice in particular, and society in general.
7
This view would predict
that the requirement to implement `appropriate management systems' will
replace professional judgement and ethical values with ritualistic and
ineffective `box-ticking'.
The second part of the paper presents and analyses quantitative data on
the actual experience of the NSW regulator with this regime. We test
whether regulating ILPs in this way improves their ethical management and
behaviour as indicated by lower rates of complaint about practitioners in
ILPs to the NSW OLSC. We argue that this analysis suggests that the NSW
approach to regulating the ethical management of law firms has a dramatic
and positive impact.
The third part of the paper summarizes these findings and discusses their
significance and application to non-incorporated law firms and other juris-
dictions outside Australia, including the United Kingdom where alternative
business structures and firm-based regulation will soon be introduced.
8
468
6See /lawlink/OLSC/ll_OLSC.nsf/pages/
OLSC_ams>.
7M.Power, The Audit Society: Rituals of Verification (1997).
8 The United Kingdom's Legal Services Act (2007).
ß2010 The Author. Journal of Law and Society ß2010 Cardiff University Law School

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