From Father Confessor to Compliance Officer

Risk management in law firms will soon be a tortuous task. At the 2nd Annual Law Firm General Counsel & Risk Management Forum today a group of law firm general counsel discussed their roles and how they thought they might change when the Solicitors' Regulation Authority (SRA) new handbook rules come into play.

The concerns arise because the SRA will require law firms to appoint COLPs (or Compliance Officer for Legal Practice). COLPs will be quite different to general counsel, and they will come into being at the end of 2012.

General counsel are often described as confessor type figures to whom lawyers can go when "sins" need to be discussed. Or as one participant said, "I got a call from a partner who told me he was being indicted the next day." For more academic discussion see Fortney and Chambliss. They are not, however, compliance specialists--their role is more diffuse and varied.

There are a range of questions over whether discussions with general counsel are privileged or not. In Europe the ECJ says not: and in the US the matter is before several courts.

The COLP--deriving from Head of Legal Practice in the Legal Services Act 2007--will be the main conduit between law firms and the SRA. But not just a conduit. COLPs will have to develop compliance and reporting policies and persuade the firm to follow them. So the COLP has to be someone of seniority and a lawyer. The COLP is supposed to record failures and report material breaches to the SRA.

What does it all mean? No one knows as guidance is sketchy. What will the liability of COLPs be? How will firms treat them? One thing is clear: the consensus from the panel today was that no general counsel wants to become a COLP. It would destroy the role general counsel have taken on themselves. So will COLPs be selected from risk directors, managing partners, or will they be a new free-standing role?

The SRA chief executive has been trying to allay fears:

...the SRA’s chief executive said the new requirement should not cause major changes in well-run practices.
“COLPs and COFAs will not be sacrificial lambs for what goes wrong in firms,” he said. “The new rules are about making sure there is somebody in the firm who ensures that there are systems in place to comply with the new principles.”
Answering a question from the audience, Townsend said COLPs and COFAs would be responsible for making decisions such as whether to refer a compliance concern to their firms’ managers but would not, in ordinary circumstances, be expected to report such matters to the SRA.
He also sought to reassure the profession that outcomes-focused regulation would not increase reporting requirements. The regulator had been cautious about not imposing further reporting requirements, he said before adding: “We’ll be looking at collecting additional information in relation to the soundness of the business but this will not be huge reams because we’re aware we shouldn’t be asking for too much.”

Testing times ahead for senior managers in law firms and ABS. I'm sure the sheep dip will be working overtime.

From Father Confessor to Compliance Officer

The Legal World on Its Future: The Winmark Looking Glass Report

(Thanks to gizmodo.com)

There have been a number of reports looking at the future of the legal profession recently (see here and here). This particular one by Winmark* looks at the factors "that are driving the future of [legal] sector from both sides", based on surveys of managing partners (MP), marketing directors (MD) and general counsel (GC).

The ten years up to the Lehman crash are portrayed as golden years for law firms, in profits, remuneration for partners and new lawyers. Since then the landscape is looking bleaker. And new factors such as the Legal Services Act and the introduction of alternative business structures (ABS) are compounding the sense of unease.

The first big indicator of this is the reduction in headcount in firms. 80% of law firms cut support staff levels and 76% cut lawyers. There were further cuts in IT, marketing, and training spends. Yet MPs are searching for stars or teams to lead them into pastures new.

While MPs are trying to boost growth and profits, GCs are looking to shrinking budgets, which is creating a mismatch of expectations. Although GCs seek simplicity and predictability in pricing of legal work, 85% still use hourly billing. Despite much publicity the billable hour is flourishing because purchasers of legal services are unsure what to replace it with whether it be premium billing or value billing. These are as yet incomplete concepts waiting for translation into reality.

One finding, surprising to me, was that GCs don't feel they have the "upper hand" when negotiating price structures with law firms. The introduction of ABSs could alter this perception as more competition enters.

How are these tensions being dealt with? Outsourcing of work is one route which is capturing the attention of GCs. This isn't the legal process outsourcing route but rather the sending of work directly to barristers--"companies' desire for quick, informal cost-effective access to advice". Correspondingly, the Magic Circle law firms have seen a reduction in use by GCs.

Even though client relationship management is the mantra du jour, it is not yet fully worked out by law firms. The report expresses doubt that clients really are at the centre of law firm thinking.

Winmark detail a series of gaps between the expectations of managing partners and general counsel that are going to be filled in interesting ways as the legal market becomes more complex following the shake out of the recession and the introduction of ABS. Expect to see new ways of managing pricing by perhaps pricing specialists and also new modes of work distribution, some of which we are seeing now.

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*I'm grateful to Winmark for giving me a copy of their report. Copies can be ordered from john.jeffcock@winmarketeurope.com.

The Legal World on Its Future: The Winmark Looking Glass Report