(thanks to New Yorker)
Monday, 20 June 2011
Saturday, 18 June 2011
Proof It's Time to Teach Legal Ethics in the UK...
The latest beneficiary is Freshfields, which isn't on the panel, and partner Barry O'Brien of Marks & Spencer conflicts of interest notoriety.
However, what really intrigues me are the comments following the article. They represent the polar extremes of formalism and professional responsibility. My take is that lawyers are superb at avoiding accountability but then their forensic training ensures they make these distinctions. For example, the way the SRA Code of Conduct is used to justify positions is rather like the way evangelical preachers on TV use quotations from the Bible. In a country where legal ethics is not properly taught, now is the time.
I've added the comments below:
A few facts
Megatron
Clearly facts aren't your strong point, but the panel was created by your friends in the last government. Do you remember? The ones who set up the system of financial services regulation and who advocated "light-touch" regulation. The ones who virtually bankrupted the country. Do try to retain some grasp on reality.Rant over -16 Jun 2011 | 14:59
Cleansing the Augean Stables
Megatron,
Let's get it all out in the open. Where were the lawyers when the Japanese earthquake struck, eh? Didn't they warn Tepco about the risks of water-cooled reactors?What about Southern Cross? Shouldn't they have predicted the squeeze on local authority spending and refused to act for Blackstone on the freehold sales?
When Cardigan ordered the charge of the Light Brigade, shouldn't the lawyers have known what would happen and injuncted the Russian guns?
I'd be interested to hear your thoughts.
Scattergun -16 Jun 2011 | 15:34
@Megatron
I can only assume that you are not a lawyer. If you are a lawyer then you clearly weren't listening in your conduct classes. Rule 1.04 "You must act in the best interests of each client." Not in the interests of the country. Nor of the government. Nor of Mrs Miggins.
Your duty as a solicitor is to help your client achieve its aims within the law. It is not and never has been a professional duty of a solicitor to second guess his client's commercial decisions and aspirations or to place his own value judgments about a transaction's social utility above the interests of his client. Those are the responsibility of financial regulators, not solicitors in private practice.
Your position is just a commercial law version of the old canard put to criminal lawyers: "How on earth can you defend rapists/paedophiles/armed robbers etc?" And the response is just the same: they are entitled to legal representation and their lawyers are bound to act to the best of their abilities in the client's interests (and not society's at large). It's a fundamental premise of the rule of law.
I can only assume that you are not a lawyer. If you are a lawyer then you clearly weren't listening in your conduct classes. Rule 1.04 "You must act in the best interests of each client." Not in the interests of the country. Nor of the government. Nor of Mrs Miggins.
Your duty as a solicitor is to help your client achieve its aims within the law. It is not and never has been a professional duty of a solicitor to second guess his client's commercial decisions and aspirations or to place his own value judgments about a transaction's social utility above the interests of his client. Those are the responsibility of financial regulators, not solicitors in private practice.
Your position is just a commercial law version of the old canard put to criminal lawyers: "How on earth can you defend rapists/paedophiles/armed robbers etc?" And the response is just the same: they are entitled to legal representation and their lawyers are bound to act to the best of their abilities in the client's interests (and not society's at large). It's a fundamental premise of the rule of law.
Vercingetorix -16 Jun 2011 | 18:17
Maths
@ Vercingetorix
I don’t think you are a lawyer either to be honest based on what I just read. Lawyers are not allowed to represent rapists and paedophiles if they are guilty and then try to claim they are innocent. I think you are missing the point. FSMA said that financial institutions had to act in the interests of market confidence, protection of the consumer, as well as protecting the system as a whole. Therefore, law firms had to assess whether the deals breached those rules and if they did (which clearly they did) they should have refused to act for the client and reported to the FSA and Treasury that financial institutions were conducting deals and activities with huge systemic risk implications. So, these deals were not "within the law" (as you claim) otherwise there would not have been a financial crisis would there?As for quoting the code of conduct by the SRA to justify City firms' oversights in regard to those deals. Please! The SRA is protectionist toward large City firms – They wouldn't dare invent a Code that might in any way, shape or form offend a City firm.
Also @ Vercingetorix - I think it was stated that the law was "not designed" in the interests of City firms and partners. I don’t think people like Plato really put much though into creating a legal system designed to help partners get a good PEP every year!
The incompetence of the lawyers point is interesting too. How could these lawyers spot systemic risk dangers? Many of the clients (i.e. employees of these banks) have very technical and high level economics and mathematics degrees. There is no way the majority of lawyers working on those deals have anywhere near those intelligence levels. There is an argument that the lawyers were not trained properly to work on those deals (from an economics perspective) and that their knowledge was limited to working with precedents and writing board minutes. This should fall at both the door of the advising partners and the SRA / Law Society for allowing lawyers to act on deals that they don’t have the technical expertise to understand.
Maths -17 Jun 2011 | 10:13
@Maths
Where in my post did I say lawyers could assert innocence on behalf of clients they know to be guilty? I didn't.
But even if they do know of a client's guilt, they still defend their client. It is quite possible to test the prosecution's evidence and find it wanting such that a client is acquitted without ever asserting a client's innocence. It happens every day in criminal courts up and down the country.
You really were asleep in your ethics classes weren't you?
As to the rest, you seem to be completely confused as to the difference between a City solicitor and a financial regulator. One is not the other.
Where in my post did I say lawyers could assert innocence on behalf of clients they know to be guilty? I didn't.
But even if they do know of a client's guilt, they still defend their client. It is quite possible to test the prosecution's evidence and find it wanting such that a client is acquitted without ever asserting a client's innocence. It happens every day in criminal courts up and down the country.
You really were asleep in your ethics classes weren't you?
As to the rest, you seem to be completely confused as to the difference between a City solicitor and a financial regulator. One is not the other.
Vercingetorix -17 Jun 2011 | 12:39
Maths
Time to re-read FSMA, Maths. The FSA has those obligations ("objectives" in fact), but financial institutions do not.
Sarpedon -17 Jun 2011 | 12:46
reality check
Reality check: the regulators should have regulated. Or worst case the banks should have seen what was coming. Legal advisers advise on, shock horror, legal issues. Financial institutions advise on, shock horror, financial issues. Admittedly there is some crossover, but to assert that lawyers shouldn't be working on deals that they don't 100% understand from an economic perspective is frankly absurd and highlights a 'bash the banker/lawyer' attitude promulgated by a government that fundamentally failed to protect the economy.
People are out for themselves. It is the responsibility of the government to check this, unless something is actually unlawful (which everything referred to above was not, it was merely inadvisable). If it were unlawful, only the government could have made it so.reality -17 Jun 2011 | 14:56
-------------------------------------------------
A friend sent me another picture of a lawyer at work which I thought I'd include here. Indeed, it's quite accurate....
Wednesday, 15 June 2011
79th Session of the Philosophical Foundations of Law and Finance
Dear all,
For the 79th session of the Philosophical Foundations of Law and Finance (Friday, June 17 · 6:00pm - 8:00pm, Room 516, 309 Regent Street, University of Westminster), we will apply the concepts of a Categorical Algebra of Law and Finance announced in the 78th session [see notes thereto in the Facebook group] to Hohfeldian analytical jurisprudence with special reference to: (1) political phenomena and (2) categorical theory and financial instrument patents.
Under (1), we will examine the concept of executive vision as per Ron Paul [see the YouTube video: (3) http://www.zerohedge.com/a
With regard to (2), see (4) http://www.google.co.uk/pa
Sometimes, I'm asked what is the point of all this formalism, ie Categorical Algebra of Law and Finance? I guess there's a hopeful answer that goes along the path of formalism post Newton and Leibniz, where the conception of a coordinate system allowed the calculation of movement of objects, and that these systems of simultaneous equations got us amazing answers to many problems facing the development of the human species. With the quantum mechanics of the 20th century, something broke in our general view of physical calculations and ultimately, about our sense of having a genuine mathesis universalis. The great symmetrists, Herman Weyl and Eugene Wigner, the former tried but failed to pin-down quantum mechanics to a totally symmetric view with group theory and the latter, elegantly showed us how to calculate with group theory sub-atomic phenomena using Heisinberg's "ugly random symmetric matrices," could not come up with a wide enough view of nature including consciousness because basically, in my view, they placed bets on the wrong type of formalism! If only category theory had been invented in 1900 rather than 1947! [Sigh!]. Then Einstein and Poincare would have come quickly to the same conclusions! And even Hohfeld, the well-trained chemistry major, would have been able to erect a much more direct superstructure. Here's the trick I've learned in formal logic way back when I was a teenager studying under Prof Hart at the University of Hawaii, who at one time, edited Copi's standard textbook on Logic, that the more fundamental premise, the wider the applicability, but without instantiation, the framework is too wooly to be of any real use. So I've been on a long search for just the right set of premises (the Goldilocks premises) which can unlock and link. So far, category theory comes closest to the ideal. It's very useful. Instead of checking for and arguing logical fallacies, you can sketch a few straw and ball diagrams and get to the essence of quantum mechanics, special relativity, Hohfeldan analytics, Plato's Laws, Aristotle's Metaphysics, all with a bit of gracefulness and light humour.
As always, after the intensity of philosophical discussion, we can most deservedly unwind at the Galleria Restaurant at 17 New Cavendis St, from 8:30pm onwards.
Ciao
Joe
For the 79th session of the Philosophical Foundations of Law and Finance (Friday, June 17 · 6:00pm - 8:00pm, Room 516, 309 Regent Street, University of Westminster), we will apply the concepts of a Categorical Algebra of Law and Finance announced in the 78th session [see notes thereto in the Facebook group] to Hohfeldian analytical jurisprudence with special reference to: (1) political phenomena and (2) categorical theory and financial instrument patents.
Under (1), we will examine the concept of executive vision as per Ron Paul [see the YouTube video: (3) http://www.zerohedge.com/a
With regard to (2), see (4) http://www.google.co.uk/pa
Sometimes, I'm asked what is the point of all this formalism, ie Categorical Algebra of Law and Finance? I guess there's a hopeful answer that goes along the path of formalism post Newton and Leibniz, where the conception of a coordinate system allowed the calculation of movement of objects, and that these systems of simultaneous equations got us amazing answers to many problems facing the development of the human species. With the quantum mechanics of the 20th century, something broke in our general view of physical calculations and ultimately, about our sense of having a genuine mathesis universalis. The great symmetrists, Herman Weyl and Eugene Wigner, the former tried but failed to pin-down quantum mechanics to a totally symmetric view with group theory and the latter, elegantly showed us how to calculate with group theory sub-atomic phenomena using Heisinberg's "ugly random symmetric matrices," could not come up with a wide enough view of nature including consciousness because basically, in my view, they placed bets on the wrong type of formalism! If only category theory had been invented in 1900 rather than 1947! [Sigh!]. Then Einstein and Poincare would have come quickly to the same conclusions! And even Hohfeld, the well-trained chemistry major, would have been able to erect a much more direct superstructure. Here's the trick I've learned in formal logic way back when I was a teenager studying under Prof Hart at the University of Hawaii, who at one time, edited Copi's standard textbook on Logic, that the more fundamental premise, the wider the applicability, but without instantiation, the framework is too wooly to be of any real use. So I've been on a long search for just the right set of premises (the Goldilocks premises) which can unlock and link. So far, category theory comes closest to the ideal. It's very useful. Instead of checking for and arguing logical fallacies, you can sketch a few straw and ball diagrams and get to the essence of quantum mechanics, special relativity, Hohfeldan analytics, Plato's Laws, Aristotle's Metaphysics, all with a bit of gracefulness and light humour.
As always, after the intensity of philosophical discussion, we can most deservedly unwind at the Galleria Restaurant at 17 New Cavendis St, from 8:30pm onwards.
Ciao
Joe
Thursday, 2 June 2011
Accountants Really, Really Want Privilege...
(Thanks to Colin and Accountancy Age)
The accountants are desperate to have some form of accountant-client privilege and the Institute of Chartered Accountants of England and Wales have applied to be intervenors in the Prudential case before the Supreme Court. The Law Society has already been given permission to intervene.
Laissez les bons temps rouler!
Wednesday, 1 June 2011
Culpable COLPs?
(thanks to toonpool.com)
Following on from my previous post on general counsel and compliance officers, it's worth reading Michelle Garlick's post on what can happen to compliance officers when things go horribly wrong...as they will.
In the case she describes a brokerage firm, ActivTrades plc, failed to put into place proper client money protection procedures. The Financial Services Authority (or if you prefer Private Eye's name: the Fundamentally Supine Authority) fined the compliance officer £3,000 for the breaches even though no client money was actually lost. The fine was reduced from £20,000 because the CO settled early.
Moreover, according to one commentator on the post, the firm was also fined £85,750 for, among other things, the co-mingling of clients' monies.
Since the philosophy and principles of the SRA in outcomes-focussed regulation are taken from the FSA, one can see how this might apply. Both COLPs and senior management will be culpable for breaches. The fact that the CO in ActivTrades didn't seem to know much or been trained properly did not excuse him nor did it exempt him from punishment.
Future COLPs will have to think very hard about their positions especially in relation to the SRA and their firms. They could easily be hung to dry.
Tuesday, 24 May 2011
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.Testing times ahead for senior managers in law firms and ABS. I'm sure the sheep dip will be working overtime.
“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.”
Saturday, 21 May 2011
Time to Take Your Law Firm to Market?
(thanks to greentech media)
Is it worth floating a law firm on the stock market? Peel Hunt, a broking house, thinks it can work. In a briefing note, it lays out the attractions and possible drawbacks.
Some of the key points are a continuing need for legal services with a growing regulatory state--ie. more red tape, more need for lawyers and other professionals. Good steady income streams (if partners bill properly, I assume). One of the most important reason given is
Flotation simplifies many of the problems associated with partner transition – equity is transparently valued and incoming partners need not provide capital. This can ease the recruitment of young partners, who rarely have built up their own personal wealth to be able to afford to buy in from their own cash resources. Equally, rewards above normal remuneration and after loan interest and loan capital repayments are, in some cases, only achieved by partners in their late forties. The best young partners, particularly those with a marketing mindset, are likely to want a visible reward and, in particular, the possibility of capital reward in their thirties.On the downside is a crucial factor. I've written about managing cultural risk in firms and Peel Hunt identify "the risk of culture change" as a clear risk of flotation
The biggest risk, but the most difficult to analyse objectively, is the extent to whichThis is one area where I would say the vast majority of professional service firms, frankly, don't have a clue. If they mess it up then this is where they will do it. Without cultural mediators they are lost. The example Peel Hunt cites is Slater & Gordon in Australia which seems to be a financial and cultural success.
a public flotation may cause partners to change their behaviour in a way that damages their “trusted advisor” status. The intrinsic pressure of meeting market expectations may change the behaviour of partner/directors. If this causes them to market more aggressively the firm’s specialist services then this may be positive. If however it leads to a more “churn and burn” mentality then, even though this may take years to feed through, this would severely undermine goodwill.
Lawyers would do well to read pages 13 to 15 of the briefing which detail how salaries and dividends would need to be handled. Some middle-range partners might not be entirely pleased with what's on offer: the senior partners will be laughing, however.
The biggest question is how do you value a law firm? I'm not going into detail here but most lawyers will have to learn something called financial reality. It's rather different from Wonderland. (See page 18 for more.)
Using Allen & Overy as a case study, the value of the equity comes out "at £1.48bn, equal to £4.0m each per full equity partner...Those closest to retirement are the most likely immediate beneficiaries of a listing."
Standby for internecine warfare...?
PS. I should mention a fascinating post by Mark Brandon at Motive Legal on "Would you buy shares in a law firm?" which delves into some of the dangers of law firm flotations.
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In respect of the complex financial products and mechanisms that were created during boom times e.g. securitisation etc and the complex deals that took place, it was the responsibility of lawyers to advise their clients that these could end up in a financial crisis scenario. The lawyers should have been alert to the fact that, although operating in a soft law type environment, these deals were harmful to principles such as market confidence, protection of the consumer, as well as protecting the system as a whole. It was the lawyers' duty to deter the clients from conducting these deals and they should have reported their concerns to the Government, FSA and international bodies and refused to act for the client. A client may well think these deals are smart, but it is for the lawyer to consider the legalities – that does not just mean loyally making it happen for the client so they can bill and buy an Aston Martin, but also looking at the bigger picture.
So City lawyers are reaping what they have sown here. And if lawyers wish to argue that they could not anticipate the financial crisis then that is more reason to say they are responsible and should be brought to book because it would be negligent for any lawyer advising on finance deals to not have a firm grasp and understanding of economics related to the deal and how the deal fits into the economic system as a whole within that economic climate (e.g. a boom period).
And £20m is sick – why on earth don’t the government deal with this in-house, probably at 1/10 of the cost? And why are these firms on any kind of a panel in which they initially advised on the deals and the institutions that went belly up? This is another example of the David Cameron 'jobs for the boys' mentality that the current Government promote (i.e. work for the Eton and Westminster School alumni, stuff the rest). It is a total disgrace.