Who speaks for lawyers?

This May it will be two years since the Society’s annual general meeting voted 801-132, on a poll, to adopt the policy favouring non-lawyer participation in the ownership of law firms. And we are now a year on from the Scottish Government white paper proposing to legislate in line with that policy (Journal, February 2009, 10), which appears to have come and gone without attracting a great deal of comment from the profession.

Now we have the Legal Services (Scotland) Bill, currently the subject of evidence to the Justice Committee at stage 1 – and the whole debate seems to have been stirred up once again. Is there a need to allow alternative business structures (ABS) at all? Are they compatible with professional independence? Are the prospects for the profession better, or worse, if they are legalised?

And what does it mean for the position of the Law Society of Scotland (LSS) as regulator? Can it carry out its current statutory mandate of representing the interests of the profession, and of the public in relation to the profession, and at the same time offer to regulate legal practices owned by non-lawyers? Can it retain its representational role at all, if its governing Council, currently made up entirely of solicitors apart from four non-voting lay members, in future has a 20% non-solicitor element to strengthen the public interest voice? And what about the possibility of ministerial influence in the appointment of those members?

All these questions have been raised in recent weeks, both before the Parliament and outside. This article seeks to highlight the reasoning behind the questions, together with current LSS thinking on its future role and on the standing of the profession.

The case against

“While the bill may offer some competitive advantage for a small number of legal firms it offers nothing but an uncertainty for the vast majority of legal practices operating in high street practice.” So concluded the Scottish Law Agents Society’s written submission to the Justice Committee.

In a wide ranging memorandum the SLAS argues, among other things, for regulation of claims management companies and will writers, along with providers of confirmation services (only the last are currently covered by the bill, though ministers are now consulting on a similar scheme for will writers: see p32 below). It also expresses concern at direct ministerial involvement in the processes required by the bill, suggesting that UN and Council of Europe declarations on the independence of the profession point to the need for “an intermediary body” such as the Legal Services Board in England & Wales. On this point at least it finds common ground with Which? and Consumer Focus Scotland, although the Government’s position, like that of the LSS and Faculty of Advocates, is that such a structure would be unduly costly and bureaucratic for a small jurisdiction like Scotland.

However the SLAS then challenges the very rationale for the introduction of ABS. A survey of its members produced a figure of over 85% opposed to external ownership, which if introduced (it claims) would make it more likely rather than less that Scottish firms will re-register in England or be taken over by English practices. The submission goes on to restate the argument that new non-lawyer providers will cherry-pick profitable work, leading to high street legal firms withdrawing from less profitable areas, thus impacting on access to justice.

Before the Justice Committee the SLAS delegates admitted they had not opposed the LSS policy paper, but said they did not have their members’ views available then.

The LSS disputes the analysis presented. “The exact opposite is the case”, says President Ian Smart. “If we have a restricted market and others are allowed to play in that market, as is the current legal position, then people will look to how to achieve that liberalisation outwith the structures of the Society. There is no doubt about that at all.”

As is well known, some firms, not only at the big corporate end of the scale, have been pressing for the ability to give senior non-lawyer employees a stake in the firm alongside their solicitor partners. While the SLAS suggests that “with a bit of ingenuity” it is possible to achieve an equivalent position for such people as things stand, the LSS believes it is better to have such arrangements out in the open and properly regulated. “The perception has been that the Society was a bit behind the times, shall we say in terms of the more innovative end of the profession”, Smart comments. “I think now we’ve caught up. And our ambition in the next 12 months will be to get ahead of the game.”

Whose Society?

Given the background to the bill, it is not too surprising that the LSS finds relatively little to criticise compared with other submissions to the Justice Committee. Any argument is about how to achieve ABS, not whether it should happen at all. That said, the LSS believes that four sections in particular need to be amended to preserve the independence of the profession, mainly concerning ministers’ powers in relation to approved regulators.

It appears content, however, with s 92, which deals with changes to Council membership, a subject on which others question the LSS’s independence from Government.

Section 92 introduces for the first time the power to appoint non-solicitors as full members of Council. (The four current non-solicitor members have speaking but no voting rights.) The appointments, to be made by Council, will be of persons who appear “(a) to be qualified to represent the interests of the public in relation to the provision of legal services in Scotland, or (b) having regard to the Society’s objectives, to be suitable in other respects”.

Ministers however would be able to specify by regulation, after consultation, additional criteria for “appointability” as non-solicitor members and the number or proportion of members to whom these should apply, as well as the overall (minimum) number or proportion (the LSS currently proposes 20%).

To the LSS, the changes are a necessary part of making its governing structure acceptable to Government to achieve approval as a regulator under the bill: for it to be seen to act in the public interest, the public should be sufficiently represented. In addition, it hopes to attract talented and experienced people who can enhance the effectiveness of its operations. Ian Smart cites the example of former President Ruthven Gemmell, who sits on the council of ICAS. He also believes it goes with the territory. “Being a regulator carries certain privileges as well. These privileges are to the advantage of the profession. You can’t expect in this day and age simply to carry on in splendid isolation from the views of the public. It’s not how any organisation of any sort operates.”

Such views do not placate John McGovern, President of the Glasgow Bar Association, who asserts that s 92 “removes the Society’s control of its own Council and defers it to the Scottish Ministers”. He puts forward three reasons why the LSS is no longer independent of Government: the 2008 Standards of Conduct Rules, replacing the 2002 Code of Conduct, no longer refer to solicitors, as part of a free and independent profession, having a “moral obligation” towards the public faced with the power of the state, nor can they have such an obligation if the public and the state are to sit on Council; s 92 effectively cedes a right to ministers to appoint such members of Council as they consider “necessary” – since the Government can determine the criteria and the numbers, the fact of appointment being by Council “is much less significant in that context”; and the effect of the constitutional changes will be that “almost half of the democratic mandate of the profession is removed”.

He adds: “Generally speaking, much of the profession suspects that the Society over the last three or four years has been following an agenda which satisfies the Government and the very big commercial firms to whom a Scottish base is not particularly relevant.”

The WS Society also sees increased Government control arriving via s 92, and indeed s 93, concerning the new regulation committee with 50% non-solicitor membership, though the thrust of its submission to the Parliament is that it is “fundamentally untenable” for a body indirectly controlled by Government to retain its representative function for solicitors – of which more below.

“Astonishing”, Chief Executive Lorna Jack responds to the claim that the LSS has lost its independence. “When you have a Council and a forum that’s largely made up of Scottish solicitors, that doesn’t look like a Government-run body to me. I’m personally not accountable to ministers or Government or parliamentarians at all; I’m accountable to a group of Scottish solicitors.” And non-lawyers? “Lay membership of the quality and calibre that we might choose will just add to the Scottish solicitors’ brand. And I think if you look at other professional bodies, they have that too. We’re absolutely nothing like being controlled, run [by Government]… That doesn’t mean we have to be in a fight with them all the time – that has a tendency not to achieve very much other than making you very unpopular, achieving nothing for those you are trying to represent.”

What if the LSS fails to get the amendments it wants to safeguard its independence? “But we will.” Ian Smart has no doubt. “This is a classic example of where we could have gone into a trench, some kind of trial of strength with the Government, or we could try and work with them to persuade them of the merits of our arguments. We’ve chosen the latter path and we are confident that we will get the amendments.”

Troublesome twins

Independence is an issue on which it is at least possible to study the legislation and form an opinion on whether proper lines have been drawn. A more difficult topic is the tension, as old as the LSS itself, inherent in its twin roles of representation and regulation. The question whether it leads to an irreconcilable conflict of interest has been much debated over the years, perhaps more so when the LSS also had to handle complaints of inadequate professional service by solicitors. Do the changes made by the bill alter the equation again?

The WS Society thinks so, stating in terms to the Justice Committee that the bill “compounds the problem” of conflict. Chief Executive Robert Pirrie explains to the Journal:

“We have not said that the Society should not under any circumstances continue its dual representation/ regulation role. Indeed, in our oral evidence we referred to the delicate balance of regulation and representation under the Solicitors (Scotland) Act 1980 as having worked reasonably well, all things considered. What we have said is that the provisions in the bill – increasing the variety and complexity of what has to be regulated and represented, and increasing the Government’s powers in relation to the Society – would push things past the point where the Society could both regulate and represent.

“It is always a tension, if not a contradiction, for a representative membership body when membership is compulsory. This has been demonstrated over the past year by some of the reaction to the Society’s support for the bill, and the AGM approval involving less than 10% of the over 10,000 eligible votes. When membership is compulsory there can be a disengagement that can easily turn to disillusion. What we are saying is that the bill would exacerbate that inherent problem to the point where an alternative should be considered.”

Pirrie’s proposed alternative is that the Society’s role is “limited to the regulatory function and that solicitors are allowed to determine independently by whom and how they are represented”. This could involve voluntary bodies such as the WS Society forming a joint council for representation purposes, similar to that which existed before the formation of the LSS.

Accepting that no arrangement is going to be perfect, Pirrie envisages that democratic processes would resolve disagreements between bodies represented on any such council and that individual solicitors unhappy with the policy of one association could join another. “Solicitors would only be paying for representation with which they identified and which supported their individual and business requirements.”

“As I have said, it is all a question of achieving the right balance when it comes to regulation and representation. But one test any arrangement has to pass is the complete independence of solicitors from the state. That is fundamental.”

One stop shop

Part of the issue for Pirrie is the increased potential range of regulatory remit for the Society, taking in law firms, law firms with external ownership, MDPs and other ABS, as well as the individual solicitors in these businesses. “The sheer diversity of interest makes common representation impossible (or unrepresentative for some).”

Would we end up with something like the SRA in England, some of whose proposals have not been popular with solicitors there?

“Our concern would be that, if the regulatory body is proposing something with which solicitors disagree, it is not clear how solicitors’ views are going to be independently formulated and advocated if the representative body is also the regulatory body. This becomes a major problem if, as under the bill, solicitors have lost control of the regulatory decision-making.” The point is, he adds, that for solicitors the regulatory body would have ceased to be truly “their” body. “At the very least there would be a major problem with perception and, in these matters, perception is as important as outcome.”

John McGovern too believes that the time has come for a regulatory-representative split, and recently called for a referendum of the LSS membership on the question whether it should continue to represent solicitors. It isn’t that he necessarily supports the situation that now exists in England – as he sees it, it is the LSS itself that has agreed to regulation being removed from solicitors. But he does believe that the Law Society in England & Wales now comes across as an effective campaigning body.

In fact the Law Society of Scotland insists that it has turned its back on attempting to regulate all forms of entity that might emerge under the new scheme. It made it clear to the Scottish Government that it still sees itself as the solicitors’ professional body and the regulator of “what are still essentially legal businesses, employing Scottish solicitors as the main deliverers of the service”, as Ian Smart puts it. “We are the one stop shop: you can come and speak to us about what the views of the profession are, how the profession should be regulated, how the profession should move forward and you’re talking to one authoritative body.”

What if we don’t get other would-be regulators coming forward? That’s for the Government to worry about, Lorna Jack responds. “We want to support our members in whatever way they think about ABS, but what other people think about it is their concern... We just want to make sure the legislation is fit for us.”

“Essence of a profession”

To Jack, the twin functions have to stay together if the profession is to remain a profession. “The FSA would be a good example of a body that regulates but doesn’t represent, and there’s no way that you would describe financial services providers as a profession the same way that you would describe surveyors, architects, accountants. If you look at these professional bodies it’s because they take responsibility for the client or the society or the group that they’re delivering to, as well as for professional standards.”

The English model is not one she is in a hurry to copy. “The more we watch the English experiment unfolding, the more interesting it becomes for me as to why we would want to go down the same path.” Cost is the first thing she cites, with a 20% practising certificate fee hike to pay for the new structure. And there is a tussle going on over which body is responsible for education and training, “so I’m interested to see who owns the badge of English solicitor”. To which Ian Smart adds that there was a “failure of regulation” in England some years ago that helped start the movement for reform, whereas “The one thing that people say consistently about the Law Society of Scotland, if there is any controversy it’s on the representation side. Our regulation has maintained throughout all sections of the profession.”

As for the changes on Council, Smart claims: “There’s a fundamental misunderstanding about who these people are. If there was a situation where the Government had the right to put people onto Council, that would be a serious matter for concern. What’s been reached is a compromise whereby there have to be non-solicitor members of Council, but the Council albeit through a Nolan [public appointments] process chooses these people.” Commenting that the current lay members have made a “hugely valuable contribution”, he adds: “The irony is, some of the people who are moaning most about lay members were also the people who took us on over the Society’s finances, and the person they looked to as the honest broker in all that was Stewart Hamilton, the convener of the audit committee and a lay member of Council!”

One thing that would force a rethink, Smart concedes, would be if you had 50% non-solicitor membership, as the consumer bodies continue to press for – though he dismisses the likelihood. “In the wholly absurd situation where that came about, patently we would have to reconsider… the Society would not in reality be the professional body of the legal profession, and clearly on any view the representation would have to go elsewhere.”

The Society has set out its stall recently as marketer of the excellence of the Scottish legal profession, providing quality assurance of the solicitor’s badge, but Smart sees no conflict with an expanded regulatory role. “Partly what we’re doing is marketing the regulation. Partly what we’re actually saying is not only do you have an excellent standard of service from the Scottish legal profession, in the very few occasions where something goes wrong, you also have a very efficient standard of regulation of that.”

Time to move on?

The Society certainly believes that, whether or not a challenge to its position materialises, the majority of the profession are behind it – and cites the membership survey reported last month (p24) in support. Lorna Jack suggests that the challenge to all solicitors is going to come from outside, and that is where people have to focus rather than on internal wrangles. “There’s a big thing going on in the world and we can’t protect ourselves up in this wee part of the UK and say that’s not going to have any impact on us.

“We’ve got to be as a professional body thinking about how do we make it easy for the members to be in the winning camp rather than the camp that’s getting stuff taken from us, and some of that’s about freeing up structures, allowing people to deliver differently, and to think through imaginative new solutions in areas where you’re under pressure, because it’s just going to be tougher and tougher as things go faster and faster and you can’t hang around too long thinking about them. That’s our biggest challenge, to stop people obsessing about ourselves.”

European conundrum

One closely argued issue concerning ABS is the position of externally owned legal firms under European law. A 2004 European Commission report on competition in the professions is sometimes said to have been the catalyst for reform; it highlighted the striking range of rules governing the legal profession at national level, from the light-touch Scandinavian countries to the very restrictive rules particularly in southern Europe.

Nevertheless there is a considerable body of opinion, not only that the Commission would recognise grounds of public policy relating to independence and ethical standards as justifying the overriding of competition law in relation to the legal profession, but also that rights to free movement and to the protection of legal professional privilege would not apply in the case of lawyers employed by non-lawyer firms. Thus the firms with international ambitions who have been among those pressing for the ability to attract external investment, might find themselves handicapped in pursuing these ambitions as a result of such investment.

The arguments are made particularly by the Scottish Law Agents Society and by Law Society Council member Walter Semple (who dissents from the Council’s current policy on ABS), in their submissions to the Justice Committee. For previous exchanges published in the Journal see McLean, “OFT-related FAQs” (December 2007, 14), and correspondence at January 2008, 8 and February 2008, 8.

Paterson: Don’t follow the medics

Professor Alan Paterson, academic, author and former Council member, who gave evidence as an individual to the Justice Committee, also believes it is normal for professional organisations to perform both representative and regulatory functions, since they frequently overlap. “The dualism reflects the fact that the essence of a profession is that it is marked by the obligation to safeguard the best interests of its clients as well as by the pursuit of the financial interests of its members”, he told the Journal.

“These forces are inevitably in tension from time to time, but the solution is not to sacrifice the interests of the client to the interests of the lawyer or vice versa. Rather it is to recognise that the tension is a healthy and normal by-product of professional life in the 21st century and to live with the challenge of keeping the forces in balance. So too with the solicitors’ professional body.”

Paterson suggests that the medical profession illustrates the dangers of splitting the two functions. “Over the years doctors have come to see the representative body as their leaders, not the regulatory body. It is difficult not to conclude that the success of the BMA in pursuit of the financial interests of its members has outweighed any gains on the public interest front from the GMC. But talk to any doctor and it is clear that financial prosperity has not improved job satisfaction.

“The moral, I believe, is simple. At all costs we must retain the requirement that the solicitors’ professional body should pursue the interests of the public and the profession. That way they will avoid the tendency to evolve into a trade union whose prime function is to safeguard the selfish interests of its members without concern for the interest of the wider community. To move in that direction is to undermine the public service element in the profession, which is to undermine the profession itself.”