Daily Dispatch

Futures Week

Will Alternative Business Structures Fly?

By | Sep.27.16 | Daily Dispatch, Ethics, Innovation, Law Practice Management


As always, the College of Law Practice Management’s Futures Conference featured wonderful speakers — and the theme this year, “What will Law Look Like in 2026?,” brought out some provocative proposals. Today, Reid Trautz runs through the ABCs of unauthorized businesses. Will we survive this change in the rules? 

Alternative Business Structures (ABS) is the innocuous label given to one of the most important, yet ignored, issues facing the legal profession today. It is the debate whether or not to change our ethics rules to allow non-lawyer corporate investors and managerial professionals to invest in new forms of law firms and share in the profits — something that is currently prohibited in 49 states.

Proponents — often from large firms and academia — want to allow ABSs to spur additional capital investment in firms. They want to close the so-called “justice gap” in the legal services market by attracting additional capital investment to firms to develop more robust systems and technology so more people can obtain affordable legal services. Much of this new capital would flow to existing big firms to help them expand into consumer services such as family law, personal injury and bankruptcy, among others.

Opponents — mostly solo and small firm lawyers — are concerned the profit motive of these non-lawyers will negatively impact professionalism. They also know that large capital investment from venture capitalists and corporate investors will flow to larger firms where the efficiencies are greater and the financial risks are diversified. In short, they fear a legal equivalent of Walmart, Home Depot, and similar “big box” stores moving into their market. Solo lawyers have seen the demise of the corner hardware store, local grocer and neighborhood travel agent, and they vow not to let it happen to them.

Impact in Other Jurisdictions

To encourage adoption of ABSs in more U.S. jurisdictions, proponents like to tout the experiences of jurisdictions that already allow non-lawyer participation. Alternative business structures of various types have been authorized in New South Wales, Australia — the largest state in that country — since 2001; the United Kingdom has allowed them since 2007, and Quebec and British Columbia now allow limited ownership in multidisciplinary practices.

The District of Columbia has long had a limited form of ABS. However, these structures have rarely been adopted by lawyers because large firms that might create them have many lawyers with multiple bar admissions in jurisdictions that do not allow ABSs. One law firm in DC, Arnold & Porter, created a multidisciplinary consulting group in 1984 called APCO & Associates that was led by lawyers, but they soon found they had difficulty competing with big accounting firms not burdened with the Rules of Professional Conduct.

So what has been the impact of allowing ABS in these jurisdictions? Does it close the so-called justice gap? Does it lower the core values of the profession? Empirical data from studies done in jurisdictions that have adopted ABSs is beginning to emerge, yet the data is inconclusive: It seems to show that no additional harm has come to consumers in those jurisdictions, but the data also fails to show any impact on closing the access to justice gap. That’s good news to the many solo and small firm lawyers who want to keep the status quo or slow the progress of ABSs. Or is it?

Unauthorized Structures are Already Here

Interestingly, unauthorized forms of ABSs are already happening in the profession. Pro bono legal services organizations — which have no profits to share with non-lawyers — are developing partnerships with corporate donors. Online legal service websites Citizenshipworks and LawHelp are both being supported by ProBono.net and sponsored by corporations (including Microsoft, Google, Lexis-Nexis, American Lawyer Media, Knight Foundation, among others) and their partner big firms across the country.

Further, some law firms are unbundling their basket of traditional law firm tasks, creating ancillary legal process outsourcing firms with non-lawyer partners to more efficiently handle non-legal aspects of their business and share in the profits. Such ancillary entities provide services such as marketing, client intake, legal research, e-discovery and litigation funding.

We are also seeing online providers of legal services who fall into several categories: non-lawyers and lawyers who partner in various configurations with non-lawyer technologists to develop interactive websites that deliver legal services. Are they technology companies engaging lawyers to deliver legal services online, or are they law firms engaging software developers to deliver legal services online?

What’s the Solution?

So will the profession change the rules and allow ABSs? We live in a state-bar world. There are 51 jurisdictions regulating lawyers. That means 51 different regulatory systems creating 51 ABS ownership variations. That means 51 state bar decisions on whether or not to allow ABSs followed by 51 decisions by state supreme courts or legislatures. With most state bars led by solo and small-firm lawyers, it will take years for the states to decide these issues.

While the legal profession ignores or defers the issue, unauthorized forms of ABSs will quietly infiltrate the market. These businesses — backed by non-lawyer investors — are already delivering legal services. While most lawyers can easily name one or two of these companies, there are hundreds more in development. If our profession can’t find the time to decide whether or not to allow ABSs, how are we going to unite to fight these unauthorized businesses?

The solution lies in simultaneously allowing ABSs, while expanding regulation to all legal services providers. That is the only way to expand the delivery of legal services, protect consumers, and maintain the integrity of the legal profession.

We need to address it now. To do nothing would leave lawyers at a huge competitive disadvantage and fundamentally change the legal profession as we know it today — and that’s just what non-lawyers are hoping we do.

Further Reading

What does the American Bar Association have to report on the issue of alternative business structures?

Reid Trautz is Director of the Practice and Professionalism Center at the American Immigration Lawyers Association. He is a past Chair of ABA TECHSHOW and a Fellow of the College of Law Practice Management. A highly regarded speaker and author, Reid is co-author of the ABA book "The Busy Lawyer's Guide to Success: Essential Tips to Power Your Practice." He blogs on innovation in management and ethics for lawyers at Reid My Blog! Follow him @RTrautz.

Illustration ©iStockPhoto.com


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