France’s Haeri Report and Alternative Structures (2 of 2): Je t’aime, moi non plus

This is the sixth in a series of eight posts relating to France, and the third and last post specifically focused on the report entitled The Future of the Legal Profession (L’Avenir de la profession d’avocat), recently submitted to the Minister of Justice by French lawyer Kami Haeri.

Again, background information about the Report is available here.

The immediately preceding post examined in detail one element of the Haeri Report, which expressly recommends that law firms be allowed to open their share capital to nonlawyers (specifically, to persons who are not members of one of France’s regulated legal professions), provided that nonlawyers remain minority shareholders.

While the Report does make this recommendation, it does so in a lukewarm manner. It simply says that “there’s no obstacle” to it, at the same time emphasizing that this is only the case as long as the nonlawyer shareholding remains under 49% .

On the other hand, there are a number of other recommendations that the Report makes with enthusiasm, if not outright passion. Whether the commission realized it or not, these recommendations bear a direct relation to alternative structures.

More specifically, the Report recommends that lawyers:

  • Unlearn their highly individual manner of working. Instead, the Report calls on them to learn and apply methods of co-working, and notably to learn from more innovative sectors how to better work together,
  • Better understand and utilize technology in order to make themselves more accessible to clients and more efficient in their work,
  • Develop a “brand strategy” that allows a firm to be known on the basis of its own brand rather than only on the basis of the names of its founders,
  • Introduce into their firm management tools and practices borrowed from the business world,
  • “Professionalize” firm management by favoring the placement of nonlawyers in upper management positions,
  • Reform their firm cultures by reducing censure, self-censure and skepticism and supporting innovation and risk-taking, and
  • Reconsider their firms’ profitability requirements, to better support periods of lower revenue that often result from the development and implementation of innovation.

Through these recommendations, the Report in essence calls on lawyers to dramatically change, if not revolutionize, the way that they work. The Report calls on lawyers to do this not by looking inside to themselves or to other lawyers, but instead by looking outside of the legal profession.

In fact, it is entirely unrealistic to think that lawyers could implement any of the recommendations above with any modicum of success without help – a lot of help – from persons outside the legal profession. One of the recommendations is even explicit on this point, calling on firms not only to “professionalize” firm management, but to deliberately seek out nonlawyers for that purpose.

“So,” you might be thinking, “what’s the problem?” What do alternative structures have to do with it? If you need more expertise, just find the nonlawyers you need and either hire them as consultants and pay them their fee, or hire them as employees and pay them their salary. There’s no reason to make them partners or shareholders. And if you need more capital to “better support periods of lower revenue,” then that’s what bank loans are for.  It’s not rocket science. Case closed.

Not so fast.

Certainly those are the solutions for some firms. Certainly larger firms that have the resources. But this is not a solution for all firms, or even for many firms, for two reasons:

1)         Not all firms have the resources:

They do not have the financial reserves to pay consulting fees or to bring a non-fee earner onto their payroll. This is especially true for the “young lawyers” (the principal focus of the Report) who are seeking to establish their own firms, as well as for the not so young lawyers seeking to do the same. They, the Report painstakingly points out, already face considerable start-up and overhead expenses, notably for office space (as discussed more here). For these firms, the only way they could access the help they need to implement the Report’s recommendations would be in partnering with those who have the necessary skills and expertise. That is, by bringing them into the firm as partner or shareholder.

Further, not all firms have the capital to “better support” periods of lower revenue due to the development and implementation of innovation. As Jeff Winn, the Managing Director of Winn Solicitors in England has explained, banks are used to lending on invoices of 30, 60, 90 days payment. They are not used to lending on the basis of distant, uncertain outcomes. Only capital investment can fill this gap.

Today, of course, that is impossible in France. Under today’s rules, lawyers can only partner with or have as shareholders other lawyers, members of other regulated legal professions, and accountants (experts comptables), as discussed here. Lawyers cannot partner with, for example, experts in technology, management, marketing, etc., nor can they partner with passive equity investors (unless they are themselves a member of a regulated profession).

As noted above, the Report does expressly advocate for nonlawyer minority ownership of law firms. It is possible that this might help some firms to access some of the expertise they need. And yet, history teaches a different story: As explained here, when minority ownership of law firms was permitted in New South Wales (Australia), very few firms took advantage of the possibility. Further, minority ownership of law firms has been permitted in the District of Columbia (United States) since 1991: it appears that few firms take advantage of this possibility, either.

And while France may prove to be different from NSW and DC in that minority nonlawyer ownership of law firms may indeed end up helping some firms in France, that help will necessarily be limited. Certainly some nonlawyer experts may be satisfied with minority shareholding, but just as certainly others will not be. They will prefer to take their time and talents to other industries, where their stake in a company is not subject to such a limitation, but instead can fully match the value of their contributions.

2)         Consultants and employees are not motivated in the same way that partners and shareholders are. Hiring an expert as a consultant to advise for a fee on how a firm might better use technology is one thing; bringing that expert in as a partner or shareholder and staking his/her success (and compensation) on the success of the firm in using that technology is something entirely different. Multiple studies show that when workers are given a stake in a company, the workers are more productive and more innovative, and the company’s profitability and revenue increase. Further, such companies are more resilient during periods of economic crisis. A partner/shareholder “owns” the success of a firm in a way that a consultant or employee cannot.

In sum, even though the Report mentions alternative structures only briefly, and expressly advocates for only a limited form of them (minority nonlawyer ownership) in a lukewarm manner, a close reading the Report suggests that its authors in fact enthusiastically support alternative structures. Or, at least, they enthusiastically support outcomes that for most lawyers and law firms can be achieved only with alternative structures. And not just the kind that limits nonlawyer ownership to less than 49%, but the kind that imposes no such restriction.

Perhaps you could say that France’s Haeri Report supports alternative structures in spite of itself.

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Related posts on this site:

Chapter 6: The Payment of Salary is Adequate Compensation for Nonlawyers

Adrian Powell, Partner, Proelium Law

Richard Stephens, Partner, Proelium Law

Jeff Winn, Managing Director, Winn Solicitors

David Simon, Chair, Triton Global

Jenny Beck, Partner, Stephensons Solicitors LLP

Robert Camp, Managing Partner, Stephens Scown LLP

Martin Powell, Director, OmniaLegal Limited

John Ray, Senior Consultant, Law Firm Consulting Group

Links to the other seven posts in this series:

  1. There’s Something About France
  2. A Big Happy (French) Family
  3. A Little More Liberté
  4. France’s Haeri Report on the Future of the Legal Profession: Intro
  5. France’s Haeri Report and Alternative Structures (1 of 2): Je t’taime un peu
  6. France’s Haeri Report and Alternative Structures (2 of 2): Je t’aime, moi non plus
  7. France and Alternative Structures: Putting the Pieces Together
  8. Alternative Structures: Why is France Succeeding While the US Continues to Fail?

All eight posts, regrouped, can be viewed at this link: Regroup of posts on France


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