Regroup of posts on France

Post 1 (of 8): There’s Something About France

26 Jan 2017

If you haven’t been paying attention, then you might not know that France is marching steadily towards the adoption of alternative structures.

Of course, it’s not doing it in the way that Australia did. Or in the way that England & Wales did. Or in the way that Canada seems to be doing it. It’s doing it in its own special French way.

This post is the first in a series of eight on the topic of France and its move towards alternative structures.

This, the first post, is about the adoption of a “Charter of Ethics for a Market of Online Law and Its Actors” (Charte Ethique pour un marché du droit en ligne et ses acteurs). This Charter was prepared under the auspices of the ADIJ (Association pour le Développement de l’Informatique Juridique, or Association for the Development of Legal Information Technology) and Open Law.

In March, 2016, the two organizations mobilized about 40 representatives of the different regulated legal professions (“professions réglementées”) to prepare a first draft Charter. (France has a number of regulated legal professions. They include lawyers (avocats), as well as notaries (notaires) and bailiffs (huissiers de justice), to name a few).

In June, 2016, they presented a draft Charter to the public. The draft was posted on an online collaborative consultation platform. Over the course of the next several months, the draft was the subject of a number of in-person meetings and consultations, including a hackathon. Different kinds of persons and organizations participated in the consultation process, including representatives of French “legaltech” companies, representatives of the Paris bar, law students and additional members of the different regulated legal professions.

Jean Gasnault, a coordinator of the project, explained to Villages de la Justice that the principal purpose of the Charter is to demonstrate that legaltech and the regulated legal professions are not necessarily rivals. To the contrary, they can be complimentary and, instead of opposing each other, it would be better to find common ground. “When you are in a defensive position,” he stated, “you lose. The only solution is to go discuss with the actors of legaltech and to agree upon common values.”

Echoing this sentiment, the purpose of the Charter was further explained as enabling legaltech companies to assure their clients, be they members of the regulated legal professions or members of the public, that they (legaltech companies) work in an ethical manner. Those legaltech companies that sign the Charter distinguish themselves from those who do not.

The end result of the process is a 7-page, 3-part document. The first part (4 pages) consists of seven articles which describe the ethical obligations of the Charter signatories in a manner that any lawyer would recognize: maintaining confidentiality, avoiding conflicts of interest, assuring competency, and maintaining professional liability insurance.

This part of the Charter also goes a bit further: To begin, it takes care to specify that the Charter’s signatories agree to respect the laws applicable to their activities, notably in the areas consumer protection, commerce, electronic communications, the protection of personal data and the respect on intellectual property rights. Further, the Charter’s signatories agree to “respect the perimeter of intervention of the regulated legal professions.” This is explained in two manners: If the signatory’s client is a member of a regulated legal profession, then the signatory will respect the “core values” (“principes essentiels”) of the profession in question. On the other hand, if the service in question is provided online and a member of a regulated legal profession is implicated in the service (the Charter does not expressly state this, but presumably in this case the client is a member of the public), then the signatory will establish the means to identify the client, to assure there is no conflict of interest, and to assure segregation of funds.

The second part of the Charter (Annex 1, 2 pages) describes in detail the signatories’ obligations with respect to cyber security and the protection of personal data. Finally, in the third part (Annex 2, 1 page), the Charter signatories agree to provide a minimum level of service to their clients: simplicity of process, respect of deadlines, transparency with respect to price, services and products, availability of information.

For the time being, the signatories of the Charter do nothing more than make a promise. There is no organization or mechanism in place for investigating breaches of the Charter by a signatory. Nor does the Charter foresee any kind of consequence for a signatory that commits a breach. It is possible that such an organization or mechanism may be developed later, notably in the form of a certification process.

Not Everyone Approves

To be sure, not everyone is in favor of the Charter. Most notably Didier Adjedj, a representative of France’s Conseil National de Barreaux (CNB – National Bar Council) called it a “fausse bonne idée.” That is, he explained, while it might seem like a good idea, it isn’t one because “it is evident that a commercial company cannot respect the ethical obligations that lawyers must respect. It’s unimaginable.” In addition, he noted that nothing in the Charter requires its signatories to conduct a self-evaluation to identify potential problems in how they function. Further, there is no system in place to control compliance. So, what will happen, he predicts, is that companies will “self-certify” and then simply tell everyone that they respect the rules.

Adjedj’s comment about the ability of a commercial company to respect ethical obligations ignores the fact that since 2000 in Australia and since 2012 in England & Wales, commercial companies have offered legal services in full respect of the ethical obligations applicable to lawyers (at least, in no less a manner than traditional law firms). Thus, it’s not just imaginable, it is a reality. Adjedj’s comment about self-evaluation of course brings to mind Queensland, Australia’s formal self-assessment process for such commercial companies, called “incorporated legal practices” or “ILPs.” This process requires ILPs to conduct a self-evaluation to identify potential problems in how they function, and supports that process with a 39-page questionnaire.

Not all bar authorities in France share Adjedj’s view of the Charter. Most notably Frédéric Sicard, the Batonnier (head) of the Paris bar, does not. When the final version of the Charter was officially presented to Sicard on November 24, 2016, he described it as “balanced” as well as “indispensable.” Why indispensable? Because, he said, “we are trying to confront man to machine. You might say that the machine will take all of humanity, but that’s not true…[this document] is how to conserve the rules of humanity.”

Signing Ceremony

A signing ceremony for the Charter was held on January 20, 2017. At the ceremony, 19 legaltech companies (such as Rocket Lawyer, Legalstart.fr, Captain Contract, SECIB, and JurisCloud) signed. Additional signatories included three national professional networks (such as Eurojuris), representatives of the legal press and legal publishers, and as many as 50 representatives of different legal professions.

You can consult the Charter in full (in French) at this link.

What About the United States?

The Charter is interesting for a number of reasons. One of them is in contrasting the Charter, and the process that lead to it, to the recent deliberations of the ABA Commission on the Future of Legal Services:

Appointed in August, 2014, the Commission had a broad mandate to, among other things, “recommend innovations in accessing and delivering legal services,” and “propose new approaches that are not constrained by traditional models for delivering legal services.”

In this very broad mandate, the Commission did consider the question of the regulation of legaltech companies, referring to them as “unregulated LSP [legal service provider] entities.” In late March, 2016, the Commission published an “Issues Paper” about such entities, calling for: “data and evidence” about them, information concerning any efforts to regulate them, and input on whether state judicial authorities should be encouraged to regulate them, and, if so, what form those regulations should take.

The Commission posted on its website 24 responses that it received to this Issues Paper. The responses were all over the board, with some arguing that they were opposed to the existence of LSPs and as a result they were opposed their regulation of LSPs as entities because doing so would legitimize them (see, for example, this response and this response). Others explained that they were opposed to the existence of LPS, but, more or less resigning themselves to their existence, advocated for their regulation (see, for example, this response). Others still championed LSPs as important for meeting the access to justice gap, but argued against their regulation by state courts on the grounds either it is unnecessary (they are already regulated by consumer protection laws), that it would unnecessarily increase costs, or that regulation would only enable the state bars and courts to exercise their “protectionist instincts” (see this response, this response and this response). On the other hand, while other respondents also championed LSPs, they felt it’s not possible to “responsibly advocate” for them without also advocating for their “meaningful regulation” (see this response). Other respondents simply weren’t sure whether regulation was a good idea or not (this response and this response). Finally, one respondent told the Commission in no uncertain terms that both its Issues Paper and its work on the subject were insufficient, stating that “far more thought and analysis” was required.

In its 116-page Final Report (issued in August, 2016), the Commission ended up mentioning the topic of unregulated LSPs only briefly. It did so just long enough to kick the question of their regulation to “states.” That is, the Commission recommended that “states” should be the ones to explore “how legal services are delivered by entities that employ new technologies and internet-based platforms and then assess the benefits and risks to the public associated with those services.”

(This recommendation is difficult to square with correspondence the Commission had earlier received from the National Organization of Bar Counsel. The NOBC is an organization “whose members work in the regulation of the practice of law.” In December, 2015, the organization wrote to the Commission “it is appropriate for the ABA to play a leadership role in evaluating and guiding the manner in which the delivery of legal services will be regulated so that all US jurisdictions can make informed decisions.”)

In sum, during its two-year mandate, the Commission did nothing with respect to the regulation (or not) of legaltech companies. The contrast to ADIJ and Open Law in France could not be starker: Taking the bull by the horns, in just nine months they went from a draft Charter to a document ready for signature. The Charter may not be a perfect solution, and it is unlikely that, standing alone, it will be a permanent one. Nevertheless, it is a significant first step.

And more than that, as should become clearer in the following posts, the Charter is one of several significant steps that France is taking towards the adoption of alternative structures.

Related posts on this site:

John Briton, Legal Services Commissioner Queensland, 2004 – 2014

Further, a number of the Stories available on this site provide examples of commercial companies in England & Wales and Australia that provide legal services in compliance with the ethical obligations applicable to lawyers. Some of those Stories include:

Tom Curran, CEO, Kings Court Trust

Andrew Grech, Group Managing Director, Slater and Gordon Lawyers

Alexander Hamilton, CEO, Radiant Law

Karl Chapman, Chief Executive, Riverview Law

Christopher Mills, Partner and COO, Schillings

Jeff Winn, Managing Director, Winn Solicitors

Archana Makol, Director, BT Law Ltd.

Post 2 (of 8): A Big Happy (French) Family

6 Feb 2017

You may or may not have heard of the Law for Growth, Activity and Equality of Economic Opportunity (Loi pour la croissance, l’activité et l’égalité des chance économiques). Adopted in August, 2015, this law is better known as the Macron Law (Loi Macron), named for the then Minister of the Economy (and now candidate for the Presidency) credited with its adoption. If you have heard of it, I’m willing to bet that you’ve not read it, given it’s 308 articles long. The law targets different sectors in which special rules were considered to restrict competition and economic growth. The sectors include public transportation and labor rules, as well as those relating to regulated professions.

This is the second in a series of eight posts relating to France and its move towards alternative structures.

More specifically as regards regulated professions, Article 65 of the Macron Law authorizes the executive branch to adopt ordinances allowing for different regulated professions to join together to practice from the same company. The list of regulated professions concerned includes mostly the different legal professions: lawyers (avocats), as well as notaries (notaires) and bailiffs (huissiers de justice), to name a few (as explained in the first post relating to France, the country has several regulated legal professions). The list also includes one non-legal profession: certified accountants (experts comptables).

In March, 2016, the executive branch adopted such an ordinance.

Both Article 65 and the ordinance contain details about who may be a shareholder of and who may practice in such a company, and how it must be governed.

If you are interested in those details, you can find them here.

The ordinance calls such a company a “société pluri-professionelle d’exercice” (multi-professional company, or SPE).

The ordinance also provides that the Council of State (Conseil d’Etat) is to issue a decree establishing additional details about the operation of SPEs. It is expected that the decree will be published in April, 2017, and the entire package is to enter into effect no later than July 1, 2017.

Both the law and the ordinance anticipate that in allowing for SPEs, there will be two sticking points:

The first sticking point will be the fact that the rules governing the different professions, and namely their ethical rules, are not identical. As one example, bailiffs are subject to greater restrictions on advertising than the other professions. Can an SPE advertise in ways that are permitted under the rules of the other professions, but not under the rules for bailiffs?

The second sticking point will be the question of independence. The ordinance requires that an SPE’s bylaws establish a means to protect the independence of each kind of professional practicing with the company, and it is likely the future decree will also address this topic. What if an SPE composed mainly of accountants has just one bailiff? What do the bylaws need to provide in order to assure the necessary professional independence of the bailiff?

These are questions that are being debated now.

Not surprisingly, not everyone is in favor of allowing for SPEs. For example, the Conseil supérieur du notariat (CSN), which represents the notarial profession in France, has filed an objection before the Council of State. The President of the CSN argued that SPEs cannot be allowed because of “the risks for our clients with respect to independence, conflicts of interest and professional secrecy.”

Perhaps also not surprisingly, one response to that objection has been offered by a representative of Open Law (one of two organizations that were the driving force behind the Charter of Ethics for legaltech companies discussed in this post). That representative, Dan Kohn, stated that there is no obligation to create such an SPE, and that those who do are “free to prepare an ‘inter-professional charter of ethics’ to organize their cohabitation.”

In fact, with Dan Kohn’s leadership, Open Law has already gathered a group of persons representing the professions concerned in order to reflect upon the ethical and other issues raised by SPEs, and to propose draft bylaws and charters, as well as other documents and ideas, to address them.

It is highly unlikely that the objections raised by the CSN or others will operate to prevent the entry into effect of the new rules. The Macron Law reflects a strong will on the part of the French government to reduce what are seen as unnecessary barriers to competition and economic growth.

And when the new rules do enter into effect, France will be one step closer to the adoption of alternative structures.

Side Post: Macron Law : more detail

Article 65 of the Macron Law gave the right to the executive branch to adopt regulations (ordonnances) intended to “facilitate” the creation of companies whose purpose is the exercise in common of a specific list of professions. All of the professions on the list except one are legal professions (as explained in the first post of this series relating to France, the country has several regulated legal professions). The one non-legal profession listed is certified account (expert comptable). The legal professions listed in Article 65 include lawyers (avocats), as well as notaries (notaires) and bailiffs (huissiers de justice), to name a few.

The law itself establishes certain parameters for such a company. Most notably:

  • The company’s entire share capital must be held by persons practicing one of these professions (they can be practicing under the rules of France, or under the rules of another member state of the European Union, the European Economic Area, or Switzerland),
  • The company itself cannot exercise a given profession unless one of its partners fulfills the conditions necessary to exercise that profession,
  • The company must “preserve the ethical principles applicable to each profession,”
  • The company must take into consideration the incompatibilities and risks of conflict of interest proper to each profession, and
  • At least one representative of each profession practicing with the company must sit on the company’s Board of Directors (or other governing body).

In March, 2016, the executive branch adopted an ordinance (ordonnance) under the Macron Law. The ordinance specifies that:

  • Such a company is to be known as a “société pluri-professionelle d’exercice” (multi-professional company, or SPE),
  • An SPE can be of any type except one that would result in the qualification of its partners as merchants (commerçants),
  • The shareholders of an SPE can be either physical persons or other companies. If the shareholder is another company, then all of that company’s share capital and voting rights must belong to a member of the enumerated professions (certified accountant, lawyer, notary, bailiff,…),
  • An SPE must procure professional liability insurance, and
  • An SPE’s bylaws (statuts) must contain provisions that guarantee both the independence of the professional (partners and associates) as well as the respect of the rules that govern each profession represented at the company, and notably each profession’s ethical rules.

The ordinance then enters into even greater detail as regards ethical rules: It states that each professional practicing in an SPE must respect the ethical rules that apply to his/her profession. That being said, the professional may nevertheless communicate information to other professionals practicing with the SPE, provided that both: (i) such communication is necessary to further the interests of the client and for the organization of the SPE’s work, and (ii) the client has been informed of the possibility of such disclosure and has agreed.

Finally, the ordinance states that the Council of State (Conseil d’Etat) is to adopt a decree establishing additional rules. Those rules will contain specifics regarding the operation of SPEs, how its professionals are to practice their professions with an SPE, and an SPE’s accounting. Perhaps most interestingly, this list includes “the determination of the administrative or professional authority competent to exercise control over the company, the means of that control, and, especially, the conditions under which professional secrecy will apply.” Could this mean that the mandates of the professional authorities that today govern the different legal and accounting professions in France are about to change in some way?

Post 3 (of 8): A Little More Liberté

11 Feb 2017

The 308 articles of the Macron Law did more than open the door to SPEs (the subject of this post).

As regards lawyers (avocats), it also relaxed certain restrictions on how lawyers may practice. Three of those changes are especially significant:

This is the third in a series of eight posts relating to France.

The first change relates to the types of companies in which lawyers may hold shares and via which they may practice law. To begin, in the past, lawyers could not be shareholders of a commercial company, but only of those forms of company especially intended for regulated professions (those special forms are called sociétés d’exercice libéral, or SEL). Today, under Article 93 of Decree 91-1197 of November 27, 1991 (modified by Article 4 of Decree 2016-882 of June 29, 2016, implementing Article 63 of the Macron Law), lawyers can now also create and be shareholders of most forms of commercial companies (sociétés commerciales), such as société anonyme (SA), société par actions simplifiée (SAS), and société à responsabilité limitée (SARL). The only limitation is that they cannot be forms of commercial companies which would result in the qualification of its partners as merchants (commerçants).

The second change relates to the number of structures in which lawyers may practice. In the past, lawyers were restricted by the principle of “unity of practice” (unité d’exercice or unicité d’exercice). Under this principle, a lawyer could practice either as a sole practitioner or as a partner or as an associate of a law firm, and in no other manner. Further under this principle, a lawyer could practice only in one of these manners. If the choice was with a law firm, then the lawyer could practice with only one law firm. Today, Article 63 of the Macron Law has eliminated the principle of unity of practice. As a result, a lawyer may practice as a sole practitioner as well as a partner or as an associate with multiple law firms or SPEs, and can be a shareholder of more than one law firm or SPE.

The third change relates to the types of goods and services that a lawyer or a law firm may provide. Under Article 111 of the Decree 91-1197 of November 27, 1991, lawyers and law firms were not permitted to engage in any commercial activity deemed to be “incompatible” with the practice of law. This was generally considered to exclude the sale of pretty much any kind of good or service other than the provision of legal services, notable exceptions being in the areas of publishing and teaching/training, and also subletting office space to other lawyers. Article 4 of Decree 2016-882 of June 29, 2016, implementing Article 63 of the Macron Law has added a clause to Article 111 of the Decree 91-1197 of November 27, 1991 stating that lawyers as well as law firms may offer “on an ancillary basis, goods or services connected to the practice of law if these goods or services are intended for clients or other members of the profession.”

Lawyers and law firms who seek to offer such goods and services may not, however, do so entirely freely. Article 111, as modified, requires such a lawyer or law firm to notify the competent bar authority within 30 days of first offering such goods or services. The bar authorities then have the right to “request all useful information or documents” in order to determine if such activity is compatible with the profession’s ethical rules.

These changes to Article 4 of Decree 2016-882 raise a great many questions. They include:

1)         What does it mean for goods and services to be offered “on an ancillary basis?” Does it mean that revenue from those sources cannot exceed a certain threshold? Also, what types of clients are permitted? Do they have to be clients who have previously purchased traditional legal services from the lawyer or law firm, or can they be new clients?

2)         The introductory notes to the Decree explain that this change “authorizes legal publishing, professional training, and the provision of office space and other means of practice to other lawyers or law firms.” On the other hand, Article 4 of the Decree itself contains no such list. Does this mean that only those three types of goods and services are allowed, and no others? Or was the list only meant to be exemplary? Given that before the adoption of Decree 2016-882 many lawyers and law firms already offered those three types of goods and services without being considered to be in breach of ethical rules, you could ask: what is the point of Article 4 if it does not effectively expand the permitted types of goods and services?

To the extent the experience of England & Wales may provide an example, the responses to these questions may evolve over time. Let me explain:

To make a long story short, when the Solicitors’ Regulatory Authority (SRA) of England & Wales first began to license alternative business structures (ABS), the authority was severely criticized for how it handled license applications. Not only did it take a very long time to respond to applications (as long as two years in some cases) but it showed great reluctance to grant licenses to “new, unfamiliar approaches.” For that reason, it was accused of demonstrating an “inherent cognitive bias” against anything unfamiliar. Over time, however, the SRA gained more confidence in its role and became more willing to take risks. Not only did it considerably simplify the application process as well as considerably shorten the application period, but it also began to grant licenses to a greater number of “novel” approaches.

If this example is anything to go by, it is likely that the first lawyers and law firms that notify the competent French bar authority that it would like to offer goods or services that are not one of the three types mentioned in the introductory notes to Decree 2016-882 will take the risk of meeting considerable resistance by that authority. This resistance will likely continue for as long as it takes for the authority to gain confidence in its role and to overcome its likely own “inherent cognitive bias” against anything unfamiliar. Additionally, the authority will need to gain the confidence needed to withstand the criticism it will undoubtedly encounter, especially if any such “ancillary” good or service that it allows is later considered to have “failed” in some manner.

Considered on an individual basis, the changes described above may appear to be insignificant. Some may even appear to be nothing more than technical tweaks that are barely worth mentioning. However, as we will see in a following post, considered as a whole, these changes, together with those described in this post and this post, are France’s first, firm steps towards the adoption of alternative structures.

Related posts on this site:

John Kain, Managing Director, Kain Lawyers

Rod Cunich, National Practice Group Leader, Slater and Gordon Lawyers

Robert Cross, Project Manager – Research, Legal Services Board

Post 4 (of 8): France’s Haeri Report on the Future of the Legal Profession: Intro

10 Feb 2017

Earlier this month French lawyer Kami Haeri submitted to the French Minister of Justice Jean-Jacques Urvoas his report “The Future of the Legal Profession” (L’Avenir de la profession d’avocat).

This is the fourth in a series of eight posts about France’s move towards alternative structures. This post and the following two will focus in particular on the Haeri Report. This post provides general background information about the Report and points out some of its more interesting elements; the immediately following two posts will examine the Report in detail under the specific optic of alternative structures.

In his October 20, 2016 letter asking Haeri to prepare the report, Urvoas explained that significant reforms to France’s training program for new lawyers were about to be implemented. For Urvoas, it did not make sense for this to happen without, at the same time, developing a clear vision of just what the future will be for those new lawyers.

Further, Urvoas observed, the legal profession as a whole is plagued by doubts about its future – doubts new lawyers share.

Urvoas then listed a number of factors placing pressure on the legal profession. Anyone asking the same questions about the future of the legal profession in other countries will easily recognize Urvoas’s list:

  • The difficulties of finding a job after completion of law school, of developing a clientele, of making partner, of succeeding as a sole practitioner,
  • The challenges posed by new technologies, and the questions they raise regarding the lawyer’s role and ability to compete (to the point, Urvoas observes, of many young lawyers leaving the legal profession to create “start-ups”), and
  • The questions raised in bringing lawyers together with other professionals, namely accountants, but also France’s other legal professions (those questions are explored in detail in this post).

In light of these questions, Urvoas asked Haeri to constitute a commission whose mission will be to “make a precise diagnosis and propose means to resolve them.”

Urvoas continued by describing the make-up of the commission: it should be lawyers (avocats) who are knowledgeable in the matters addressed. Further, they should be representative of the diversity of the profession, taking into account areas of practice, types of structures, and geographic locations. Finally, the team should have gender parity.

Giving a bit more guidance, Urvoas emphasized that the focus of the commission’s mission should be on new lawyers. That is, the commission should ascertain the conditions for entering the profession, the expectations of new lawyers, and the reality of their experiences. More largely, Urvoas directed the commission to examine the realities of the legal profession today and its perspectives: what services are expected of the profession, how persons in need of legal services obtain them (notably from lawyers), and what are the foreseeable impacts of new technologies.

Further, Urvoas directed the commission to develop proposals for how to improve the career paths of young lawyers, how to facilitate adaption to new technologies, and how to favor relations with members of other professions, on both a national and international scale.

In executing their mission, Urvoas stated that the commission should conduct all “auditions and consultations” they deem necessary. These auditions and consultations should include the representatives of different institutions and professional organizations as well as representatives of law students.

Urvoas instructed Haeri and the commission to conduct its work “as quickly as possible” and to submit a report by the end of the year – so in just over two months! (This short deadline is even more remarkable when compared to David Clementi’s 18 months and the 2-year mandates of each of the American Bar Association’s Commission on the Future of Legal Services and the Canadian Bar Association’s Legal Futures Initiative).

Not at all surprisingly, Haeri did not meet that deadline – he instead submitted the Report on February 2, 2017. Still an exceptionally short length of time given the enormity of the mission.

As the first pages of the Report explain, Haeri composed a commission of four lawyers, including himself, seeking the most parity possible: men/women, Paris/province, sole practitioner/law firm, litigation/transactional.

There is some inconsistency regarding the number of persons with whom the commission consulted. For example, the first pages of the Report state that the team consulted with “more than 130 persons,” but Annex 1 to the report lists 124.

The overwhelming majority of those 124 persons were lawyers (active members of the bar). The others – taken together, still a minority of the 124 – were principally in-house counsel (in France in-house counsel are not permitted to be active members of the bar), law school and professional bar school faculty and administrators, judges, or representatives of “legaltech” companies. Interestingly, in spite of Urvoas’s specific focus on law students and his specific direction that the commission consult with “representatives of law students” (in plural), only one person out of the 124 listed in Annex 1 is easily identifiable as a law student.

The 138-page Report covers a huge range of issues, some in great detail and some in only a cursory manner. True to its mission, a large part of the Report focuses on legal education, especially for new lawyers, but also continuing legal education for practicing lawyers. Even with that focus, the Report covers a large number of other areas. In essence, the Report makes a certain number of observations with respect to legal education, the practice of law and the state of the profession, and then proposes a number of recommendations based upon its observations.

The Report’s observations address the following topics:

  • The structure and content of legal education and bar exams,
  • The number of lawyers around the country, types of practice structures, number of women as opposed to men, number of lawyers who seek inactive status (omission) each year, their reasons for doing so, and their professional activities after leaving the bar, and the number of inactive lawyers who return to active status.
  • The number of newly admitted lawyers who find an associate position with a law firm and the time it takes for them to find it, the challenges that associates and all lawyers face in their working environments,
  • The use of technology in the practice of law, the manner by which technology has changed how lawyers work, the challenges/opportunities presented by “legaltech” companies,
  • The absence of diversity in the bar, both as regards gender and ethnic background, the absence of meaningful statistics to demonstrate and combat the absence of diversity as regards ethnic background, and the challenges faced by women lawyers (income disparity, discrimination, sexual harassment).

Having made such observations, the Report makes 50 specific recommendations, including:

  • Establish legal clinics at law schools,
  • More systematically collect and report information relating to lawyers’ actual career paths, including professional activities during periods of inactive status, in order (among other reasons) to understand why certain lawyers leave the profession and why in some cases they return,
  • Rationalize continuing legal education, by using technology to make programs more accessible both geographically and financially, by introducing programs for coding and technology by creating a special program for newly admitted lawyers, and by allowing other legal professions and practitioners (such in-house counsel, judges and notaries) to participate and share their knowledge,
  • Establish a mentoring program within the bar, for the benefit of young lawyers,
  • Establish institutional relations with “French Tech” in order to remain up to date on technological advances and to communicate the position of the bar with respect to the development of technology for use by the legal profession,
  • Within each local bar organization, create an “Observatory of Innovation” where new lawyers (admitted less than five years) can “favor the emergence of new practices with respect to technology and firm management,”
  • Facilitate lawyer mobility, both geographically around the country and also as regards transitions to and from other activities (in-house counsel, the bench, regulatory agencies, …),
  • Support the development of multi-professional companies (SPEs),
  • Eliminate the ban on referral fees, at least as far as the ban applies to referrals between lawyers (In the Report this recommendation results from a very specific context that relates to the status of law firm associates. However, the recommendation itself is not limited to this specific context. To the contrary, it states very generally “authorize the payment of referral fees among lawyers”),
  • Appoint an independent body to conduct a detailed audit of the profession with respect to parity and diversity,
  • Require local bar organizations to submit an annual reporting as regards parity, and make the contents of the report public, and
  • More effectively and efficiently pursue disciplinary actions with respect to lack of equality, harassment and discrimination in law firms.

Here are just three of the many additional interesting and notable elements of the Report:

1)         Legal Education

The most common educational route to bar admittance in France takes place in three stages. The first is four or five years of university study of law. The second is a period of preparation for the entrance exam to a professional bar school (CRFPA or Ecole d’Avocats). This entrance exam, which tests substantive legal topics, is quite difficult. After university, most students take at least one year if not more to prepare for it, notably by enrolling in special preparatory classes. The relatively small percentage that pass the exam (in several regions the passage rate is less than 25% and in just one region is it greater than 49%) are then allowed to enter a CRFPA and complete the third stage, a program that takes place over a period of 18 months.

In accordance with Urvoas’s instructions to focus on new lawyers, the Report contains many recommendations relating to CRFPAs. For those outside France, perhaps the most intriguing of these recommendations is that CRFPAs should dispense with teaching substantive law because it unnecessarily duplicates the students’ university education. Instead, the Report recommends that the entire curriculum of the CRFPAs should be reconstructed around the top ten skills that the World Economic Forum has said will be the most needed and useful in 2020. Those skills are:

  • Complex problem solving
  • Critical thinking
  • Creativity
  • People management
  • Coordinating with others
  • Emotional intelligence
  • Judgement and decision making
  • Service orientation
  • Negotiation
  • Cognitive flexibility

This is a highly intriguing recommendation. It brings to mind a program offered by Penn State University’s Dickinson Law on the topics of “cultural” and “extra-legal” competencies.

If you are interested in legal education, you might be interested in watching if and how France implements this recommendation.

2)         Office Space

No fewer than four times the Report deplores the high costs lawyers incur to maintain office space. More specifically, the Report explains that many lawyers seek office space in lower cost neighborhoods and/or seek to better use technology as ways to reduce their costs for office space. The cost of office space is a particular problem for new lawyers, who, the Report explains, often have to go into debt to meet the considerable  expenses required to open a new firm.

In fact, Article 15.1 of the Rules of Professional Responsibility (Règlement Intérieur) requires a lawyer to have an office that is physically located in the geographic area of the local bar to which the lawyer is attached. That is, in order for a lawyer to be a member of the Paris bar, he/she must have an office in Paris. In the same manner, in order for a lawyer to be a member of the Lyon bar, he/she must have an office in Lyon. Without an attachment to a local bar in this manner, a person cannot hold him/herself out to be an avocat and is not authorized to practice law.

The office cannot be just any office. Instead, it must be “conforme aux usages,” which can be translated as “customary” or “consistent with common practice.”  Further, it must allow for the practice of law “in respect of the core values of the profession,” and allow for the protection of confidentiality. French bar authorities reserve the right to inspect a lawyer’s office in order to verify that it conforms to Article 15.1. (There was a time when such inspections occurred systematically, notably when a lawyer opened a new office).

Most if not all bars in France have interpreted Article 15.1 as excluding home offices. That is, while bar authorities cannot prohibit a lawyer from working from home, the authorities can, nevertheless, require the lawyer to maintain separate office space “consistent with common practices,” even if the lawyer never uses that space, or needs it for any other purpose (that is, other than for bar registration). Indeed, an industry has grown around this requirement, with several companies offering domiciliation services specially designed to enable lawyers, and particularly new ones unable to afford a “real” office, to meet this requirement to have the “right” address.

The Report is right to highlight the problems that French lawyers, and especially Parisian lawyers, face in securing affordable office space. The Report is right to state that while clients might appreciate visiting “elegant” offices, they resist more and more having to pay for them. The Report is right to point out that a better use of technology can not only attract more clients but also enable lawyers to better control their costs for office space.

What is puzzling is why the Report does not go further. Why doesn’t the Report recommend that the rule requiring lawyers to maintain office space that is “consistent with common practice” be abolished as long as a lawyer can demonstrate that he/she works in a manner that protects confidential information? And if the commission did not want to go quite so far as to make such a recommendation, then why didn’t it at least question the necessity of the rule?

The failure to make this recommendation is all the more puzzling when you consider some of the arguably more radical recommendations that the Report makes with respect to legal education: The Report states that not only teaching methods but also teaching spaces must be re-thought. More specifically, the Report recommends the elimination in CRFPAs of large amphitheater classes, in favor of small groups (maximum 35 persons) who meet in a variety of places, such as in law firms, companies, regulators, and courts.

If the spaces for legal education can be “re-thought” in this manner, then why can’t the spaces for legal work, as long as clients and their information are sufficiently protected? Further, what is there about having office space “consistent with common practices” that offers a greater guarantee of protection of confidential information over a home office? In sum, who is Article 15.1 really protecting? Clients? Or established lawyers and law firms who have easy access to the resources needed to maintain offices “consistent with common practices,” to the detriment of those who do not?

Finally, this requirement appears quite strange, even difficult to believe, when explained to lawyers outside France. For example, no such requirement applies to US lawyers – they are not required to live in, practice in or have an office in the state(s) where they are admitted. Further, there are no restrictions on lawyers working from a home office, or even any requirement that a lawyer have an office at all. There is no evidence that this harms the legal profession in any manner. There is no evidence that this harms clients either, and notably there is no evidence that their confidential information is jeopardized. To the contrary, it can be argued that it greatly benefits clients who work with lawyers who are able to keep this element of their overhead expenses very low.

3)         Limited Scope Representation

One – just one – paragraph of the Report raises the question of limited scope representation (also called in English “modular services” or “unbundling”). The Report observes that some clients, with limited resources, ask their lawyer to limit the time spent on a matter. Reasonable as such a request may appear to be, it can be a difficult one for a lawyer to comply with. This is for several reasons, the Report explains: to begin, the sense of perfectionism and “honor” that lawyers are taught to bring to their work. Even more important is the question of professional liability, which requires a lawyer to pay scrupulous attention to all aspects of a matter, and to identify all risks and potential issues, regardless of whether the client just wanted one small thing. The Report asks: would it be possible to vary a lawyer’s professional responsibilities so that it depends upon the extent of the work the client actually requested? “Perhaps this is a path that deserves to be explored.”

In sum, the Report discusses limited scope representation as if it were something entirely novel. It doesn’t seem to even have a name in French. It’s not clear to what extent the authors of the Report were aware of the growing use of limited scope representation outside France. For example, this study was commissioned to understand its (widespread) usage in England & Wales, and the American Bar Association encourages its use under the right conditions. It’s even possible to take a course about it.

The next two posts will examine the Report under the specific optic of alternative structures.

Post 5 (of 8): France’s Haeri Report and Alternative Structures (1 of 2): Je t’aime un peu

20 Feb 2017

On February 2, 2017 French lawyer Kami Haeri submitted to the French Minister of Justice his report entitled The Future of the Legal Profession (L’Avenir de la profession d’avocat).

The Haeri Report totals 138 pages and covers a large range of topics. Any attempt (by me, at least) to communicate its contents in any comprehensive manner would be foolhardy. Instead, I’d like to examine the Report from one specific optic: alternative structures.

Before moving getting into that examination, if you are interested in some general background information about the Report – how and why it was commissioned, by whom and how it was prepared, a general description of its contents, and a selected list of its recommendations that are not related to alternative structures – you can access that here.

This is the fifth of series of eight posts relating to France and its move towards alternative structures.

A quick reading of the Report would lead to the conclusion that its authors didn’t give a lot of thought to alternative structures and that, to the extent they did, their support of them was lukewarm.

Here’s what would lead to that conclusion:

The Report’s express discussion of alternative structures doesn’t even take up one (again, out of 138) pages. Here’s how that very short discussion goes:

First, the Report explains that the question of how to finance a law firm has become a “crucial subject” for young lawyers. Opening a law firm requires either entering into debt or borrowing from family members. The Report deplores this, stating that it both “accentuates social disparities” in the profession and slows the growth of firms. New structures such as SPEs, the Report continues, allow for members of different regulated professions to coexist under the same capital structure, but do not, except very indirectly, address the problem of how to finance a lawyer’s activity.

In the course of the commission’s consultations, the Report continues, a number of young lawyers expressed strong interest in the ability to benefit from minority investment in their firms. They envisioned varied profiles for such investors, each with the purpose of providing support for both opening the firm and the development of its activities. These young lawyers “consider that their independence would not be threatened by such an investment,” and that having a nonlawyer shareholder (be it a physical person or a company) would bring a different and innovative perspective to the management and operations of the firm.

It’s on this basis that the Report makes this recommendation:

The Commission considers that provided it remains a minority shareholding, there is no reason why the capital of certain kinds of practice structures – up to 49% – cannot be opened to a shareholder of another profession, including one that is not regulated.

And that’s it. In a document of 138 pages, that’s the entire direct and express discussion of nonlawyer ownership of law firms. It’s not exactly a ringing endorsement. “Tentative,” “hesitant,” “cautious:” those might be accurate descriptions.

When the commission considered this point, did it look beyond the comments of the “young lawyers” that the commission cited, to consider other information available with respect to minority nonlawyer ownership of law firms? Given the brevity of the relevant portion of the Report, it wouldn’t be unfair to conclude that the commission simply heard the requests of the “young lawyers,” didn’t disagree with their reasoning on its face, and so, without exploring the question any further, simply formulated a recommendation on that basis.

This conclusion seems more than plausible when you consider that the commission performed its work in a very short length of time: less than four months. (Compare that to David Clementi’s 18 months and the 2-year mandates of the American Bar Association’s Commission on the Future of Legal Services and the Canadian Bar Association’s Legal Futures Initiative). Given the large number of topics addressed in the Report and the high level of detail accorded to a number of those other topics, it wouldn’t be a surprise to learn that the commission accorded this specific topic only a (very) small portion of its time and attention.

If the commission had accorded more time and attention to the topic, here is what it might have discovered (for better or for worse):

1)         Minority shareholding of law firms by nonlawyers is, in certain places, a highly controversial topic

Most notably, this has proven to be the case in Ontario, Canada as well as in the United States.

As regards Ontario: The Law Society of Upper Canada is the principal regulator of lawyers and paralegals in Ontario. In 2014, the Law Society’s Alternative Business Structures Working Group issued a Discussion Paper in which it proposed for comment four models of alternative structures, two of which would allow for nonlawyer minority ownership of law firms and two of which would allow for nonlawyer majority ownership. The Discussion Paper triggered an avalanche of responses in which the large majority of respondents pronounced their opposition – vehement opposition – to all four models. A notable example is the Ontario Trial Lawyers Association, which, among a host of other arguments, stated “there is an inescapable tension and conflict in maintaining professionalism and ethics under [structures] that include nonlawyer equity shareholders, controlling or otherwise.”

Given the strength of the opposition to nonlawyer ownership of law firms in any amount (minority or majority), in September 2015 the Working Group decided that it would not further examine any majority or controlling nonlawyer ownership models. The Working Group did say that it would continue to consider whether minority ownership should be permitted, but there is no evidence that the Working Group has undertaken any further activity in this regard since September 2015.

As regards the United States: the American Bar Association (ABA) holds a de facto regulatory role for lawyers on a national level in the United States. The ABA has considered the question of minority as well as majority nonlawyer ownership of law firms on more than one occasion. The most recent was in April 2016, when the ABA’s Commission on the Future of Legal Services released an “Issues Paper Concerning Alternative Business Structures.” In the Issues Paper, the Futures Commission proposed essentially the same four models as those proposed by the Ontario Working Group in 2014. The Futures Commission’s Issues Paper triggered an even larger avalanche of responses (over 100) in which the overwhelming majority of respondents pronounced their also vehement opposition to all four models, in most if not all cases failing to make any distinction among them. Most notably, the ABA Section of Family Law succinctly wrote “WHAT PART OF ‘NO!’ DO YOU NOT UNDERSTAND?”

2) As controversial nonlawyer minority ownership of law firms is in places like Ontario and the United States, in other places nonlawyer majority ownership is neither prohibited nor controversial

To the contrary, it is allowed and even encouraged. Two obvious examples are Australia, on the one hand, and England & Wales, on the other. New South Wales (Australia) has allowed nonlawyer majority ownership since 2000 and most of the other Australian states followed NSW’s example soon thereafter (and, as discussed below, NWS allowed nonlawyer minority ownership before 2000). England & Wales has allowed  nonlawyer majority ownership since 2011. Going even further, both countries today boast publicly listed law firms (Slater + Gordon, Shine, IPH Ltd., Gateley).

In proposing minority ownership of law firms, the Haeri Report raises the issue of lawyer independence, and suggests restricting nonlawyer ownership to no more than 49% should be sufficient to protect lawyer independence. In Australia as well as England & Wales, rules are in place to protect lawyer independence in the case of any level of nonlawyer ownership – minority or majority. There is no evidence to suggest that these rules are not effective. (Indeed, to the contrary, there is evidence that that they are effective, for example, here and here).

In fact, the Haeri Report’s commission would be hard-pressed to refute the ability for rules to protect lawyer independence, regardless of the percentage of nonlawyer ownership. This is because of arguments the commission makes in a different section of the Report. In that section, the commission rejects a common assertion that an in-house counsel’s economic dependence upon his/her employer precludes him/her from exercising intellectual independence from that same employer. The commission refutes this argument in two ways: Firstly, it rejects it on its face, simply maintaining that an in-house counsel’s economic dependence on his/her employer does not preclude intellectual independence. Secondly, the commission states that the independence of in-house counsel can be controlled by “contract.” Not only can it be but it has, the commission reminds us, given that Association Française des Juristes d’Enreprise (AFJE, or French Association of In-House Counsel) has already adopted a Code of Professional Responsibility that affirms the independence of in-house counsel. Of course, in this manner, in-house counsel exercise their intellectual independence from companies that are majority owned by nonlawyers.

3) In the few places that have permitted nonlawyer minority – but not majority – shareholding of law firms, it has had only limited to no success

The first example is New South Wales (Australia), which permitted nonlawyer minority ownership of an incorporated legal practice during a period of six years, from 1994 to 2000. More specifically, lawyers had to retain the majority of voting rights and 51% of the net income. According to Susan Fortney of Hofstra University and Tahlia Gordon then with the Office of the Legal Services Commissioner of New South Wales, these restrictions were unattractive and as a result the structure was little used (that is, as noted above, until 2000, when the restrictions were lifted and nonlawyer majority ownership was permitted, at which time the structure became widely used, especially among newly-formed firms).

The second example is the District of Columbia, in the United States. In contrast to the 50 states, the District of Columbia has allowed for nonlawyer minority ownership of law firms since 1991. While no statistics are kept on the number of firms that have taken advantage of this possibility, it is believed that the number is low. Because no data has been collected, no one can be sure exactly why this is the case, but one of the explanations typically offered is the rule’s restrictive nature: On the one hand, the rule requires that the firm provide legal services only (multidisciplinary practices are not allowed). And, on the other hand, the nonlawyer shareholder must provide professional services for the firm (he/she may not be a passive investor).

Even if few firms have taken advantage of DC’s different rule, it does not mean that none have. This website, for example, contains in-depth interviews with two people, one a lawyer and one not, who have formed such firm in DC. You can access those interviews here and here.

One thing that can be said is that since 1991, no disciplinary actions have been brought against any lawyer in connection with his/her partnership with a nonlawyer. In other words, DC’s different rule has not led to any known compromise of any lawyer’s independence. Is that because these types of structures haven’t raised the types of issues that would lead to disciplinary actions? Or is it because so few DC firms actually take advantage of the possibility to have nonlawyer minority ownership? No one knows.

Again, it is unclear if the commission made its recommendation regarding nonlawyer minority ownership of law firms with any or all of the above in mind. It is also unclear the extent to which any of the above may or may not have influenced the commission’s thinking. All that is clear, based upon a quick reading of the Report, is that the commission expressed lukewarm support of allowing law firms in France to open a minority of their share capital to ownership by nonlawyers.

Again, this is based upon a quick reading of the Report. Could a careful reading lead to a different conclusion? That is, could a careful reading suggest that in fact, the Haeri commission’s support of alternative structures is more than lukewarm?  That’s the next post.

Post 6 (of 8): France’s Haeri Report and Alternative Structures (2 of 2): Je t’aime, moi non plus

27 Feb 2017

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.

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

Post 7 (of 8): France and Alternative Structures: Putting the Pieces Together

9 March 2017

Let’s put together the pieces from the previous posts. Today in France:

  • Legaltech companies have worked together with representatives of the various legal professions to prepare a “Charter of Ethics.” Intended for signature by legaltech companies, this 7-page Charter describes the ethical principles that signatories will apply to their activities, the means by which they will maintain data security, and the service levels they will provide to their clients. Regardless of how “successful” the Charter ultimately proves to be (and however “success” might be defined), the document is a form of general recognition and acceptance of legaltech companies as well as first step in regulating them.
  • The members of the various legal professions will very soon be allowed to join together not only with each other but also with certified accountants (experts comptables) in order to practice from the same company (referred to as SPEs). These structures will allow such professionals to serve the needs of their clients in a more seamless and holistic manner. It is true that, today, the range of professionals allowed to form such companies is relatively limited. Nevertheless these companies are a first form of fully integrated multidisciplinary practices. Once a variety of questions regarding the coordination (if not eventual harmonization) of varying ethical rules are addressed, little will stand in the way of allowing the members of other regulated professions (such as doctors and architects) to join, as a next step, and then members of previously unregulated professions (IT, marketing, finance, social work,…) after that.
  • Lawyers are now allowed to form, be a shareholder of, and practice with almost any form of commercial company, not just the forms of company reserved for professional services. Further, they can form, be shareholders of, and practice with an unlimited number of any such commercial companies (including SPEs). Finally, lawyers as individuals as well as any of those companies can now carry out “commercial” activities (that is, offer non-legal goods and services together with legal ones), albeit within certain limits.
  • The February 2017 Haeri Report 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.

This is the seventh in a series of eight posts relating to France.

Some of these changes (perhaps for some readers, all of them), considered alone, might appear unremarkable. Legaltech companies can volunteer to conform to certain ethical and conduct rules, without any way to ascertain their conformity and without any established penalty if they fail to conform? That’s nice. Lawyers and other legal professionals can practice together with accountants? Haven’t they already been doing that? Lawyers can use a wider range of forms of company and a lawyer can be a shareholder of and work with more than one company at a time? Those restrictions were difficult to justify and were regularly breached, anyway. Lawyers can offer “commercial” services in connection with legal ones? Well, setting aside that we still don’t have a complete understanding of just what that means, haven’t lawyers been doing that already, through publishing, teaching/training, and subletting office space? And nonlawyer minority share ownership? Who cares? Few took advantage of the possibility in New South Wales or the District of Columbia – why should it work better in France?

That’s one way to look at it.

Here is another: When these changes are considered as a whole, they constitute real and concerted steps towards the adoption of alternative structures. The Charter is a first step towards bringing “legaltech” under the umbrella of regulation, and of expanding the regulation of lawyers (and the other legal professionals) to the broader category of the regulation of legal services. SPEs are a first step towards bringing different kinds of professional service providers – legal and non-legal – together in the same structure to offer holistic services to the same clientele. Freeing up lawyers to participate in variety of different kinds of companies and to offer “commercial” services together with legal ones are first steps towards enlarging the concept of “practicing law” – the first steps towards allowing lawyers and other legal professionals to develop a much larger variety of business models, potentially quite different from the “professional consultancy”/”solution shop” model of the traditional law firm. And allowing for minority nonlawyer ownership of law firms might be just a preliminary phase in ultimately allowing for majority nonlawyer ownership.

They say that the first step is the hardest. Once France has taken these first steps, the next ones will surely follow: previously unregulated legaltech professionals, having demonstrated the willingness as well as ability to respect ethical rules, will be allowed to fully participate in regulated SPEs alongside other kinds of professionals. SPEs and law firms, having demonstrated the ability to operate a limited number of different business models in an ethical manner, will be allowed to experiment with an even greater variety. Nonlawyers, having demonstrated they are “safe” as minority shareholders, will be allowed to become majority. The end result will be structures – whatever they end up being called – that can be easily compared to the alternative business structures (ABSs) of England & Wales and the incorporated legal practices (ILPs) of Australia.

That is, in the end, the French will get there. They’ll do it in their own special French way.

In the next post I’ll ask the question: why is France succeeding while the US continues to fail?

Post 8 (of 8): Alternative Structures: Why is France Succeeding While the US Continues to Fail?

20 March 2017

Of course it’s impossible to do full justice to this question in a simple blog post. But I’ll try.

If you follow the question of alternative structures or ABS in the United States, you’ll know that since 1983 the ABA has considered them no fewer than four times, the most recent being in 2016. On each occasion they were rejected. The decisions to reject were not passive, unemotional affairs. To the contrary, the ABA’s rejection of them was almost visceral, with members seeming to scream on paper “WHAT PART OF ‘NO!’ DO YOU NOT UNDERSTAND?”

This is the last in a series of eight posts relating to France. Links to the other seven in the series are provided below.

While France’s Conseil National de Barreaux (CNB – National Bar Council) has perhaps not considered and rejected alternative structures as many times as the ABA, its rejection of them is no less visceral. On June 15, 2012, the General Assembly of the CNB unanimously adopted a resolution stating that ABSs “place in danger the core values of the profession and the interests of the public.” The CNB has never changed or otherwise reconsidered this resolution.

If that is the case, then how can it be that France is on the road to adopting alternative structures while the US is not?

There is more than one reason for this. This post will focus on just one: On paper, in most states it is the state supreme court that holds regulatory power over the legal profession, but for the most part they abdicate this power in deference to the ABA. As a result, while on paper the ABA has no regulatory power at all, in reality its regulatory power is immense, even being described as hegemonic. With this power, the ABA can block not only ABSs in their entirety, but also any attempts to take small steps towards their adoption – small steps of the kind we see today in France and that can also be seen in Canada. The ABA has effectively used its power for this purpose and there is no reason to believe it will take a different approach any time in the near or distant future.

In contrast, neither the CNB nor any other bar authority in France comes close to having so much power. That is not because they wouldn’t like to have it, but because the country’s executive and legislative branches have not, in contrast to US state supreme courts (as well as to US executive and legislative branches), abdicated their regulatory powers to the bar. The Macron Law was adopted over the strong objections of the CNB as well as other bar organizations. (The Macron Law was also “rammed through” under a highly unusual and controversial procedure that allowed the executive branch to override the legislature). The Haeri Report was commissioned not by any bar authority but by the Minister of Justice.

(On the other hand, the commission that prepared the Haeri Report was composed entirely of lawyers and the overwhelming majority of the persons with whom the commission consulted were lawyers, in-house counsel or law school instructors/administrators. This probably explains in large part why the Report does not contain any recommendation nearly as radical as those contained, for example, in the Clementi Report, which was prepared by someone entirely outside the legal profession).

There is at least one more reason to explain the limits on the power of the CNB and other bar organizations as compared to the comparatively unlimited power of the ABA: Given that the US has essentially just one legal profession with essentially just one de facto governing body on a national level, this means the ABA overwhelmingly dominates all other bar organizations in the US. Any bar organization on a national or state level that sought to take an initiative perceived to be contrary to a position taken by the ABA would most likely have great difficulty gaining traction, let alone succeeding.

In contrast, and as mentioned in previous posts in this series, France has a number of regulated legal professions – lawyers (avocats), notaries (notaires) and bailiffs (huissiers de justice) are only three. Many of these professions have their own governing bodies comparable to the CNB for lawyers. This means that France has not only many different legal professions, but also many different governing bodies for each profession, on both the national and local levels. None has dominance in any manner that approaches the ABA’s dominance (hegemony) in the US.

Further, as regards Open Law and the ADIJ (the organizations responsible for the Charter of Ethics, as described in this post): participation in the activities of both of these organizations is entirely open – not only to members of the various legal professions, but also to members of the public at large and to companies and other kinds of organizations. Anyone who is interested can participate. It is easy to imagine that this diversity of participation results in very different discussions than those occurring in bar organizations whose participants consist of persons belonging to the same legal profession. Equally if not more importantly, it is easy to imagine that while organizations such as Open Law and ADIJ would not want to unnecessarily alienate bar organizations, nor would they feel obliged to only take initiatives of which bar organizations approved.

Seen in this light, it is easy to understand how organizations such as Open Law and the ADIJ could not only initiate but also see through to completion the development of the Charter of Ethics. By the same token, it is difficult to imagine that comparable organizations could do the same in the US, at either a national or a state level.

Let’s finish this series of eight posts with this additional comparison of France and the US:

The World Justice Rule of Law Index for 2016 ranks the US 18th out of 113 countries on an overall basis. France’s ranking is a close 21st. (The US’s score is 0.74 out of 1.0 while France’s is 0.72). This overall ranking is based upon nine factors, such as constraints on government powers, absence of corruption, and openness of government. These overall rankings for the US and France are not stellar but are respectable.

In contrast, when one element is singled out –– affordable and accessible civil justice –– the rank of the US falls to 94th (yes, 94th) of 113. This ranking is behind countries such as Albania, Belarus, Kyrgyzstan, Myanmar, Russia and Zimbabwe. In very stark contrast, France’s rank for the same element is 30th. (The US’s score is 0.41 out of 1.0 while France’s is 0.62).

France is by no means perfect. But when it comes to affordable and accessible civil justice, it is clear that France gets right many things that the US gets wrong.

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