New directions

“No idea, no institution, no model, no regulation should be sacrosanct.” That’s the message in the final report (PDF) from the CBA Legal Futures Initiative, presented to Canadian Bar Association’s Council on August 14.

The Futures Report delivers on that statement by making some bold proposals — 22 recommendations in all — about new directions for the legal profession in Canada, not least of which is a recommendation that lawyers be “allowed to practice in business structures that permit fee-sharing, multi-disciplinary practice, and ownership, management and investment by persons other than lawyers or other regulated legal professionals.”

And by making the case for the introduction of alternative business structures (ABS) in which non-lawyers could become principals, the report draws heavily on the recent experience of Australia and England and Wales. Over the last 15 years, both countries have moved on from 19th-century business practices and are well on their way to experimenting with new legal service delivery models.

“More and more often we are seeing signs that the profession is ready for change,” says outgoing CBA president Fred Headon, who chairs the initiative. “It’s filled with people committed to doing a good job for their clients. But expectations about legal services are evolving. And by proposing a new regulatory framework, we’re saying that things can be done differently in ways that can better deliver value for clients.”

An evolving legal marketplace

Already, the proliferation of paralegals, online service providers, legal process outsourcers (LPOs), and other forms of competition are affecting the demand — and pricing — for lawyers’ services. And over time, it is expected that foreign-based ABS and multi-disciplinary practices (MDPs) will offer more choice and convenience to consumers of legal services worldwide.

Movement toward regulatory reform in Canada is also under way. Since the CBA Legal Futures Initiative was launched in 2012, the law societies in British Columbia, Manitoba, Ontario and Nova Scotia have undertaken to consider reforms that could lead to the adoption of ABS.

“More and more often we are seeing signs that the profession is ready for change”

According to Allan Fineblit, CEO of the Law Society of Manitoba and a member of the Futures Initiative steering committee, it’s time for the regulators to accept the realities of the modern world. “One of the challenges that firms have today is the fact that we regulate very much the way we did 200 years ago without any reflection of the changes that have happened in the world around us,” Fineblit told participants at the CBA Ethics Forum held in Toronto in June.

Generally speaking, the only permitted business structures for lawyers in Canada are sole practices, partnerships or professional corporations, entirely owned and controlled by lawyers. In British Columbia, Quebec and Ontario, limited non-lawyer ownership is possible in authorized MDPs. Even then, whatever non-legal services are provided to clients must support or supplement legal service offerings. Complicating matters further are sensitive issues surrounding confidentiality and conflicts of interest.

A hindrance to innovation

Nonetheless, critics say, the current framework is inflexible and a major impediment to law firm innovation.

There is no lack of competition among lawyers, as McCarthy Tétrault’s Malcolm Mercer explained to participants at the ethics forum. But there are limits to what a lawyer can do to stay competitive. “The only way that you can provide a lower-priced service is to charge less on the billable hour rate, and that means you earn less,” he said. “And so there’s very little innovation.”

Of course, the legal profession’s effective monopoly over the provision of legal services also removes any incentive to be innovative. But even when lawyers are entrepreneurial, they can’t raise capital like other businesses can because of restrictions on outside investment.

Not only does this limit the financial resources of firms, but it also limits their ability to tap into non-legal expertise, such as IT. So while lawyers are often criticized for evolving at a snail’s pace, it is also true that regulatory constraints conspire against them investing in technology or adopting new processes to make their services more efficient.

An example cited by the report is how the prohibition against fee-sharing with other professionals prevents lawyers from entering franchise partnerships that would otherwise hold the promise of offering greater access to legal services to underserved communities.

Indeed, by some estimates only 10-15 per cent of people with legal problems in Canada seek legal advice from a lawyer.

Though non-traditional service providers are occupying a growing share of the legal marketplace, there is ample evidence that many people with legal problem seek no assistance at all.

“There are service providers operating now outside of traditional firm structures, but who are resonating with clients,” says Headon. “We want to learn from them. As a profession, we need to see how else we can help them work well and improve access to justice without compromising protections of the public.”

Working with others

So where do the solutions lie? In Canada, the law societies regulate the practitioners, not the entities in which they practise. The Futures report advocates a form of liberalization that would see both regulated. Under this scenario, ABS would have fiduciary and legal ethics obligations in respect of clients receiving legal services. The thinking is that if entity regulation were to be adopted in Canada, non-compliant firms could risk suspension, or even loss of their licence to practise, thereby putting their brand and very existence at risk.

At the same time, the report recommends an easing of the rules governing direct supervision of work performed by non-lawyers to free all parties to focus on their area of expertise.

“The report suggests that sometimes lawyers have to learn from other professionals about best practices in service delivery,” says Karen Dyck, a member of the Futures steering committee. “Sometimes they have to defer to other experts.That’s going to take a real culture shift.”

...the report identifies a need for flexibility and choice in how legal professionals are trained, whether it is at law school or through new delivery models of education.

“Lawyers need to be ready to work with a more diverse group of professionals,” says Headon, who is also quick to stress the importance of achieving more meaningful representation of a diverse Canadian society within the legal profession.

“And if we open new career paths for lawyers, we might find new ways to make our profession more inclusive and diverse.”

The report also argues in favour of legal service providers and law societies committing more formally to achieving meaningful representation of Canada’s diverse society within the legal profession, to better address the needs of different communities.

Finally, the report identifies a need for flexibility and choice in how legal professionals are trained, whether it is at law school or through new delivery models of education.

No doubt for many Canadian lawyers, allowing innovation, new business structures and new models for legal education to take hold is an unsettling thought. But then there are those who, looking into the future, see a chance to change the shape of law firms more fundamentally, and for the better. “We’ve been asleep at the switch for a long, long time,” says Gary Luftspring, who also serves on the Futures steering committee. “There’s tremendous opportunity if we can actually learn to innovate.”

Futures: Transforming the delivery of legal services in Canada
The Futures report offers 22 recommendations. Among them:

• Lawyers should be allowed to practise in business structures that permit fee-sharing, multi-disciplinary practice, and ownership, management, and investment by persons other than lawyers or other regulated legal professionals.
• Non-lawyer investment in legal practices should be permitted, but only on a carefully regulated basis.
• Compliance-based regulation of legal practices should be adopted to promote ethical best practices as a supplement to existing rule-based regulation of individual lawyers.
• Law societies should require law firms, and alternative business structures, if permitted, to comply with diversity-related principles that reflect legal and ethical requirements.
• Legal education providers, including law schools, should be empowered to innovate so that students can have a choice in the way they receive legal education, whether through traditional models or through restructured, streamlined or specialized programs, or innovative delivery models.
• Educational providers should consider creating parallel programs in areas such as legal techn­ology, in college or other environments, or incorporated into law school education, to educate and train new streams of legal service providers which may include lawyers.
• The CBA should establish a professional centre of expertise and information on the legal profession in Canada that would be the pre-eminent and authoritative source of data on all aspects of the legal profession in Canada.

Read the full report (PDF) at cbafutures.org.