The Business Case For Legal Ethics

8 December 2017

The following is a talk that Iain Miller delivered at the ARK Risk Management and Compliance for Law Firms Conference 2017 in December 2017.

The last few years have seen an increased interest in legal ethics in England and Wales.  Frances Dingwall of Legal Risk has written an excellent book Cautionary Tales: Lessons in Ethics for Lawyers.  Mena Ruparel and Richard Burnham have written a book published this year entitled: How to be an ethical solicitor.  Tracey Calvert has written Ethics in Law Firms: a Practical Guide.  For my part, I have written a Chapter on ethics for Cordery on Legal Services and an article for the May 2016 Edition of the Law Society’s Legal Compliance Bulletin entitled Legal Ethics 2.0. 

This renewed interest has no doubt been partly encouraged by the SRA’s Competence Statement that sets out a paragraph 1a that solicitors need to understand:

The ethical concepts governing the solicitor's role and behaviour, including as expressed in the law, and the economic, social and cultural influences that can bias independent and ethical judgement.”

However there are other factors such as the increase in the study of legal ethics at Universities, most notably at UCL and its Centre for Ethics and Law.

It is perhaps also worth observing that in England and Wales we are out of step with most other common law jurisdictions in that in both education and practice we do not place any great emphasis on legal ethics.  That does not mean we are unethical.  What it does mean is that we have for many years adopted the language and approach of compliance and risk in dealing both individual and law firm management.  In contrast, in the US, Australia and Canada, legal ethics is very much at the centre of legal training and also how law firms approach their internal regulation.  It has only in recent years those jurisdictions have begun to look at compliance based regulation mainly as a useful tool to deploy in relation to entity regulation[1].  

However, my sense is that in law firms the idea of promoting legal ethics, let alone aligning the firm’s values and objectives around legal ethics, is viewed without much enthusiasm.  It is a nice to have, but cannot really compete for time, or budget, with AML issues or the onslaught of the GDPR.  That is before we move onto the risks of cyber security and the SRA’s complete re-write of its handbook.  In short, firms are too busy worrying about compliance to deal with ethics.  There also appears to be a general view that we can somehow imbue ethics in an individual without any formal process[2].  There is some evidence that assuming that those within law firms will behave ethically may not be fully effective.  In 2015 the SRA published research that indicated that ethical awareness in large law firms was less than complete[3].   One particular exchange between the researchers and a solicitor in a law firm went as follows:

Q “How you would describe professional independence?

A "Crikey, I’ve never even heard the expression. Is that as an individual or a practice?

As a partner in a law firm I fully understand the collective lack of enthusiasm for legal ethics.  However, now may be the time to pause, raise our heads, and look at where things are going.  In this talk I will seek to argue that a law firm that embraces legal ethics is more likely to survive and prosper in the coming years and decades.  The starting point for this view is not a love of legal ethics but the looming upheaval in legal services brought about by the advancement of technology coupled with a shift in society’s view of what is acceptable business practice.    Before moving onto that issue it might be helpful to describe what we mean by legal ethics and how it fits into the wider picture of ethical business.

I should make clear at the outset that legal ethics and compliance are deeply interrelated.  Indeed, one is a product of the other.  However, legal ethics at its heart is based on the premise that in a free society the practice of law has a moral purpose.  It enables clients’ rights to be protected by a lawyer who fearlessly advocates those rights.  However, the duty of a lawyer to act in their client’s best interest is tempered by that lawyer’s duties to the court to ensure that justice is administered fairly and to the interests of wider society.  This was succinctly expressed by Lord Neuberger in the 2012 Upjohn Lecture:

This leads me directly to the question of the purpose of the legal profession. A vibrant, independent legal profession is an essential element of any democratic society committed to the rule of law. It is not merely another form of business, solely aimed at maximising profit whilst providing a competitive service to consumers. I am far from suggesting that lawyers ought not seek to maximise their profits, or ought not provide a competitive service. What I am saying is that lawyers also owe overriding specific duties to the court and to society, duties which go beyond the maximisation of profit and which may require lawyers to act to their own detriment, and to that of their clients.”[4]

The existence of rules governing lawyers’ conduct and practice is a strategy for giving effect to these principles.  Complying with the rules will assist lawyers in achieving the ethical purpose.

The wider concept of the lawyer or law firm in society also needs to be seen alongside an increasing emphasis on businesses more generally behaving ethically.  Following on from the banking crisis there is a sense that we need to encourage businesses to be mindful of their role in society rather than operating purely for personal or corporate interests.  Professor Christopher Hodges of Oxford University described this wider purpose as follows[5]:

The essence of a modern democracy is based on respect for others, expressed through support for fundamental human rights. Applying that political policy to a vibrant market economy produces the result that society supports mutual exchange through honest trade so as to improve the common good. Trade and harmonious society function on the basis of trust. So the purpose of regulation of business activity is to enable widespread trust in traders, on the basis of which a healthy, sustainable and growing economy can exist, which in turn supports employment, social stability and innovation.”

One can easily see how the concept of legal ethics fits very well into this overarching economic model of ethical businesses serving the greater needs of society. 

Professor Hodges is at the forefront of developing thinking around this wider ethical framework and has written a number of thought provoking papers on ethical business regulation[6].  He advocates that businesses should encourage ethical practice throughout their organisation and that the regulatory framework should support these ethical behaviours[7]:

In order to be effective regulation should be viewed as producing desirable behaviour by the people involved. The norms of the working groups should be aligned with those of the wider society in which they operate. In a democratic society, this means they should be ethical. Where such values are shared and are ethical, compliance and performance will be maximised. The same conditions should support commercial success through demonstrating a reputation for ethical practice that can be trusted.”

This approach to regulation bases itself not only upon the research that suggests that traditional enforcement has a limited effect on changing wider behaviours, but also on the “nudge” theory of behavioural economics. 

It seems likely that this approach to ethical business regulation will become the dominant regulatory approach in future.  This will include the policy development of the SRA and other legal regulators.  So in that sense we will in due course find ourselves “nudged” towards a more ethical approach.  Interesting at that might be, it is not the end of the matter and I return to the future and legal technology.

For most of my professional life there have been those who have predicted that we would eventually be replaced by computers.  Richard Susskind’s first book: Expert Systems in Law, was published in 1987, the year before I qualified.  Twenty years ago, Professor Susskind published the Future of Law and ten years ago the End of Lawyers.  However, it would be foolish to deduce that because we are still here that nothing has changed or will change.  It is clear that technology is enabling in house legal teams to be more efficient and reduce the work that they outsource.  At the same time areas such as contract review, disclosure and research are being increasingly driven by technology.  No one knows how this will exactly play out.  My best guess is that a law firm in 10 or so years’ time will be similar in structure to a high end consultancy.  It will have fewer staff than current firms.  This because there will no longer be the work to sustain the current leverage model[8].   It will provide expert advice based on experience in relation to those issues that clients consider high risk or high value.  In doing so,  it will rely upon and use the services of a variety of legal technology companies to provide services such as document analysis and research. 

The value of a law firm will rely on its ability to provide a service that clients can choose to pay for over and above the technology itself.  Law will be a discretionary purchase as the institutions such as the land registry and the courts will be fully accessible directly by clients through block chain and other technologies.  Consequently, there will be fewer law firms than exist at present.  At a Legal Futures conference last month John Llewelyn-Lloyd, a Corporate Finance Partner at Arden and Partners, suggested that, by 2022, 100 of the current top 300 will no longer exist[9].  That is in just 5 years’ time.

The prospect of this change creates existential issues for law firms and few would envy the senior management that needs to pilot us through the transition.  However, those that do survive will, I believe, have a strong ethical culture. 

The concept of law firms being broadly ethical is not a new one and these days it often sits under the umbrella of corporate social responsibility.  Many law firms readily participate in a number of programs that demonstrate public good.   These involve pro bono work, charitable work, encouraging diversity and inclusion and reducing the environmental impact of firm’s work.  It has always struck me as odd that firms usually stop short of any formal program around legal ethics which directly addresses the public good of lawyers in society irrespective of whether they recycle more paper than the next firm.  This may result from a sense that clients want a firm that will fight on their behalf and ethics sends the wrong message.  However, I am not sure that clients think that way particularly after the banking crisis.  A large part of the value of the law firm of the future will be the ability to keep clients out of trouble.  Clients will want advice from someone with a well-developed moral compass.  Otherwise short term victories brought about by aggressive tactics will become in the longer term the much more damaging headlines and reputational loss.

Whilst I have already observed the impact of technology on the practice of law, there is another dimension: the impact of technology on the regulation of law.  Just as technology will transform the practice of law it will also enable the regulator to mine a huge amount of data directly from law firms and to spot trends and issues within law firms possibly long before they arise.  The SRA may be able with relative ease to monitor the time between a file is opened and the dispatch of the retainer letter or whether ML checks have been completed.  Challenging at that might be, the aggregation of that data will enable them to build up a picture of law firms and not only whether they comply but also whether they measure up against an ethical business regulatory framework. 

The simple fact is that firms will not have a choice and the sooner they start to think about ethics the better adapted they will be.   To provide a vision of how this may be achieved I end with one long quote from Professor Hodges[10]:

How can businesses behave ethically? The requirement is for a business to adopt ethical business practices in everything that is done throughout the organisation. Codes on individual aspects, such as production, waste, marketing or social responsibility, are not enough: the approach has to be holistic. It has to be led from the top, but to exist at every level of the social groups within an organisation. Studies on the causes of sustained long-term business success have concluded that it is critical to establish clear core values, which are shared by all members of the workforce, form an ideology that is enduring and able to be applied consistently in different trading and geographical circumstances, whilst operational goals are constantly examined and developed.

It is essential to provide evidence of trust that an organisation operates with ethical values, to support independent judgment on whether an expectation of ethical behaviour is warranted.  Mere claims by a company that it can be trusted will clearly not suffice. Mechanisms should be designed to produce reliable evidence of trust. This may include aspects such as: a deep and consistent adherence to ethical principles; a high proportion of satisfied customers; consistent application of compliance systems and audits; transparency; ethical governance structures; belonging to an external professional structure that has high ethical principles and provides ongoing training, help lines, auditing and sanctions; effective use of internal Ethics Ambassadors; and structures enabling decisions to be debated to test ethical compliance, evaluated against external views, and made transparent. These sources of evidence will be mutually reinforcing, so as to provide density.

[1] As an example of this difference in philosophy see Alice Woolley article in the Canadian online legal magazine SLAW

[2] It could be said that the traditional model of training contact or indeed articles where a trainee shared an office with a senior solicitor allowed for a form of mentoring in ethics.  However, most law firms no longer adopt that model particularly where there have open plan offices.

[5] See Department for Business Innovation and Skills, Better Regulation Delivery Office, Ethical Business Regulation: Understanding the Evidence, February 2016

[6] See Ethical Business Regulation, Growing Empirical Evidence, The Foundation of Law, Justice and Society. Corporate Behaviour: Enforcement, support or ethical culture? Oxford Legal Research Paper series 19/2005

[7] See Department for Business Innovation and Skills, Better Regulation Delivery Office, Ethical Business Regulation: Understanding the Evidence, February 2016.

[8] For a fuller development of this see:  The End of Leverage?

[10] See Department for Business Innovation and Skills, Better Regulation Delivery Office, Ethical Business Regulation: Understanding the Evidence, February 2016

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