Multidisciplinary Practices—Firms of the Future
*The opinions expressed herein are those of the author and do not necessarily represent the opinions of PricewaterhouseCoopers LLP. This article is partially based on a presentation delivered by the author at the MACPA State Tax Forum in June 1999 entitled 'The Unauthorized Practice of Law in the New Millennium.'
The purpose of this article is to articulate a position supporting the proposition that multidisciplinary practices (MDPs) are beneficial for Michigan practitioners and clients.
What Are MDPs?
Most Michigan practitioners are unaware of what an MDP is and how it can help them. Generally, MDPs are firms that provide a variety of professional services through an association or alliance of professionals. In an MDP, lawyers may share fees with nonlawyers, or enter into partnerships or alliances with nonlawyers, to provide business consultation or legal services to clients. The goal of MDPs is to provide a full array of services, or 'one-stop shopping,' to clients who have a variety of complex issues requiring a multidisciplinary resolution.
Types of MDPs
In his testimony to the ABA Commission on Multidisciplinary Practice on November 12, 1998, Gerard Nicolay, chairman of the Network of Correspondent Law Firms of PricewaterhouseCoopers LLP, identified two basic approaches to the formation of MDPs. The first approach is full integration.1 The second approach strives for a parallel alliance of separate business organizations.2 Although the term MDP refers to an integrated practice, it does not necessarily imply a full integration of ownership and management. The resulting practice may be either of the two, or something in between.
What is Driving this Phenomenon?
MDPs have become the practical solution to obtaining cost-effective, comprehensive, professional services in an increasingly deregulated global market. There is nothing new about a client's desire to obtain cost-effective services; however, costs are multiplying rapidly as businesses are growing. This cost surge is driven by increased competition from deregulation and increased costs of delivery due to geographic and consumer-based expansion.
The demand for highly specialized service providers has also increased with expansions into unfamiliar markets. These experts need more formal training and experience to meet the demands of business. Thus, as the demand for highly skilled professionals is increasing, the cost of obtaining, training, and retaining such individuals is also increasing.
Cost-conscious clients, desiring to eliminate transaction costs associated with employing multiple professional organizations to resolve overlapping business problems, are turning to MDPs to obtain the optimal delivery of various services.
Globalization is also being fueled by technological advances in both industry and professional services. Industry is becoming more dependent on technological experts to ensure smooth operation of their businesses. In addition, these technological costs have become a larger portion of most annual budgets. The push to cut production costs is further pressuring management to trim costs such as professional consultation fees.
What is the Status of the MDP Movement in the United States and Abroad?
In the United States, the MDP movement is moving forward at different levels.3 However, there is an ongoing movement toward parallel associations that is being spearheaded by the Big Five accounting firms. Several Big Five firms have already implemented MDPs through the acquisition of law firms, resulting in parallel firms and the institution of differing degrees of integrated practices in Europe, Canada, and Australia.4 Likewise, MDP activities are steadily increasing in Africa, Asia, and Latin America.
Meanwhile, the American Bar Association formed the special Commission on Multidisciplinary Practice, which began holding hearings on whether to amend the ABA model rules of professional conduct in November 1998.5 In January 1999, the ABA published a background paper on multidisciplinary practices. The paper identified issues associated with providing legal services in an MDP environment, but did not reach a conclusion as to the Commission's position on the issue. Furthermore, the Commission invited the public to submit comments on issues identified in the background paper by April 4, 1999. The Commission also posted hypotheticals and models for comment on its website at www.abanet.org/cpr/multicomhypos.html The Commission finally issued a report in June 1999 endorsing the MDP concept for consideration by the House of Delegates of the ABA.6 The House of Delegates voted to table the proposal in 1999.
Finally, it is worth noting that past State Bar of Michigan President Thomas Lenga established a special committee to study the relationship between law and accounting firms. This committee, on which the author sits, is currently considering issues related to the establishment of MDPs in Michigan.
Other Major Players in the MDP Movement
The MDP movement is not limited to accounting and law firms. For example, Amex Canada Inc. announced that it is adding a new management consulting practice to its range of travel and expense management services. Amex has promised to bring its clients a comprehensive assortment of travel and entertainment financial services to help them achieve cost savings, establish travel policy based on global best practices, and develop purchasing processes. Also, AT&T Solutions provides 'professional services' to AT&T's corporate clients in an effort to achieve comprehensive global business solutions. Both AT&T and Amex are steadily increasing their market share as business and financial advisors in a variety of fields, and both are hiring a varied team of professionals including business, electronics, and financial specialists to meet their clients' needs.
Regulation of MDPs-Various Proposals
A primary issue remains for both the professionals who advocate MDPs and those who oppose them. Given that MDPs already exist to some extent, who should regulate them? There are a myriad of professional regulatory agencies that currently promulgate professional rules in the various professional service areas. The question becomes, whose rules should prevail?
One proposed model would eliminate provisions preventing professionals from forming alliances and sharing profits from professional conduct rules, while maintaining rules that require independence and confidentiality. Firms would be responsible for implementing policies to ensure that the various professionals were in compliance with the professional rules promulgated by their regulatory bodies. Those regulatory bodies would maintain disciplinary control over their professionals. This model assumes that there is common ground among the professionals with regard to their ethical duties and allows firms to exercise limited discretion in formulating policies in those areas. Under this model, both the firm and the individual would be subject to regulation. However, the majority of participants at the ABA Commission on MDPs hearings favored regulating only the individual. A minority favored regulating only the firm itself.
Resisting Change: Gains and Losses
It is unclear who stands to gain the most from the introduction of MDPs nationally and locally. Initially, corporate expansion sparked the global impetus to form MDPs. However, many Michigan practitioners may have clients that are interested in an MDP not because of globalization of the economy, but because they find it more convenient to get legal and financial advice in one office rather than at multiple firms. Although relatively modest, this client consideration is as compelling as the multinational corporation's need to have a service provider with global coverage.
Those opposed to MDPs argue that erosion of ethical rules designed to protect clients will not be in the public's best interest. Clients, however, are responding with a demand for one-stop, comprehensive, cost-effective delivery of professional services.
If the desire to prevent MDPs is based on a desire to protect the public or clients, it seems that opponents of MDPs should allow market forces to dictate the direction of the profession.7 However, this is not always an acceptable solution, since the dictates of the market are not necessarily in the client's or public's best interest. Further, natural survival instincts may cause those who perceive a threat to their professional autonomy to invoke ethical rules to preserve the status quo without giving careful consideration to the potential benefits of change.8
The State Bar of Michigan should collectively decide whether it wants to follow or lead the MDP debate. The Bar can 'follow' the American Bar Association and the World Trade Organization, see how these representative bodies decide the MDP issues, and then attempt to follow suit. Alternatively, the Bar has the opportunity to take the lead by establishing a sound regulatory framework for MDPs in Michigan.
By embracing MDPs, the State Bar of Michigan can allow Michigan attorneys to expand their services to accommodate the changing market climate. It can take the lead in addressing the need to regulate MDPs by leading the dialogue. In doing this, Michigan attorneys would be positioned to be the leaders in the professional services business by showing that we can readily adapt to change and that we can help our clients do the same.
This flexibility would also allow Michigan to prosper in a changing global business environment. Furthermore, other Michigan professional services firms will have similar gains with an increase in market share through the expansion of service offerings. Traditional nonlawyer firms will be forced to exchange some professional autonomy for market share. Likewise, Michigan lawyers will have to do the same to become the premier local and global service providers in the new millennium.
1 Fully integrated MDPs include a single firm employing different types of professionals under common ownership and management. Given that the goal of the arrangement is to harness the value of a variety of professional perspectives, each professional should remain professionally independent in the exercise of his or her judgment.
2 Parallel associations consist of loose alliances or networks of professional service providers that are separately owned and managed. These service providers cooperate through referrals and joint marketing activities.
3 For example, Washington, D.C., already allows MDPs.
4 Currently, the Big Five accounting firms are the leaders in the implementation of MDPs throughout Europe and Canada. Many have been offering legal services to clients for years through a variety of arrangements that differ from jurisdiction to jurisdiction. In Europe, fully integrated MDPs are permitted in Germany, Italy, the Netherlands, the Slovak Republic, Spain, and some cantons of Switzerland. However, partnerships between attorneys and auditors are expressly prohibited in the Netherlands and Italy. France, Belgium, and the United Kingdom restrict the types of legal services that may be offered by MDPs. In response to these restrictions, firms such as PricewaterhouseCoopers have opted to use the parallel firm approach to providing legal services. In the United Kingdom, the House of Lords concluded that there was no legal basis for the claim that 'Chinese walls' or similar arrangements are insufficient for protecting client confidences and maintaining independence in the MDP environment in Prince Jefri Bolkiah v KPMG (December 18, 1998). Furthermore, in 1994 in New South Wales, Australia, the legislature approved multidisciplinary partnerships. The Law Society of New South Wales followed up by adopting ethical rules for MDPs. Reportedly, other Australian states are considering similar proposals.
5 The Commission's activities raised antitrust concerns, while some lawyers complain of anticompetitive advertising practices by large international accounting firms offering legal services. The Commission itself was made aware by the ABA's Antitrust Section of potential antitrust issues related to the Commission's activities. The group pointed out that under the U.S. Supreme Court case of Goldfarb v Virginia State Bar, 421 US 773 (1975) 'the learned professions are not exempt from the prohibitions of the Sherman Act and the Federal Trade Commission Act (FTCA).' In Goldfarb, the Supreme Court held that a minimum fee schedule published by a county bar association and enforced by the state bar violated § 1 of the Sherman Act, which prohibits price fixing and § 5 of the FTCA which prohibits unfair methods of competition.
Under antitrust laws, professional organizations are prohibited from engaging in acts that restrain trade among their members or outside competitors even if professional ethical concerns are the basis for the restrictions. Thus, if the Commission were to determine that practicing with nonlawyers is unethical and attempted to prevent nonlawyers from competing with the legal profession, such a conclusion would not shield it from prosecution under the antitrust laws. However, in the cases Eastern Railroad Presidents Conference v Noerr Motor Freight Inc, 315 US 127 (1961) and United Mine Workers of America v Pennington, 381 US 657 (1965) the Supreme Court held that the First Amendment protects legitimate lobbying activities by private organizations. Such activities are protected even if the intent is to prevent competition. Similarly, under the State Action doctrine established by the Supreme Court in Parker v Brown, 317 US 341 (1943), state authorized competitive practices do not violate the Sherman Act or the FTCA. However, the State Action doctrine only applies to private activities where the state has clearly articulated an affirmative state policy to allow private parties to act anticompetitively, and actively supervises the anticompetitive behavior.
6 Since November 1998, the Commission listened to the testimony of 42 witnesses and considered written comments by interested parties. The ABA Taxation Section and the ABA General Practice, Solo and Small Firm Section have formally endorsed the concept of multidisciplinary practices. The prevailing view among witnesses participating in the hearings was that MDPs are here to stay and the ABA should determine how the legal profession should adapt to influence regulatory changes that reflect the evolving practice environment.
7 For example, clients may not be interested in interdisciplinary services offered by their traditional accounting firms for fear of jeopardizing their independence.
8 It is fair to assume that most attorneys take their ethical considerations very seriously. Furthermore, most attorneys would agree that the independence and integrity of the legal profession are vital to the protection of the rule of law in most free societies. Attorney ethical obligations have a consistent underlying theme, which is to protect the public interest and maintain an attorney's independent judgment. Some of the key ethical considerations for the multidisciplinary practice debate are conflicts of interest, confidentiality, and advertising/soliciting.