There is little doubt that the
traditional law firm structure is under fire in Canada. Many of
Canada's largest firms are struggling under the weight of
out-dated business models and changing customer demands. The
collapse of Heenan Blakie earlier this year was perhaps the most
telling evidence of this trend. More than ever, North American
lawyers and firms are struggling to keep up with a rapidly evolving
legal and business landscape. Pressure from clients, large and
small, to reduce their legal budgets has never been more
A concept that has gained traction in
recent months in Canada would see law firm ownership opened up to
non-lawyers in an attempt to encourage innovation and competition.
The concept was proposed formally in the Canadian Bar
Association's recent Futures Report, which explicitly calls
into question the viability of the traditional strict partnership
model for law firms, suggesting that it discourages innovation by,
among other things, distributing profits exclusively to
The report makes several
recommendations to address "the combined forces of
globalization, technology, and market liberalization [that are]
creating new services, new delivery mechanisms, and new forms of
competition" for the Canadian legal industry. Law firm
ownership by non-lawyers was a significant factor in the
recommendations, among several others. The CBA proposes that these
new legal entities be known as alternative business structures, or
A recent report by Drew Haselback in
the National Post suggests that, in Canada, the change might herald
a trend toward law firms merging with accounting firms and other
consultants to create "one-stop professional service
companies." Or, mass market retailers (Walmart? Canadian
Tire?) could conceivably open legal "kiosks" within their
existing stores to provide advice on simple legal matters, such as
drafting wills or completing simple real estate transactions.
Other jurisdictions have pursued this
route, with reasonable success so far: both England and Australia
permit non-lawyer ownership of law firms to varying degrees. In
Australia, in fact, at least one law firm, Slater & Gordon, is
traded publicly on the stock market. Lawyers Alert
contributor and law firm management consultant Gerry Riskin notes
that a move toward ABSs in the Canadian legal industry would
increase pressure on Americans to follow suit.
But revising the traditional legal
structure necessarily involves certain ethical challenges, the most
obvious being the traditional and paramount fiduciary duty a lawyer
holds to his or her client. What would be the impact on that
relationship with the addition of stockholders, whose primary
interest is in the profitability of the firm? With new layers of
corporate bureaucracy, will client confidentiality suffer? The CBA
report seeks to address those concerns, emphasizing that the
traditional rules should continue to apply to lawyers while
expanding to encompass the non-lawyer aspects of ABSs. And early
evidence suggests that the alternative models adopted in Australia
and the U.K. might in fact already be resulting in lower
rates of ethics complaints.
Another possible result of the
innovation sought by the proposed reforms might be an acceleration
of the move away from the billable hour as the dominant billing
structure for Canadian law firms. This is a topic we have explored
before in Lawyers Alert.
Overall reaction to the Futures Report
from the Canadian legal community has been mostly positive. The
recommendations do hint at a brighter future for the industry. The
true test will be in the implementation. Where do we go from here?
Will these recommendations actually result in concrete change? Or
will we face years – or decades – of more debate with
little action? It will be up to the provincial law societies to
determine the next steps and amend their respective regulations as
The Futures Report can be found at
http://www.cbafutures.org/. We will continue to monitor the
reaction and responses. Look for more discussion in future issues
of Lawyers Alert.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Measuring time by the billable hour has always been a cornerstone of the legal profession – not only for charging clients, but also assessing lawyer productivity and significantly impacting compensation.
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