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 intense.

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 partners.

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 ABSs.

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. (http://business.financialpost.com/2014/08/14/let-non-lawyers-own-canadian-law-firms-bar-association-says/)

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. (http://lawyerist.com/69937/time-for-non-lawyer-ownership/)

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 appropriate.

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.

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