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Journal of Business Ethics (2009) 88:2134 DOI 10.


Springer 2009

The Managerial Law Firm and the Globalization of Legal Ethics

Bjorn Fasterling

ABSTRACT. The processes of economic integration induced by globalization have brought about a certain type of legal practice that challenges the core values of legal ethics. Law firms seeking to represent the interests of internationally active corporate clients must embrace and systematically apply concepts of strategic management and planning and install corporate business structures to sustain competition for lucrative clients. These measures bear a high conflict potential with the core values of legal ethics. However, we observe in parallel a global consolidation of these core values through an enhanced cooperation of national professional bodies, the use of international codes, and comparative legal ethics teaching and research. Furthermore, state regulation of the legal profession is concerned with preserving the core values of legal ethics to conserve the lawyers role in upholding the rule of law. This article defends that legal ethics is adapting to the pressures exerted by managerial approaches to legal practice without this altering core values that underlie legal ethics. KEY WORDS: comparative legal ethics, international codes of ethics, law rm management, law rms, legal ethics, professional ethics, professions

Introduction In the last two decades, legal practice has changed most dramatically where lawyers represent large and internationally active corporate clients (see, for example, Heinz et al., 2001, p. 342). Law rms seeking to represent such clients have engaged in
Bjorn Fasterling worked as a German lawyer on corporate transactions and international arbitration cases. Part of his practice took place in the German ofce of a US American law rm. For the last 5 years he has been teaching business law in France as a professor at EDHEC Business School and is member of the EDHEC Leadership & Corporate Governance Research Centre.

strategies of global expansion to keep up with their activity (Thomas et al., 2001; Silver, 2002; Spar, 1997; Sokol, 2007). In this sector, law rms have proved most successful when they have systematically embraced and implemented strategic management concepts to achieve competitive advantages (Muir et al., 2004), installed a central command structure, and heavily invested in human resources (Spar, 1997, Sokol, 2007). These approaches to legal practice will be described as managerial. Legal ethics1 seeks to ensure that private legal practice by independent professionals serves to uphold the rule of law. Lawyers basically serve the rule of law by representing client interests in accord with the integrity of a justice system. This implies that a lawyer is potentially confronted with conicting objectives between the interests of justice, the client, and the legal system (Hazard and Dondi, 2004). To maintain the delicate balance between potentially conicting interests in the face of social, governmental, and economic changes is a constant challenge for any legal ethics regime (Bachof and Martin, 1991). The core values of legal ethics are the necessary prerequisites for the private legal profession if it is to contribute to uphold the rule of law.2 Accordingly, the core values of legal ethics could be summarized as professional independence, client condentiality, avoidance of conicts of interest, service to justice and the justice system, and adherence to professional virtues (collegiality, honesty, and integrity). The managerial law rms approach to legal practice appears to be antithetical to the core values of legal ethics, particularly with regard to professional independence and the service of justice and the justice system. The managerial law rms internationality, business structures, and focus on achieving competitive advantages could disrupt the delicate balances that legal ethics tries to maintain.


Bjorn Fasterling ethics. The nal section tracks the worldwide consolidation of the core values of legal ethics through enhanced cooperation among professional networks, comparative legal ethics research and teaching, and present tendencies of state regulation of the legal profession.

As some academic literature on legal ethics suggests, the constant pressures on legal ethics exerted by the managerial law rm could be viewed as an indication that the legal profession is undergoing substantial changes (for example, Abel, 2003, pp. 202240; Etherington and Lee, 2007; Sokol, 2007) or even entering an era of postprofessionalism (Kritzer, 1999, p. 720). The emphasis on changes to the profession also echoes a key theme in organizational literature according to which professional rms are being transformed according to a new archetype, that of a managed professional business (for example, Greenwood and Hinings, 1993; Brock, 2006).3 Meanwhile, literature on institutional and organizational change explains the transformation of professions by saying that they have shifted their institutional logics, from duciary, public or idealistic to selfinterested, corporate or market-centred (for example, for the accounting profession, see Zeff, 2003a, b; for accounting, architecture, and higher-education publishing, Thornton et al., 2005). This essay takes a different standpoint. It will argue that there are sufcient indications that the core values of legal ethics remain intact, despite the strong pressures exerted by the managerial law rm. We observe enhanced cooperation among national professional bodies, the use of international codes of legal ethics, and increased comparative legal ethics research and teaching. All of these developments foster the awareness that different legal systems share the same core values of legal ethics. Likewise, state regulation of the legal profession is concerned with preserving the core values of legal ethics with the objective of maintaining the lawyers role in upholding the rule of law. Through a global consolidation of core values, legal ethics remains a forceful determinant of the legal professions nature, in spite of the development of the managerial law rm. The persistence of these core values could be a reason why the legal profession, unlike the accounting profession, has not been so severely struck by the corporate scandals of the beginning of the 21st century (see Shapiro, 2003 with respect to effective conict-of-interest avoidance). The rst part of this essay deals with the business model of the managerial law rm and how it differs from other forms of legal practice. The second part will describe the tense relationship between the managerial law rm and the core values of legal

The business model of the managerial law firm The core values and rules of legal ethics do not oppose the idea that a lawyers practice be managed as a business. On the contrary, legal ethics are based on the premise that private legal practice is able to sustain itself and ourish. Any legal practice, be it a sole practitioner or a law rm with more than 500 lawyers, could be viewed as managerial insofar as it must employ resources efciently and endeavour to be protable. However, if we left the discussion here, we would deprive ourselves of distinguishing a certain business model of legal practice that creates specic challenges to legal ethics. For the purposes of this article, we thus propose that the term managerial law rm be dened within the following contours.

Target clients and client demands Managerial law rms seek to represent large corporate clients with a high level of transactional activity and signicant international presence. The managerial law rms target clients include entities of large corporate groups, banks, insurance companies, and other large-scale professional investors. Of course, it is not excluded that the managerial law rm may also represent smaller companies, not-for-prot organizations or private individuals, but its main focus will be on large corporate clients. The targeted corporate clients regularly engage external legal counsel for individual projects on a case-to-case basis. They are sensitive to costs and they have their own sophisticated legal management systems, enabling them to monitor and evaluate effectively the performance of external counsel (Heinz et al., 2001, p. 348). While some may tend to view the function of legal ethics rules as a compensation for the inability of clients to judge lawyers

The Managerial Law Firm and the Globalization of Legal Ethics performance (see, for example, Hadeld, 2000), this is not applicable to the client market that the managerial law rm targets. Long-term clientlawyer relationships, although not impossible in such environments, are subjected to permanent re-examination. When law rms pitch or take part in client-arranged beauty contests for each client dossier, we can speak of a culture of commodity relationships with high external counsel turnover to the detriment of relationship lawyering with stable client bases (Baker and Parkin, 2006; Kritzer, 1999). A targeted client dossier will often require legal expertise in various jurisdictions and in multiple legal practice areas. This is specically relevant for complex matters that are often interlinked and are heavily marked by global economic integration, such as mergers and acquisitions, capital market and securities transactions, competition, antitrust, and intellectual property. In all of these, the managerial law rm has incentives to propose one-stop solutions in order to maximize business with clients, thereby ensuring that no other competitor is retained to work on other aspects of the same dossier (see also Heinz et al., 2001, p. 344). To do this, the managerial law rm must expand its own reach across borders, offering lawyers trained in different jurisdictions with different elds of expertise, to work on common projects (Silver, 2007; Thomas et al., 2001). The challenge for the law rm is to offer a coherent, seamless service, that is, with a consistent quality level despite the dossiers complexity and cross-border nature.4 When law rms compete for individual client dossiers and the targeted client, through its in-house legal management system, has the skills to evaluate the work of external counsels, the competition becomes more severe than in other areas of legal practice.


rms (Maister, 1993). The law rm must engage in a systematic process of market analysis to anticipate client demand and identify how prospective clients value legal services (see Muir et al., 2004, p. 182). The following presents the typical features of a managerial law rms client-orientated approach: Full-time management: A managerial law rm will appoint one, or a team of, managing partner(s) whose time is predominantly dedicated to dealing with the rms strategic issues (and not to legal work in itself). The managing partner(s) will regularly seek assistance, either from external management consulting rms, and/or from non-lawyer management staff, to implement a law rms strategy. Focus on business development: The managerial law rm invests considerable resources in business development activities independent of actual client representation. Such activities aim at developing and maintaining client networks, knowing and being able to anticipate clients needs, and at the same time, making clients aware of the law rms distinct qualities. Business development activities can take various forms, as long as they offer the opportunity to exchange information with representatives of prospective clients. Examples of these are serving on boards of business associations, attending or organizing conferences, round-table debates, and so forth. Performance measurement: In a strongly competitive environment, the managerial law rm will be actively engaged in benchmarking performance. It will systematically measure its performance according to different criteria and deduce from this analysis strategic strengths and weaknesses. Law rm rankings provide an aid to the managerial law rms systematic performance measurement.5 Communication of CSR programmes: Fairly recently, managerial law rms have begun communicating corporate social responsibility (CSR) programmes. They increasingly mention environmental issues, community involvement, charities, and employee welfare as important concerns of the rm. In a recent PriceWaterhouseCoopers law rm survey (PWC, 2007), brand reputation, employee

Corporate strategy, customer relations, and brand development Having to compete for clients on a case-to-case basis, the managerial law rms management focuses on generating competitive advantages. A professional service rm must endeavour to make its services more valuable to clients than those of competing


Bjorn Fasterling retention and attraction, as well as client pressure with regard to CSR are key drivers for rms in employing CSR programmes.6 The cost-intensive activity of the managerial law rm provides managers with incentives to advocate for more exibility in a rms nancing opportunities and cost structures while limiting its risks.7 The boldest suggestion so far is to open law rms to ownership by a non-lawyer investing public, as is the case in parts of Australia and soon, in the UK.

Organizational elements In offering seamless services that require manpower and multiple capacities with a consistent quality across multiple jurisdictions, the managerial law rm must adopt an organizational structure with clearly dened hierarchies and a centralized management conferred with powers of command. Such organizational elements represent a departure from traditional legal practice, with its informal governance based on partnerships among independent equals. An intensive recourse to the employee-lawyer and a exible business structure constitute the main organizational elements of the managerial law rm: Intensive recourse to the employee lawyer: In managerial law rms, the equity partner is in the minority. Most lawyers work as employees in a distinct hierarchy as associate, senior associate, counsel, and so forth. Additionally, it has become common to upgrade employees to non-equity partners at an intermediate stage towards full equity partnership. The above-mentioned law rm survey (PWC, 2007) reports of ratios of up to six employed lawyers to one equity partner, a ratio unheard of in traditional legal practice. Furthermore, traditional legal practice will view the employee status of a newly recruited lawyer as a transitional apprenticeship period en route to equity partnership. For the managerial law rm, however, the permanently employed lawyer is increasingly viewed as a viable career alternative (see Baker and Parkin, 2006, pp. 16771678; Heinz et al., 2001, p. 355). Flexible business structures: Keeping a high number of employee-lawyers is also geared to increase the prots of rms equity partners. But since employing lawyers (and non-lawyer personnel) means committing rm revenue to the payment of salaries, high employee leverage is associated with high overhead costs.

The managerial law firms pressure on legal ethics Legal ethics and the managerial law rm follow two fundamentally different objectives, and the conict potential between them is high. Legal ethics is concerned with the lawyers role in establishing just relations between individuals and/or between individuals and the state, while the managerial law rm seeks to assist clients with the legal aspects of their commercial relationships. The following does not intend to list in detail all possible conicts between a managerial law rms practice and legal ethics. The intention here is to show some basic conicts between the frameworks of the managerial law rm and the core values of legal ethics. Three principal areas can be identied: rst, a seamless international legal practice enters into conict with the basically national design of legal ethics frameworks; second, the pronounced client orientation of the managerial law rm questions the tenet in legal ethics that a lawyer should not be dominated by a single norm or interest; and nally, the client orientation, organizational structure, and nancing of the managerial law rm potentially conict with basic assumptions about professional independence in legal ethics.

Seamless cross-border legal practice and national legal ethics The rules of legal ethics are habitually formulated through laws and jurisprudence, and are enhanced by national, state, regional or local professional

The Managerial Law Firm and the Globalization of Legal Ethics bodies with conned self-regulatory powers. We will nd abundant variants in the organizing and enforcement of legal ethic frameworks throughout different jurisdictions. It is not the purpose of this essay to compare details. Sufce it to say that national law and national professional lawyer organizations will at least coordinate ethical frameworks, their enforcement, and access to the legal profession. The national character of legal ethics is challenged by the extensive, cross-border legal practice of managerial law rms. National ethics rules could become impractical to apply when a lawyer or a team of lawyers operate in several jurisdictions. Despite the fact that national rules of legal ethics share the same core values (see below), details can vary considerably (Etherington and Lee, 2007; Hazard and Dondi, 2004; Mark, 2001; Moore, 2005; Terry, 2005). Even when the texts of the rules seem identical, different cultural attitudes and institutional environments lead to variant forms of application and interpretation. A lawyer of a managerial law rm working on a case involving more than one jurisdiction therefore easily becomes confronted with conicting rules, codes, and regulations. An example: A client in the USA retains a USA-based law rm to perform the legal aspects of a corporate transaction involving numerous targets in different jurisdictions. The contract between the client and the law rm provides for an extra payment to be made to the law rm in the event of the transactions success. Since German targets are involved, the law rm invites a partner of its German ofce to cooperate on the case. While reasonable contingency and other success-related lawyer fees are in compliance with ethical rules in the USA, they are, in principle, prohibited in Germany. The question is whether the German lawyer can accept to work on the case. The client contract will be subject to the laws of a state in the USA, so that the German prohibition of the success fee will not invalidate the contract. On the other hand, it is less clear whether the German bar organization should (and actually will) discipline the German partner for practising law in Germany under a success-fee regime valid in the USA.


Conicts between national ethical codes are habitually referred to the double-deontology principle (meaning that lawyers must comply with the legal ethics rules of all jurisdictions where they practice). Yet, the above example shows that indiscriminately accumulating national legal ethics rules is either impractical or, if the double-deontology rule is actually enforced, can paralyze international legal practice in cases where national rules of legal ethics contain incompatible provisions (see also Nicolson and Webb, 1999, p. 62). The complex layering of various national professional duties deserves a better solution than a single conict rule of double deontology. With regard to resolving conicts between legal ethics frameworks in international practice, the most practical solution would be to design more elaborate conict rules that could use double deontology as a basic conict principle but also take into account specic types and situations. The formulation of more elaborate conict rules could be achieved through international networks of national bar organizations as we will see below.

Perception of legal practice as a service versus balancing of interest in legal ethics The perception of legal practice as one which sells legal services is reected in website communications or client newsletters of managerial law rms. Such a perception is a prerequisite for any law rm seeking to implement a strategy geared to generating competitive advantages. Management literature on the legal profession willingly accepts the commodity perspective on legal practice. Spar (1997, p. 9) writes that lawyers sell an:
information based-service - a product whose value lies in its customization, a product that is difcult to stockpile or resell, and a product based inherently on human, rather than physical, capital. Unlike many service businesses, the services they sell vary substantially from one customer to the next.

Such a commodity perspective is difcult to uphold, once you accept that legal ethics shapes the nature of a lawyers practice. Consequently, Spar (1997) does not make a single mention of legal ethics


Bjorn Fasterling The managerial law rms focus on competitive advantage leads to emphasizing the lawyers role as a service provider, which is fundamentally incompatible with the professional role underlying legal ethics. This incompatibility does not prevent a managerial law rms lawyers from complying with the rules of legal ethics conferring them with duties to interests other than those of the client. Nonetheless, the lawyer must then confront strong motivational pressure to avoid entering into conict with such rules. Another tendency that could lead to a deprioritization of the lawyers public role is the propensity for measuring law rm performance. Rankings and other forms of success measurement may, at rst sight, simply provide a benchmarking instrument for law rms or offer useful information to potential clients or job-seeking lawyers. However, a systematic benchmarking and ranking practice leads to a neglect of the core values of legal ethics. To the extent that a ranking or a success measure becomes reputed and widely acknowledged, law rms may feel pressured to change their priorities in order to avoid the sanction of a bad score or ranking. The striking point about law rm rankings and other success measures is that the service of justice and the justice system aspect of the legal profession are broadly ignored. This is not due to a conscious neglect of a core value of legal ethics, but to the fact that a lawyers commitment to justice and the justice system is more difcult to quantify than factors such as revenue, prot per equity partner or even client satisfaction. In conclusion, the sole effort to quantify the success of a law rm leads to a prioritization of quantiable over non-quantiable values. This can have pernicious effects on the authority of norms based primarily on values which are less accessible to quantitative assessment. Pressures on professional independence All codes of legal ethics will, in some form, express lawyers needs for independence to full their professional duties. This independence has two facets: one is protective (a lawyer should be protected from outside pressures that impair professional judgment); and the other is self-disciplinary (lawyers should not impair their professional judgment by pursuing

issues, or even the lawyers public commitment to the rule of law, despite the fact that the rules of legal ethics are essential factors of a law rms organization and global expansion, the very theme to which Spar dedicated her article. From the standpoint of legal ethics, it would be inaccurate to describe the lawyers professional role as that of providing legal services to clients. Legal ethics focuses on client representation and not on the provision of legal services. The difference goes beyond mere terminology to the underlying meaning of the lawyers work. If you provide services, you seek to create value for clients. The legal representation of client interests is about serving the client with justice, and thereby contributing to the rule of law. However, even if we assume that providing legal services to clients and client representation signify the same activity in practical terms, the work-description of the lawyer would still remain incomplete. From the core values of legal ethics, we deduce that a lawyer should serve multiple and sometimes conicting interests. An example can be read in the preamble to the Council of Bars and Law Societies of Europes (CCBE) Code of Conduct for European Lawyers (CCBE, 2006a). A lawyers function would:
lay on him [the lawyer] a variety of legal and moral obligations (sometimes appearing to be in conict with each other) towards the client, the courts and other authorities before whom the lawyer pleads the clients cause or acts on the clients behalf, the legal profession in general and each fellow member in particular, the public for whom the existence of a free and independent profession, [] is an essential means of safeguarding human rights in face of the power of the state and other interests in society.

Similarly, Hazard and Dondi (2004) conclude from a comparative examination of legal ethics frameworks around the world that a lawyer should not be dominated by a single norm or interest, adding that a lawyer also has to make the various interests she is serving concordant with her own interest of earning adequate returns from practice. It becomes clear that maintaining a delicate balance between potentially conicting objectives and interests is a principal preoccupation of legal ethics, whose purpose is to preserve the lawyers role in contributing to the rule of law, limiting power abuse, and protecting individual human rights.

The Managerial Law Firm and the Globalization of Legal Ethics personal interests or by succumbing to outside pressures). Hazard and Dondi (2004, p. 147) list four forms of independence which are open to contaminating inuences likely to endanger a lawyers independence. These forms are:
(a) independence from the state (including independence from the courts), (b) independence from improper inuence of relationships a lawyer may have with others, including other clients and a lawyers colleagues, (c) independence from the client, and (d) independence from improper inuence of the lawyers personal opinions about matters of politics, morality, and the state of society. [Letters (a) to (d) inserted into the quotation by the author.]


With regard to independence from the client, severe competition for corporate client dossiers results in a risk that an ethically stipulated client representation develops into improper client inuence. By making the creation of value for clients the top priority, managerial law rms are under more motivational pressure than other legal practices to cede to inuences that impair independent judgment (for case examples from US legal practice, see Bainbridge, 2004). Some lawyers, facing strong internal and external competition pressures, end up not only violating ethical rules, but may also break the law (for an instructive case example and in-depth discussion, see Regan, 2004). Global consolidation of the core values of legal ethics through professional bodies and state regulation of the legal profession While the preceding section has shown how the managerial law rm puts stress on legal ethics, this section will describe the parallel development of a global consolidation of the core values of legal ethics. First, we will show how the core values of legal ethics are being consolidated worldwide through the international cooperation of national professional bodies and an increase in comparative legal ethics teaching and research. Then, we will summarize essential regulatory developments that provide evidence for commitments of nation states to preserving these core values, with the objective of placing private legal practice in the service of the rule of law.

The managerial law rm increases the risk of improper inuences being exerted on (b) and (c). With respect to (b), the managerial law rm exposes lawyers, partners, and employee-lawyers alike to managerial command structures and strong internal competition. While equity partners compete for a share of the rms net prots, employeelawyers compete for equity partnership. Most employee-lawyers begin their careers with the aspiration of becoming an equity partner. Evidence for this attitude is the managerial law rms habitual practice of recruiting young graduates as associates to participate in a promotion-to-partner competition. Galanter and Palay (1991) coined the term tournament of lawyers to describe how law rms base their human resources strategy on a promotion-topartner competition to create greater leverage for the rms human capital while preventing shirking by non-equity lawyers within the rm. The tournament, despite being questioned (for example, Rutherglen and Kordana, 1998; Wilkins and Gulati, 1998), is still widely accepted as an explanation for law rm recruitment and career policies (Bainbridge, 2004; Heinz et al., 2001; Sokol, 2007). Certain writers would presumably classify the tournament as an extreme form of mercenary culture that would produce an amoral transactional leadership style within the profession (cf. Sama and Shoaf, 2008, pp. 4344). Without pushing the problem that far, we could at least assert that the internal competition within a law rm strengthens motivations not to comply with legal ethics rules and thereby increases conict potential.

Global consolidation of the core values of legal ethics through international codes of ethics and academic research and teaching We have seen that the internationalization of legal practice through the managerial law rm challenges legal ethics because of national and local structures. However, processes of communication and wider access to information brought about by globalization not only cause economic integration and the related increase of multi-jurisdictional legal practice; they simultaneously facilitate international cooperation among national bar associations, and encourage


Bjorn Fasterling for example, in regulating cross-border activity and situations of conict among national ethical frameworks or regulating activity in contexts detached from a national jurisdiction (such as commercial arbitration, international tribunals, and so forth). However, in the case of the CCBE Charter of Core Principles or the UIA Turin Principles conned to recalling the validity of the core values of the legal profession, we nd a more fundamental concern. These codes take a clear stance on how we perceive the lawyers role in society, by emphasizing that legal practice essentially has a public function. This view stands in contrast to a more market-orientated perception, in which a lawyer is a purely self-interested economic agent in competition with other selfinterested agents for the provision of legal services viewed as commodities in a market. The business model of the managerial law rm, as described above, makes this perception appear plausible because of exposure to strong competition and the tendency to deprioritize the public function of the lawyer. With the market-orientated perception becoming more popular (also with academics) (for an overview see Garoupa, 2008), the recent proliferation of core values serves as a strong reminder of the importance of legal ethics in promoting the rule of law, a constituent element of a democratic society. If we wanted to preserve a market economy and a democratic society without a legal profession (that is, not regulated and disciplined by legal ethics), we would have to suppose that market mechanisms could effectively replace legal ethics in safeguarding the rule of law. Strengthening the core values of legal ethics is an alternative to admitting such a premise. The global consolidation of core values is brought about not only by the proliferation of international legal ethic codes and the cooperation among international bar organizations, but also by academic work and professional training. The observation that, despite divergence of rules in national legal ethics frameworks, the legal profession around the globe shares core values, is conrmed by authors of comparative legal ethics (for references, see note 8). Terry (2005) provides information about an increased interest in comparative legal ethics teaching and training in the USA. Such training helps raise the awareness of rule divergence and value convergence among lawyers there. In Europe, comparative legal

research and teaching of comparative legal ethics (for a detailed historical account of international cooperation in legal ethics, see Terry, 2005).8 The most visible result of international cooperation among national professional organizations is the proliferation of international codes of legal ethics. The International Bar Association has announced that it is currently overhauling its International Code of Ethics dating from 1988 (IBA, 1988). In 2002, the Union Internationale des Avocats (UIA) published two codes, the Turin Principles of Professional Conduct for the Legal Profession in the 21st Century (UIA, 2002a) and the Standards for Lawyers Establishing a Legal Practice Outside Their Home Country (UIA, 2002b). The Council of Bars and Law Societies of Europe (CCBE) has recently updated its Code of Conduct for European Lawyers (CCBE, 2006a), providing a number of norms (that go beyond a mere double-deontology rule) to clarify a lawyers ethical duties in cross-border situations, and published a Charter of Core Principles of the European Legal Profession (CCBE, 2006b). Apart from these codes, we also nd several codes of professional conduct applying to specic types of international legal practice, for example, international commercial arbitration or pleading before international tribunals.9 We observe from the above that, despite divergence concerning details of national legal ethics rules, there is a global consensus regarding core values: all international codes of legal ethics express the requirement for lawyers to safeguard independent judgment in order to full their professional duties. Another value is the lawyers obligation to maintain condentiality towards the client, with its concomitant privilege of protection. Codes also contain safeguards to avoid conicts of interest and refer to the traditional professional virtues of collegiality, honesty, and integrity. Finally, any international code of legal ethics will include a special duty of service to justice and the justice system, and emphasize that this service goes beyond the duty to represent clients. The objective of international codes is not to unify or harmonize national legal ethics rules. International codes of legal ethics pursue different goals. The CCBE code of conduct, the UIA standards or the codes that apply in specic international contexts seek to provide frameworks when national rules of legal ethics are insufcient or inappropriate,

The Managerial Law Firm and the Globalization of Legal Ethics ethics training is less developed. The advance in the USA could be explained, on the one hand, by the wide presence of law rms from the USA in foreign jurisdictions (see note 4), while European law rms, with the exception of those from the UK, have limited international presence and still often conne their practice to their own jurisdictions. The relative lack of interest in comparative legal ethics teaching and training in Europe could also be explained by the fact that even basic legal ethics courses are not or only cursorily taught to members of the legal profession.10


Recent regulatory tendencies: preserving the lawyers central role of serving the rule of law When the UK government communicated that it would reform the legal profession, it politically marketed its project as The Future of Legal Services Putting the Consumer First (Department for Constitutional Affairs, 2005). The Legal Services Act of 2007 mentioned a number of regulatory objectives and listed protecting and promoting the public interest and the support of the constitutional principle of the rule of law as the rst two items.11 This is a good example of the tension between the market-centred and public perceptions of the legal profession in the context of the reform of professional regulation. In this case, public interest received top place in the nal version of the law. Contrary to the government communication that is largely inspired by economic perspectives on professional regulation, the legislator here is not fully convinced that a reform of the legal profession be only economically motivated.12 The nal version of the Act expresses that improving citizens rights and access to justice remained a principal objective of the reform (Goldsmith, 2008). This example illustrates a trend observed in other places: states are rethinking the structure of the legal profession, which leads to reinvigorating rather than a calling into question of the core values of legal ethics. A main regulatory tendency is the transfer of powers of regulation and professional oversight from self-regulatory bodies to independent or state authorities (as in the case of the UK with the establishment of the Legal Services Board). Although these changes were motivated by a certain disenchantment with self-regulation, they do not weaken

the core values of legal ethics dened above. We view self-regulation not as a core value (see, however, CCBE, 2006b, which lists self-regulation among its core principles), as long as state regulation and oversight do not become so restrictive that they impair professional independence. The observation that state regulation has not threatened, but on the contrary consolidated, the core values of legal ethics applies to recent deregulatory tendencies. Literature on the transformation of the legal profession tends to emphasize deregulation (see, for example, Kritzer, 1999). However, deregulation and regulation have not led to deprofessionalization. More plausibly, they represent the adaptation of the legal profession to the changes in social, economic, and governmental environments (see also Bachof and Martin, 1991). Adaptation is not only marked by deregulatory tendencies, with regard to the opening up of professional monopolies for rendering legal services, in business structure, and in entry to the profession, but equally by more intensive regulation to safeguard the core values of legal ethics and the lawyers central role in contributing to the rule of law, as we will discuss below. Worldwide, we can distinguish between three deregulatory tendencies in the market for legal services: the rst is about opening up certain elds of legal activity to non-members of the legal profession; the second involves greater exibility for law rms to organize their business structures; and the third concerns the integration of foreign-trained lawyers in a national legal system. Loss of exclusivity: Here we note national legislation that allows other agents to engage in certain types of legal activity formerly reserved for members of the legal profession. Kritzer (1999, p. 720) lists the loss of exclusivity of the formal professions as one of the central elements of what he calls postprofessionalism. We would remark, however, that the loss of a lawyers exclusivity has, so far, always been partial, that is, limited to certain types of legal services, often small-scale or routine legal tasks. It does not represent an assault on the tre, the upholding of legal professions raison de the rule of law. Flexible business structures: Greater exibility in organizing business structures concerns


Bjorn Fasterling allowing multi-disciplinary practices (those offering legal and other professional services, such as audit and tax advice, under one entity), or of offering more choices of entity form. Formerly, in many jurisdictions, law rms could neither enter into multidisciplinary practice nor adopt any entity form other than a non-limited partnership. Today, many jurisdictions are relaxing organizational restrictions in these respects. With regard to entity choice, the nal step, namely the opening up of equity investment to nonprofessionals, remains as an exception. Integration of foreign-trained lawyers in a national legal system: This development is most advanced within the European Union (EU), where the fundamental freedoms of the internal market, in particular, the freedom to provide services and related European legislation, oblige European Member States to open the access for foreign EU lawyers to a domestic market for legal services (see Lonbay, 2005 for an informative overview). client representations when already engaged for an adversary interest. Internal procedures that effectively reduce the risk of such conicts are to be established. Some legal systems (for example, in the USA) apply conict-of-interest rules not only to the individual lawyer but to an entire law rm, thereby preventing lawyers of the same law rm from representing adversary interests. Under such a regime, the possibility of a conict of interest increases signicantly, the more the law rm grows and the more concentrated its targeted client market becomes. For this reason, conict-of-interest frameworks that are based on such imputation rules must, in order to be practical for large law rms, offer certain exibility. For example, they could offer the possibility that a client may, under certain conditions, consent to the law rms representation of an adversary interest (see Grifths-Baker, 2002). In legal ethics regimes where conicts of interest are not imputed to the lawyers working within the same rm, clients are regularly offered the possibility of raising complaints or litigating against law rms, with the argument that the representation of adversary interests causes a breach of duties. The threat of liability or disciplinary action pressures law rms into examining possible conicts before accepting a client dossier. In legal ethics, the conict-of-interest rules still effectively prevent a global law rm consolidation resembling that of the accounting industry. Avoiding conicts of interest does not merely represent a demand from a client, who may not wish that a law rm represent interests of an adversary, but it is also in the public interest. A lawyer serves the justice system by being an independent, if partial, representative of a party. This is in disagreement with Heinz et al. (2001, p. 355), who say that there is nothing inherent in the character of legal services that would prevent a substantially greater concentration of the businesses in larger rms. In our opinion, legal practice is inherently adversary, and therefore, more sensitive to effective conict-of-interest provisions than other professions (see also Hazard and Dondi, 2004, pp. 193194, Shapiro, 2003). Another area where the conduct of lawyers is being strongly regulated is the states use of lawyers for law-enforcement purposes, even against the interests of clients. Such law enforcement is particularly relevant for practice areas where legal advice and services are intimately connected with a

Despite these developments, we may question however whether the term deregulation accurately describes what is actually happening. Deregulation and regulation of the legal profession go hand in hand. Hardly any project of deregulation is without regulatory safeguards to preserve the lawyers role in promoting the rule of law. For example, in Australia, where equity investment of nonprofessionals in law rms is now permitted, this deregulatory measure was introduced with specic regulatory obligations, such as those requiring incorporated law practices to have a legal practitioner as director responsible for the management of legal services to ensure compliance with legal ethics. It is too early to predict whether the Australian measure will succeed, serve as a model or even enhance the authority of legal ethics, as Parker suggests (Parker, 2004). Two examples of regulatory developments contrary to the deregulatory tendencies described above are the prevention of conicts of interest and the strengthening of a lawyers so-called gatekeeper obligations. Conict-of-interest regulation (regularly enhanced by self-regulatory norms) obliges a lawyer to refuse

The Managerial Law Firm and the Globalization of Legal Ethics companys business activities. In some jurisdictions, lawyers are being held to report on material violations of securities laws (see, for example, Securities and Exchange Commission, 17 CFR Part 205), or on suspicious transactions to combat securities fraud, money-laundering or terrorist nancing (see for example European Directive 2005/60 EC). A lawyers enforcement function is generally justiable by the core values of legal ethics that view the lawyer as an independent agent of justice, with obligations to the integrity of the justice system (although it conicts with other core values of legal ethics, in particular, with maintaining client condentiality). The lawyers enforcement function is incompatible with viewing legal practice exclusively as providing legal services to clients. Proposed and existing legislation, as well as the debates they prompt, are an expression of the efforts to bring legal ethics to bear on establishing new delicate balances in the face of combating illegal activities.


Conclusion This essay contrasts two parallel developments: the emergence of the managerial law rm that puts pressure on the core values of legal ethics around the world, and the consolidation of the very same core values through international cooperation of national bar associations, comparative legal ethics teaching and research, and recent regulatory tendencies. Although these developments seem, at rst sight, contradictory, this essay proposes a more coherent picture. We have shown how the consolidation of the core values of legal ethics rests on the universal common interest in maintaining the lawyers essential role in promoting the rule of law. The managerial law rm pressures legal ethics regimes into adapting legal ethics rules without this leading to a change in core values. A change in these core values could only occur if the individual interests of clients and lawyers were to prevail over the common interest in the rule of law.

In this article, we will apply the term legal ethics in its most common understanding as a subcategory of

applied ethics. It is not only the sum of laws, jurisprudence, and norms of lawyers professional organizations that regulate the lawyers profession, but also the manner in which they are put into practice (see also Hazard and Dondi, 2004, p. 2; Nicolson and Webb, 1999, p. 5). When we refer only to the rules, we will speak of the rules of legal ethics. 2 The term core values could mean core principles or fundamental principles (see also Goldsmith, 2008). 3 The theory of archetype changes towards a managed professional business is disputed, in particular, with regard to legal practice (see, for example, Ackroyd and Muzio, 2007). In an empirical study of UK law rms, Pinnington and Morris (2003) show that changes in structure and systems coexist with a continuity of professional values, contrary to an archetype change. 4 The international expansion of USA-based and UK-based law rms has been extensively documented in academic literature (see, for example, the work of Silver, 2002, 2007; Thomas et al., 2001; Sokol, 2007; Spar, 1997). In this literature, we nd explanations of why American (and more specically New York-based) and UK (and more specically, London-based) law rms have so far been the most inuential in the market for legal services. The geography of law rm expansion, however, is not of essential interest to this article. 5 For example, the American Lawyer Global 100 regularly ranks law rms throughout the world according to various categories such as most revenue, average number of full-time lawyers, and prots per equity partner. With the FT 50, the Financial Times publishes a journalistic ranking of innovative law rms. Bloomberg regularly publishes a global ranking for mergers and acquisitions (M&A) practices based on the total value of transactions handled by a law rm. 6 What is striking is that the language and content of law rms CSR communications differ little from those of their prospective clients. Only a few law rms focus on social responsibility issues typical of the legal profession, such as serving to improve the justice system or engagement in human-rights affairs and so forth. An explanation could be that law rms prefer to model their communication on that of their prospective clients to demonstrate a closer identication with client preoccupations. 7 To date, the most popular form for the managerial law rm is the limited liability partnership (LLP) found in the UK and USA. In the USA, the LLP is, in principle, a partnership, where each partner is nonetheless shielded from the negligence and misconduct of other partners, and, in some cases, also shielded from the


Bjorn Fasterling
in Antalya (2008). Finally a thank you goes to Christine Rivenq, who has reviewed the English language.

debts of the rm. The UK form is not a partnership but a corporate entity without shareholders (just members); it largely follows the rules of an incorporated company. Despite its name, the LLP resembles a corporation more than a partnership. Recent ndings that partnership forms of governance are best suited to knowledge workers (see, for example, Greenwood and Empson, 2003) should therefore be reviewed, at least with respect to the managerial law rm. 8 Comparative legal ethics has become a veritable branch of academic study. It is thus impossible to cite all relevant contributions. We could mention Hazard and Dondi (2004), Barcelo and Cramton (1999), Godfrey (1995), and Terry (for example, 2005, 2007) as an introduction to the topic. 9 The most prominent example would be the International Criminal Courts (ICC) Code of Professional Conduct for Counsel of the International Criminal Court (ICC, 2005). We can also note a trend towards a proliferation of professional codes for international arbitrators (see Rogers, 2008). 10 For example, in Germany, the legal education curricula of most states do not provide for any obligatory legal ethics courses, neither during university studies nor during the professional internship period (Referendariat). In France, professional deontology is regularly taught in lawyer school (Ecole des Avocats), yet only as a subtheme of an introductory course. In the UK, legal ethics is one subject of the Bar Vocational Course for Barrister qualication. Post-qualication legal ethics training is unusual in all three jurisdictions. 11 See part 1, paragraph 1 of the Legal Services Act, 2007 (c. 29) available at acts2007/ukpga_20070029_en_1 (last visited 21 December 2008). 12 In economic literature, professional services are often referred to as credence goods. According to this literature information asymmetry would be the main source of failure of professional markets, because the consumer could not judge the quality of a service as well as the expert who offers it, and regulation is justied where the market equilibrium cannot correct such market failure efciently (see Garoupa, 2008).

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