The View From Up North: CBA Recommends Sweeping Changes to Canadian Legal Profession

Canadian lawyers are making an attempt to join the twenty-first century. Will it work?

David Bowie said it this way:

Ch-ch-ch-ch-Changes

(Turn and face the strain)

Ch-ch-Changes

I know you’ll be humming that song a couple hours from now (and thanking me for it). But, it underscores that clients are demanding ch-ch-ch-change from the legal profession on both sides of the border. We can’t ignore it any longer. We need to turn and face the strain head on. We need to meet the challenges of globalization and technological innovation and transform our industry.

It looks like Canadian lawyers are making an attempt to join the twentieth century — sorry, I mean the twenty-first century. The Canadian Bar Association recently released its Futures Initiative report that sprung from two years of consultations by lawyers and legal profession experts. The Futures Report makes twenty-two recommendations for helping the Canadian legal profession break away from its horse and buggy business model (developed by Gen A) to join a world where you can watch video of a horse online before purchasing it with Bitcoins…

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Looking back more than a century, lawyers continue to practice today in much the same manner as they did when owning your own railroad car was a sign of status and wealth. Think of how many life-altering innovations the practice of law has stagnated through since Honest Abe removed his tall hat to appear in court during the 1830s:  automobiles, airplanes, atomic energy, artificial hearts, Apple computers, Apple iPod, Apple iPhone, Apple iPad.

Shall I do the Bs? Forget it. You get the idea; the world has changed immensely. Meanwhile, some Old Boy lawyers still dictate letters to their female secretaries and render a bill for point-five, before going off to the club for lunch with other Old Boys. The only real change since Honest Abe — secretaries are now called “assistants” (not quite true, but you get the drift).

The CBA’s recommendations focus heavily on innovation. The Futures Report emphasizes that Canadian lawyers must become innovative in order to successfully compete in a globalized world where clients are demanding more legal services for lower cost through technology.

The most interesting and transformative recommendations take a page from Australia and Great Britain.  The CBA recommends that law firms be allowed to incorporate and that non-lawyers should be allowed to make equity investments in corporate law firms. This is currently not allowed in Canada. The CBA takes the position that outside investment will aid innovation by providing funds to invest in the technology that supports innovation.

Let’s take a step back to the traditional limited liability partnership arrangement.  Revenue comes into the firm in the form of fees.  Expenses are paid and the remainder is distributed to the partners.  There is no real way for a limited liability partnership to retain earnings.  In fact, the culture of law firms has long been that partners expect their firms to distribute every excess penny. Put differently, what sixty-year-old partner, knowing he’s going to retire in five years, wants to leave any money on the table for firm growth? Thus, the inability to retain earnings at an organizational level, and a long ingrained predilection for partners to leave nothing on the table, makes it very difficult for some firms to invest in new lobby furniture, let alone technology.

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Those firms that agree to invest in growth and technology can only really do so by borrowing from a bank on the strength of the partners’ combined credit or by getting the partners to agree to give back some of their year-end distributions (in essence, the partners lend money back to the partnership). We all know that most firms are conservative and debt averse. In fact, low debt is often a selling point to prospective lateral hires.

Corporate law firms will be able to retain earnings to invest in innovation. Heck, they could retain earnings to invest in completely unrelated businesses that simply make a great return. They could make private investments in mining businesses, for example, or entertainment companies. As long as the corporate law firm meets its ethical obligations, who cares what it invests in?

The shareholders do, actually. Thus, the corporate law firm must meet the investment expectations of its shareholders. If it does, the shareholders will continue to invest. If it doesn’t, the shareholders will take their money elsewhere and invest in businesses that make the return the shareholders desire.

The regulatory aspect is tricky and the CBA notes that the Canadian law societies will need to modify their regulations to ensure corporate law firms can exist without compromising lawyers’ ethical duties. First, and foremost, client confidentiality. Close behind are the avoidance of conflict of interest and ensuring that lawyers always act independently and in the best interests of their clients (rather than the law firm). Additionally, the CBA recommends that governing bodies should directly regulate the corporate law firms themselves, including the requirement to designate a chief compliance officer.

I think this is the wave of the future — corporate law firms that act like businesses. They compete on all fronts. They hire talented (non-lawyer) managers to run the business. They are client-focused. They innovate and use technology to deliver better value. Lawyers are employees who shut up and deliver legal services and leave management to the professionals.

The CBA’s recommendations are not binding on the Canadian governing bodies. But, as one savvy CBA member said, the law societies better get with the program before the government steps in and legislates change.

Make no mistake, ch-ch-ch-change is a-coming. Lawyers are in the best position to drive that change. We better get with the times before outsiders (like the pesky government) stick their noses into our statutory monopoly and ruin a good thing.

I am hopeful that Canadian lawyers are going read the CBA’s proposals and use them as a catalyst to burst forward into the twenty-first century.  I just hope it happens before the twenty-third century.

That’s the View From Up North.  Have a great week.


Steve Dykstra is a Canadian-trained lawyer and legal recruiter. He is the President of Keybridge Legal Recruiting, a boutique recruitment firm that places lawyers in law firms and in-house roles throughout North America. You can contact Steve at steve@keybridgerecruiting.com. You can also read his blog at stevendykstra.wordpress.com, follow him on Twitter (@IMRecruitR), or connect on LinkedIn (ca.linkedin.com/in/stevedykstra/).

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