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WASHINGTON � Picture lawyers idling away potentially billable hours tracking their firm’s stock price rather than poring over their firm’s profits-per-partner rankings or the results of the latest associate-satisfaction survey. Sound far-fetched? It may happen soon in England if a draft bill that would allow outside investment in law firms and even allow firms to go public makes it into law. The bill, which was published by the U.K. government in May and is expected to pass in 2007, is part of a long-standing effort to reform the legal services market in England and Wales. It would allow lawyers to set up practices as so-called alternative business structures, with external, nonlawyer investors; go into business with other professionals in multidisciplinary “one-stop shops”; and float their shares on the stock market, making the country’s legal market one of the most open in the world. And although few are predicting that top firms would list their shares on the London Stock Exchange or the Alternative Investment Market anytime soon, there was a time when few observers would have foreseen investment banks such as Goldman Sachs doing initial public offerings, either. U.S. firms with London operations and international reach are following the draft bill with interest, trying to assess how the measure would affect the leading U.K. firms with which they are often in head-to-head competition for international work. Although access to new forms of financing could boost U.K. firms’ competitiveness, some of the bill’s regulatory implications could taint the firms’ reputation for independence and complicate their foreign operations. CLIFFORD CHANCE INC.? At least for now, few of the City law firms that have an international presence appear eager to take advantage of the government’s proposals for outside investment. (The City, London’s financial district, is where most of the country’s top commercial firms, such as Clifford Chance, Allen & Overy, Linklaters and Freshfields Bruckhaus Deringer, reside.) Doing so could cause firms to run afoul of regulations in other jurisdictions in which they operate, such as the United States and Germany, that prohibit investment in law firms by nonlawyers. And in any case, leading law firms aren’t particularly capital-intensive businesses, have little trouble securing debt financing, and are highly profitable, so they may not need outside equity, consultants say. Firms’ appetite to avail themselves of the opportunity to set up multidisciplinary partnerships with other businesses, such as accountants, insurers or banks, is not great either, says Peter Richards-Carpenter, a banking partner in the London office of Mayer, Brown, Rowe & Maw. Enron and other accounting scandals, Richards-Carpenter adds, are still fresh in people’s minds. Moreover, sophisticated corporate clients aren’t interested in one-stop shopping, says Brian McDonnell, an associate with the London office of Hunton & Williams, who specializes in financial services and regulatory law. “Expert buyers of legal services go to the best practices, wherever they are.” Still, firms are keeping their options open. “Many firms are sitting back to see what happens,” says Richards-Carpenter. “There are a number of firms who would not want to rule out the option of bringing in equity financing.” Private equity groups and investment banks have been studying the idea and some mostly domestic firms have expressed interest in going public, says Tony Williams, the head of London-based Jomati Consultants and a former managing partner of Clifford Chance. Firms’ interest in alternative business structures could also be piqued by the tax advantages that would ensue, he notes. Moreover, law firms need to consider the consequences the law could have on the market even if they are not interested in restructuring themselves, he explains. “You can’t assume that you can stand still.” Consultants say the proposals will have a far greater impact on the retail end of the legal market � including real estate, family law and insurance-related work for individual consumers � which can be easily commoditized. GETTING A GRIP But such liberalization comes with a price � increased government oversight. The bill would subject the traditionally self-regulating profession to more regulation under a newly formed Legal Services Board, a majority of whose members and whose chairman would be appointed by the government. Though leading firms have not been overly preoccupied by the alternative-business-structure proposals, their opposition to the regulator has been far more vocal. “Public confidence in the integrity of the legal profession will not be sustained, nor will its international significance continue, if there is the perception that its independence is jeopardized in any way,” a joint parliamentary committee scrutinizing the draft bill wrote in a July 25 report. The sentiment is echoed by leading law firms and bar associations. U.K. firms are a dominant force in the international market, and English law is used as a basis for a large percentage of international transactions, but leading firms have warned that the changes could compromise this competitive advantage. “We would rapidly get into a lot of difficulties internationally because our status would be diminished,” says Richards-Carpenter, who is a member of the City of London Law Society’s working party on the draft legislation. But the law’s provisions on alternative business structures could give U.K. firms a serious competitive boost as well. Increased access to capital would allow firms to raise money more easily and to attract talent, says Peter Zeughauser, a California-based legal consultant. It could amplify the trend of firms’ “cherry-picking” other firms’ top lawyers and practices. Oddly, few firms have been that active in the debate on the bill, London-based lawyers say. “Legal services makes a critical contribution to the U.K. economy,” McDonnell says. “It’s strange more firms aren’t involved.” The industry generated 19 billion pounds (about $36 billion) of revenue in 2003, accounting for 1.73 percent of the United Kingdom’s gross domestic product. Observers expect the bill will pass next year, despite criticism from the parliamentary committee and others that the government is trying to push its reforms through too quickly. The legislation is motivated by the government’s consumerist agenda: It aims to protect individual consumers of legal services by increasing the profession’s responsiveness to complaints and to drive down prices by increasing competition, say London-based lawyers familiar with the bill. THIS SIDE OF THE POND Although the draft bill hasn’t yet been the focus of too much hand-wringing on this side of the Atlantic, it is “on the radar screen,” Zeughauser says. But don’t expect a similar overhaul of the legal profession even to be considered here in the next few years. “It’s a nonstarter,” says Kenneth Reisenfeld, a partner with the D.C. office of Haynes and Boone and the former chair of the American Bar Association’s Section of International Law, explaining that bar associations in the United States would not be willing to consider the changes to the professional-responsibility rules needed to allow for outside investment in law firms. In fact, in 2000 the ABA voted down, by a wide margin, recommendations by one of its commissions to amend the ABA’s model rules to allow for multidisciplinary partnerships. “The opposition of the ABA House of Delegates and the state bar associations to the multidisciplinary practice was so strong, I can’t even imagine them considering, never mind seriously considering, proposals along the lines that have been suggested in the U.K.,” says Mary Daly, dean of St. John’s University School of Law and a member of the ABA commission. At the time, the commission discussed the possibility of changing rules to allow for outside investment in firms, but it never included the ideas in its recommendations because of overwhelming opposition. The ABA and state bar associations would make the same objection today to the U.K. proposals that they made then to multidisciplinary practice � that allowing nonlawyers, who would presumably only be concerned with the bottom line, to invest in law firms would compromise lawyers’ ethical and professional obligations, Daly says. “It’s a totally romanticized view of what the legal profession is like today,” says Daly, who favored the ABA commission’s proposals. Lawyers themselves are very much concerned with the bottom line and are already subject to pressure by banks, institutional clients, and other nonlawyers, she adds. Zeughauser predicts outside investment “will quickly be on the table in the U.S. if major U.K. firms go public.” Alexia Garamfalvi is a reporter with Legal Times, a Recorder affiliate based in Washington, D.C.

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