A law firm’s delivery of legal services is based on a single element that differentiates it from any other business: the practice of law. A consequent obligation is to comply with the legal profession’s Rules of Professional Conduct (which are different from corporate or government guidelines) for ethical conduct in business intake, hiring, and ongoing risk management and compliance. The causal link between conflicts department business models and aggregate firm performance merits strategic review that delves deeper than headcount and technology.
In the current regulatory landscape, conflicts and business intake are part of an expanding risk management and compliance function that spans legal business and operations. A centralized conflicts model is the only viable mechanism for identifying enterprise (or integrated) conflicts and achieving compliance with the Rules of Professional Conduct. But many firms still clear conflicts with a decentralized model, which is problematic. Here’s why.
Why decentralized models fail
A decentralized conflicts model exposes firms to avoidable risks. Consider the following challenges, process gaps, and common business cases that a decentralized conflicts model fails:
- Rushes, in common law firm parlance, include client or matter intake, lawyer onboarding, business development, or other requests with urgent business deadlines that, if unmet, carry significant monetary, relationship, or reputational consequences. Regardless of designated urgency, however, speed in conflicts clearance is essential to meet law firms’ ultimate two-pronged goal: maximizing everyone’s time and beginning billable work.
- Risk in each situation must be analyzed, at a minimum, through the lens of ABA and jurisdictional states’ rules, clients’ Outside Counsel Guidelines (OCGs), Anti-Money Laundering (AML) laws, Know Your Client (KYC) compliance, current and future business implications, client relationships, and law firms’ specific culture-driven policies. The costs of a missed legal or ethical conflict span the embarrassing to the frightening – unhappy clients, million-dollar malpractice suits or disqualification actions, disbarment, or even the demise of the firm.
- Realization of fees is pivotal to a law firm’s growth and survival. Adverse impact to realization may come from approval of (or non-adherence to) unfavorable OCGs, violations of ABA Model Rule 1.5 (Fees), staffing decisions, technology decisions, underreported or “written-off” time, lost work or clients, or missed opportunities to cross-sell or expand into new practice areas.
The problem with process gaps
In a decentralized conflicts model, conflicts are analyzed, identified, and cleared on a case-by-case basis, often by the attorney(s) associated with the incoming matter at issue. In a centralized model, conflicts are cleared by a single authorized and neutral group through established and consistent methodology that incorporates firm-wide data checks and balances.
The typical decentralized conflicts clearance process revolves around an attorney’s sending a request and receiving in return a report to digest. Staffing levels of training, expertise, and involvement in conflicts resolution vary. But even with sophisticated staffing and vetting of special situations with committees or general counsel, avoidable risk prevails.
- The mission-critical, non-billable work rests squarely upon attorneys juggling competing deadline-driven priorities.
- The reports, run from a client/matter database, may be dense and unfiltered. Staff may be loath to remove any search result (or lack the training that would inform judgement to do so).
- Refined reports may be run only on party names. Why waste time sending subject-matter details and context to staff unauthorized to facilitate conflicts resolution?
- The attorney reviews the report in a practice-area-specific vacuum so may miss attenuated conflicts implications.
- Other practice leaders and Ethics Counsel may be unaware of incoming work.
- Finally, despite best intentions and firm loyalty, the attorney bringing in the work has no incentive to find a conflict and turn down the client.
Making a business case for centralization
Consider the following (often same-day) business intake and operations activities in which law firms are routinely engaged. Along with business tensions and client rates, contract, and relationship issues, ABA Model Rules 1.5 (Fees), 1.7 (Concurrent Conflicts of Interest), 1.9 (Duties to Former Clients), and 1.10 (Imputation of Conflicts) are implicated:
- IP Practice Chair/Legal Personnel are onboarding a lateral IP candidate who is bringing a large portfolio of clients.
- She prosecuted X Corp’s patents 10 years ago when it operated under a different name.
- We currently represent Y Corp in patent infringement claims against X Corp.
- Antitrust Rainmaker has been asked to represent BigCo in a lucrative case that will involve years of multi-jurisdictional litigation.
- We have advised one of the primary industry defendants, LittleCo, which is pivotal to the proceedings, in wholly unrelated real estate work for the last 15 years.
- We have no engagement terms or advance waivers (on paper or in practice) with LittleCo.
- Financial Institutions Partners/Finance must submit the first bill for NewBankClient, which we have been defending in high-profile litigation over the sale of mortgage securities.
- The bill is due tomorrow through the bank’s e-billing vendor or we will not receive full payment.
- Although the bank executed our standard engagement letter, the bank’s e-billing procedures require that we accept its OCGs which contain onerous conflicts terms, a 10% discount off standard rates, and problematic FCPA, indemnification, file retention, and information security provisions.
Neither the decision-making criteria nor the potential impact of a typical business intake, business development, or hiring determination may be limited to a single practice area, geographic location, administrative function, or financial target. Autonomous decision-making inherent in a decentralized model enables individuals and practice groups to lose sight of the big picture of client/matter intake and recruiting efforts with negative impact to the strategic goals of individuals, practice groups, and the firm at large.
The new normal is a centralized business intake and risk management model that minimizes reliance upon siloed data or constituencies. In keeping with the shifting conversations on how law firms should leverage business intelligence to reach performance goals, the starting point is to examine the functional integrity of the data and processes being used for decision-making and to identify existing gaps.
To learn more about how Wilson Allen can help you improve your business intake and risk management processes, please contact us or learn more about our services.
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