In previous articles we have seen the impact of the legal reforms operated in Australia and the United Kingdom in Canada, the United States, Asia and the European Union. In this regard, the analysis carried out by professor Noel Semple is particularly interesting. He describes the regulation in North America as insulating, which can furthermore be extrapolated to other countries.
Firms such as Axiom Law that choose not to register as a law firm in the United States cannot offer legal advice. Are these type of restrictions positive? Noel Semple considers that the system in North America impedes the accessibility to justice for three reasons: (i) by increasing the price of capital, (ii) by impeding the emergence of large consumer law firms, and (iii) by precluding potentially access-enhancing inter professional collaborations.
Regarding the former, most business can choose between a variety of capital sources and can be expected to choose those which meet their needs at the lowest possible cost. However, law firms are restricted by insulating regulations to two sources of capital: bank loans and licensed lawyers, not being able to access investors. This restriction on supply presumably increases the price which they must pay for capital.
On the one hand, banks, for instance, may not offer their lowest rates to law firms, because they are not required to compete with venture capitalists and investment bankers to capture their business. The increased cost of capital is presumably passed on to customers, thereby raising prices. On the other, partners demand high returns for capital left in the firm because they are highly exposed to the risk of the firm failing, which makes difficult reinvestment in the expansion or innovation of the firm. Viewed in another way, firms which retain earning to fund expansion or innovation risk losing their partners. On the contrary, he defends that an initial public offering on a stock exchange would allow millions of investors to participate in the firm at a low risk.
Regarding the second point, the insulation of the regulation results in small and medium-sized firms, impeding the emergence of large, consumer-focused firms and access to justice. In Australia and the United Kingdom, by contrast, there are examples of this type of firms. Slater & Gordon and The Co-operative, respectively, employ more than 1,000 lawyers and provide services almost exclusively to individuals. It is not a coincidence that both of these firms have non-lawyer ownership, which is currently illegal in North America.
In addition, amongst the benefits of bigger firms we can find, on the one hand, the economies of scale and scope and, on the other hand, risk-spreading. Large firms can provide a greater variety of services through specialized teams in each area at a lower cost –thus meeting a greater number of client needs and offering a high quality service–.
Furthermore, bigger firms are also better positioned to assign the work to the person or machine best prepared and to invest in technology. This leads to a reduction of fixed costs and an improvement of efficiency and, consequently, to a better response to the client in its demand of more for less. Risk-spreading is also the reason why larger firms are better positioned to offer fixed fees as they can accept the risk of unpredictable labor requirements in contested cases.
Finally, the exclusion of multidisciplinary practices reduces the opportunities for innovation because collaborations between lawyers and non-lawyers promotes the generation of new ideas. The development of multidisciplinary teams would allow, amongst other things, to provide a greater variety of services and high specialized services for clients. Nor is it overlooked that communication and customer service in law firms tend to be a major cause of client disappointment as this type of collaborations with other professionals specialized in other areas are required.
It is difficult to predict the level of innovation that could be developed if the industry were liberalized in North America, as well as in other countries such as Spain, but it is clear that it would strongly improve access to justice. The experiences of Australia and the United Kingdom show the potential benefits of liberalizing the profession for lawyers, investors and specially clients.
The greatest challenge is to identify and remove those restrictions that are unnecessary and disproportionate for the public interest and to establish the control mechanisms that ensure the ethical and professional purposes, the improvement of quality and the social and economic progress.