Centre for Market and Public Organisation ‘The case for professional services reform’ 13th December 2006 Some Brief Comments Paul A. Grout

Regulation and representation Large versus small firms Short Comments on: Influence Ownership Regulation and representation Large versus small firms

Influence Suggestion of undue influence that non-lawyers may bring on lawyers Assumption explicitly made that lawyers working alongside other lawyers will not distort their procedures and behaviour   Such a stark distinction between the incentives of lawyers working together and their incentives when they are owned or majority managed by non-lawyers is difficult to understand. Good evidence in other professions (doctors) that behaviour is ‘distorted’ by economic incentives.

Ownership Primarily ‘equity’ value is at risk – the only human capital at risk is that of the person acting dishonestly. Other lawyers will be able to move on and use their skills in the profession elsewhere. Positive reputation effects – customers may be willing to pay more for their legal services if this effect is strong. If human capital at risk is very small it is likely to be almost irrelevant whether a combined owner/manager is a lawyer or not – so the view that we ought to be more concerned when manager and owners are separate seems misplaced.

Multiple principals – has been emphasised. Non-lawyer owner: human capital of the lawyer manager is the major part of lawyer’s assets at risk - hence the regulatory structure ‘bites’ significantly on the behaviour of the lawyer manager. lawyer with large ownership: lawyer still bears the risk of losing value of human capital but now captures a major part of the ‘equity’ value that is ‘protected’ by, say, dishonestly protecting a client. So regulation bites less on a lawyer owner/manager than a lawyer manager with a non-lawyer owner. This is the exact opposite of the view that underpins the current debate.

Regulation and representation Separation because of: public interest competition innovation transparency

Dishonest practices: Large and small firms