Hello world, mixed ownership, and ethical mouthfeel.

My name is Keith Porcaro. I run the Digital Governance Design Studio at Duke Law School. And here I'm going to write about the future of (legal) advice, and how to design and govern it. I'll skew toward law and software (I do work at a law school), but any advice-giving relationship is potentially fair game.

Why do this? I'm interested in looking beyond the current conversations about legal services reform, and imagining what a future emergent ecosystem of legal advice-giving (and legal institutions) might look like. It may not look anything like traditional attorney-client relationships: Software is already creating new forms of advice-like relationships—from decision-support tools embedded within corporate legal departments to automated letter-writing tools for self-represented litigants. But this is just the beginning.

And that’s where cracks start to show in the regulatory reform conversation to date. Narrowly focusing on ethics rules reform—add some code, hold the JD—invites us to ignore why ethics rules exist in the first place: to maintain public confidence in legal advice, in legal institutions, in law. And it risks missing how that public confidence—and the ecosystem for legal advice—is already changing, ethics rules or no.

The bigger question, then, is: how can we build an ecosystem that bolsters and maintains trust in legal advice and legal institutions? And how can we help people who are building this ecosystem build well-designed, well-governed tools and institutions?

The answer is probably not “a newsletter”. But this is going to be a place for me to think out loud. I'll aim for a thousand words or so (plus or minus a GIF) every few weeks. It could be drafts of more formal work, or explorations of some weird corners of the legal world. I think it’ll be fun.

Mixed ownership and ethics mouthfeel

The Utah Courts are running a "regulatory sandbox" to test alternate legal service delivery models: a fancy way of describing legal services where lawyers are less involved than they might typically be. As part of the sandbox, Utah assigns risk classifications to participants in the sandbox, which right now mostly measure how far a participant's model is from a traditional lawyer-owned firm. So, Pearson & Butler, a law firm, is classified as "moderate risk" because they have ">50% non-lawyer ownership, fee sharing, lawyer employed/managed by a nonlawyer, and nonlawyer provider with lawyer involvement".

I'll say up front that I don't have any problem with Utah's system of risk classification. When I work with clients to build risk registers, the end goal isn't *really* to classify risks, it's to help the client direct attention and resources. So this feels like Utah saying "we don't know how this will work, but we want to keep an eye on it".

But engaging with non-lawyer ownership of law firms is also a great way to get people (mostly lawyers) really upset, if that's your end goal. The traditionalist argument against it tends to go "no one cares about or wants this" or "this will destroy legal ethics as we know it". Heck if you're feeling daring you can make both arguments at once:

Our tenures as general counsel have given us no reason to believe that our business clients will be better served by a legal profession that is open to non-lawyer ownership. Quite the contrary, we fear that the inevitable chipping away at the profession’s professionalism ultimately will do a disservice not just to the business clients we serve, but to all clients who seek the trusted and confidential advice of counsel.

And our discussions with other lawyers and in-house counsel have revealed no great interest in or need for non-lawyer ownership, let alone any groundswell of support for such a change.”'

On the other hand, people readily point out that there's no reason to think that external ownership will make lawyers less ethical, and also maybe lawyers aren't that ethical in the first place so therefore ownership shouldn't matter at all in assessing risk to clients:

The fundamental problem with the opposition to external ownership is that ethics is a state of mind, not a state of ownership. There are ethical and unethical lawyers, just as there are ethical and unethical ‘non-lawyers’. Until the legal professions rid their ranks of the unethical, the high horse of professional ethics is not a secure vantage point from which to resist ownership by those outside the ranks.

These positions are…not entirely wrong? They aren't entirely right, either. Ownership of a law firm or some entity that provides legal services may not be central to the risk posed to clients, but it's surely relevant to the client relationship. Or at least, one could imagine scenarios where the ownership of a law firm or a legal entity could become relevant.

Imagine a mid-sized plaintiff's firm that's publicly traded. A large insurance company is a frequent opponent, as these things tend to go. Right before a big trial kicks off, the insurer discloses that they've taken an 8% stake in the firm. Now maybe that's not an overt conflict for the firm. But if I'm the *client* I might not be elated. Sure maybe I think "my firm is so kick-ass that defendants are investing in them just to hedge against their court losses". But maybe not.

You could think of some weird hedging relationships that don't quite get to the level of conflicts. A tenants association could invest in firms that represent landlords, and use the profits to support tenants. A hospital system invests in medical malpractice plaintiff's firms as a form of reinsurance. But a random investor, even a major shareholder, just doesn't have the same level of control in a company as a partner in a partnership, up to a point. In some cases these investments could pose more reputational risk to the investor than they do to the law firm getting the investment: how would you feel going to the hospital that invested in malpractice firms instead of quality and safety improvement?

But there is a point where ownership could be more of a reputational problem for the advice-giver rather than its investors. Maybe a landlord-owned (or heck, Zillow-owned) legal advice website for tenants uses interface design to nudge tenants away from suing landlords and towards self-repair. Maybe none of the advice is bad or hidden but it's just…prioritized and priced differently. This might not be an overt conflict or ethics violation, but maybe it leaves a bad taste, or at least a bad mouthfeel, for clients who are invited to rely on it. Like a marriage counselor operating a divorce app: it's not wrong but it doesn't exactly fill me with confidence.

In a post-sandbox world, I bet you'll see law firms borrow from tech companies and issue "founder stock" ("partner stock"?) that has disproportionate voting power compared to common stock. That way they can say to clients: "yes we have investors you don't like but they don't tell us what to do, they just take some of our money". It's possible you'll see more nuanced conflicts checks within firms, but maybe it's simpler to just firewall your investors from the advice-giving and hope that the firewall holds.

And regulators might end up mandating some sort of beneficial ownership transparency for organizations who give legal advice—that is, who has economic interests and governance interests in the firm/organization. Untangling beneficial ownership of companies more generally is an ongoing battle, but may be more feasible in the narrower universe of "legal advisors in a state", as opposed to "every company in the world". And because present-day law firms are organized as partnerships, they essentially do this by default. 

Neither of these approaches are perfect, but they imply some core principle of "clients should know who has an interest in the advice they're getting". In a post-sandbox world, that question might have more varied answers, but regulators will need to ensure that it remains answerable, to help maintain client confidence in the legal help they're depending on.

What I’m reading

  1. PL on the DL: Domestic violence courts accept extensive help from nonlawyer advocates, but keep it quiet.

  2. The 5th Circuit rules against the mandatory bar in Texas, and revives a separate challenge in Louisiana.

  3. “HIPAA policies permit massive troves of digital health data to traverse the medical–industrial complex unmonitored and unregulated.