"I am free to be protectionist," insisted Robert Ostertag, displaying a novel concept of freedom. Testifying against a measure to introduce competition into his industry, he continued, "What I see…is what you and I have witnessed in connection with the demise of our nation’s neighborhood bookstores at the hands of Barnes & Noble and Borders [and] our neighborhood drugstores at the hands of the major pharmaceutical companies."
Why was Ostertag so alarmed? Around what victimized industry was he determined to circle the wagons? Farming? Small-town banking?
Amazingly, it was the legal profession.
Ostertag is a lawyer. And not just any lawyer: Besides practicing with a small Poughkeepsie law firm, he is a past president of the New York State Bar Association, a member of two association committees, and an adjunct professor at the prestigious Fordham Law School. Though most people don’t fear that lawyers will disappear anytime soon, Ostertag is one of many attorneys waging a solemn battle on one side of what the American Bar Association calls "the most important issue to face the legal profession this century": multidisciplinary practice, or MDP.
Lawyers define MDP as the ability to share fees and join with nonlawyer professionals in a practice that delivers both legal and nonlegal professional services. Rule 5.4 of the Model Rules of Professional Conduct, adopted by every state, currently forbids the practice by providing that a lawyer "shall not" share legal fees with a nonlawyer, form a partnership with a nonlawyer that in any way practices law, permit a nonlawyer to direct the lawyer’s professional judgment, or form a firm in which a nonlawyer owns an interest.
The self-aggrandizing majesty of the word professional aside, the MDP concept is hardly new. Seventy-five years ago, if you needed cough syrup, pork chops, and petunias, you also needed three different stores. Today, pharmacists, butchers, and florists commonly work under one roof in an aptly named "supermarket." Businesses have learned that consumers are happiest when they can buy more things on fewer trips for less money. Innovation by combination has given rise to companies that offer books and coffee, fitness and therapy, auto parts and baby clothes, and even that most American of combinations, laundry and bourbon.
The corporate marketplace is no different. Gone are the days when, say, employees at Arthur Andersen only counted beans. Today its Web site offers a nine-point list of "Market Offerings" for its clients, embodying the financial service industry’s move toward one-stop shopping. The legal profession’s edicts notwithstanding, firms like Andersen have recruited armies of attorneys in recent years. The trend is so pronounced that by one count, five of the world’s nine largest nongovernmental legal employers are the Big Five accounting firms.
This trend has percolated for decades–especially in Europe, where the multidisciplinary practice rules are more liberal–but recent events have put the organized bar on high alert. Last year, the accounting firm KPMG International formed a nonexclusive alliance with several American law firms to provide tax assistance. Two months later, Bingham Dana LLP, a Boston-based law firm, formed a venture with Legg Mason Inc., an asset management firm, to provide integrated investment advice. And the month after that, Ernst & Young LLP "loaned" start-up capital to a law firm, McKee Nelson Ernst & Young in Washington, D.C., the only U.S. jurisdiction that permits (severely restricted) partnerships between lawyers and nonlawyers. In the press release announcing the venture, the accounting giant’s vice chairman unabashedly declared that "the two organizations will work together to offer what effectively will be one-stop shopping."
Although recent events have drawn attention to MDPs, the handwriting on the wall was large enough two years ago that the ABA established a commission to study the matter. (The first anti-MDP measures were enacted as early as 1928, but the bar’s rapidly shrinking power to derail the MDP train has created a renewed sense of urgency.) A year later the commission urged the ABA to accept a watered-down version of MDP, but resistance among the rank and file forced a deferral of the vote until last July, when the ABA House of Delegates voted to keep the MDP ban by a 3-to-1 margin. Even if the ABA eventually endorses pro-MDP rules, the state and local adoption process could take years. As someone close to the process told me, "they’re arguing about this even while Rome is burning."
It is no mystery why many lawyers vehemently oppose a practice that offers clients greater choice, convenience, and savings. The legal profession is a cartel. Like any other cartel, lawyers erect barriers that restrict competition. Bar exams, law school accreditation, and "ethical" rules such as the MDP ban are so ingrained in American culture that one forgets lawyers practiced for centuries without them. Many barriers didn’t even exist a century ago.
Those who respect markets would eliminate the barriers altogether. Ideally, a client should be free to contract with a firm for the provision of services, including a combination of legal and other services, with enough regulation only to prevent force and fraud. Plainly, MDPs would be permitted in such a system. And because few people take seriously the rare calls to eliminate other barriers to entry, such as bar exams, MDPs represent the most prominent threat to protectionism within the legal profession.
In the face of this threat, MDP critics defend the status quo with claims both transparent and subtle:
* MDPs threaten small firms. This was one of Ostertag’s main concerns, and we should applaud him for his honesty. Though his protectionism on behalf of small firms may be nakedly self-serving, at least it shows that MDP critics worry about preserving the status quo more than serving their clients. His fears, however, may be unwarranted. Multidisciplinary practice does not necessarily imply large firms; an MDP can consist of just two people or, absent the rule forbidding the unauthorized practice of law, only one.
Furthermore, as Nobel Prize—winning economist Ronald Coase has pointed out, small and large firms can grow simultaneously: Specialization and technological advances allow large firms to contract out more work to small ones. Allowing MDPs to proliferate may thus lead to more small firms.
* MDPs’ emphasis on the bottom line threatens the core values of the profession, such as independence and public service. MDP opponents often invoke, but rarely define, "core values." At bottom, this is an effort to justify a certain polite haughtiness about a lawyer’s role in society. But lawyers are no more, and are often less, "independent" than other service providers. Similarly, the idea that lawyers are more devoted to "public service"–itself a slippery concept–is naive at best and overbearing at worst. Lawyers must confront the reality that a law degree is not a title of nobility.
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