The Big Five Eye Legal Work, Despite Resistance From Some Lawyers
Over the years, the Big Five accounting firms have expanded to offer technology and management consulting. Now they would like to practice law in the U.S., like they do in most other countries. But a lot of lawyers see big problems with that, and the American Bar Association last month tried to close the door on the idea. California may open it again.
In a setback to the Big Five’s goal of creating a one-stop shop for professional services, the ABA last month resoundingly rejected a recommendation to allow lawyers and non-lawyers,most notably accountants,to partner and share fees.
Coming on the heels of a campaign of cajoling and threats by the Securities and Exchange Commission to get the Big Five to separate their audit and management consulting businesses, the lopsided 314-108 vote by the Bar’s House of Delegates means it will be a while yet before accounting firms can offer the range of services they do abroad in the U.S.
But the ABA vote, while it carries a lot of weight nationally, is basically advisory. The rules governing the practice of law are set by individual state legislatures and bar associations.
“Before something like this will happen, you’ll have to see one of the larger states like California or New York do something,” said Bob Colson, editor in chief of the CPA Journal. “I wouldn’t rule that out.”
Indeed, in California, state Bar president Andrew Guilford of the Costa Mesa office of Sheppard Mullin Richter & Hampton is willing to entertain the idea, at least. He has named a committee to study the multidisciplinary concept and make recommendations, and termed the ABA vote “draconian.”
“California is remaining open to seeing if there’s a way to do it without affecting (the legal profession’s) core values,” Guilford said. He said that he’d like to get a report from his committee,which will meet for the first time next month,in about a year.
Guilford said he is concerned about the implications for client confidentiality, conflict of interest and independence of thought in providing advice.
“Accountants are trained to disseminate information, rather than protect it,” Guilford said, referring to auditors’ responsibilities to the financial market. Many lawyers question whether a supervisor with accountancy training will respect confidentiality to the same degree as an attorney.
One example: a hypothetical multidisciplinary firm is the auditor for a tech company and also is representing it in an acquisition. A lawyer working on the acquisition finds out in a privileged conversation with the tech firm’s chief financial offer that the company’s books have been cooked. The lawyer has a responsibility to advise the client that the action is illegal and to urge corrective action. But he cannot disclose the conversation without the client’s consent. The lawyer’s firm, however, has a duty to report the situation to the financial markets. What happens?
The same reservation,whether a non-lawyer supervisor will understand,comes into play in the independence-of-thought argument.
“Sometimes lawyers have to make unpopular decisions,” Guilford said, or give clients advice they don’t want to hear.
On the other hand, Guilford said, “I’m not sure the threat is as large as some people make it out to be.”
The CPA Journal’s Colson agrees.
“Most clients haven’t cooked the books,” he said.
As for the accounting firms, they say they just want to be able to offer the same range of services here that they do in most other countries (the other notable exception is the U.K.). The recent push for multidisciplinary practices, they said, is in response to demand they’re hearing from their large multinational clients.
In fact, the Big Five already have large numbers of lawyers on their staffs, mostly in their tax departments, and they have been aggressively recruiting veteran attorneys from established law firms in the past five years.
But those attorneys cannot present themselves as practicing law,they’re often called tax planners or tax consultants. They cannot litigate, they cannot file legal documents and their discussions with clients are not privileged.
Greg Soukup, co-director of Ernst & Young’s national office West in Los Angeles, said he nevertheless has lured several attorneys with 20 or more years of experience from big-name firms. They include his co-director, Joe Doloboff, formerly head of Skadden Arps’ tax group.
For tax attorneys, Soukup said, “the world gets much larger when they join us.”
Most law firms, Soukup said, look on their tax departments as a “service department,” low on the priority list when it comes to allocating resources.
A Big Five firm, however, has thousands of tax professionals and all the latest tools and resources available, plus a vast client base.
“The playing field gets much larger and the resources they bring to the game get much better,” Soukup said.
On another level, Colson said that smaller accounting firms have been largely silent on the issue, but they could develop multidisciplinary practices, as well.
“I don’t think (the Big Five) are interested in writing wills for everybody, or even in litigation, necessarily,” he said. “They’re looking at it in connection with corporate and contracting issues. On the other hand, smaller firms would love to be able to write wills.”
Steve Milner, an attorney and CPA who is managing partner of Newport Beach-based accountancy Squar, Milner, Reehl and Williamson and a member of the advisory committee appointed by Guilford, says that multidisciplinary practices will occur,and are occurring,whether the legal profession wants to recognize it or not.
“Law firms bring in financial professionals that do everything an accountant can do, but can’t be a partner,” he said. “So they set up a profit-sharing plan that is essentially the same as a partnership.”
At the same time, he said, one Big Five firm essentially acquired a well-known real estate tax practice, although the deal was structured as a debt arrangement and the law firm remained technically separate.
Further muddying the water, said E & Y;’s Soukup, is that CPAs can represent clients in tax court, if they pass a special exam.
“Rather than waiting and seeing what happens … let’s take a proactive view and draft guidelines on how it should happen,” Milner said.
The ABA committee tried to do that, recommending that multidisciplinary practices be allowed if lawyers retained a controlling interest in the entity.
And Colson said one way to structure such a practice would be to “make sure a client knows that if he’s talking about something that needs to be privileged, he shouldn’t be talking to an attorney employed by an accounting firm.” n
