LOS ANGELES - The dawn of the 21st century promises to be unpleasant for the legal profession. The Big Five accounting firms will appropriate more lawyers and subject them to non-attorney control; small-firm lawyers will partner with the financial planner down the street just to keep up and the public will be confronted with a confusing array of legal service providers. The profession itself risks losing the values that make lawyers officers of the court rather than mere traders in the law.

Or maybe not.

How multidisciplinary practices-in which lawyers practice alongside non-attorneys-will play out in the United States can only be addressed through conjecture. Every aspect of multidisciplinary practices are up for grabs: They could range in form from loose alliances to full profit-sharing partnerships, new partners could range from Merrill Lynch to Blockbuster Video and the ethical rules could be as tight as the bar's or simply nonexistent.

To address whether accountants or other professionals may form an enterprise with attorneys, the American Bar Association has set up the Commission on the Multidisciplinary Practice to report on how the bar should respond. The Commission, which in February held its second public hearing on the topic, faces a daunting task. It must analyze the issue and recommend a response with little empirical evidence to provide guidance. Even in the European Union, where some form of multidisciplinary practices have been around for 10 years, answers are far from clear on how they affect the business of law and lawyers' broader public duties.

The debate is already behind the times, some argue, because the multidisciplinary era has already arrived. Insurance companies employ captive law firms, the Big Five offer tax law advice and law firms already act like businesses, not like the partnerships of the past. Current ethical rules, which prohibit sharing fees with non-lawyers and impute conflicts between partners who have never met, deny modern realities and restrict attorneys from full competition, critics say.

Philip S. Anderson, president of the ABA, charged the commission to judge the issue on the basis of the public's best interest. But the commission can't ignore reality. Churning beneath theoretical arguments lies the concern that if lawyers don't have the necessary tools to compete with the larger, better-funded entities, they won't be in any position to define the public's best interest or their own.

Selling Out or Facing Reality

The stakes are huge. If the ABA retains current ethical rules, lawyers will be unable to compete in today's complex multinational business arena, critics argue. Nothing less than the soul of profession hangs in the balance if lawyers focus too strongly on short-sighted business goals, said the heads of two European bars. On the first day of testimony, two speakers, one American and one German, personified the split between attorneys who view multidisciplinary practices as simply an evolution in the practice and those who see them as striking at the heart of what it means to be a lawyer.

The multidisciplinary train has already left the station, and law firm attorneys are falling behind, said Stefan F. Tucker, chair of the ABA tax section. Accounting firms practice tax law and offer litigation services, he said. Violations of the unauthorized practice of law in other matters occur all the time, because clients demand faster and cheaper service. They may give up some quality and knowledge for speed, Tucker said, but that is their choice.

Loss of business reputation and common-law fraud remedies are enough to protect the public from unscrupulous practices, said Tucker.

Good law firm attorneys will be able to compete against the Big Five, said Dr. Hans-Jurgen Hellwig, vice-president of the German bar, but the more important concern is whether attorneys will maintain their role as an "independent organ of the administration of justice." To illustrate, Hellwig described a conversation between members of the International Bar Association during a conference about multidisciplinary practice.

"When the discussion between the panelists was over, a tall, gray-haired Jamaican, a very, very impressive person said, 'Shame on you. You are no longer lawyers, you are businessmen trading law,'" Hellwig said. "The reply from the chair to this remark was, 'Thank you for this voice from the wilderness.' Clearly we must compete. Clearly we must be client-minded, but in all that we should not forget we have higher duties. That is the key and there are indeed some dangers for the profession."

The dangers for the profession come from non-attorney control over large multidisciplinary practices, Hellwig said. While many small ones exist in Germany, they do not create the same concern of attorneys shrinking from their ethical obligations as in large accountant-dominated practices, he said. In most cases members of the same family comprise the small practice and they reach their decisions by consensus, he said. However, in large multidisciplinary practices, lawyers risk being overrun by other professionals. German rules demand that accountants maintain control of the practice because of their attest function. But because ethical rules governing accountants and consultants are less strict than those governing attorneys, the more lax restrictions will out, he testified.

Let the Market Decide

The solution for many is simple: Give the client enough information to make an informed decision. They will chose the service-provider best for them and the market will ferret out unscrupulous or inefficient professionals. The legal profession has acted for too long as an insulated guild, critics say, behaving in a paternalistic and self-interested manner.

"I'm not sure our licensing or ethics protects the public today," said Charles F. Robinson, a solo practitioner from Florida, who specializes in elder law. "I can't tell you how many times I've seen 100-page wills drafted for people with $ 100,000 or less in assets."

Opening the market will make legal services previously unavailable to middle- and low-income clients attainable, said James C. Turner, executive director of HALT, a legal reform group. Required continuing legal education programs for non-attorneys on attorney ethics and holding non-attorney practice members to the same ethical standards as attorneys should be enough to protect the public, he said.

Coming from a state that does not enforce the unauthorized practice of law, Lynda Shely recommended expanding the practice of law in order to better regulate non-attorneys. As a member of the State Bar of Arizona, Shely gets up to a dozen calls a month from attorneys asking if they can partner with accountants, insurance agents, sports agents, certified financial planners or paralegals, she said.

In Arizona, paraprofessionals perform work typically thought to be legal without the direction of a licensed professional, she said. The public has been harmed, although clients have little recourse except turning to another attorney to bring a fraud action or alerting the attorney general-who will only bring a consumer fraud claim in the most egregious circumstances, she said.

Opening the market assumes that clients will be able to make informed decisions. Informed consumers need to ask the right questions and be able to set standards of performance for the work they receive in order to protect their own interests. But it could be difficult for clients to get that information if their service providers don't even know.

"It's difficult to know who multidisciplinary practices are and they won't say," said Gerard Mazet, president of the International Commission of the French National Bar Council. "Many senior counsel at multidisciplinary practices say they don't know how it operates."

The National Bar Council of France recently voted to allow multidisciplinary practices, Mazet said. In order to qualify, the practice must disclose who runs the firm, identify their organizational structure and make sure that attorneys supervise the work and ethical behavior of other attorneys, he said. The Council wanted more than the firm's charter and came up with a questionnaire for multidisciplinary practices to determine how they are organized. Mazet said he wants to know the actual power structure, not the technical corporate structure.

"In the last 10 years we have been confronted with lawyers from large U.K. and American law firms, but they play by the same rules we do. Here we have a group that does not play by our rules. They are different," Mazet said. "For a lawyer, ethics is a part of our very being, but for others it's 'come to us, because we are ethical.'"

When is a Lawyer Practicing Law?

Another solution focuses on the individual attorney. Ethical responsibilities accrue to the individual attorney and not to the structure in which the attorney practices, therefore an attorney in an MDP is still bound by the same ethical standards as a law firm attorney, said Kathryn A. Oberly, vice chair and general counsel of Ernst & Young. She was the lone accounting firm representative to participate in the hearings.

The individual lawyer, not the law firm, is obligated to satisfy the core values of the profession, which are loyalty, confidentiality and professional independence, she said.

"The client should be in total control. They should ask for more information," Oberly testified. "We trust the individual lawyer to disclose to the client until the client understands."

Her professional judgment has not been impaired because she reports to the non-lawyer chairman and her salary is set by non-lawyers, Oberly said.

"I think you would have to search long and hard to find general counsel who believe that their ability to provide independent advice is somehow impaired by their employment arrangements," Oberly said. "I find offensive the suggestion that a non-lawyer professional in an integrated practice would be less sensitive to the need for independent judgment."

Although individual responsibility sounds noble, asking the client to rely on the integrity of the individual without a structure that affords more protection ignores reality, said Lawrence J. Fox, a partner at Drinker Biddle & Reath.

"I reject out of hand the notion of individual responsibility, if it's shared profits. I work in a law firm. I know how a law firm operates. I know the collaboration. I know the access to files. I know that we are sharing profits," Fox said. "I know how I celebrate when a partner of mine, maybe whom I have never met, brings in a big client. It's still a big deal, because we are an economic enterprise. To say I've got these blinders on and it's my individual responsibility and it's perfectly OK for one of my partners to sue my client or be on the opposite side of a business deal than my client or to represent the beneficiary of the will of one of my clients-none of those things are acceptable to me."

While individual responsibility might work for lawyers who actively practice law and maintain their licenses, many professionals have legal training but have given up the practice. Lawyers who are not members of the bar could still give advice that has a legal element, but not be subject to regulation.

For example, in Germany a non-bar lawyer at an accounting firm would be subject to the less strict conflict of interest rules for accountants, not lawyers.

"A partner in the German member firm of one of the Big Five when we recently had lunch together prided himself that his firm in a large mergers and acquisitions bidding process had done the legal and financial due diligence for a total of three bidders, using of course, for the different clients, different teams from different offices," Hellwig said. "While all of this seems almost unthinkable for a lawyer, the explanation is quite simple for an accountant: the clients have waived the conflict rules based on the promise of Chinese walls."

If the client is informed and consents what's the harm? The harm, some argue, comes from the client and the professional not knowing what the future may bring, when a friendly deal may turn sour. In addition the unregulated attorneys may talk themselves into representing clients they shouldn't.

"The public at large will never understand the difference. The public will only hear the person is a lawyer, and will not understand what being a member of the bar means," Hellwig said. "There is a strong feeling in the public at large in my country that a lawyer does not represent conflicting interests. But that high esteem is put at risk when there are other professionals that will work in a conflict situation. The public only looks and sees member of the same firm in a legal transaction. For example, A is representing me and B is representing my wife in a divorce for the calculation of assets."

The Real World Comes Crashing In

The devil may be in the details, even for the importance of the debate itself. Business realities may scuttle mergers between accounting and law firms before the first client walks in the door. Lawyers and accountants simply may not be able to work together in one firm, some argue. Economically, attorneys generally earn more than accountants, so dividing fees could drive the two apart. Culturally, lawyers may be more entrepreneurial and aggressive than accountants. (For details on attorney-accountant alliances in Canada, see "Big Five Slow to Exploit Canadian Breach" on page one.)

Even if the lawyers and bar associations can agree on new rules, the courts and regulatory bodies will still need to be convinced that the rules under which multidisciplinary practices operate can adequately protect the public, particularly when they represent adverse parties.

At the hearings, committee members learned of a recent British House of Lords ruling that enjoined KPMG from representing a client due to the accounting firm's inability to ensure it maintained a client's confidentiality.

Since 1983 KPMG has audited the funds of the government of Brunei. In 1996 KPMG's forensic accounting department began working for Prince Jefri, the youngest brother of the Sultan of Brunei. Jefri hired KPMG to do an investigation connected with a major litigation. In the course of the investigation, named Project Lucy, the forensic team acquired confidential information concerning Prince Jefri's assets. In May 1998 KPMG stopped working for Prince Jefri in that matter.

Then in July 1998 the Government of Brunei hired KPMG to investigate the withdrawal of assets from its funds. It soon became clear that Prince Jefri's would become a target of the investigation, named Project Gemma.

Even though KPMG set up a Chinese wall between the forensic investigative teams, by not allowing Project Lucy members to work on Project Gemma, maintaining separate computer files for Gemma and deleting all electronic information relating to Lucy, the measures were not strong enough. KPMG built the fire walls ad hoc and Prince Jefri's was at risk that confidential information could have been disclosed inadvertently, the court held.

"It is of overriding importance for the proper administration of justice that a client should be able to have complete confidence that what he tells his lawyer will remain secret," the court wrote.

Closer to home, the Securities and Exchange Commission threw out a disciplinary ruling made by the Chicago Stock Exchange against a member firm, because conflicts of interest denied the firm a fair hearing. The SEC set aside proceedings against Scattered Corp. for violating antifraud and market manipulation provisions, because the Chicago exchange's outside lawyers, Foley & Lardner, simultaneously provided legal counsel to the exchange hearing examiner and to the exchange in litigation against Scattered based on the same facts.

The commission will hold another public hearing in Washington, D.C., in March before an April 1 deadline for members of the public to submit comments to the commission.