For a variety of reasons, most reflecting what the common wisdom
would view as inexorable global trends, the once-sleepy arena of
client conflicts is increasingly visible and problematic. In
the UK, the Law Society (more or less analogous to the ABA) is formally
reconsidering its conflicts rules. Why are "conflicts"
more troublesome?
- Increasing globalization of firms, together with increasing
specialization of practice areas, means more and more clients in
the same industry seek the counsel of fewer and fewer firms. - In the U.S. at least, some Fortune 500 companies have adopted
a tactic of enlisting a number of firms on retainer precisely to
create a "conflict" and preclude competitors from obtaining the
services of marquee firms. - Courts are more willing to actually scrutinize "Chinese Walls"
than to accept their imporosity at face value.
The ethics of conflicts are beyond the scope of this blog, but the
economics are not. In what circumstances is a client rational
to allow, or to endorse, a firm it’s working with to take on a competitor?
I submit: Far more often than existing (and antiquated, to
believe the UK survey cited) conflicts rules would permit. To
begin with, the primary goal of engaging top-flight counsel is simply
to receive the best advice available—in other words, the highly
targeted "state of the art" in expertise tranche X. If
a specific law firm is perceived as (one of the few) "go-to" firms
for that expertise, why should a corporation object to the commercial
reality that the firm has invested in that expertise and needs to
maximize its return on that investment to continue to be able to
support the level of sophisticated practice that is the premise for
selecting them?
Certainly in other areas of the economy—marketing, technology,
financial and investment-banking engineering—service providers
are generally free to sell their services to all comers (barring
naked disclosure of genuine trade secrets, which is a fortiori offensive
outside any discussion of conflicts). One of the themes of
this blog is to ask, "What makes legal practice different?"
In this case, I suggest: Not much. Conflicts rules are
due for a revamp, one which I believe sophisticated corporations
and law firms alike could agree are the rational way to proceed given
the realities of a global economy and ever-more-specialized expertise.
But of course, conflicts will always remain in the eye of the beholder
(the client). Years ago, before smoking was outlawed on all
domestic flights, Northwest Airlines voluntarily instituted a ban
on its planes. As
it happened, Northwest’s ad agency was also agency of record for
Philip Morris. Philip Morris promptly fired the agency for
a "conflict."
Let us only hope more rational
heads will prevail as the legal profession explores new territory
in the world of conflicts.
