A few days ago The New York Times published an op-ed by Mark Everson, who was commissioner of the IRS from 2003–2007. His thrust was that lawyers and accountants had stopped being watchdogs against business misconduct and instead have become enablers at best:
It will take decades to fully untangle the causes of the 2008 financial crisis, but as our economy fitfully heals, it would be prudent to ask whether lawyers and accountants offer the same protection against corporate misconduct that they once did.
Three or four decades ago, investors and regulators could rely on these professionals to provide a check on corporate risk-taking. But over time, attorneys and auditors came to see their practices not as independent firms that strengthen the integrity of capitalism, but as businesses measured chiefly by the earnings of their partners.
[…]Lawyers and accountants who were once the proud pillars of our financial system have become the happy architects of its circumvention.
His proposed remedy?
For Congress to overturn attorney-client privilege “as it applies to corporations,” and specifically to unshield
“communications about, say, commercial transactions and financing and even government-mandated filings and disclosures.” His thought is that “more outside scrutiny” would be “a good thing.”
I’m not a legal ethicist and I leave it to others to play out the implications of such a change; my only observation is that Mr. Everson must enjoy invoking the law of unintended consequences, because I think he has just done so on a drastic scale.
Instead, I want to share with you a letter to the editor of the Times that I wrote in response to the piece. They chose not to publish it, but I can.
To the Editor:
As both a lawyer and businessman, I’m sympathetic with Mark Everson’s lament that the practice of law has been transformed from “helping clients adhere to professional standards and follow the law” to the “new model,” “a business plan tied to partner earnings.”
While I strongly believe economic prosperity and unyielding ethical standards are mutually reinforcing, what he omits is any discussion of the context in which partner earnings have grown in importance. Simply put, elite firms have no choice but to produce high levels of profits per partner. Why? Competition.
Lawyers are free to move entirely at will between firms (non-competes are unenforceable) and over the past 25 years they have done so in increasing numbers. While there are many reasons for this, an overarching factor is individuals pursuing higher compensation. If you or I could earn (say) 25% more by moving across the street, at some point it becomes awkward to explain to yourself or your spouse why you haven’t done so.
Now view this from the firms’ perspective: Losing key partners because you can’t keep up with marketplace compensation levels can quickly become a death spiral for the firm. A few good people leave, taking clients with them, others who are mobile begin to look around, and within a shockingly brief span it can be lights out for the firm. This has happened to a dozen or more once highly prestigious firms just in the past few years.
Mr. Everson’s implication is that the growing importance of partner profitability reflects naked greed and ethical corner-cutting. In fact, it reflects the survival imperative.
Best regards,
So, dear reader, what’s really going on here?
Do firms (read: do partners) have a choice of going back to the good old days?
What exactly is the connection, if any, between high profits per partner and casual professional ethics?
My impression, although I’ve thankfully not had any close encounters that I know of with culpable miscreants, is that economic security reinforces rather than undermines the ability to be ethically punctilious.
What are your thoughts?
Update: A reader writes:
I think the idea that we are less ethical now than in the
glory days is not based in a fair recollection of what the “old
days” were really like if some of the stories I hear about the old days
have any validity to them. There was just much less focus on all the
rules of professional responsibility in large and small firms and more of a
focus on individual lawyers and groups of lawyers balancing the issues and
keeping all the clients happy with a fair amount of shooting from the
hip. Now most larger law firms have very formalized systems for handling
these issues. Also the larger the firms get the more often conflict
difficult issues (whether they are true ethical conflicts or political
conflicts) tend to arise and I am not sure that they would have been handled as
well in the days of yore as they are now.
I enjoy your publication very much.
I think this is a great perspective. At the very least, firms have a fair amount of “General Counsel” type infrastructure today which has never existed heretofore on such scale.
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