INNOVATION, ETHICS AND THE LEGAL SERVICES ACT

AUTHORIZED REVOLUTION:

REGULATORY DISRUPTION OF THE LEGAL SERVICES MARKET

Georgetown, April 2015

Richard Moorhead, Centre for Ethics and Law, UCL Laws, London

@richardmoorhead

http://lawyerwatch.wordpress.com

Competition

Innovation

Access to Justice

Competition + Innovation = Access to Justice

S.1(1) LSA The regulatory objectives:

• (a)protecting and promoting the public interest;• (b)supporting the constitutional principle of the rule

of law;• (c)improving access to justice;• (d)protecting and promoting the interests of

consumers;• (e)promoting competition in the provision of

services within subsection (2);• (f)encouraging an independent, strong, diverse and

effective legal profession;• (g)increasing public understanding of the citizen's

legal rights and duties;• (h)promoting and maintaining adherence to the

professional principles.

The “professional principles” are:

(a) independence and integrity,

(b) proper standards of work,

(c) act in the best interests of their clients,

(d) comply with their duty to the court to act with independence in the interests of justice, and

(e) keep the affairs of clients confidential.

Ethical Challenges

*innovation* beyond incentives

values

nature of knowledge

regulation

Incentives vs Professional Exceptionalism

…legal services should not be thought of as a product that can be bought and sold like car radios or toothpaste, but instead a culturally embedded practice whose practitioners must uphold and further professional ideals and norms.

Robinson, Nick, When Lawyers Don't Get All the Profits: Non-Lawyer Ownership of Legal Services, Access, and Professionalism

SSRN: http://ssrn.com/abstract=2487878

Lawyers are different?

• …Lawyers may not have as an altruistic identity as doctors or the clergy, but most lawyers would acknowledge that the pursuit of profit should not be the sole goal of those in the profession nor making money the only, or even dominant, criteria for determining what characterizes a “good lawyer” or a “good law firm”. Many lawyers, and the profession more broadly, value furthering the rule of law, pro bono assistance to the needy, acting as a check on government or corporate power, competent assistance, and other social values. Non-lawyer ownership in some situations can subvert these public-spirited ideals in at least two ways.

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Professional complacency vs Professional commitment

Maryam Kouchaki

• M professional = 3,767vs.

M control = 2,22541% professionals overestimated

• 6% employees

• Professionalism and Moral Behavior: Does a Professional Self-Conception Make One More Unethical?

Culture

• Reaching the top• Financialisation• Business focus• 'client first was bred into me'.

Who drives creative compliance?

• Parker, Rosen, and Nielsen, The Two Faces of Lawyers: Professional Ethics and Business Compliance With Regulation (2009). Georgetown Journal of

Legal Ethics, Vol. 22, 2009:http://ssrn.com/abstract=1034561

“General counsel are more likely than other executives to justify backdating contracts in order to meet financial targets.”

EY, 13th Global Fraud Survey Overcoming Compliance Fatigue - Reinforcing the Commitment to Ethical Growth.

Exceptional unethicality?

With complex judgments values matter…

http://valuesandframes.org/handbook/1-why-values-matter/

Machine Tools Problem

You are advising your Company an engineering company that sells machine tools. They want to hurry through transactions which may be in breach of import/export regulations in relation to a state subject to arms embargoes. A large proportion of the transactions are products unrelated to arms production, but you suspect a small proportion relate to dual use items which have the potential for weapons manufacture. The Company is frustrated that import/export license process slows down legitimate transactions.

Would you?

You advise that these transactions are highly likely to be in breach regardless of the use to which the items are put and if the Regulator identified any to be dual use serious consequences are likely to arise for the Company.

Prior to the company deciding what to do, should you also advise the client on how to handle the transactions so the regulator is significantly less likely to scrutinise them?

Machine Tool Problem (GC/PP Group)

IHL PP0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

yes

no

For those more likely to advise the client how to handle the transactions so that the regulator is less likely to scrutinise them:• Achievement ** and power* (dominance) were higher

What would you say the values of innovators were…?

Balance sheet problem…77% said no

Universalism

Benevolence

Conformity

Tradition

Security, .1

Power

Achievement

Hedonism

Stimulation, .01

Self-Direction

-2

0

2

No

Yes

MIGHT THE INNOVATORS MINDSET POSE A PROBLEM?

BRINGING ETHICS INTO FOCUS: HOW REGULATORY FOCUS AND RISK PREFERENCES INFLUENCE (UN)ETHICAL BEHAVIOR

Gino and Margolis, Organizational Behavior and Human Decision Processes

Volume 115, Issue 2, July 2011, Pages 145–156

Study 4

General Aspirations Frame‘‘Statement of Research Mission & Aspiration –

This research project is being conducted to advance the ideals and aspirations pursued by

applied social science.''

General Compliance Frame“Statement of Research Code of Conduct – This research project is being conducted with strict

adherence to the standards and obligations required of applied social science.''

Promotion Prevention

Promotion Prevention

Results

THE DARK SIDE OF CREATIVITY: ORIGINAL THINKERS CAN BE MORE DISHONEST.F Gino, D Ariely - Journal of personality and social psychology, 2012 

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Frames/values differ…

“I would say that the firm that I work for is primarily

focused on its own commercial interests…”

Regulation might make a difference?

IHLs PPHighly Less Highly Less

Universalism - tolerance 7 5 4 8 *

Conformity to rules 5 9 5 12 *

Tradition 17 17 14 18 ***

Power Dominance 18 15 18.00 17 *

A CHALLENGE TO LEGAL KNOWLEDGE?Resilient conservativsm?

What happens when Watson gets it wrong?

•System errors (Proctor v Raleys)•Process not economics (Padden v Bevan Ashford [2011] EWCA Civ 1616)

•Probabilistic vs Analytic Reasoning

Is innovation working?

•Machine learning•Decision support•Online Dispute Resolution•Client Capture

Is regulation working?

•Which of those four falls within the regulatory framework?

•Which are you most worried about?•S17(4) LSA 2007 “legal activity” does not include any activity of a judicial or quasi-judicial nature (including acting as a mediator)

What might good system design look like?• Intense, open and high quality inclusion

• Responsiveness to legitimate concerns

• Value sensitive design• Reflexive culture (which requires risk taking leadership)

• Stage- gating• Risk: id, quantify and decide• Comply with law• Communicate nature and

purpose of innovation• Assess and review impacts• Engage with stakeholders

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Final thoughts…

• Conservative resilience vs narrowly framed evangelism• Its not ABS vs law firms or innovation vs practice it’s:

• Business models within both sectors • Regulatory framing• The absence of evidence on practice• The generation of evidence is weak, self-serving and not transparent

• Does competition and innovation with limited transparency drive us in a particular direction?