Allowing KPMG to Embrace Nonlawyer Ownership Is Long Overdue

As the Arizona Supreme Court ponders allowing KPMG to deliver legal services in the state through a subsidiary, it should realize that doing so would enhance value, drive down costs, and expand access to legal services for clients.

Some legal observers oppose KPMG’s bid, saying it conflicts with the longstanding norm against nonlawyers owning law firms. But from a client’s perspective, it would be a net positive development.

Embracing nonlawyer ownership has the promise of expanding access to legal services by allowing more entrants into the market. Adding new legal services providers spurs competition, which can reduce the cost of such services, while lawyers and nonlawyer specialists working under one roof can spur cost-saving efficiencies.

It’s possible that creative entities that bring lawyers in contact with a wider array of in-house thought partners would innovate the provision of legal services in ways that might not be seen from law firms exclusively owned and operated by lawyers.

The traditional prohibition against nonlawyer ownership of law firms dates to the early 20th century. In Rule 5.4 of the American Bar Association’s Model Rules of Professional Conduct, lawyers and law firms can’t share legal fees with a nonlawyer and can’t form a partnership with a nonlawyer if any of the partnership’s activities are practicing law.

The rule also bars a lawyer from practicing “with or in the form of a professional corporation or association authorized to practice law for a profit” if a nonlawyer owns any interest in it. The vast majority of US jurisdictions have incorporated Rule 5.4 into their respective rules governing lawyers’ professional conduct.

The idea behind the prohibition is that lawyers must retain ultimate authority over a law firm to ensure that the pursuit of profits doesn’t outweigh their professional responsibility to pursue their clients’ best interests. The rule also stems from concerns surrounding the unauthorized practice of law. If we’re being fair, its origins also aimed to reduce competition.

A handful of jurisdictions—including Arizona, Utah, and Washington, D.C.—have departed from this norm by establishing “alternative business structures” that permit nonlawyers to have an ownership interest in businesses that provide legal services. They set up guardrails to ensure that nonlawyers can’t direct or control the professional judgment of licensed attorneys, the core legitimate risk that Rule 5.4 was designed to avoid.

Practicing lawyers in alternative business structures are obligated to follow ethical and professional conduct rules and exercise independence of judgment. They also must disclose the management structure and financial relationship with any parent company or nonlawyers holding a financial interest in the legal services entity.

Because lawyers practicing within alternative business structures are bound by the same ethical and professional standards as lawyers practicing within traditional law firms, which are no less motivated to be profitable enterprises, concerns over the prospect for nonlawyer ownership to undermine the best interests of clients seem to be overblown.

Lawyers are well aware of their professional obligations and are well positioned—even within alternative business structures—to ensure their own compliance and the compliance of those they supervise.

The Association of Professional Responsibility Lawyers—a nonprofit organization whose mission is to “improve the practice of law through the development and promotion of adherence to sound rules and regulation of the legal profession”—urged the ABA to revise Rule 5.4 to address “the inevitable involvement of nonlawyers in legal delivery systems while maintaining regulations that protect consumers.”

In its letter and report to the ABA in December, APRL emphasized that the sky hasn’t fallen in jurisdictions in the US and abroad that liberalized their rules on nonlawyer ownership, and that there is no evidence of any feared “catastrophic” or “doomsday” scenarios.

Because our system of regulating the practice of law is governed at the local rather than the national level, jurisdictions have been free to experiment with liberalizing prohibitions against nonlawyer ownership under the supervision of their highest courts and regulatory authorities.

This experimentation so far gives us some confidence that the benefits of permitting nonlawyer ownership outweigh the feared risks. Let’s hope that more jurisdictions embrace this reform so that clients and the practice of law can see positive results.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

A. Benjamin Spencer is the dean of William & Mary Law School.

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