Law society to weigh firm ownership reform

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The groundbreaking idea that non-lawyers should be allowed to own law firms – a reform already enacted in England and in Australia, where law firms trade on the stock exchange – is up for discussion on Thursday at the Law Society of Upper Canada.

While the law society, which regulates the profession in Ontario, is only set to debate a report from a working group that recommends more consultations on the concept, the ideas on the table would be dramatic departures from the province's current rules, which largely restrict the ownership of law firms to lawyers.

The working group, led by Malcolm Mercer of McCarthy Tétrault LLP, proposes changes that would see non-lawyers allowed to own up to 49 per cent of a law firm, or possibly even up to 100 per cent – changes meant to encourage innovation and competition.

"The Working Group concluded that there are negative consequences inherent in the current regulatory limitations on the delivery of legal services in Ontario that could be addressed with the thoughtful liberalization of business structures," the report reads.

If the "benchers," the elected members of the law society's governing body, who will debate the report on Thursday, vote to go ahead with the consultations, they would still have to approve any final proposals that follow. Some of the changes would also require legislative amendments at Queen's Park.

The idea of "alternative business structures" has been a hot topic in the profession worldwide, with debates in recent years in the United States and elsewhere as the normally conservative legal world responds to calls for it to modernize. In Quebec, professional corporations practising law can already be up to 50 per cent owned by non-lawyers.

The Ontario report, which has been in the works since 2012, comes after the surprise implosion of national law firm Heenan Blaikie LLP, which some say highlights the fragility of the current partnership model and the need for law firms to embrace change.

Proponents say allowing ownership by non-lawyers would give law firms – or a new breed of "legal startups" that is now growing – access to new sources of capital. This, advocates say, would spur innovation, such as the growing crop of cheaper Web-based "do-it-yourself" legal services. This could make legal services, now out of reach for many, more affordable.

It could also mean other changes. In Australia, which enacted similar reforms several years ago, law firms are traded on the stock exchange, with national firm Slater & Gordon the first to go public in 2007.

Most agree the idea comes with ethical challenges that would require regulatory changes. For example, lawyers are bound to act in the best interests of their client, not their shareholders, and they are required to keep client information confidential. The law society report calls for new regulations to address these concerns.

The law society's working group suggests four possible models. One would allow law firms that provide only legal services to be up to 49 per cent owned by non-lawyers. A second would see such entities have no ownership restrictions at all. Under the third model, entities could provide both legal and non-legal services and they could be up to 49 per cent owned by non-lawyers. A fourth more radical option would scrap that ownership restriction on these entities.

Jordan Furlong, an Ottawa-based lawyer and legal industry consultant with Edge International, calls the report an encouraging sign that the profession is taking a serious look at reforms: "This, to me, is opening the door and turning on the light in a room that, as lawyers, we have kept dark and locked for a long time, and not for any great purpose."

Mr. Mercer, the law society bencher and McCarthys partner steering the process, said Bay Street's big firms likely wouldn't rush into initial public offerings if the reforms go through. As in Australia and England, most established firms would remain partnerships, he said, while investors looked to innovative legal startups.