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Business Commentary Ontario’s law society needs to address problems in self-regulation

Anita Anand is the J.R. Kimber Chair in Investor Protection and Corporate Governance at the University of Toronto.

As the Law Society of Ontario (LSO) prepares to elect a new slate of benchers this spring, the question of its governance structure, and particularly self-regulation of the legal profession, sticks out like a sore thumb. Self-regulation opens the possibility of conflicts of interest: lawyers governing themselves may, in making rules for the profession, make decisions that benefit themselves rather than the general public, who may be unable to protect their own interests.

As a result of these concerns, both Britain and Australia have moved away from self-regulation. However, Canadian law societies continue to adhere to this model. For example, the LSO regulates legal education, implements codes of conduct, and enforces professional standards for lawyers. The LSO is run by an overly large board of directors – called “benchers” – comprising lawyers, paralegals and lay persons. In total, there are eight lay benchers, 40 lawyer benchers (20 from the Toronto area and 20 from elsewhere in the province), and five paralegal benchers. In addition, there are 45 ex officio and emeritus benchers.

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The LSO is bound by statute to advance the cause of justice and rule of law, facilitate access to justice, protect the public interest, and act in a timely, open and efficient manner while ensuring that its members meet standards of professional competence. However, under the Law Society Act, benchers are not bound by a statutory duty of loyalty to act in good faith and with reasonable care. Furthermore, the act has no procedures for dealing with conflicts of interest, such as benchers’ obligations to disclose conflicts, seek recusal, or refrain from voting.

To address its governance shortcomings, the LSO assembled a Governance Task Force to investigate and recommend potential governance improvements. The task force presented its report in November, 2018. However, only the recommended changes to the rights and privileges of ex officio benchers were accepted. The suggestion to implement a Bencher Code of Conduct was tabled and will be brought back before Convocation in February. Thus, despite the LSO’s efforts, gaps in its governance structure still exist.

Apart from revamping self-regulation altogether, which may seem impractical in the short-term, a number of reforms would improve the efficacy of the LSO’s governance structure. First, benchers should be subject to an explicit twofold statutory duty contained in the Law Society Act to act in the best interests of the public and to exercise reasonable care when doing so. The scope and enforceability of such a broad duty does raise legitimate questions, but the point is that benchers presently have no such duties in the governing statute.

A counterargument is that by cross referencing the corporate duties of directors under the statute pertaining to not-for-profit corporations generally, benchers are by implication bound. Shouldn’t such a fundamental duty – a duty to avoid conflict – be laid out more clearly? A twofold duty set out in the Law Society Act would provide an explicitly articulated baseline duty, deterring benchers from acting in conflict with the public interest and confirming the regulatory mandate of the LSO’s governance model.

Second, benchers should have to meet minimum levels of expertise. They should be well-versed about what it means to act in the public interest and should be aware of the importance of adhering to statutory duties of good faith. Furthermore, at least a specific proportion of benchers should have financial and accounting expertise.

The LSO currently has no system in place to ensure that benchers meet any minimum level of expertise. This lack of basic qualification criteria falls below the standard of governance that the public deserves, especially considering the well-developed improvements in governance in other regulatory spheres, such as the laws applicable to public corporations.

Third, fewer benchers should be appointed. The average board size in large Canadian public corporations is about 11 members. In comparison, the LSO has upward of 45 elected benchers – a large number that hampers effective decision-making. Although a larger elected body may be more representative of the varying interests within the profession, simply having a larger board neither ensures better governance nor means that diversity concerns will be met. The LSO’s recent initiative to reduce the rights of ex officio benchers at Convocation will only partially address this issue.

This reform agenda is not perfect but it would enhance the governance of the LSO, inspire public confidence in its decision-making structure and contribute to the integrity of the market for legal services.

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