Regulating Law Firm Ethics Management: An Empirical Assessment of the Regulation of Incorporated Legal Practices in NSW

Abstract

The Australian state of New South Wales (NSW) was the first jurisdiction to fully deregulate law firm structure and allow incorporated legal practices without restriction on ownership. At the same time it also required that these firms implement ‘appropriate management systems’ for ensuring the provision of legal services in conformance with compliance with professional ethical obligations. This paper presents a preliminary empirical evaluation of the impact of this attempt at ‘management-based regulation’ to require firms to implement an ethical infrastructure. We find that the NSW requirement that firms self-assess their own compliance with this requirement leads to a large and statistically significant drop in complaints, but that the (self-assessed) level of implementation of ethical infrastructure does not make any difference. The applicability of these findings to other firms and jurisdictions is discussed, and the NSW approach distinguished from the English Legal Aid approach to regulating law firm quality management.

Keywords: legal ethics, business regulation, management-based regulation, law firms, incorporated legal practices, alternative business structures, legal profession, consumer complaints

JEL Classification: K42