The Nirvana Fallacy in Law Firm Regulation Debates

Abstract

Most commentators would agree that large law firms have outgrown collegial management and self-regulation. Yet lawyers generally have been slow to recognize the benefits of bureaucratic management, and traditionally have resisted and lamented the move toward more bureaucratic forms. Many lawyers view the infrastructure of bureaucratic management - that is, formal policies and procedures and specialized managerial personnel - as necessarily undermining professional ethics and individual accountability within firms.

This article questions the empirical basis for such concerns. I argue that the fear that centralized management controls will undermine individual accountability rests on an implicit comparison to a nostalgic, collegial ideal, in which all partners engage in firm management and collective self-regulation. Since no large law firm can live up to this ideal, such a comparison inevitably leads to a critique of the proposed regulation. Economists refer to this type of comparison - between an idealized apple and an imperfect orange - as the "nirvana fallacy."

The proper comparison, I argue, is between actual, more or less bureaucratic law firms, with and without the proposed controls. This type of comparison requires close attention to current conditions in law firms and lawyers' attitudes and behavior in different regulatory contexts. To the extent that such data are available, they suggest that some forms of centralized management, such as the appointment of law firm in-house counsel and other compliance specialists, may significantly improve individual accountability and compliance with professional rules.

Keywords: law firms, regulation, profession, ethics, in-house consel, bureaucracy