I have, I believe, a unique perspective on these issues. I have been practicing law for 25 years — as a law clerk to a federal appellate judge, an attorney in the United States Department of Justice, a partner in a U.S.-based law firm with offices in many states and several countries, and now the General Counsel of a large professional services firm. As a result, I have a keen understanding of the core values of our profession, and believe those values should be preserved. During my 8 years with Ernst & Young, I have also developed a strong appreciation for the professional standards governing the accounting profession. I believe there is common ground between the two professions, and that existing rules should be modified to focus on the individual, rather than the organization in which the lawyer practices. A change in the rules will permit a number of different practice structures that can provide integrated, comprehensive professional services while still preserving the values of both professions.

Many of the practice questions this Commission is addressing have been considered before — nearly 20 years ago, the Kutak Commission urged the ABA to reform Rule 5.4. As Chairman Kutak wrote to the ABA, "[t]here is a demonstrable need for expansion of the means of making legal services more available . . . .

The Commission believes the Rules in this area should focus on the actual potential for abuse in such developments rather than the particular form of law practice."

I agree.

1. Global Demand for Services. Globalization of the economy has increased opportunities for small and large businesses alike. Problems can no longer be classified as solely "legal" or "business." But it is not only companies with an international presence that face multi-dimensional legal and business problems. Businesses operating solely on a local level must comply with ever-increasing government regulation and must act defensively to protect against the threat of litigation. In short, clients today — whether large or small, international or local — need comprehensive solutions from a team of integrated professionals.

2. U.S. Professional Services Practice. In addition to our core audit and accounting practices, Ernst & Young meets client demand for advice on a wide range of issues with professionals trained in many different disciplines, including economists, MBAs, tax advisors, appraisers, financial managers, lawyers, estate planners, actuaries, doctors, nurses and human resources specialists.

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As this Commission noted in its background paper, the regulatory environment outside the U.S. is different. Where permitted by applicable regulation, Ernst & Young professionals work closely with lawyers to render legal advice to clients. In many jurisdictions, Ernst & Young member firms have developed strong alliances with independent law firms, and lawyers in these firms team with Ernst & Young professionals to provide comprehensive, integrated professional services.

Consumers in the United States are denied the opportunity to obtain such integrated services because of various fee-sharing and partnership restrictions. Absent a change in the rules, I suggest that U.S. lawyers will find themselves at a competitive disadvantage.

3. Existing Regulatory Framework and Proposals for Change. I believe the world market requires us to rethink our existing regulatory structure so that lawyers can partner with other professionals and offer clients the integrated services that they demand. This Commission has heard a great deal of testimony respecting client benefits from multidisciplinary arrangements. The challenge to the bar is preserving values that are central to the legal profession in practice structures not permitted by the current rules. How can this challenge be met?

I do not believe that the ethical issues raised by associations between lawyers and non-lawyers are insurmountable or very different from the issues that lawyers regularly face. The practice of law is no longer limited to the 19th century model. The bar recognizes that it cannot have separate rules to regulate different forms of law practice. It is the individual lawyer who is obligated to satisfy the core values of the profession. It seems reasonable to me that changes to the model rules must focus on the individual lawyer, rather than the organization in which the lawyer practices. I believe the profession can do so while preserving core values of independence, confidentiality, and avoidance of conflicts.

A. Independence of professional judgment. The duty of a lawyer to exercise independent judgment has always been clear. Threats to independence cannot be regulated out of existence. In today's economy, law firms are businesses, and partners and associates are expected to meet targets for chargeable hours and billing goals. But we do not bar lawyers from working in large law firms. Model Rule 5.4 is premised on the assumption that supervision of a lawyer by a non-lawyer undermines the lawyer's independence. Based on my years at Ernst & Young, I can't help but be extremely skeptical of this assumption. I report to the Chairman of our partnership, who is not a lawyer, and my salary is not set by lawyers. However, my judgment has never been clouded by my employer. I think you would have to search long and hard to find general counsels who believe their ability to provide independent advice is somehow compromised by their employment arrangements.

I find offensive the suggestion that a nonlawyer professional in an integrated practice would be less sensitive to the need for independent professional judgment. The accounting profession, with which I am most familiar, imposes on its professionals the obligation to exercise objective judgment on behalf of clients, through AICPA Rule 102. I think that all professionals in a multidisciplinary organization could be bound by a rule that required them to exercise their own professional judgment.

In my view, the presumption contained in Model Rule 5.4 that fee and profit sharing between lawyers and nonlawyers has a direct relationship on a lawyer's independence has no validity, and should be eliminated.

B. Protection of client confidences. Several commentators have suggested that confidential attorney-client information could not be protected in a multidisciplinary firm, because a significant percentage of the professionals would not be covered by the attorney-client privilege. This suggestion, in my view, is driven by a misguided view of the privilege. The attorney-client privilege runs between the individual lawyer and the client, not the law firm and the client. Where a lawyer works in a multidisciplinary partnership, the lawyer's communications with the client are covered by the privilege. To the extent the engagement involves non-lawyer professionals who assist the lawyer in rendering legal advice, the lawyer's privilege should extend to all such professionals, provided these professionals keep the information confidential.

We have experience in implementing the recently enacted statutory privilege that protects communications between clients and federally authorized tax professionals concerning tax advice. Our firm has developed procedures to safeguard information covered by this privilege. We established training programs to teach our employees the boundaries of the new privilege, so they can explain it properly to clients and so they can effectively maintain the privilege in a working environment where many professionals are not covered by the privilege.

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The only issue for this Commission, then, is the potential for conflict between a lawyer's need to protect privileged information and an auditor's duties in rendering opinions for non-public companies. This potential for conflict exists today when the legal work and the audit are necessarily handled by separate firms. But this theoretical conflict is hardly ever realized. Lawyers often have confidential information that may impact their clients' financial statements, but may not disclose the information without the clients' consent. As they are professionals, we would presume that lawyers would counsel their clients to disclose the information to the auditors. Companies recognize that they have independent obligations to disclose material information to the auditors. They understand that if auditors cannot get the information necessary to render an opinion, the auditors must qualify their opinion or resign from the engagement — options that corporate clients cannot tolerate.

C. Avoidance of conflicts. Some have contended that there is no sensible method to resolve client conflicts in a multidisciplinary firm. Conflict rules governing the accounting profession are somewhat different from the ABA model rules, largely because conflicts between clients in a law firm typically arise in an adversarial setting, while the vast majority of services provided by accounting firms are not adversarial.

The AICPA rules are designed to ensure the objectivity of individuals while the ABA model rules impute conflicts to the firm as a whole. As a result, the AICPA rules do permit two separate engagement teams within a single firm to advise clients on different sides of a transaction. In such circumstances, we create two separate teams, separated by firewalls, to maintain client confidences and ensure objective judgment.

We could spend a great deal of time debating the differences between the rules governing the professions, but I do not think that is particularly profitable. I would like to make a more fundamental point. If all lawyers are to be bound by state versions of the model rules, wherever they practice, I believe the time has come for the bar to re-examine and to alter Model Rule 1.10, the rule governing imputation of conflicts. Again, the model rules should focus on the individual lawyer rather than the organization in which the lawyer practices. During my time as a partner in a large, multinational law firm, we found ourselves faced with conflicts from matters handled by lawyers in our offices around the country and even around the world. I suspect this problem is even larger today, given the growth of law firms. The same issue would apply to lawyers in multidisciplinary firms. Changing the legal imputation rules, and creating firewalls between the engagement teams, would establish rules that all professionals could accept. I understand that some might contend that client advocacy in a judicial forum should create a limited exception where conflicts would need to reach beyond the individuals working on the matter.

4. Alternative practice structures. To date, the debate over multidisciplinary partnerships has been dominated by extreme and opposite positions: maintain the current regulatory system, which effectively bars multidisciplinary organizations, or relax the restrictions entirely to permit passive, nonlawyer investments in law practices. Debating extremes is never useful. With modest changes in the existing rules — the changes I have outlined above, as well as conforming changes to Rules 1.5 and sensible changes to Rule 7.1 — there is much room in the middle for many different forms of interdisciplinary practice structures.

Not to advocate a specific structure, but in an effort to advance the debate, I offer the following possibilities:

A first step could involve an alliance between an accounting firm partnership and a law firm owned and managed by lawyers who are admitted to practice. The accounting firm could provide support services, for a reasonable fee, and the law firm and the accounting firm could jointly market services as strategic allies. Joint proposals to clients could be offered at a fixed fee for services, with the firms sharing the fee, provided that disclosure of the relationship between the firms is made to the client before the engagement commences. Of course, the law firm would continue to provide legal services directly to those clients seeking such services. The law firm would clear conflicts only against its client list. The financial, business and management relationships between the two firms would not affect the independence of the lawyers' judgment.

Another model could involve an integrated multidisciplinary professional services firm offering a range of services, including auditing, tax advice, business consulting and legal services. The lawyers would be organized into a law division that would provide legal services to clients of the firm. In rendering legal services, the lawyers would express their professional judgments without interference from non-lawyers. Each lawyer in the firm would be responsible, on a project-by-project basis, for maintaining client confidences. Clients would be advised in advance of the integrated position of the lawyers within the firm,and of the facts and risks attendant to the firm's providing integrated services. Potential conflicts would be waived in advance, following appropriate disclosure; and all conflicts would be waivable

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As the Chair and Chair-Elect of the ABA Tax Section observed in their November 24, 1998 letter to President Anderson, "the present state of affairs is unacceptable, because lawyers who honor their profession by strictly observing its rules are rendered unable to effectively compete, and, in turn, lawyers who choose to join accounting firms in order to compete effectively suffer the uncertainty of having their conduct as professionals called into question."

* Kathryn A. Oberly is Vice Chairman and general counsel of Ernst & Young LLP. The remarks were delivered before hearings of the ABA's special MDP Commission. A complete report of the hearings can be found on the ABA's website, www.abanet.org.