Tangled Loyalties: Conflict of Interest in Legal Practice.

Vol. 15 No.1 (January 2005), pp.8-11

TANGLED LOYALTIES: CONFLICT OF INTEREST IN LEGAL PRACTICE, by Susan P. Shapiro. Ann Arbor: University of Michigan Press, 2002. 512pp. Paper. $35.00. ISBN 0-472-06801-6. Cloth. $75.00. ISBN: 0-472-09801-2.

Reviewed by Robert Dingwall, Institute for the Study of Genetics, Biorisks and Society, University of Nottingham, UK. Email Robert.dingwall@nottingham.ac.uk

It is always difficult to come late to reviewing a widely-praised book. TANGLED LOYALTIES has already attracted much praise from within the law and society community as a substantial and meticulously-documented contribution to our understanding of contemporary legal practice, not least for its revisionist emphasis on the degree to which lawyers exhibit a deep concern for the ethics of their work that is distinctly at odds with their public image. My later comments will, then, address the more general significance of Shapiro’s work rather than adding to the appraisals of its contribution to the specific literature on the legal profession.

The study itself is based on interviews with representatives of a stratified sample of 140 law firms practicing in the state of Illinois; although this is less than 1 per cent of all firms, it includes about 20 per cent of all lawyers in private practice. 92 per cent of the firms approached agreed to participate, giving a final sample of 128 firms. Each participating firm nominated for interview a partner, or partners, particularly involved in the firm’s management of conflict of interest problems. The interviews were conducted informally with reference to an interview guide—all but four were face-to-face, and 78 per cent were taped and transcribed. The details of the sampling and interview process are clearly and specifically documented, and contribute considerably to the credibility of the reporting. The one conspicuous omission is any indication of the dates of the fieldwork, although it seems to have been mid-1990s. These data are supplemented by careful scanning of the trade press, observation of ABA debates over the governance of conflicts of interest, and some interviews with larger firms in another, unnamed, Midwestern state. The additional information is carefully used to test the limits of generalization from the Illinois data, although Shapiro concludes, persuasively, that the minor differences in state rules within the overall framework of the ABA MODEL RULES have very little practical impact. Illinois’ relatively liberal approach to the use of Chinese walls to manage potential conflicts, for example, is constrained by client preferences in ways that limit its practical value as a solution to firms’ problems.

Having set the scene, Shapiro lays out the background of formal rules: that a lawyer shall not represent a client if that representation will be directly adverse to the interests of another client, and that a lawyer shall not represent a client if that representation will be “materially limited” by the lawyer’s responsibilities to another client, a third party or the lawyer’s own interest. Moreover, in [*9] Illinois at least, the firm as a whole is responsible for the compliance of each of its members. In principle, each of these principles is waivable, provided that clients give informed consent. However, one of the truisms of the social scientific study of law is that rules are not self-interpreting. Shapiro explores the indeterminacy of the rules in great detail: Who is a client? When does someone become a client and cease to be a client? What is an interest? Who are relevant third parties? What is a material limitation of representation? What are waivers really worth? Do clients understand them? Will they stand up if the firm is sued?

The distribution of ethical challenges and institutional responses reflects the ecology of the profession. Small downstate firms have somewhat different issues from large Chicago Loop practices. Firms dealing primarily with transactions experience them differently from firms engaging heavily in litigation. Firms with a mainly “one-shotter” client base are in a different position from those dealing with sophisticated corporate “repeat players,” whose in-house legal teams are alert to the possibilities of conflict, and who may, indeed, use it as a strategic weapon to manipulate the market. No one, however, escapes. Only 2 per cent of the sample are what Shapiro calls “ostriches,” firms that bury their head in the sand and hope the problems will all go away or resolve themselves. 84 per cent of the sample are either “squirrels” or “cyber-squirrels,” making substantial firm investments in systems to identify, track and manage potential conflicts, either manually or electronically.

The transaction costs of conflict management can be substantial. Apart from the direct organizational overhead of the tracking systems, there are the costs of business turned away, clients who have to identify and educate new firms in the issues of cases and of their businesses, work done on cases that cannot be billed because of unforeseen conflicts that emerge, and additional lawyers who have to be brought into cases because of potential problems associated with representing more than one party. Clients react with a range of responses, from bewilderment through appreciation of the profession’s integrity, to a measure of low cunning, where a large client in a specialized area distributes business around all the firms with expertise in that niche to eliminate the possibility of their taking on cases adverse to that client.

So, are lawyers more ethical than we might have thought? Shapiro presents very substantial evidence that law firms worry a great deal about compliance with governance rules relating to conflicts of interest. The costs of breaching these rules lead to quite substantial investments in self-regulation and internal organizational controls, partly prompted by malpractice insurers but equally driven by concern for the material and reputational costs of a foul-up. While her informants concede that enforcement remains a challenge to most of their systems, there is clearly a scale of investment that belies any assertion that the routine and mundane practice of legal work is characterized by a cavalier attitude toward rules of professional conduct. Indeed, Shapiro’s informants note the tension that arises within firms over the rival claims of different partners bringing potentially conflicting business [*10] and the need to adjudicate, where the results will feed directly into the partners’ respective earnings.

However, as Shapiro also notes, ethical governance and self-interest coincide over much of this area. Many clients are also reported as caring deeply about their lawyers’ approach to these matters. Turning away business from one potential client may be important in retaining the goodwill of another. This only becomes difficult when there is a gross imbalance in the value of the transactions – when a $50k case for one client blocks a $500k case for another. Interestingly, although firms debate this issue, most tend to take the view that it all comes out in the wash: a case currently within the firm takes precedence over hypothetical cases that might or might not come along in the future. While this does not prevent all attempts to manipulate the situation, the results are closer to the “cab-rank” rule of the English bar than might be supposed.

From a societal perspective, Shapiro notes the trade-off in terms of the additional costs generated by the governance rules, which become a de facto tax on everyone who buys insurance, goods or services, against the fact that the legal profession takes the issue visibly more seriously than most other professions. Lawyers service their clients, rather than third parties, as in medicine where practice is constrained by insurance or managed care, or themselves, as in the academic world with its complaisant approach to the business interests of many faculty members. She argues that this offers a significant competitive advantage to lawyers against the multi-disciplinary practices being developed by the large accountancy, audit and consultancy firms.

These are important observations, but they may understate the pathologies of the system. Two, in particular, stand out. One is the overriding duty to the client rather than the payor, which is also a major problem in health care. Where one is dealing with insurance-funded professional work, there is also a duty to the pool of policyholders, which will often conflict with the interest of the specific client. As clients, we want everything, but as payors we want to contain our premium costs. There is nothing improper about this—our willingness to pay for other people’s misfortunes is necessarily less than the resources we would want to see committed to our own case. The subordination of payor interests may well lead to an over-investment in professional services.

The second problem is the scope that is created for repeat players to block effective challenges to their wrongdoings. Shapiro shows that there is a significant group of large, corporate clients who manipulate the conflict of interest rules in ways that make it virtually impossible for anyone wanting to challenge them to obtain high-quality representation from firms with the skills and resources to manage litigation effectively. It is not exactly news that repeat players come out ahead. However, the sophistication and cynicism of this tactic argues strongly for attempts to constrain its use. Where a repeat player has deliberately distributed small packets of business around all the firms competent to litigate in its market niche in order to knock [*11] them out of representing potential plaintiffs, some regulatory response seems desirable.

TANGLED LOYALTIES is a very rich book that will repay close attention, and I strongly commend it to LPBR readers. However, I cannot conclude this review without one adverse comment of my own. I think my eyesight is pretty average for a fifty-something academic. However, the combined effects of font size, line spacing, and print density have delayed this review by at least six weeks. If you buy this book, be prepared to invest in a high-quality reading light, and maybe a new pair of spectacles. I checked the hardback from our library, and that has somewhat more white space around the print and seems physically easier to read. The University of Michigan Press is to be commended for getting this lengthy book out in paperback at a reasonable price, and I recognize the compromises involved in controlling the extent – but, personally, I would rather pay another five bucks for a book I could actually read comfortably.

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