Insiders already have an acronym for the phenomenon. They call it an MDP, as in multidisciplinary practice, and it is all the talk, if not exactly all the rage, within the legal industry.

At the mention of the phenomenon, one imagines all variety of firms rushing willy-nilly into the unoccupied territory between law and finance in a contemporary version of the Oklahoma Land Rush. The perception, of course, is that the MDP issue pits law firms against financial- services companies, especially accounting firms.

On a certain level, this perception is valid. But as shall be seen, the real threat to the stability of legal profession comes not from without the profession but from within—from other law firms or even from partners in a given firm.

Competition Without
For all that, many attorneys are privately enjoying the Enron scandal. It has slowed the quiet encroachment of accounting and other financial-services firms into areas historically reserved by lawyers. Plus, lawyers are understandably relieved to hear jokes about some other profession for a change.

In Europe, there is nothing quiet about the incursion of the accountants. In some countries, the Big Five ac-counting firms have acquired entire law firms. This process has advanced to such an extent in Spain and France that the legal departments of some of the Big Five have more lawyers on staff than do the nations’ largest independent law firms.

The financial services companies have not been nearly so aggressive in the United States, but they definitely have had the law firms looking over their shoulders. When asked if he was concerned about encroachment, Lathrop & Gage managing partner, Tom Stewart, only half joked, “I have been concerned for years.”

Mike Conger, Polsinelli, Shalton and Welte shareholder, identifies a problem not so much with accounting firms as with large financial institutions. Their strategy, says Conger, is to sell legal services for nominal fees in return for managing the clients’ assets. These firms have lawyers on staff with prototype practices and contracts with pre-approved language. They do “cut into business,” says Conger, but they do not necessarily offer the best product to their clients.

Winn Halverhout has a unique perspective on the issue. He spent 10 years at Arthur Andersen working as a CPA and the last 13 as a partner at Blackwell Sanders. Given what he knows of the corporate cultures of both large accounting firms and law practices in the United States, he does not “feel threatened” by a European-style takeover. The “cultural divide” he sees as too great. “I can’t fathom the Big Five and the large law firm trying to accommodate each other’s culture,” says Halverhout. The climate in Europe is too different to provide a meaningful basis of comparison.

At Andersen here in America, he noted, a person worked either as an attorney or as an accountant. “You didn’t wear two hats.” The same is true at Blackwell Sanders. Although Halverhout has kept his CPA license, which gives his practice an added depth, he specifically does not offer CPA services.

Before the ink on the Enron subpoenas had dried, however, concerns about the incursion of financial services had already begun to abate. “For some time,” Morrison & Hecker’s Managing Partner Brian Gardner observes, “there will be a great deal of thinking about putting legal and accounting under the same roof.”

Competition Within
For the most part, attorneys have not so much resented their financial-services competitors as much as they have envied their freedom and flexibility. The legal industry, however, is beginning to open up. As the opportunities expand, and they almost inevitably will, different firms will develop distinct strategies as to how to seize them. Right now, the jury is still out on what a successful strategy looks like.

For the record, American law firms are currently denied the ability to share legal fees with non-lawyers or to be owned by non-lawyers. As a result, true MDPs here remain largely in the arena of the conceptual. It was only a few months ago, in fact, that New York state became the first state in the nation to adopt rules that even address lawyer participation in MDPs. Other states have not approached the issue.

Right now, the real action is taking place in a related, if less radical, field of opportunity that goes under the rubric of “ancillary services.” Some of the more ambitious law firms, especially on the coasts, have moved aggressively into at least quasi-related fields like government relations, environmental consulting, human-resources outsourcing, real-estate title services and even money management.

The acknowledged brake on the wheels of progress within the legal industry is the American Bar Association. The ABA establishes the “model rules” for multidisciplinary practices, and the states generally adopt them. If the ABA has secured a reputation for liberalism on most matters political, it has proved relentlessly conservative on the issue of market reform.

Although Mike Conger appreciates the association’s historic role, he openly admits that the “ABA has been dragging its feet in opening up ancillary services.” Adds Conger, “They like the monopoly.” As Conger sees it, the ABA fears that the door will swing unpredictably both ways if attorneys throw it open.

Right now, in fact, for an attorney to engage in certain MDP practices is considered a misdemeanor in Missouri. Says Conger wryly, “The market should be a lot freer than that.” He does not expect to see much change in the near future. The state bar association has voted down model rules changes at least once.

Despite the ABA’s lack of encouragement, some local firms have already established ancillary businesses. One of the advantages that Conger sees with these businesses is that, unlike law firms, they can directly solicit clients. This is not only good for the business itself, but it inevitably leads to new business for the law firm.

Conger is coy about Polsinelli’s plans for the ancillary marketplace. To be sure, though, the firm has a keen interest in its possibilities and is exploring the options available. In the final analysis, Conger believes that “the marketplace will dictate combinations, not the ABA.”

Brian Gardner believes that the ABA has been “absolutely right on” in its insistence that attorneys maintain their independence, but he too argues that the association “needs to be more broadminded” on the issue of competition and ancillary services.
Gardner contends that “in the traditional areas that lawyers practice there is opportunity.” Morrison & Hecker, for instance, offers specific human-resource training for a fixed fee and continues to look at opportunities for fulfilling the kind of roles that attorneys should be playing. He admits, however, there are “shades of gray” as to what those roles should be.

If Gardner has a specific concern about ancillary services, it is that they tend to diminish the value of lawyer-client relationships. An environmental consulting service, for instance, is not protected by attorney-client privilege. This means that the consultation may well be open to discovery. In areas as sensitive as the environment, this loss of protection can be catastrophic.

Blackwell Sanders is arguably more cautious than most firms in assessing the MDP or ancillary service markets. “We certainly watch what’s going on,” says Halverhout. “We kick around notions of a subsidiary. We do have an office in D.C.” But, as Halverhout is careful to acknowledge, the firm remains committed to keeping its business activities “within the purview” of a traditional legal practice.

Lathrop & Gage takes a much more aggressive approach to the whole question of MDPs. In fact, the firm established an MDP committee three years ago. The committee was charged with the task of investigating the marketplace to assess the opportunities and to gauge their compatibility with the law firm’s business.

One such opportunity presented itself when Shelly Freeman, human resources director at Payless Cashways, signaled her interest in exploring an ancillary service with Lathrop & Gage. Freeman had worked at Blackwell Sanders before leaving for Payless Cashways. Her experience nicely bridged the gap between legal work and HR consulting.

Before launching the enterprise, Lathrop & Gage’s MDP committee did some systematic market research, including focus groups with human-resource directors. Says Tom Stewart, “We were enthused by the results.” The HR people typically had been using two or three sources to provide services that they would much prefer to have consolidated. They also did not like the concept of billable hours.

After analyzing the results, Lathrop & Gage Strategic Services, the firm’s ancillary service arm, designed a new service around the needs of the HR community, one that would complement the firm’s own legal-service offering and ideally generate greater market share. It is called HROI, Human Resources Return on Investment, with Shelly Freeman as president.

“Frankly,” says Stewart, “I think that the ABA and Missouri Bar need to be more in touch with what’s going on.” The focus, he believes, should be on “what’s best for the client.”

Not surprisingly, Lathrop & Gage is focusing on several new opportunities. The other firms, one can be sure, will be watching closely.

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