Paul Bennett looks at the ethical aspects of how law firms should manage misconduct, and why the 2019 regulatory changes will mean firms need to manage ethical risk in a new way 

All firms, including those of very high standing, occasionally encounter an individual who commits misconduct, whether due to events in their personal life or a lapse in professional judgement. The legal press has been filled with stories in recent months of such cases going before the Solicitors Disciplinary Tribunal (SDT), and resulting in suspensions, fines, and a number of solicitors being struck off. It is highly likely your firm, too, will face some such issue at some point – what matters most is your response.

An ethical culture in a law firm can both help to prevent misconduct, and embed a clear and effective process for dealing with it when it does arise. It will also help ensure your firm is ready for the likely changes ahead to the SRA Handbook. So how can you implement an ethical mindset across your firm?

The regulatory context

The revised SRA Handbook places ethics at the centre of compliance.

The SRA Handbook 2011 is effectively a rules-based – rather than ethics-based – piece of guidance, which has led to a number of challenges for managers in practice, including:

  • How do you know when something is wrong and should be reported?
  • With complex rules, how do you ensure everyone knows and interprets the rules in the same way?

The forthcoming SRA Handbook (2019) is set to be less prescriptive and rely more on individual judgement and the application of ethics-based basic principles of practice, rather than black and white rules to look up.

Doing nothing or covering up a client mistake is often fatal to the client relationship and makes matters far worse for the firm

The preamble to the new SRA Code of Conduct for Solicitors, RELs and RFLs states that: ‘You must exercise your judgement in applying these standards to the situations you are in and deciding on a course of action, bearing in mind your role and responsibilities, areas of practice, and the nature of your clients… You are personally accountable for compliance with the Code – and our other regulatory requirements that apply to you – and must always be prepared to justify your decisions and actions.’ The new SRA Principles (2019) require that solicitors act with ‘independence’, ‘honesty’ and ‘integrity’.

The proposed new handbooks were submitted to the Legal Services Board for approval in August 2018, and a decision is expected by 5 November. The SRA intends to implement the changes from April 2019.

Embedding an ethical mindset

Legal ethics, I would suggest, requires openness and transparency and being able to explain your conduct, both individually and as a firm. The starting point for many firms is managing day-to-day conduct. Culturally, firms should be building transparency and confidence even when things are going well, so that the firm, fee-earners and clients are used to openness at all stages.

It’s not complex to make the first steps towards implementing a coordinated, firm-wide ethical mindset.

When faced with a dilemma in practice, every person in the firm should start their thinking with a question: is this ethical or unethical? This may reduce their concerns or, equally, confirm that something that does not feel right and needs to be explored in more detail against the rules.

If your concerns remain, the next step is to ask the following:

  • What would you say to the client to ensure they are aware of any issue, and have confidence in you to resolve it?
  • What would you say to your professional indemnity insurer?
  • What would you say to the SRA if it challenged the way in which you managed the response to the incident of misconduct?

Case study: Applying ethics to misconduct

Near Miss LLP employed a paralegal, Emma, who was outstanding during the first two years of her employment. On the basis of her performance, she was offered a training contract with the firm. The training contract was due to start three months after the initial offer. In the interim, Emma became depressed following a relationship breakdown, and the firm identified that she had failed to comply with court orders.

The firm’s supervision did not pick up on Emma’s failure to address the court orders and deadlines until cost sanctions were imposed.

The firm investigated Emma’s conduct and concluded that while she was ill, she had failed to put the clients’ interests first and failed to discharge her duties. Despite the depression, they decided to terminate her employment.

The firm also looked at the supervision in place and its failures to supervise effectively and to monitor the risks of failure to comply with court orders. It determined that its own systems and supervision were also partially culpable. The firm apologised to the client and was open with the other side about the non-compliance being illness-related, and it bore the costs of correction for both parties, to enable the litigation to continue.

The firm reported matters to the SRA, which looked at both the firm’s conduct and Emma’s, and at the firm’s management of the outcome, and decided that no further action was required.

What to do if there is misconduct

All law firms need to have an agreed process for addressing any misconduct issues, and an agreed group of people who will make decisions about next steps. The firm needs to answer the following questions.

  1. Who are the decision-makers in relation to any allegations of misconduct in your firm?
  2. Why are they appropriate decision-makers?
  3. How does the compliance officer for legal practice (COLP) and compliance officer for finance and administration (COFA) fit into this process? Are they subordinate to a senior partner or managing partner? If so, how do they discharge their duties fully and frankly in terms of openness and transparency to the SRA?

In relation to any misconduct, you need to ask:

  • What is the right action to take?
  • Why?
  • Would your team know to take this action?

If there is a serious ethical breach, the SRA requires that you:

  • suspend the individual
  • take disciplinary action against the individual
  • report the matter to the client
  • report the matter to your insurers
  • if it is a ‘material’ breach of the SRA rules, report the matter promptly, openly and transparently to the SRA, so that it can assess the firm’s response.

Your legal ethics should lead you to a place where you are comfortable doing those things and uncomfortable if somebody else suggests not doing them. The case law before the SDT, where I appear as an advocate, suggests that the cover-up is often worse than the offence.

Bespoke training will be vital in the event of a misconduct scenario

Law firms may be wary of being open and transparent with clients, insurers and the SRA, for fear of potential repercussions, but actually transparency is very rarely going to be problematic and often brings real benefits.

If you tell your insurer of an incident or a near miss, they can often provide advice and support, reducing the risk of a claim. As for clients, if you have made a mistake as a firm, offering to correct it at no cost to the client is often the only solution that is needed to reassure the client that you are putting their interests first – and this may in fact strengthen the client relationship.

By contrast, doing nothing or covering up a client mistake is often fatal to the client relationship and, in the event that either the insurers or the SRA become aware of the circumstances, it also makes matters far worse for the firm.

Who needs training?

Training helps you embed an ethical and open culture into your firm, and manage the occasional misconduct effectively and with the confidence of your insurers, your staff, and the SRA.

Ethical thinking needs to be embedded into the habits of everyone in the firm. However, face-to-face training is essential for those in the senior management team (SMT). Webinars and public sessions are helpful to all, but face-to-face training really ensures the leaders of the law firm understand the risks and can affect the culture.

Throughout the firm, a mixture of online and in-house training should be provided. All members of the team should also be expected to keep up to date by reading articles and books on the topic, and sharing knowledge and incidences which cause them to ask the question: ethically, is this appropriate? This should be built on by regular email / memo circulars reminding individuals of their responsibilities.

After the training, everyone should know:

  • Who is doing what in relation to ethics and breaches? (Especially in the SMT.)
  • Who is going to have oversight and responsibility?
  • If ethical thinking about a problem raises a concern, who has the detailed knowledge of the rules to ensure we are complying by the SRA Code of Conduct?

You should also invest in bespoke training for the COLP and COFA on acting as a compliance officer, including reporting obligations. This will be vital in the event of a misconduct scenario, as the SRA will routinely interview your compliance officers and will, if they have made an error of judgement, consider that in itself to be misconduct.

The SMT members need to understand their roles and responsibilities, as against those of the firm’s compliance officers. The compliance officers must also understand that, irrespective of how the hierarchical structure works in other aspects, they must defer to the SMT in relation to misconduct and its reporting.

The changes schedule for 2019 will require firms to think ethically and demonstrate they have done so. Focusing on ethical judgement should ease the change for all staff and managers.

If you want to know more…

… about ethics in law firms, see the webinar I recorded in April for the Law Society, ‘Ethics for law firm managers’. The webinar is inclusive in Law Management Section membership, and £54 for non-members.

… we want to hear from you! What support or guidance would you like from us on ethics, through articles, events, webinars or podcasts? Contact us with your ideas.