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Appropriate management systems

Incorporated legal practices may well have little in common if anything but for being incorporated - they will vary significantly in size; in the experience and qualifications of their employees; in the nature of the legal services they provide; in the nature of the business services they provide in addition to legal services, if any; in the composition of their boards, and so on. It might be tempting to conclude that appropriate management systems will have little in common either.

Of course it’s true that a firm’s management systems will only be ‘appropriate’ if they’re appropriate to the firm’s own individual circumstances and they are likely for that reason to be different from the management systems that are appropriate for other firms. But they have to be appropriate in another sense, too, to count as appropriate management systems in this context and in a sense that gives the term ‘appropriate management systems’ a common defining characteristic whatever a firm’s circumstances.

The Legal Profession Act 2007 (the Act) provides at section 117(3) that ‘each legal practitioner director of an incorporated legal practice must ensure that appropriate management systems are implemented and kept to enable the provision of legal services by the practice:

a) under the professional obligations of Australian legal practitioners and other obligations imposed under this Act; and

b) so that the obligations of the Australian legal practitioners who are officers or employees of the practice are not affected by other officers or employees of the practice.’

The Act defines the professional obligations of an Australian legal practitioner at section 110 ‘to include duties to the Supreme Court; obligations in connection with conflicts of interest; duties to clients, including disclosure; and ethical rules the legal practitioner must observe.’

It follows that a firm’s management systems count as ‘appropriate management systems’ only by reference to the purposes they’re intended to achieve and, even more fundamentally, by the impacts and outcomes they do in fact achieve. They might be designed to achieve and might in fact achieve any number of worthy management purposes but they count as appropriate management systems not because they enable the firm to be more business like or profitable, for example, or to reduce its exposure to claims on its professional indemnity insurance, but because (and only because) they ‘enable the provision of legal services by the practice under the professional obligations of Australian legal practitioners.’

Clearly a firm’s management systems won’t count as appropriate merely because they’re intended to achieve that purpose – a firm’s management systems hardly ‘enable’ the provision of legal services by the firm under the professional obligations of Australian legal practitioners if they’re applied only sometimes and not others or are applied differently by different of its employees at different times or if the people ‘down the line’ don’t know about them or understand them or worse still just don’t care.

It follows in turn that a firm’s management systems in this context comprise not only its formal policies and procedures but also and just as importantly the myriad other factors that shape what actually happens ‘down the line’ – the unwritten rules and ways of doing things, the values, customs, practices, management behaviours and patterns of incentives and disincentives explicitly stated or otherwise that motivate and sustain the firm’s lawyers to conduct themselves ethically or, alternatively, that leave them to their own ethical devices or worse, by actually encouraging them to conduct themselves unethically.

And, their purposes aside, a firm’s management systems count as appropriate in this context only if they do in fact achieve their purposes – only if they do in fact support and encourage and guide the firm’s employees to do the right thing and discourage and deter them from doing the wrong thing and, given that even the best systems might be less than completely successful in that regard, only if they maximise the likelihood any wrongdoing will be detected and dealt with, including with appropriate remedial action. The proof of the pudding is in the eating.

The duty of a legal practitioner director of an ILP to keep and implement appropriate management systems is in effect a duty to ensure that the firm has and maintains an ethical infrastructure.