Pockets of professionalism.

• Author: Rostain, Tanina

Yet another professional scandal has hit the front pages these days. This time around, accountants and lawyers are both caught in the maelstrom. Accountants, motivated by interest in substantial consulting fees, are alleged to have misrepresented facts, misled regulators, and destroyed important evidence in violation of core auditing standards. (1) While the details of the Enron audits have yet to emerge, news accounts suggest that Arthur Andersen & Company took an overly partisan approach, approving highly questionable deals and grossly exaggerating Enron's financial strength in the face of evidence that the company was at the brink of insolvency. (2) Lawyers, for their part, are also alleged to have been captured by their clients. Vinson & Elkins, Enron's law firm, apparently succumbing to the lure of large fees, participated in numerous dubious transactions on the company's behalf and then reviewed--and approved--its own work after the fact. (3)

The Enron fiasco prompts broader questions about whether and under what circumstances regulation can effectively counteract market incentives that undercut professional norms--questions that are raised by Deborah Rhode's important book, In the Interests of Justice: Reforming the Legal Profession. In this comprehensive account, Professor Rhode surveys and meticulously corroborates the major complaints leveled in recent years against lawyers and the civil justice system. As she demonstrates, for most Americans, the legal system has become cumbersome, incomprehensible and too expensive. In her words, there is "too much law" and "too little justice," "too much rhetoric" and "too little reform." (4)

Professor Rhode suggests a three-pronged approach to address the various problems she describes. First on her agenda is the expansion of the market for legal services to provide consumers more varied and affordable options. In this category, she proposes eliminating protectionist regulation that drives up the cost of legal services (including bans on nonlawyer legal practice and on multidisciplinary practices), promoting cheaper alternative dispute processes, and disseminating more broadly information about costs and services. In the next grouping, Rhode offers reforms to strengthen current professional regulatory schemes intended to address the many areas of market failure. As she describes, rules and enforcement mechanisms need to be overhauled to reflect clients' and the public's concerns. In the last category, she offers ideas for socializing lawyers, through legal education and other venues, to take greater moral responsibility for their individual professional actions, their working conditions, and the regulation of the profession as a whole. (5)

There is no question that, were lawyers to pursue even a piece of Professor Rhode's ambitious agenda, we would end up with a significantly improved system. She nails all the problems, and she offers promising solutions. Rather than quibble with her diagnosis or specific reforms, then, I want to take this occasion to engage a tension, implicit in her approach, between urging market solutions to address the spiraling costs of legal services and promoting professionalism to encourage lawyers to become more engaged with their work, the conditions of practice, and issues of social justice more broadly. Simply put, the more competitive forces are permitted to operate unfettered in the realm of legal services, the more they will end up undercutting the informal professional norms that shape lawyers' understanding of themselves as members of a profession with shared commitments beyond profit maximization.

Professor Rhode argues for opening up the market for legal services to deal with the prohibitive costs of access to the legal system. As she notes, currently most Americans cannot afford to participate in the system of justice. Much of the cost is a result of regulation, which prohibits nonlawyers from providing even basic legal services and lawyers from practicing and forming partnerships with nonlawyers. Although such regulation is defended in the name of protecting the public, its historical roots lie in the legal profession's interest in protecting its cartel over legal services. (6) Removing regulatory bars to allow hybrid and paraprofessional law practices would go a distance to lowering costs and expanding access. The idea, according to Rhode, is not simply to let market forces loose but to "harness" them. (7) Alternative legal service providers and forms of professional organization should be permitted to enter the market subject to regulatory processes that ensure public accountability. Thus, under her approach, new regulatory frameworks would need to be devised to guarantee the minimum competence of service providers and protect clients' interests in confidentiality and conflict-free representation.

So far, so good. But what of the effects of market incentives on informal professional norms? While regulatory oversight can address some risks, it is less clear that a regulatory approach would be able to temper the deleterious effects that ever more increasing competition is likely to have on important aspects of professional culture. As a growing body of law and society research documents, lawyers practice within local professional cultures and networks of informal norms that shape lawyers' understanding of their professional selves. (8) To the extent that lawyers see themselves as members of a "profession," they share a "professional consciousness"--a set of ways of organizing and making sense of their work-life and its relationship to their membership in a group. (9) Professional consciousness is, undoubtedly, a mixed bag, encompassing all sorts of self-interested and protectionist tendencies. Occasionally, though, strands of professional culture reflect normative commitments that critics, such as Professor Rhode, would seek to strengthen and shore up. These include, in particular, normative commitments to safeguard the legal framework and work to improve the system of justice. (10) Insofar as these norms are defined in opposition to economic self-interest, they are undermined by the legitimation of market forces within the professional sphere. As market norms progressively invade professional culture, lawyers will stop thinking of themselves as belonging to a distinct profession with commitments to the system as a whole. (11)

To explore the effects of market forces on informal professional norms, I offer in this essay a case study of a corporate tax lawyer's professional consciousness. (12) In the area of tax practice, the intensification of market tendencies is not the result of removing protectionist regulation prohibiting nonlawyer or multidisciplinary practices--tax has long been an area in which lawyers and accountants share professional jurisdiction. (13) Increased competition during the last decade reflects, instead, a confluence of factors, including a shift towards treating tax as a "profit center" within corporations and distortions created by the current regulatory structure.

Investigating how an elite tax lawyer describes his or her professional self-understanding and commitments is, nevertheless, relevant to the larger question of the interactions among market forces and informal professional norms. (14) In the area of elite tax counseling and planning, these norms include interpretive commitments to purposive reading of the tax laws, through case law doctrines developed to distinguish between meaningful business transactions and tax shelters. As my case study illustrates, preserving the elite corporate tax bar's capacity to engage in sophisticated expert judgments of this sort requires that tax practice be buffered from direct competitive pressures, in particular those exerted by clients.

1. BACKGROUND: THE MARKET FOR TAX PRODUCTS AND FAVORABLE TAX OPINIONS

   Since the 1980s, an enormous market has developed in the sale of tax shelters to Fortune 500 companies. Various forces have fed the growth of this market, including pressures on in-house tax departments to become "profit centers," the expansion of Big Five accounting firms into the highly profitable areas of consulting and product development, the proliferation of new and sophisticated financial instruments, and intermittent enforcement of the tax code by the Internal Revenue Service. The byzantine complexity of the tax code provides countless opportunities to devise correspondently complex financial transactions with substantial artificial losses that can be claimed as deductions to shelter income. Accounting firms and investment banks, as well as a handful of "boutique" tax law firms, have seized upon these opportunities to develop a very lucrative business designing and marketing financial products intended to generate substantial tax savings for corporations. (15) (Typically, these products are offered for sale on a contingency fee basis, with marketers earning tens of millions of dollars. (16))

   Tax lawyers at corporate firms provide the necessary imprimatur that enables the marketing and sale of these tax shelters. Under current law, a corporation that has been found by the IRS to have engaged in a shelter investment can avoid a substantial penalty if, at the time of the investment, it had obtained an opinion from a professional tax adviser that there is a greater than fifty percent probability that the tax treatment of the investment will be upheld if challenged by the IRS. (17) As written, this "reasonable cause" exception is intended to encourage clients to seek advice from an independent adviser and presumes that the function of a tax counselor is to assist the client to comply in good faith with the statute (not provide a hyper-technical reading of its terms that permit its evasion). This view of the tax lawyer's role assumes a realm of professional autonomy that has been almost completely eroded by the market. Rather than...