How managing partners can help avoid professional liability claims

What is the managing partner’s role in avoiding professional liability claims?

The vast majority of professional liability claims arise from the missing of deadlines and similar issues and not, as may be expected, from getting the law wrong. Therefore, it is part of the managing partner’s role to ensure that the firm has in place systems and procedures that will help avoid these problems. Quality assurance schemes or systems to ensure that important deadlines and tasks are itemised in various diaries must be put in place. Managing partners should be engaged in considering, introducing and managing various schemes, like Lexcel, which provide a good framework for firm management and risk control.

Another important aspect of avoiding claims is ensuring that proper risk assessments are undertaken regarding the firm’s clients. The firm may want to restrict its involvement in some work which is high risk and it is the managing partner’s task to manage and monitor this. This issue can be managed, for example, by ensuring that a new file cannot be opened without the approval of various people, perhaps including the managing partner, so that new work is flagged up. Firms can get into difficulties when people work outside their core area of expertise and practice.

What are the appropriate responsibilities of a managing partner in a small, mid-sized and large law firm?

The managing partner of a firm – irrespective of its size – should ensure that there are proper systems in place in all of the different functions of its business – whether it be business development, financial management, IT or HR – to guarantee that they are as well managed as possible. In smaller firms, the burden of ensuring that these systems are in place and monitored on a regular basis, will fall personally on the managing partner. In larger firms, the managing partner will have to ensure that they have proper support to implement and monitor these systems. While the responsibilities remain the same in all firms, the scale of the job will differ depending on the size of the firm.

How can a firm define the mandate of the managing partner in this regard?

Principles of good governance suggest that firms should have a good description of the role of managing partner in their organisation. Some firms, if they are a partnership or an LLP, will have such a description in their partnership agreement or constituent documents. Any well run firm will define what its managing partner does.

The owners of the business must agree on what that role is and it may vary somewhat depending on the firm. Many traditional firms still have managing partners and senior partners. The managing partner deals with the daily management of the firm and the delivery of its objectives while the senior partner often has a more outward facing role and acts like the chairman of a board. In this case it is very important that both roles are defined so there is no confusion about their responsibilities. In some firms, the managing partner may have a great deal of latitude to run the firm while in others, more decisions must be taken by an executive board. Any limitations on the power of the managing partner and what issues must be referred to other partners, or an executive board, must be clearly set out somewhere. Chapter 7 of the SRA Code of Conduct clearly sets out the general duties concerning the management and running of a firm and these must be kept in mind at all times.

What are the risks if a firm fails to properly define the mandate of the managing partner?

If a firm hasn’t properly defined the role it probably suggests that its governance is not as it should be. It is dangerous for firms not to have someone with clear authority over the systems and processes in the firm which are necessary to ensure compliance with SRA requirements, money laundering laws and ensuring that strategically it is heading in the right direction. If a firm has not thought through these issues, it will be heading for trouble.

All the owners of the firm are responsible for its failures to comply with the necessary regulations and laws that apply to it. Any failure of the firm in compliance can not only involve the liability of the owners of the firm but can also lead to a rise in insurance premiums. Gone are the days when firms could treat these things as side issues. Now you must have someone responsible for complete compliance.

Have there been any examples of failures in this area?

A number of firms have got into difficulties over the last few years and usually because of an absence of effective management. Some firms have become insolvent or have had to merge quickly to avoid problems. It would be good to see more research conducted on this subject so that we could determine the exact causes of law firm failure. There has been an interesting study of late in the US conducted by David J Parnell entitled The Failing Law Firm. This was an analysis of more than 40 large firms failures in the US. The paper revealed that internal problems relating to strategy, financial management and firm culture were more detrimental to firms than a hostile external environment. That sort of scenario would probably apply here too.

Iain Miller, partner at Bevan Brittan LLP (Interviewed by Diana Bentley).

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Filed Under: Practice of Law

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