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Managing partners serving as COLPs putting law firms ‘at risk’

Potential conflict between limiting risks and delivering strategic business growth 

9 May 2014

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By Manju Manglani, Editor (@ManjuManglani)

Managing partners and senior partners are putting their firms at risk by taking on the role of senior compliance officer.

That's according to research covering the entirety of the top-100 market, which found that one in four gave the role of compliance officer for legal practice (COLP) to their top leaders.

Just 16 per cent had taken on compliance specialists for the COLP role, while 13 per cent placed the COLP function with the general counsel.

"It is great to see managing partners of law firms taking a big active interest in compliance and risk but, over time, they will want to consider separating their role from that of COLP," commented Dan Watts, director at Edward Drummond, which conducted the research.

"It is not reasonable to expect that those partners responsible for delivering targets on profitability and on new business would also give the firm completely impartial and independent advice that might slow that sales growth or restrict short-term profits."

Watts noted that good corporate governance requires greater independence for the risk and compliance function.

"Having the same person riding both of these horses has the potential for problems. This would be in direct contrast to a publicly-listed company where an internal auditor or non-executive director can provide a completely independent view on potential conflicts."

He added that partners have noted that they want the commercial and regulatory risks of their business examined and challenged properly.

Only 14 per cent of the top 50 firms have handed the COLP role to a risk and compliance professional, while 19 per cent of firms ranked 51-100 have taken this step. Among the firms that have given the COLP role to the general counsel, all but one are in the top-50 rankings.

But, by handing the COLP role to the managing partner or senior partner, firms could be robbing themselves of an informal sounding board for their more junior partners or lawyers.

"Unlike previous compliance roles in law firms, COLPs have a personal obligation to report apparent conduct breaches to the SRA. This might put off those within the firm from approaching a COLP for guidance, when they might previously have done so," said Watts.

"An independent compliance professional who is dedicated to the role is in a far better position to take on the responsibilities of being a COLP than a lawyer who has to balance this function with their day-to-day caseload."

Instead of taking regulatory responsibility for compliance, managing partners should focus their efforts on growing their firms and setting their strategic direction, he argued.

"We expect there to be a trend for the role of COLP to move away from executive management to a separate function as the role develops and we anticipate more active recruitment of compliance professionals in the legal sector."

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Risk & Compliance