Dishonest partners test a firm's culture and systems

By Michelle Chance, Partner, Kingsley Napley

How well do you know your fellow partners? This question is being asked by many managing partners, given the recent stories of alleged dishonesty by partners at three high-profile law firms: Hogan Lovells, Ince & Co and Addleshaw Goddard.

You would not purchase a property with someone you did not trust, yet you own your business jointly with your fellow partners. How much due diligence do you undertake on the character of your lateral hires, rather than just their client following and billing figures? Do your partners embody your firm’s values and will they comply with the Solicitors Regulation Authority’s new mandatory principles, which come into effect in England and Wales in October 2011?

You need to be confident your firm will detect and deal with a rogue partner effectively if fraudulent activity comes to light.

Culture from the top

In large firms, of course, one cannot know all of one’s fellow partners well. Arguably, the larger the firm, the easier it is for dishonest partners to hide, although conversely such firms have more resources available for effective safeguards like whistleblowing and expense policies.

Many law firms are now managed similar to major corporations, with a management committee, akin to a board of directors. However, managing partners must ensure that even senior equity partners understand that their actions remain subject to scrutiny.

Indeed, Christopher Grierson, who has been removed from Hogan Lovells’ partnership for claiming £1m in false expenses over the course of four years, once sat on its partnership council.

Motivations for fraud

It would be interesting to know if the firms touched recently by partner scandals explored these partners’ motivations in their internal investigation processes.

Understanding the cause of irregular behaviour can minimise the risk of it occurring again. Perhaps their actions were driven by being jaded with their jobs and a desire for excitement, in which case regular career management discussions with partners are valuable in understanding what new challenges and opportunities they are seeking.

Another explanation might be that sustained pressure led to the unusual behaviour. If true, this points to the benefit of an effective confidential stress management programme to support partners. In a recent case involving a global accountancy firm, for example, a partner who was suffering mental health issues was subjected to bullying on the basis that “real partners just do not get sick”.

Firms need to ensure that their culture is open and supportive so that partners who are under strain can admit to this, without being ridiculed or penalised financially. If there is an explanation for or mitigating circumstances concerning a partner’s actions, the firm may want to give the partner the option of self-reporting to the SRA to help him to retain some dignity.

Gentleman’s club

Hogan Lovells was criticised for not reporting Grierson to the police sooner and thereby protecting ‘one of its own’. However, a partner or employee is more likely to speak openly during an internal investigation process than if he is being questioned during investigatory inquiries which may be used against him in criminal proceedings.

Hogans also argued that its approach allowed it to communicate more openly within the firm and to clients. Rogue partner problems can, of course, be a PR nightmare for firms and so seeking expert PR advice is advisable, particularly if a high-profile partner is involved. Brand and reputation is what law firms sell and being in control of these is often the key to perceptions on how a matter is handled.

Preventative measures

This autumn, law firms in the UK will be regulated by a new principles-based, outcome-focused system.

The SRA’s new code refers specifically to firms having whistleblowing policies; however, having a policy is not enough. Employees need regular training on the policy and its effectiveness needs to be monitored regularly.

Firms need to ensure that their finance staff, for example, feel able to query expense claims or other unusual payments with partners. They should not fear being victimised by the partner whose activities are questioned.

Firms also need to revisit their partners’ expense procedures. Partners should not self-certify, even for minimal expenses. Partners should check their fellow partners’ expense claims as carefully as claims by regular employees.

Regulatory obligations

Although dishonest partners are a rarity, law firms have been able to shield difficult issues from the public eye until now. I would not be surprised if the new regulatory framework coming into force means more of these cases will be reported to and investigated by the SRA in future.

Law firms need to take action now to ensure that they understand their new reporting obligations and have the necessary procedures and safeguards in place to minimise the risk of misconduct by their solicitors and, where it does occur, to spot it early.

Firms will be expected to comply promptly with their reporting obligations to the SRA, regardless of any sense of loyalty towards a longstanding partner.

mchance@kingsleynapley.co.uk