Managing screens

Partner Simon Chester of Heenan Blaikie explores the challenges of knowledge sharing and professionalism in a screened environment

 

When I first started speaking about knowledge management in the late 1990s, I was attracted by the potential of exploiting collective professional knowledge – the intellectual capital of the firm. What the firm knew through the work and experience of all its members was much richer and more powerful than the knowledge of any single lawyer. Stimulating knowledge sharing became the mantra of any good knowledge manager. However, there are many obstacles to the achievement of this vision.¹

In this article, I will focus on one barrier that I think has become more serious in recent years – the barrier posed by the tension between the professional obligations of lawyers and the business needs of law firms for greater information sharing.

There are many challenges posed to KM by the imperatives of professionalism. The very fact that we work in the law poses special challenges for KM.

Unlike the business world, where KM originated, we’re not just a business with a single common purpose. We’re a profession with critically important obligations of confidentiality and loyalty. Clients come to us secure in the knowledge that their personal and business secrets are safe with us.

Those obligations are owed to every client, not just the firm’s major work providers. Clients are much more than customers. We owe them fiduciary duties, which may at times conflict with business objectives like KM and, in such a conflict, there is no doubt which must yield.

In the early 2000s, it was possible to argue from a purely legal perspective that there shouldn’t be any problems. The vast majority of law firms in the world were – and still are – partnerships, and one of the axioms of partnership law is that knowledge is presumed to be shared and that there can be no secrets between partners.

All files are common and, while the professional obligations of confidentiality limit the sharing of client information outside the firm, within the firm there are no such limits.

What has changed is that, in the past decade, so-called ethical screens have proliferated within law firms. Ethical screens are what used to be called Chinese walls: institutional mechanisms combined with technological safeguards and personal undertakings which ensure that confidential information is tightly protected.

These are required when a lawyer moves firm and possesses confidential information about a client of his old firm which, if disclosed to his new firm and its clients, would hurt the old firm’s client. To avoid disqualification of the new firm, a timely ethical screen must be built before the migrating lawyer arrives.

These are also used when clients or courts require objective safeguards to ensure that confidentiality will be strictly maintained on a need-to-know basis. For example, firms which are retained to act on hostile takeover bids will generally open files under code names and limit access to market moving information.

Within the Commonwealth, Canada was the first to permit the use of screens to manage conflicts. In MacDonald Estate v Martin,² a young lawyer ended up at a firm which was representing a party in the very litigation in which she had acted (for an opposing party) at the start of her career. Canada’s highest court disqualified the new firm; but the court said that properly designed screens might adequately protect confidentiality. Canadian legal regulators then drafted guidelines for screens which have been widely adopted.

In England, even a screen did not prevent KPMG from being disqualified from providing litigation support services to a financial regulator when it had recently acted for the subject under investigation.³ KPMG’s screen was not put up in a timely fashion and the House of Lords did not think it leak-proof. Hollander and Salzedo⁴ and Nakajima and Sheffield⁵ set out in detail how the City of London and its legal advisers have adapted to ethical screens.

 

Impact on KM

At the outset, ethical screens were infrequent and limited. But, as courts and firms have recognised and respected the utility of screening mechanisms, they have spread like viruses. Most large Canadian law firms have over 500 screens at any one time and, once erected, they are notoriously slow to get dismantled.

Why does this matter for KM? Because once a client and its matters are screened off, the entire contents of those files are unavailable for future use. It is as if that knowledge doesn’t exist in the firm.

And the problems are not just posed by conflicts of interest. Consider offences under securities laws. In North America, recent high-profile prosecutions for insider trading have targeted those within law firms who exploit insider information to trade or tip-off others. One English lawyer is currently in prison for insider dealing. A recent Canadian case ended tragically with a lawyer suicide.

But it’s not only lawyers who stray. A major Canadian firm was shocked to discover that its IT director had been monitoring unusual levels of activity on particular client files and then making hundreds of thousands of dollars trading on his foreknowledge of market moving information.

Under such circumstances, risk management partners will insist that any such information be placed beyond reach and temptation, with more screens and less knowledge sharing.

At a certain point, the number of screens will not merely make KM impossible but will make the firm less than a partnership and more like a group of solo lawyers or small firms working within a scattered archipelago of practice.

The benefits of shared databases of work product, whether in document management systems or KM repositories, are compromised if the information resources of the firm are fragmented.

There is a necessary tension between the goals of KM and the central tenets of professionalism. So, what’s to be done?

It’s important to recognise and discuss the problem. Experienced KM lawyers recognise the constraints that practice places upon their larger ambitions. But I think that we can work with – and around – these constraints (see box: ‘Ethical screens vs knowledge sharing’).

It may seem as if there is a tension between KM and professionalism, which can frustrate the process of KM. That’s not necessarily the case. KM lawyers are, of course, part of the firm as well as having their own professional obligations; they have their part to play in advancing the professional objectives of the firm.

Embedding KM within the professional culture of the firm can help to heighten awareness that screens can have unintended consequences. Creatively managing the tension between KM and professionalism will be an increasing challenge for KM staff in law firms around the world.

 

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Ethical screens vs knowledge sharing

• Client consent would solve the problem. Getting the client’s attention won’t be easy in the thick of litigation or a legal crisis. But as clients become more involved in the work of knowledge management, they should recognise that the necessary limits placed by screens should be limited where appropriate.

• Build KM into the legal workflow.

1. Design the process with a view to future reuse.

2. Writing legal research memos can be done without identifying the client or breaching confidences – an analysis of a legal principle or how the courts deal with a particular argument can be drafted in a generic way.

3. Put the confidential details on a separate sheet that can be detached – cabinet documents in Canada have long been drafted so that the non-sensitive background analysis can be detached from the political assessment.

4. Use initials and generalise any specifics. For example, pricing information is seldom germane to the legal analysis but can constitute the crown jewel of confidentiality for clients.

5. Consider the half-life of work product. If a document is prepared to advance a corporate objective – such as use at trial or to be part of due diligence in an acquisition, then, once that purpose is accomplished, the document’s sensitivity may be diminished. Can it then be placed into a KM depositary?

6. If the document must initially be kept confidential, ensure that it is tagged as having valuable future material that can be added in the long term.

7. When pleadings are filed, and thus publicly available, or a securities filing is made, the previously confidential material behind those now public documents should be available for consultation.

8. In theory, it is possible to sanitise documents by removing sensitive client specific information. But that’s a counsel of perfection and lawyers won’t do the process of clean-up if faced with any other work, especially fee-generating work.

9. If resources – and culture – permit, going through closed files at the end of transactions may yield very valuable material. But don’t depend on the deal lawyers to help you. Once the transaction closes, they’ll be off onto a new transaction.

• Remember the purpose of screens. They are there to protect confidential client information within the firm’s files. Documents which contain no such confidential information can be made available for KM.

• Screens negate the presumption of information flow. They don’t manage loyalty or relationship conflicts, which require informed client consent.

• A document which happens to relate to a confidential matter should not be automatically assumed to contain confidential information. Our document management systems are replete with trivia.

• Talk to the lawyers about where there are significant caches of valuable knowledge that should not be forgotten. Encourage your firm to conduct systematic audits to check whether screens have lost their utility and can be dismantled. Most screens have a specific business purpose trigger. This assessment is best done by risk management or conflicts partners, who can be objective about whether a screen has become unnecessary. The lawyers involved will generally err on the side of maintaining the strictest confidentiality.

• Centrally manage screens. Screens which are centrally constructed and maintained according to standard firm models can also be dismantled swiftly. At our firm, a screen can be erected in 20 minutes – but it can be dismantled just as fast.

• Follow the law. As increasing numbers of legal regulators and courts are embracing screens, we get more guidance on what judges and regulators expect from attentive professionals.

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Endnotes

1. See Knowledge Management and the Smarter Lawyer, Greta Rusanow, Law Journal Press, 2004

2. MacDonald Estate v Martin [1990] 3 SCR 1235

3. Bolkiah v KPMG [1998] UKHL 52

4. See Conflicts of Interest, 3rd ed., Charles Hollander and Simon Salzedo, Sweet & Maxwell, 2008

5. See Conflicts of Interest and Chinese Walls, Chizu Nakajima and Elizabeth Sheffield, Tottel Publishing, 2002

 

schester@heenan.ca