MDP Update: The Empire State Strikes Back

When a recent headline announced “New York Adopts Multidisciplinary Practice Rules,” it appeared that a big break in the movement toward MDPs that provide legal services in the U.S. had finally occurred. Unfortunately, appearances can be deceiving. True, on November 1, New York State will become the first U.S. jurisdiction to officially address multidisciplinary practice by lawyers. But that fact will be no cause for celebration among the Big Five and other ardent MDP supporters. Because New York’s MDP rules will likely establish the pattern for other states, it is important that accounting professionals understand the background of this development.

The ABA and New York

In 1998, the American Bar Association (ABA) formed a blue-ribbon commission to study legal MDPs in the United States. After much study and many hearings, the MDP Commission developed a proposal that, among other things, would have permitted accounting firms to provide legal services by directly employing lawyers.

Meanwhile, opposition to the MDP proposal developed so rapidly that by the time of the 1999 ABA convention, the MDP Commission was essentially told to scrap its “accountant-friendly” proposal and go back to the drawing board.

While the MDP Commission was attempting to rewrite its MDP proposal, the New York State Bar Association led the opposition to accountant-friendly MDPs by issuing a 388-page MDP study dubbed the MacCrate Report. The MacCrate Report lambasted the entire accountant-friendly MDP concept and concluded that: “Multidisciplinary practice between lawyers and nonlawyers is incompatible with the core values of the legal profession.”

By the time the MDP Commission’s second proposal reached the 2000 ABA convention, the opposition of New York and other states to any changes regarding MDPs was so overwhelming that not only was its proposal soundly defeated, the MDP Commission was disbanded and sent packing.

Which leads to the summer of 2001: Based on the same MacCrate Report, New York’s highest courts approved changes to professional ethics rules that will permit New York lawyers to be the first to officially enter into “cooperative business arrangements” with non-lawyers.

When Is an MDP Not an MDP?

The reason that New York’s MDP rules appear to simultaneously condemn and sanction MDPs has to do with the difference between an accountant-friendly MDP and a lawyer-friendly MDP. To many accountants, MDP means a fully integrated merger of various professionals under one roof. Outside of the United States, the Big Five extended the MDP concept to include legal services by “sponsoring” law firms or by directly hiring lawyers to work side by side with other professionals.

In contrast to the accounting profession, lawyers have historically resisted the temptation to incorporate other professional services within a law firm, much less allow themselves to be “swallowed up” within a nonlawyer professional service firm. Before the New York MDP rules, the furthest U.S. lawyers had gone toward creating any version of MDPs was to establish “ancillary businesses” controlled by law firms. The key to understanding the MacCrate Report and the New York MDP rules is to remember that they do in fact officially sanction MDPs that offer legal services—but only if the MDP is a lawyer-friendly MDP.

Implications

Until the issuance of the New York MDP rules, momentum was building in favor of accountant-friendly MDPs where accounting firms could integrate legal services into their one-stop shop. The significance of the New York MDP rules is that they give lawyers the opportunity to regain momentum in the MDP debate in three ways.

First, the New York MDP rules are not overtly anti-accountant. To the contrary, the MDP rules justify the position of law firms as necessary for the preservation of principles such as “uncompromised loyalty” and “complete independence,” and as necessary to preserve the lawyer’s essential role as “protector of the legal system.”

Second, having retaken the moral high ground, it will be easier for lawyers to turn the tables and condemn accountant-friendly MDPs as a risky, dangerous scheme to grab more money from clients.

Third, the New York MDP rules illustrate that the best defense is a good offense. The longer that the legal profession waited and hoped that MDPs would simply go away, the more likely it was that the Big Five, aided by market forces, would be able to introduce accountant-friendly MDPs in the U.S. By throwing down the MDP gauntlet before the Big Five and others made further inroads in the United States, New York gave the Big Five and the accounting profession fair warning that the MDP game will be played by New York’s lawyer-friendly MDP rules, or not at all.

Now that New York lawyers have officially established lawyer-friendly MDP rules, two important questions remain to be answered: How should accounting firms respond? And, for the Big Five, why did they wait?

The Truth about Working in a Not-for-profit

By Gayle A. Brandel

For years I’ve been heard that working in a not-for-profit organization is easier than working in a for-profit. Having worked as a CFO in various not-for-profits for almost 20 years, let me tell you: this is a myth. I would describe each of my jobs in different ways, but I would never call any of them easy.

Among my difficulties at not-for-profits, I have spent weeks developing a financial strategy to present to a board of trustees, continually rebalanced organizational needs with erratic cash flows, and worked until midnight to pull together budgets for grant application deadlines.

If it isn’t so easy, why then would anyone want to work in a not-for-profit? For the more than 700,000 people in the New York City metropolitan area that work in not-for-profit organizations, the answer is simple: It can be a wonderful experience. For example: