Legal Ethics and Reform

There are two basic ways for government to regulate activity in the private sector of a free society:

The first approach is to create general rules and when suspicious activity is detected by a policeman/regulator the activity is referred to a judge or independent jury to make a determination as to whether or not the general rule has been violated. The general rule in a service business might simply read: “a businessman must be honest and diligent when performing services for his customers.”

The second approach is to specify a large number of very detail rules that must be followed. When one or more of the detail rules is broken then the regulator can say “Oh, you broke this rule; we feel its a minor (or major) infraction so we will .....” This approach allows the policeman/regulator to 1) eliminate the need to go before an independent judge or jury to have the activity evaluated, and 2) gives the policeman/regulator the power to dictate the punishment: letter of caution, small fine, large fine, restrict scope of future activity, or complete shut down. Since it is impossible to obey floods of rules, particularly if those rules change regularly, the policeman/regulator is always able to find violations and thus the regulated entity is always at the mercy of the policeman/regulator. The policeman/regulator is thus able to make “suggestions” about how the regulated entity should be operated, “suggestions” which really can’t be complained about or ignored. This means that the policeman’s/regulator’s power is not limited to area addressed by the written detail rules but extends effectively to every part of the entity’s operation.

But how does all this relate to the “lawyer’s mentality”? As pointed out elsewhere is this web site, lawyers are inclined to be intelligent, introverts who desire power over other peoples lives and derive that power from their mastery of the details of the law and legal processes. In civil litigation situations, a lawyers looks at factual situations and says to his client “this is the result we would get if we went to court” but they add “of course it would be prohibitively expensive to actually test my belief by going to court” and then he says “so we’ll settle this out for some cents on the dollar” and finally “because this is embarrassing to the other side we may get a quicker settlement if we offer to sign an agreement saying we’ll never discuss this matter in the future”. Notice what has been eliminated by this process: no judge or jury for independent evaluation of the facts, transfer of decision making to the lawyer(s), settling out at on some middle figure that may or may not be fair, and understanding that there will be silence about the dispute so subsequent evaluation of the lawyer(s) behavior is unlikely in other words no publicity, no “sunshine”.

In a regulatory situation, the lawyer/policeman/regulator comes with a 2000 page rule book and begins his audit first checking to make sure mountains of records have been kept, and then checking the accuracy and completeness of the records. The when mountain of records are checked against thousand of rules, errors are discovered. At that point, the regulator has the regulated entity at his mercy and the demands for corrective action begin: prepare a plan for correcting the problems, write a letter admitting that violations have occurred, agree to pay a fine without objecting (if you object and ask for a hearing the charge might be upgraded and the possible fine increased), agree to fire or transfer certain individuals or shut down certain operations or divisions, etc. If the entity cooperates the pain will be minimal; if its response is even half heatedly, the consequences begin. If the initial audit has not disclosed any really serious violations, the initial audit might be followed by a new audit every month until the regulated entity “gives in” accepts the “suggested reforms” or “closes down”.

Note the similarity with the civil process set out earlier, 1) the process rarely leads to a forum where an impartial decision maker ( i.e. a jury) looks at the situation, 2) the lawyer/policeman/regulator takes control and becomes the decision maker, 3) there is agreement that the regulated entity will adopt all (or at least most) of the regulator's suggestions, and, of course, 4) no one talks about the rules violations that were found and/or the suggested changes that were implemented. Negative comments or publicity can lead to a series of return audits. This similarity is not accidental. The major regulatory entities in this country are dominated by lawyers. For instances, the EPA is headed by a lawyer, not by a Ph.D.. environmentalist as one might expect. The NASDR which regulates much of the brokerage industry is headed by a lawyer not by someone who did the work of a broker. The Transportation Dept. is headed by a lawyer not a former airline pilot or railroad executive. The list of lawyer regulators is nearly endless. It is no wonder that the lawyer’s love for complex systems which leave them in a position to make decisions, take control, cut deals, and compel (or strongly encourage) silence manifests itself in the nation’s regulatory agencies.