16/09/2011 in Partnership & LLP, Law Firms & Professional Services
This summer saw a number of cases of alleged partner dishonesty at law firms. In some instances office account money was involved, in others it was client money. In all cases large sums featured and those alleged to be in the frame were unlikely candidates: high achievers with considerable incomes and hitherto good reputations.
For those managing professional service firms, the issues raised require careful consideration.
At the outset, the most difficult matters to grapple with are how to manage investigations. The facts need to be ascertained but in such a way that the reputation of the firm, and of course those said to be involved, is protected.
Competing with this desire to keep things out of the public gaze is, at least for solicitors, a duty to report to the SRA. The current conduct rules require serious misconduct and doubts over the integrity of other solicitors to be reported.
Whatever the potential impact of negative press reports and publicity, where client money is involved, core duties in the code require management to act in good faith and to do their best for clients. Depending on the perceived risk to the firm, it may also be advisable to notify insurers promptly.
How the fraud has been perpetrated should also be considered. A feature of one of the recent cases was how long the fraud appeared to have gone undetected. This calls into question the quality and effectiveness of internal procedures and may (as it has in that case) lead to the SRA investigating not only the accused, but firm procedures too.
Police involvement is another consideration. Effectively it means ceding control over the investigation. On the other hand, the police view is that early involvement gives the best prospect of preserving crucial evidence. Obviously a delay or failure to report to police can further damage the firm’s reputation.
Where there is evidence of wrongdoing and/or dishonesty, the partner or member’s position will most likely become untenable. A well drafted deed should include specific provisions for expulsion in the case of serious misconduct or a criminal offence. Other common provisions include not damaging the reputation of the firm/LLP.
Dishonesty of partners or members throws up a number of issues, many of them making competing demands. Damage to a practice’s reputation may be unavoidable but failure to manage the process effectively will significantly increase the risk and potentially cause additional damage.
Duties – whether to clients or professionally under the code - should be considered first. At the outset, it is appropriate for management to take stock, devise an effective plan of action and implement it in a timely manner.
For more information on these issues please contact Mark Lim or your usual Lewis Silkin contact.