Law firm conflict clearance, part 1
This is the first of a three-post series exploring conflict clearance trends among law firms. In this installation, we’ll discuss the four conflict-clearance models prevalent today.
With over 700 law firms using Intapp solutions, we keep a close tab on industry-wide developments. One trend we’ve been following with great interest focuses on conflict clearance. During our popular risk roundtables, we have noticed a steady move toward the centralization of conflict clearance.
This is particularly relevant in light of today’s business pressures. We are increasingly hearing that many firms are seeing large upside in moving to a centralized model—and that if you’re not considering it for your own firm, you might be leaving money on the table.
But not all firms have embraced the centralized approach. Rather, we’ve identified four different clearance models that are in place in the industry today. Before you can explore the true value and business benefits of a centralized model, it is important to first understand the four models and consider where your firm falls.
1. Transactional clearance
Transaction clearance leverages lawyers to clear conflicts for their matters. The firm views clearance as an administrative task, or overhead, applied to each matter as it comes up. Lawyers autonomously clear their matters, and there is no central risk team. Intapp most often sees transactional clearance in the mid-market with firms that take on mostly local clients. The rationale is that they are unlikely to see the complex conflicts that larger firms do, so they push the risk to the lawyers to clear any conflicts.
However, even firms with small, local practices are feeling pressured to optimize processes to reduce operational costs and take on the right clients to drive growth and profitability. That’s why many transactional firms are now exploring options to move toward a more centralized model.
2. Decentralized clearance
Decentralized clearance of conflicts offers a slightly more organizational approach to conflicts. In this model, there is a centralized risk team but they perform primarily administrative tasks to support clearance. Individual lawyers are still ultimately responsible for clearing those conflicts. Larger firms can employ a decentralized clearance model. These firms might have national or global clients, but they still focus on local clients. Their conflicts aren’t nearly as complex as the largest firms, so the process to support this matches their perceived risk. Decentralized firms have recognized that a dedicated team can greatly improve efficiency, but they worry that a centralized team could never replicate the experiential knowledge lawyers bring to the table.
3. Hybrid clearance
Firms that utilize a hybrid clearance model almost always have a strong risk team. But in many cases, the risk team is new, or might not have complete scope across the organization. The centralized team clears the conflicts, but the conflict search is not robust and may rely on an ad hoc process that can vary based on the matter. Practicing lawyers are still involved in the clearance. Typically, these firms are attempting to move to a centralized clearance model but haven’t quite reached that stage. Many times, a merger or acquisition may drive the move to a centralized risk team. These firms are experiencing rapid growth and know they need to mature. Most hybrid firms have recognized that a centralized model is ideal, but still need a little help standardizing processes across offices or practice groups.
4. Centralized clearance
This model employs a strong centralized risk team to clear any conflicts. Typically, the risk staff is robust and often staffed by non-practicing lawyers. These teams perform detailed conflict searches because their businesses require it that extra level of analysis. They usually service large clients, often in multiple jurisdictions and with complex organizational structures. Any conflict clearance would thus require a multi-level search. Since these organizations are large they would have a sizeable number of matters and lawyers to examine. However, it’s not just large multinational firms who benefit from a centralized model. Centralized clearance offers benefits to firms of all sizes, and indeed, we are seeing increasing interest from firms big and small to centralize.
Not every firm falls neatly into one of these categories, and some firms follow centralized processes for some components of business acceptance but not others. For example, several firms who are in jurisdictions subject to AML regulations have centralized AML review but still follow a decentralized model to clear conflicts. However, firms often discover that once they’ve centralized one process, they see significant improvements in efficiency and effectiveness that lead them to centralize other processes.
In Part 2 of this series, we’ll explore the benefits of moving to a centralized conflict clearance model.
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