Speaking Notes for Sheridan Scott Commissioner of Competition

Competition Bureau

"Globalization and the Legal Profession: A Competition Perspective"

Law Firm Leaders' Forum Alton, Ontario Millcroft Inn

April 10, 2008

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I am delighted to be here today with such a formidable group of Canada's legal leaders. I am going to be talking about an issue near and dear to your hearts, the business of law, but first, I want to speak about how the Bureau is approaching change – the one constant in our world.

Our approach is based on two foundations: a continuous search for improvement in our processes and analysis, and a firm desire, both domestically and internationally, to learn from the dialogue with our partners.

In this, the Competition Bureau has worked productively with the Canadian Bar Association's competition section, which has made enormous contributions to the evolution of policy and enforcement in this area.

As a recent example, in 2006, a task force of CBA representatives and Bureau staff came together to examine how to build on collaboration between the Bar and the Bureau. The task force took particular note of steps that have been implemented in the U.S. to improve co-operation between the ABA, the Department of Justice and the Federal Trade Commission.

The Task Force's report is posted on the CBA website and we are acting on the recommendations.

We don't stop there, of course. We are currently engaged in an innovative study to evaluate the effectiveness of remedies imposed in merger cases over the past 20 years. Our goal is to determine whether those remedies adequately addressed the competition concerns identified. This will allow the Bureau to further advance the design and implementation of effective merger remedies in the future.

And just last month, John Sims, Deputy Minister of Justice, and I appointed your colleague Brian Gover to advise us on certain matters pertaining to the Competition Bureau's use of orders to compel the production of documents under the Competition Act. Over the next few months he will review and advise on the standard of disclosure required in ex parte applications under the Act, and on our process pertaining to those applications.

We are also continuing a practice of publishing guidelines that explain our process and our thinking in a number of areas, all with the aim of enhancing transparency and predictability for our stakeholders.

But today is not about me or the Bureau. It is about you and your business. And I have three key messages:

First, Canada needs world class, competitive, efficient markets if we are to achieve our full potential in the rapidly changing, intensely competitive global marketplace.

Second, we have the means to change this situation but it is going to take a broad commitment from many parties, a willingness to accept some uncertainty in the process, and a spirit of innovation in areas where tradition has often trumped new ideas and perceived self-interests have thwarted change.

And third, the legal profession is an important player in this process, as are Canada's other self-regulated professions. Your economic output is sizable on its own. Your impact as an input cost to other sectors of the economy is larger. And the legal profession in particular can and should be a thought leader in Canada, a profession of debaters and advocates whose influence is considerable.

I suspect that all of us are filled to the brim with headlines about our poor productivity performance and our innovation challenges, not to mention the perennial problems of the Maple Leafs and the erratic play of the Senators.

Sadly, I have no cure for either of the teams' problems. But one thing we know with absolute certainty is that competition in well functioning markets drives innovation, investment and productivity. And these are the basis of a healthy economy.

That includes the marketplace in which you practice not just law, but the business of law. Canadian firms and individuals need your businesses to be world leaders in quality, innovation and, naturally, cost in order to compete. They need to have the best possible advice delivered in a cost-effective and timely manner, taking account of complex and often rapidly changing legal, financial, and competitive environments. They demand and require world-class representation. And increasingly, where possible, they will shop the world for these services.

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I heard recent examples of this when I met with several Indian lawyers last month as part of my duties as chair of the International Competition Network, an organisation composed of 102 competition authorities from around the globe. I was astounded by the extent to which American companies are increasingly outsourcing their legal work to India and learned of a Canadian law firm's intention to follow suit.

This growing competition from the global marketplace will put pressure on the whole range of Canadian businesses to become more efficient.

In this context, I was particularly struck by a quote I found from Don van Meer, who spoke to you earlier today: "As practitioners' competitive landscape intensifies they need tools and resources enabling them to deal with everyday practice challenges in a more efficient and cost-effective way."

It seems to us that you need more than tools: you need to be operating in a marketplace framework in which you can innovate and make best use of your resources, and in which you can benefit from your efforts.

And the evidence is very strong that all businesses benefit from being in marketplaces, which feature strong competitive pressures to be your best.

We all know your market is competitive. Just look at some of the grand old Bay Street names in the Globe's list of the top 15 law firms in M&A work in 2007… names such as Weil Gotshal & Manges, Linklaters, or Freshfields. In fact, 7 of the 15 were foreign-based firms. Your law firms are no longer guaranteed a monopoly over the practice of law in Ontario when multi-national transactions are involved.

Legal grads are also increasingly going global. I understand that top students from the major law schools are increasingly tempted by Wall Street. And two of the major Canadian banks have begun to recruit Canadian students without law degrees who have enrolled in the LLM commercial law programs in the UK, employing them as internal advisors in their legal departments.

All in all, the business of law is changing around us, and the issue is whether the framework of regulations and business models we use are sufficiently flexible to let us survive the process.

Now I said that one of my messages would deal with the need from competitive markets and I certainly have a role to play in making that happen.

The Competition Bureau is responsible for preventing anti-competitive practices in the market, such as price-fixing, abusive practices by dominant companies, fraudulent or misleading claims, and the erosion of competition through anti-competitive mergers. We have a statutory mandate to enforce federal laws against such behaviour. To do so, the Bureau has investigators dealing with complaints and acting on them through negotiated settlements or court action.

But the Competition Act also calls on the Commissioner to be an informed advocate for competition in Canada.

The stress here is on the word, "informed". We are not blindly ideological in our work, but undertake very serious studies and extensive consultations in forming our views. We recognize that industry regulation can provide important benefits in the public interest.

However, regulation involves possible impediments to the competitive process.

The challenge is getting this regulation right to enable markets to work, not to inhibit market forces, while still allowing for appropriate public safeguards.

And we target areas where our work can make a difference. A recent OECD report, "Going for Growth 2007", identified five key policy priorities for each member state that would be most likely to boost future prosperity. Naturally, the list varies by country, but for Canada, the lessening of regulation in the professions is a key. We are seen by the OECD to be among the countries with the heaviest regulatory regime for the professions, with negative effects on our economic growth and productivity.

And other evidence bears this out.

A 2006 report by the Conference Board of Canada found that Canadian professions rate in the bottom fifth in relative labour productivity, and that our professions are only half as productive as our U.S. counterparts.

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So we decided to take a look at five significant professions- accountants, optometrists, pharmacists, real estate agents and yours - and we asked one basic question: do any of your regulatory practices unduly hinder competitiveness without the saving grace of safeguarding a clear public interest in the most efficient manner possible?

In terms of methodology, one of the simplest yet most telling things we did was to collect information on regulations in each province and then compare them. In the several areas where differences were evident, an obvious question came quickly to mind: if one or more provinces could operate with a less restrictive standard in a given area, why couldn't all?

In our study, we found a number of professions where rules that limit advertising, establish suggested fee schedules for services, or limit who can offer services may be hindering the effective functioning of the market. We believe that there is good reason for more open and frequent scrutiny of the self-regulated professions to ensure that self-interest is not occasionally overwhelming the public interest to be served by the regulations.

Now let me be clear about this: we are not going to pretend to know more about your, or anyone else's business than you or they do. Our study was not designed to be prescriptive but to raise issues where there is a clear potential for your regulations to limit effective marketplace functioning.

In the case of the legal profession, let me highlight just three of the areas we think merit more consideration:

1. Restrictions on Advertising – Here we have recommended that to the fullest extent possible, restrictions on advertising be lifted. False and misleading advertising is an offence under the Competition Act, and we wonder what further protection consumers need.
   
   Markets require clear, open access to competitive information. Advertising plays a role in providing that information for almost all consumer goods and services, and it is far from clear that this should not also be the case for legal services. Restrictions on comparative advertising we find particularly difficult to justify. It is worth noting that so do the British, who removed all restrictions on comparative advertising of legal fees after they were identified as potentially restrictive of competition.



2. Regulation of Paralegals – Here we have serious concerns about one profession regulating the activities of another, partially competing profession. The potential conflict of interest is too obvious. For this reason, we will be watching with great interest the experience in Ontario where the Law Society of Upper Canada is regulating paralegals. We would be concerned for example if any standards or conditions are applied which would become barriers to the provision of legitimate paralegal services in Ontario.
   
   The provincial government's two- and five-year reviews of the rules and bylaws governing independent paralegals will provide a useful venue for us to voice these concerns.
   
   The Competition Act contemplates us making submissions to federal and provincial governments on precisely such issues.
   
   Recently, for example, we supported moves in two provinces, Nova Scotia and New Brunswick, to free dental hygienists from regulation by dentists. We also supported decisions in two other provinces, Alberta and Ontario, to allow dental hygienists to perform at least part of their jobs without the permission or supervision of a dentist. In Ontario, Alberta and Nova Scotia, legislation was amended subsequent to our input.
   
   As a result, more than 1,500 dental hygienists in Ontario have become certified and do not require the authority of a dentist to work, providing consumers with more choice. We await progress in New Brunswick.
3. Residency requirements - Residency in Ontario is a necessity under the Law Society of Canada's foreign legal consultant regulations. While one can apply and be licensed as a foreign legal consultant while still resident in the home jurisdiction, the continuing designation is dependent upon the consultant becoming a full-time resident of Ontario within a reasonable time after receiving the designation. No such requirement exists in other provinces and one wonders why, in an increasingly global world, it is not preferable to follow their approach, which facilitates and expedites access to legal experts from other jurisdictions.

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Now there may be other rules you want to look at and our hope is that you conduct your own detailed reviews, and ask yourselves several questions.

For example:

• Is the purpose of the regulation valid? In some cases, regulations that were needed in the past are no longer relevant, or may never have been really needed but were enacted in response to a specific concern.
• Is the current approach the least intrusive possible or are there alternative approaches that are more competition friendly?
• If the regulation is optimal and necessary, but has negative impacts on markets, are there ways these negative impacts could be offset? For example, if limits on entry to the profession are required, are there ways to reduce the impact on the overall competitive supply of services?

Now I am going to make my final comment with a question: Do we have the will and courage necessary for change to occur?

I can tell you how our report on the professions has fared since it was released late last fall.

Several of the professional groups we studied have come forward to discuss our findings and ways to re-examine or change their rules. Accountants and some pharmacy groups seem particularly open to dialogue.

The Federation of Law Societies of Canada has said it is examining our report. We are ready to discuss its findings at any time.

Meanwhile other professional groups have asked us to study them.

We are encouraged by these positive reactions and are hopeful that members of the professions we examined will take action on some or all of our recommendations prior to our revisiting all five in two years.

We are also expanding our list somewhat with the launch of our study of dentists. We hope other professions will take our work to heart as well and examine their rules and regulations. That is why we included a chapter in our study explaining how any group can apply a competition assessment to its regulatory regime.

Change is never easy. Alfred North Whitehead captured this best in his observation that: "The art of progress is to preserve order amid change, and to preserve change amid order". Note his word: the "art of progress", not the science. Change in regulatory areas is always a fine mixture of detailed technical analyses and very real and powerful forces of self-interest. The stakes are high, the infighting intense and the adversaries usually well funded and committed. And in the case of the legal profession, well equipped by both nature and nurture for prolonged debates.

All of which explains why achieving change in our regulatory regimes is difficult at best. But the delays in arriving at more appropriate regimes cost Canada dearly.

We can do better. We need to disprove John Kenneth Galbraith's view that: "Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof."

Of course, we will have to take that difficult first step to trust in a less fettered marketplace. But in rapidly changing times, where the participants, competitive factors and technologies are changing rapidly, regulatory certainty is surely more illusory than real.

We hope you will encourage your representative societies to examine our recommendations in a timely manner and to do so with open minds.

Our challenge is to ensure that regulations support, not hinder, markets; accelerate, not block change; and, that they are adapted to changing circumstances as quickly as we too must change.

If we meet this challenge, we will prosper. If not, we will lose out to those who do. The choice is ours.

Thank you.