Professional Competition and Professional Power

Professional Competition and Professional Power

How do professions construct markets for their services? What is the role of the professions in the creation of national and transnational regimes of regulation? ‘First rate…it beautifully positions the arguments and is of enormous significance in research and policy making.’ Anthony G.Hopwood, Professor of International Accounting and Financial Management, London School of Economics ‘There is no book containing a wider range of first-rate material illustrating contemporary approaches to the study of the legal professions and their competitors. P.S.C.Lewis, Stanford University This pathbreaking work examines the on-going efforts of lawyers and allied professionals to construct, police and redefine their respective boundaries. It provides a unique academic focus on the leading corporate practitioners, notably the newly emerging large multinational firms of lawyers and accountants, and on the ways in which they are reshaping the roles and structure of their respective fields. In this new context of transnational deal-making and regulaton building, traditional models of professionalization have been rendered invalid by the increasing gulf between solo practitioners and their counterparts in large firms. Moreover, it is these new mega firms of professionals who are playing an increasingly important role in the construction of legal regulation, both national and international, and therefore influencing the character of the nation state. By focusing on this new type of organization and its impact on the respective professional fields it becomes possible to examine anew the relationship between the professions, the economy and state regulation. David Sugarman is Professor of Law and Director of the Law in History Programme, Lancaster University; Yves Dezalay is a charge de recherches at the Centre National de la Recherche Scientifique and an affiliated scholar of the American Bar Foundation. Contributors: Alain Bancaud and Anne Boigeol; Pierre Bourdieu; John Flood; Michael Hartmann; Peter Miller and Michael Power; Joseph McCahery; Vittorio Olgiati; Sol Picciotto; Ralf Rogowski.

Professional Competition and Professional Power Lawyers, Accountants and the Social Construction of Markets

Edited by Yves Dezalay and David Sugarman

London and New York

First published 1995 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1995 Yves Dezalay and David Sugarman, selection and editorial matter. Copyright for the individual chapters, the contributors. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalogue record for this book has been requested ISBN 0-203-97721-1 Master e-book ISBN

ISBN 0-415-09362-7 (Print Edition)

Contents

List of tables

vi

List of contributors

vii

Foreword Pierre Bourdieu

ix

Introduction: Professional competition and the social construction of transnational markets Yves Dezalay

1

Part I 1

The construction of international taxation Sol Picciotto

17

2

Calculating corporate failure Peter Miller and Michael Power

36

3

Technological warfare: the battle to control the mergers and acquisition market in Europe Yves Dezalay

55

4

A new judge for a new system of economic justice? Alain Bancaud and Anne Boigeol

74

5

German corporate lawyers: social closure in autopoietic perspective Ralf Rogowski

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6

The cultures of globalization: professional restructuring for the international market John Flood

99

7

Process and policy of legal professionalization in Europe: the deconstruction of a normative order Vittorio Olgiati

122

8

Bank lawyers: a professional group holding the reins of power Michael Hartmann

148

9

Who colonized whom? Historical reflections on the intersection between law, lawyers and accountants in England David Sugarman

163

Part II

v

10

Creative lawyering and the dynamics of business regulation Joseph McCahery and Sol Picciotto

171

Index

198

List of tables

5.1 6.1 7.1 7.2 8.1 8.2 8.3 8.4

The 33 largest corporate law firms in Germany in 1989 and 1992 Top 20 law firms in England and Wales by market share based on gross fees in 1989 Questionnaires and interviews: allocation and responses Number of lawyers in the European Community, 1990 Lawyers in Bank A (%) Hierarchical positions of graduates (excluding trainees) in banking Management structure in Bank A Percentage of graduates in Bank A

89 107 132 137 149 158 158 159

Contributors

Alain Bancaud is a researcher attached to the Institut d’histoire du temps present (IHTP), Paris. His first researches concerned the production of sociology of law. He has published a book on French judges, La haute magistrature entre politique et sacerdoce (1993), and is now working on the role of judges during the Second World War. Anne Boigeol is a researcher attached to the Institut d’histoire du temps present (IHTP), Paris, and for several years her researches concerned family dissolution and the regulation of economic relationships following divorce. She began her work on legal professional by analysing legal aid and lawyers; she then focused her work on the question of the recruitment and training of judges. She is now working on the process of feminization of the French legal professions. Pierre Bourdieu is Professor of Sociology at the Collège de France, Paris, and Director of Studies at the Ecole des Hautes Etudes. Yves Dezalay is a charge de recherches au CNRS (Centre National de la Recherche Scientifique), as well as an affiliated scholar of the American Bar Foundation where he works with Bryant Garth on the emergence of an international legal field and the restructuring of state and political elite. His work has been focused on corporate professionals whose transformations are analysed from a comparativist and multidisciplinary perspective, in particular within the ‘European Working Group on Corporate Practitioners’, an international research network that he has initiated and organized. His books include Marchands du droit (1992), and Batailles territoriales et querelles de cousinage, Juristes et comptables européens sur le marché de droit des affaires (1993). Michael Hartmann is based at the University Gesamthochschule, Paderborn. John Flood is University of Westminster/Vizards Reader in Law. He is trained both in law and sociology and specializes in the legal and cognate professions. His current research is concerned with the interface of law and accounting and he is currently preparing two books: Real Law: Inside the Large Law Firm and Corporate Rescue in the UK: Recession and the Insolvency Profession. Joseph McCahery was judicial clerk for the Honorable Nathaniel R.Jones of the United States Court of Appeals for the Sixth Circuit. He teaches international economic law at the University of Warwick. He is the co-author (with Keith Ansell-Pearson and Nick Land) of Machinic Postmodernism: Complexity, Technics and Regulation (1996) and co-editor of International Regulatory Competition and Coordination (forthcoming) and Corporate Control and Accountability (1993). Peter Miller is Senior Lecturer in Accounting at the London School of Economics. Originally trained as a sociologist, he has published extensively in the fields of accounting, management and sociology. He is the author of a number of books, most recently Accounting as Social and Institutional Practice.

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Vittorio Olgiati is a Professor at the Institute for the Philosophy and Sociology of Law, University of Milan. Sol Picciotto is a law professor at Lancaster University, and has previously taught at Warwick and Dar es Salaam universities, and spent a year as Jean Monnet Fellow at the European University Institute in 1991– 2. His interests are in the internationalization of business and the interaction of law, political economy and other social factors in that process. His book International Business Taxation, was published in 1992. Michael Power is Lecturer in Accounting and Finance and Coopers & Lybrand Fellow at the London School of Economics. He is a professionally qualified chartered accountant and a member of the UK Institute of Taxation. He has published on the sociology of accounting with special reference to the relationship between accounting and the law. Ralf Rogowski is a Senior Lecturer in Law and the Director of European Legal Studies at the School of Law, University of Warwick. His main research interest lies in the area of comparative sociology of law, including research on courts and the legal professions. He is the author of a number of articles and books, including The Resolution of Labour Conflicts: An International Comparison. David Sugarman is Professor of Law and Director of the Law in History Programme at Lancaster University. His major publications include Legality, Ideology and the State (1983), Law, Economy and Society, 1750–1914 (with G.R.Rubin, 1984), Regulating Corporate Groups in Europe (with Gunther Teubner, 1990) and Law and Social Change in England, 1780–1900 (1993). He is currently completing a political and cultural history of The Law Society.

Foreword Pierre Bourdieu

There is no worse epistemological obstacle than the almost true but not quite false pronouncements of journalism, of ‘essayism’, and the semi-science of all the opinion-formers or doxosophs who, while appearing to break with appearances and reveal that which is most hidden, merely enunciate and reinforce the most obvious, the most ‘endoxic’ of truths, as Aristotle would have put it. This is so of discussions on the theme of globalization (‘global culture’, ‘global economy’, ‘global city’, etc.), which are now erupting everywhere, and which, much like the invocations of the ‘planetary’ and ‘planetarization’ dear to French essayists of the 1960s, rely on a series of common-sense observations such as, to throw out a few examples, the spread of the electronic media and the commercial entertainment they transmit (of which the paradigm is sport as spectacle), transcontinental demonstrations of humanitarian solidarity, large-scale tourist travel, world-wide circulation of goods and services, the intensification and acceleration of the exchange of information, or human migratory flows, linked with improvements in transport and communication, and so on. One would indeed have to be very ill-humoured or ill-disposed to ask if so-called globalization is nothing but another name for ‘westernization’ or ‘Americanization’ and, more precisely, the gradual institution of a new world order, dominated by a few industrial powers capable of exporting and imposing, on a universal scale, not only their products but their lifestyle. But this is merely to take a stance which is reactive and thus, at bottom, almost as superficial as the naively ecumenical representation it opposes. And it is necessary to break with both points of view to truly construct the fitting object of a scientific analysis of the phenomenon, which common-sense or ‘endoxic’ discourse can reveal only by obscuring it: namely, the world field which is in the process of being constituted in the various areas of practice, or, to put it another way, the process of constitution of specific world fields (the economic field, the literary field, the legal field, etc.) into which the national fields have been drawn, while retaining a greater or lesser relative autonomy. To speak of a world legal field, or better still an international legal field, as do most of the authors in this volume, is immediately to escape from the dichotomy between harmonious unification or discordant divergence, and to take note of the fact of unification through competition and through struggle which accurately characterizes the field as I understand it, as opposed in particular to the notion of a ‘profession’, a prefabricated concept which Anglo-Saxon sociological tradition borrowed directly from its historical doxa. It is necessary, and it suffices indeed, to make the break, implied by the notion of field, with common sense and with the academic dichotomy of consensus and conflict, in order to understand that, paradoxically, it is these struggles between lawyers of different countries striving to impose legal forms or, better, modes of production of law, which have contributed towards unifying the world legal field and the world market of expertise in law (or, following a comparable logic, in economics). In the conquest of new markets for their legal services, the big law firms rely on the fact that legal capital plays a determining role in the regulation of trade, and also in organizations defending ‘human rights’

x

which, with the big international institutions such as the World Bank and the IMF, are quite often the Trojan horse of the ‘Chicago boys’ and their strategies of legal-economic import-export, which combine ethical idealism and economic realism. But these new bourgeois conquerors have to reckon with resistance from national legal fields threatened by the new world legal order or, more exactly, with the power relations and the conflicts, generated within these fields, between the modernisers, who take the side of internationalism, and the traditionalists, who put their money on protectionist barriers and the maintenance of national tradition (demonstrating a similar opposition to that expressed, in many countries, in the political positions taken towards supranational institutions). Thus, to think in terms of a field also provides the means of grasping the global logic of the new world legal order, while escaping geopolitical considerations that are as vast and vague as their object and to which the adherents of the ‘global’ or ‘globalization’ often give sacrifice, to return to the more concrete strategies of agents, themselves defined by their dispositions (linked to a social position and a trajectory), their assets and their interests. To discover, for instance, that within each national field the partisans of the ‘global’ or of the ‘local’ are not randomly scattered, since international strategies are only truly accessible to those who, owing to a (highly) privileged social origin, have the aptitudes and competencies (especially linguistic) that cannot be easily acquired on the school bench. If one also realizes that, as Yves Dezalay writes, ‘the prohibitive cost of tuition in those great North American universities which give access to the international legal market in fact makes them the preserve of those students best endowed with social and financial capital’, one understands that the cultured and cosmopolitan heirs of the national bourgeoisies whose privileges are threatened, on the national market, by the effects of the intensified educational competition, are the first to find ways to train for the new careers opened up to them by the new international arena of expertise. Further, it is perhaps because this gives them a very particular interest in a particular form of the universal that the members of this new international learned aristocracy (noblesse de robe), when they exercise their skills in transnational bodies, humanitarian organizations, or even in the big legal multinationals, can help to elevate their local universes to a higher level of universalization by joining in the power struggles using as their weapon, and as their stake, the law or rights (of business, of man, or of the businessman), in other words the piously hypocritical reference to the universal. September 1994 (Translated from the French by Berenice Cleeve and Sol Picciotto)

Introduction Professional competition and the social construction of transnational markets Yves Dezalay (Translated from French by Berenice Cleeve)

Recent debate brought about by the ratification of international economic agreements—Maastricht, NAFTA, GATT—has made the public at large aware of the massive scale of the political stakes involved in the internationalization of trade. Reaction has been all the more dynamic in that these questions were, until now, the prerogative of experts. As Jacques Delors (1993) writes, ‘The return of politics in European construction is first and foremost that involvement of the people in a project that has been elitist for far too long.’ The observation is valid, even though somewhat extreme in its implications that politics are out of place in the debates of experts. Indeed, the various antagonists have been confronting one another on questions that are to all appearances extremely technical; but although these confrontations are played out between specialists, within the discreet confines of professional or ministerial chambers, they are no less fierce. Or less political. What was at stake was the politics of the world of expertise. In the same way that debates surrounding the trade agreements revealed —and revived—social rifts that the welfare states tried to lessen, thanks to reconstruction and the long period of post-war prosperity, the opening of borders and the trials and tribulations of attempting to put into place a new transnational order have created serious schisms within the professional world. Not only were its unity and homogeneity called into question, but so also was the public image of collegiality, of respectability and civic responsibility that it liked to give. The phenomenon is widespread (Galanter and Palay 1991), but is particularly acute in Europe (Dezalay 1990, 1992). The advent of the Yuppies, the greed of legal entrepreneurs, the race towards gigantism by the service multinationals; in brief, the invasion of market forces, of competition, and also of innovation in the world of ‘distinguished artisans’, would-be guardians of established order, all coincided with the opening of borders and the speeding up of European construction. These events are by no means random or accidental. As Bourdieu (1991a) suggests, the professionals of law who describe themselves as the guardians of public order are only credible if they start by imposing upon themselves the rules of conduct that they wish to impose upon others. The strict self-discipline of these professionals in their dealings with their peers and their clients is essential to their legitimacy. To para-phrase Weber, it represents the ‘stock in trade’ of ‘these merchants of social order’. A ‘LAWYERS’ PARADISE’… Inversely, during periods of crisis such as the one we are going through at the moment, with the painful birth of a new international order out of the ruins of an economic order based on state intervention (Boyer 1986), the professional world is no mere spectator on the sidelines of these upheavals; on the contrary. To bypass rules, if not with complete legality at least without too much risk, it is preferable to seek help from those veterans who are all the more knowledgeable of loopholes in the text of regulations because they

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themselves helped create them (McBarnet and Whelan 1992). The invention of the off-shore haven and its expansion due to ‘regulatory shopping’ has been, even according to those concerned, a veritable ‘lawyers’ paradise’. And those other professionals who put their skills at the service of entrepreneurs are not left out. But that is not all: it is not enough to destroy, one has also to rebuild. A market cannot exist without rules (North 1990; Wade 1990). Producers need a minimum amount of regulation and foreknowledge in order to invest. Merchants need security for their transactions, particularly when these take place at a distance and with unfamiliar—or unknown—partners (Milgrass et al. 1990). Risk increases with distance, geographic or social. The economic value of a well-regulated and institutional framework capable of minimizing transaction costs depends on the extent of the market. It is at its greatest in a so-called ‘global’ market. Renewal of interest in norms is to the advantage of the experts, above all to the lawyers. What other professional group could claim to be able to call upon knowledge—and legitimacy—sufficient to construct the devices of regulation needed for the emergence of a transnational market? The market for expertise in national and international regulation is thus going through an unquestionable boom (Dezalay 1993a). These experts have never been so much in demand: whether to circumvent existing devices or to build new ones. This dual role gives them a strategic position in the construction of the regional ‘big markets’ which are gradually replacing national markets. By selling their services as consultants to this gargantuan enterprise of international ‘re-regulation’, these merchants of norms of all descriptions for the business community not only ensure their own immediate prosperity, they invest in the future—their future! Who better than they to guide enterprises through the complex quagmire of rules and institutions, national as well as international, that overlap and very often clash? Here is a legal underground loaded with as many traps and obstacles as with tactical opportunities for whoever is willing to do battle on the terrain of law—on condition, needless to say, that the services of the most competent mercenaries have been engaged in advance, even at exorbitant rates. Potential profits and losses related to the complexity of this constantly redefined multilayered regulatory network are sufficiently awesome to incite enterprises to extra expenditure on preventative legal consultation. In fact, multinational firms of experts make full use of this marketing strategy. They dazzle their clients with the advantages of ‘forum shopping’ or ‘regulatory shopping’ to justify increasingly large fees. The development of this sort of delocalized practice also serves as their excuse for accelerating a process of concentration which constitutes a genuine revolution in a field of expertise dominated until now by more artisanal structures. The effect of this breakaway is particularly noticeable among European lawyers who congratulated themselves for escaping, until now, market imperatives by limiting the potential for competition and the concentration of capital. And the Guardians of the Temple who played at being Cassandras by denouncing commercial logic within law were not wholly wrong when they pointed out that the end had come for a ‘gentleman’s’ profession that saw itself as ‘the last bastion of Athenian democracy’. … AND A LAWYERS’ CHAOS The spectacular rise of the market in international expertise is not without its counterpart. To accede to it and carry off all the profits it is necessary to accept different work methods and organization: from the artisan model to that of the supermarket or factory. It is a positive upheaval which is all the more brutal in that it operates under the coercion of competition: that of the Wall Street law firms and also of the Big Six (Trubek et al. 1993). It is also a ‘revolution from above’. In effect, as many of the essays in this book demonstrate (see Chapters 3, 4 and 5), far from opposing such reconstruction, large sections of the European professional elite have, with varying enthusiasm, been part of it: some because they are resigned to the inevitable,

INTRODUCTION

3

whereas others have enlisted more wholeheartedly in order to join the ranks of the new international elite before it is too late. These last are a minority, but an influential one. Not only do they control vast material and institutional resources, but they are determined. For these representatives of national elites, the stakes are worthwhile. The aim is to occupy, if not the place of honour, which is for the moment firmly held by the big American law firms, at least the next best in the enormous market for legal consultancy which is currently emerging. In this palace revolution, the modernist faction of the professional elite sacrifices on the altar of the international market a large part of the traditions upon which the noblesse de robe built its power within the national arena. The rulers themselves are bending the tacit rules which divide labour according to rank and limit attempts to concentrate abilities and resources in the field of practice. This runaway dash by professional leaders towards the international market has disorganized the means of resistance of national systems confronted by market pressures and the attractions of a dominant legal culture. The commercialization of law and its Americanization go hand in hand. This strategy of reconversion, which at first sight seems paradoxical, represents in fact a wager on the future. By contributing to the elaboration of a new international economic order, this modernizing section of the professional elite is in its own way watching over the renewal of the collective, symbolic capital represented by the privileged positions of these dexterous professionals in the field of state, even if this means the dismemberment of nation-states by turning their own weapons against them (Bihr 1992). In this transitional situation, where national regulatory devices have lost most of their autonomy without compensating for it by the development of really efficient structures of international co-ordination, the experts are condemned for ever to the parallel track of the national and the international, along with all the contradictions that this implies. Not only does the logic of the market, of which they are the agents, gradually submerge the national cultures of which they are the inheritors; but to construct an international market, they rely on the very state structures they are undermining. The authority of experts in international relations reflects in effect what they can command within their own national spheres (Dezalay and Garth 1993), as well as what they have been able to acquire abroad through personal investment or local alliances. There is an excellent reason for this: the international field of expertise does not exist—at least, not yet. Even on the level of the most structured regional areas, such as the European Union, there is still a long way to go to a grand market of expertise where products and producers circulate freely because their value is recognized everywhere. Even in Europe, as a number of contributions in the second part of this book underline (see Chapters 6 and 7), the history of professional fields is too closely identified with that of nations for the constitution of a common market to run smoothly. This also applies a fortiori to national regulatory devices where history frequently serves as an excuse for ‘competition between capitalisms’ (Albert 1992; Trachtman 1993). ‘GLOBALIZATION’ AS PROFESSIONAL RHETORIC… This is why, in this area at least, dissertations on ‘globalization’ are but rhetorical figures that should be avoided, even though they are increasingly employed. For some, they are merely ornamental references to lend a note of modernity to perfectly traditional statements; for others, on the contrary, this is a tactical argument meant to give weight to a strategy of internationalization by giving it all the appearance of historical inevitability, as if the technological revolution necessarily leads towards a ‘globalization’ of law. It is not only towards such ‘modernistic discourses’ which are often ‘prescriptive discourses’ (Bourdieu 1981) that intellectual caution should be exercised. The warning applies to culturalist arguments too often used to justify protectionist strategies. Rather than take sides, it is far more significant to observe their area of strategic combat. Each uses rhetorical arguments that owe as much to ideological as to learned discourse.

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Some dazzle with the ‘technological revolution’ and the ‘global village’, others denounce the risks of a ‘degradation’ of law—and, more generally, of knowledge—were they to become transformed into a ‘vulgar’ commodity. Such constant confusion between practices and the discourses that orchestrate them is doubtless one of the main obstacles to objective inquiry into the question of the internationalization of the field of expertise. The risk is all the greater in that academics and researchers also play this strategic game. Not only through their alliances in the field of practices or through their political affiliations, but also because the internationalization of the scientific field, even though it preceded that of expertise, only served to exacerbate hostile competition between academics who tend at times to behave like ‘national champions’ (Bourdieu 1991b). … AND EYE OPENER Despite these pitfalls, the internationalization of the market in expertise provides a range of opportunities to aid progress of knowledge in these fields of practice. Competition between national elites and public confrontation between modernizers and guardians of tradition contribute to the revelation of hidden structures or the tacit rules on which rests the authority of these symbolic fields. The opening of borders, the increasing delocalization of the market of financial-legal services and the existence of expertise multinationals that offer their clientèle ‘forum shopping’, are leading to competition between various modes of production and reproduction of law. By importing other means of producing law—as well as legal legitimacy—the business law multinationals raise the political and professional stakes created by the division of legal labour into hierarchies. Thus, this division or sharing of roles, that sociology tended to ignore because it was considered unalterable, becomes once more a fundamental question: sociological analysis benefits from the social visibility generated by conflicting modes of production of law. If these territorial battles, aggravated by the disintegration of national or disciplinary monopolies, stimulate sociological curiosity, they also create an opportunity to review its paradigms (Abel and Lewis 1989). This applies to the sociology of legal professionals which, because of increasing territorial disputes, is driven to question the process through which the professional field constructs and reconstructs its identity. Instead of reproducing, albeit objectively, a group’s self-image, sociologists should analyse competition in ‘know-how’ through which this identity is continually reconstructed (Abbott 1988; Dezalay 1991, 1993c). This renewal is also valid for the sociology of norms or the analysis of regulation which can no longer ignore the professional dimension of normative stakes (Clarke 1986; Hancher and Moran 1989). These large structures of production and accumulation of expertise which now dominate the international scene play an increasing role in the redefinition of law and of knowledge of law. They do it on account of their clientèle in multinational companies anxious to structure regional or even global markets. But they also do it to reinforce their own dominant position in the market in expertise through increased control over the processes for the ratification of new legal devices. Financial-legal engineering has thus become one of the key elements of the technological warfare which is restructuring the international economic landscape and the composition of the elite (Moran 1991). Thus one can no longer study the emergence of norms or, more broadly, the regulation of economic activity, without taking into account the transformation of the mode of production of law—and the legitimacy of law. Analyses of regulation and the sociology of professions can no longer continue to coexist in ignorance of one another as they have done until recently. On the other hand, by giving mutual aid they would provide the necessary intellectual framework to analyse the complexity of the structures of the

INTRODUCTION

5

production of law—and lawyers—who play a determining role in international competition in the field of regulation (see Chapter 10). This ‘intellectual unfettering’ of the sociology of law is full of possibilities. Because its priority is to observe the construction of a transnational market in expertise—and simultaneously the construction of a new economic representation of social relations by professionals who are also legal entrepreneurs—this new approach fits into the general stream of research that unites economists and sociologists in their thinking on the social processes that redefine regulatory devices (Salais and Thevenot 1986; Strange 1988; North 1990; Zukin and Di Maggio 1990; Granovetter and Swedberg 1992; Castells 1992; Boyer 1993). Lastly, because its subject is at the convergence of the field of power with that of knowledge, it can also hope to contribute towards a political sociology that would study relations between the state and the professional elite (Martines 1968; Larson 1977; Mintz and Schwartz 1985; Auerbach 1986; Bourdieu 1989; Perkin 1989). BRINGING INTERNAL POLITICS AND CLASS RIVALRIES BACK IN Though the struggles and readjustments related to the internationalization of the market in expertise stimulate new approaches to studying these fields of practice, it would be a danger to consider the phenomenon exceptional. These encounters are continuous in that they are at the basis of a constant remodelling of these fields of symbolic power. The battles are as much internal as external. If these turf battles between different know-hows (Abbott 1988) are often more visible, because more public, internal quarrels between the different factions fighting for power within a professional field are by no means less fierce. And the stakes involved in these battles between vested interests are considerable because the outcome decides political priorities or the hierarchy of competences. This is why, though the question of internationalization brought the authors of this book together, their studies tackle very different themes— such as the setting up of instruments to measure bankruptcy—and are less contemporaneous—a number of essays give a major place to history. Even though all these essays deal with those professionals who place their competence at the service of enterprise, it is less the object of analysis than the form of interrogation that gives unity to the chapters in this book. Even if not directly treated, the international reorganization of the field of expertise is always in the background. It provokes a different awareness. By accentuating the importance of strategic stakes in a professional world that endlessly tries to deny conflictual interdependences, it reintroduces the ephemeral to a social world given as immanent, natural and predetermined. In brief, it redirects thinking towards the social construction of knowhow and the professional market as a constantly revitalized project, which is endlessly called into question by internal battles between professionals. And it helps to avoid the trap of hagiographic discourse which threatens all those who inquire into those ‘preconstructed’ objects, such as the professions, but who forget that they are the ‘product of a whole social work of construction of a group and the delineation of this group which has unobtrusively stolen into the science of the social world’ (Bourdieu and Wacquant 1992:213). Herein lies the attraction of a form of thinking which, even though it bears mostly on professionals of law, wishes to be interdisciplinary. To think through the diversity of the professional world is still the best way to avoid thinking of each of the know-how components as an independent entity. It is also one of the most direct ways to observe those discordant relationships which constitute the field of expertise. As Abbott emphasizes, these turf battles are particularly evident where technological or social transformations open up new areas which the different professional categories then try to commandeer by developing ad hoc technologies or by setting up new organizational structures. The internationalization of exchange increases opportunities of this kind: be it apropos of taxation (cf. Chapter 1) or mergers and acquisitions (Chapters 3, 4, 5). But the process is broader, as demonstrated in Chapter 2 on the construction of tools to measure

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bankruptcy. Via the study of internationalization, but also beyond this specific phenomenon, it is thus the professional stakes in the construction of devices of regulation which form the key theme of this first section. Part II is in some ways even more ambitious, in the sense that the analyses try to go beyond a problematic set in terms of markets (Abel and Lewis 1989) and territories. It strives to demonstrate that confrontations within a profession or between neighbouring professions are endemic, even in the absence of disputes or territorial claims. They are equally related to the social diversity of the various groups which form the professional potpourri, and to their ambitions, political or otherwise. Doubtless, here again, as shown in Chapters 6 and 7, the opening of borders has only exacerbated underlying antagonisms, in that it has raised the possibility of redefining positions in the field of power. However, as in the earlier chapters, we did not wish to conform to the incidental character of a broader phenomenon: that of the strategic game of the different professional groups within the field of power (Larson 1977; Auerbach 1986), particularly within the state. Obviously, we make no claim here to treat this theme in a systematic manner. It is simply a matter of spotlighting concrete examples—the threatened positions of lawyers in the world of German finance (Chapter 8) or the ambiguous relations between lawyers and accountants (Chapter 9)—of the pertinence of an analytical dimension, that of politics, somewhat ignored by a sociology of the professions which has focused on the market to too great a degree. To summarize, this book does not claim to have as its object a grand tour of the questions raised by the internationalization of the market in expertise. That ambition would be both excessive and extravagant. In any case, our horizons have been limited more modestly to Europe. The back-drop is the American model, because it is impossible to consider the construction of a European regulation—or a European market in expertise —without reference to this powerful neighbour and competitor. Far from being a book on the ‘globalization’ of law, it is more ‘apropos internationalization’. In effect, our real ambition is to take advantage of the current state of crisis which calls everything into question—customs, as well as certitudes of professional ideology—in order to sketch out some new analytical pathways which may enrich both economic and legal theories on regulation and the sociology of the professions. One could not dream of a more opportune moment than this when the opening of borders encourages professionals to throw themselves into politico-commercial grand manoeuvres to reintroduce that strategic dimension, all too often absent from analyses of this field of symbolic power. PART I: TECHNOLOGIES OF REGULATION AS PROFESSIONAL STAKES The area of international taxation, studied by Sol Picciotto, provides an excellent example of some of the themes introduced above. It underlines the role of competition between practitioners—more precisely, between lawyers and accountants—in the elaboration of regulatory devices. The legal creativity of solicitors’ firms is stimulated by their desire to catch up on ground lost to the Big Six. But these practitioners are not satisfied with imagining increasingly sophisticated devices to reduce their clients’ tax bills; they also place their talents at the service of institutions of national or international regulation where, in fact, many of them did their apprenticeship. This familiarity allows them to guide their clients all the better towards loopholes within the cabalistic mazes of complex legislation: efficiently and with no qualms of conscience. By pointing out breaches in these regulatory devices, do they not, indirectly, help to improve them? In return, if these devices become too impermeable, it only makes their competences even more desirable and valuable in the eyes of their clients. As Gordon (1984) demonstrates apropos of antitrust legislation, this two-fold game by practitioners serves both their prosperity and their legitimacy.

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It also accelerates the rationalization and formalization of this field of practice. This evolution, fed by inter- and intra-professional rivalry conforms with the growth of this market. From that point of view, the process of legalization, described by Picciotto, calls to mind Moran’s analyses of the effect of internationalization on the regulation of financial markets (1991). The increasing number of players—and particularly their decreasing social homogeneity—gradually disqualifies a relatively informal model of regulation which he describes as ‘bargaining within the framework of broad discretionary rules’. While the club of multinational firms was limited to a small number careful of their public image, this model of negotiated regulation worked fairly well, thanks to the mediation of the ‘professional gentlemen’. These knew the tolerance limits of tax institutions, and to preserve their credibility were careful not to overstep the limits. On the other hand, when new technologies made tax havens available to all and sundry—including the Mafia—the business establishment rediscovered the virtues of more rigorous and potentially tougher legislation. This does not mean that it is impossible to manipulate; on the contrary. But for that, the services of the most competent professionals are required. Chapter 2, which deals with the ‘invention’ of accounting ratios used to measure bankruptcy, gives both a contrasting and a complementary perspective to the previous one. Although time and place are very different, both focus on the grey areas shared and fought over by the professionals of both law and numbers. There is a simple explanation: in both cases, legal rules defer to microeconomic knowledge. Accountancy expertise is all the more determining in that it intervenes at the apex of a regulatory process that is frequently happy to ratify the social compromise it represents—and embodies. These antecedents and the strategy of ‘governing by numbers’ are evoked by Peter Miller and Michael Power. The pertinent reason is that all too often this expertise is excluded by a legal discourse which itself is a victim of ‘legal centralism’ (Griffiths 1985). The reminder is all the more important in that numerical technologies seem self-evident. Are not these ratios given as an objective mirror-image of the health of or the financial risks run by an enterprise? Whereas—and herein lies the beauty of their work—the authors demonstrate that this ‘objectivity of numbers’ only serves to mask and obscure a whole process of negotiation between antagonistic social interests that intervene on various levels, from conception to application. The ‘invention’ of these ratios cannot be dissociated from actions to impose a certain form of financial capitalism. Even today, they often simply externalize compromises reached by the various partners fighting, with the help of experts, over the deathbed of an enterprise in difficulty. An ex post diagnosis is all the more pertinent in that it serves as a self-fulfilling prophecy. The ‘truth’ of numbers ratifies the negotiation that preceded their elaboration. It shields and legitimizes confrontation between experts through whom social interest conflicts are resolved. Though inscribed in a larger project, that of the social history of accountancy techniques, this analysis represents an important contribution towards attempts to deconstruct the evidence of the professional model examined here in the light of the crisis caused by the opening of borders. We are brought back to this central theme in the remaining three chapters of Part I, on M&A (merger and acquisition) professionals. In effect, these new juridico-financial practices are, to all intents and purposes, examples of the upheaval and commotion wrought by the internationalization of markets. They are a striking illustration of the determining role of professional strategies in the construction of European regulation, and vice versa. These new rules are not only linked to confrontation between two models of regulation which reflect, in their turn, two opposing models of capitalism in Europe: a financial capitalism, of which the City considers itself the emblem (Ingham 1984), and an industrial capitalism, sometimes characterized as the Rhineland model (Albert 1992). They also determine the remodelling of the field of expertise between different national producers. For this reason, the stakes in the new regulation of enterprise concentration go far beyond the strict province of competition law, just as the regulation of hostile takeovers involves not only financial law. In fact, the material and symbolic benefits that the professional

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mercenaries have obtained—or hoped to obtain—from these great financial battles, both legal and selfpromoting, have stimulated the need, and very often the means, for a strategy of concentration and restructuring of law production in the great law firms. In brief, the restructuring and the struggles for power which marked the legal field at the end of the 1980s appear in many respects the corollary of those played out in the field of enterprise during the great M&A wave. It is impossible to summarize in a few lines the history of these complex and reverberant events, so we shall simply underline some of the lessons to be drawn from the arguments sketched out here, focusing on two themes that are, in our view, related. The first is the legalization of a regulatory device, in this case the Takeover Panel (TOP). It is possible to deal briefly with this as an episode in the much larger process of the Americanization of the European market in M&As, analysed in Chapter 3. It echoes developments already encountered apropos of international taxation. TOP was at the centre of a self-regulatory device aimed at the implementation of relatively pliant codes of conduct in the financial battles provoked by takeovers. Strengthened by their experience, this was the code the City authorities proposed when Brussels tried to unify European practices on M&A matters. But it soon became apparent that at the European level it was impossible to exclude all judicial review. This was precisely what TOP had tried to avoid, concerned as it was to circumvent the Bar and thus all risks of American-style litigation. Even though this project has been set aside for the time being, it gives weight to criticisms of the lack of legitimacy of this ‘old boys’ justice’ based on discretion, if not secrecy, and is not in the least put out by its lack of adversary procedures. Evidently, the complaints emanate from those who feel excluded from this financial institution ‘run by merchant bankers for merchant bankers’. As the international growth of the City attracted a number of foreign operators unfamiliar with the usages of this ‘gentleman’s club’—and little too inclined to submit to it without first demanding their rights—a number of lawyers took advantage of the situation to become spokespersons of this discontent by seeking judicial review against TOP decisions. As a result, although it continued to proclaim the merits of an adaptable, because more informal, system of regulation, TOP decided to fight back by calling increasingly on the legal know-how of lawyers in order to reinforce its legitimacy. If we stress this episode in the grand technological battle currently raging over European regulation, it is because it throws light upon the theme developed in Chapters 4 and 5: the corporate lawyers’ strategy for autonomy. The word strategy is apt, because the conquest of this autonomy is, in part, at the expense of others. In this case, it is the merchant bankers who lose—notably their arrangements between themselves outside the courts. However, in exchange they gain legitimacy because these secret covenants were always somewhat suspect. A shift in this order was behind the emergence of French ‘business justice’ as described by Alain Bancaud and Anne Boigeol. The Place de Paris was unable to legitimize a system where compromises concluded under the direction of the Ministère des Finances could not easily be appealed. The commercial bar and the senior judiciary swiftly grasped the opportunity to enter a highly remunerative and prestigious area from which they had been excluded, even if it meant bending the unwritten rules of a hallowed judicial tradition of total reliance on pure law and a mistrust of matters of power and money (Bancaud 1993). Depicting himself as a specialist in financial affairs rather than a general practitioner of justice like his colleagues, this new-style judge conceives of his role as that of a mediator, willing to listen to those other specialists, the practitioners in large consultancy firms or in-house lawyers. Thus, this small elite of business judges breaks away from a professional body whose practices and values are removed from its own. There again, this severance from one’s peers, even though informal, is not easy. A strategy of independence requires a battle on many fronts. These internal struggles through which a professional group, such as business lawyers, creates its independence are undeniable, even though their ferocity remains symbolic. It is to the advantage of the adversaries to make certain concessions in order to preserve the legitimacy of a general device towards

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which everyone contributes—and from which everyone benefits. Thus, as Ralf Rogowski notes in Chapter 5 apropos of corporate lawyers, these concurrent strategies of ‘social closure’ are the very opposite of a fight to the death. He even goes so far as to call them ‘co-evolutionary developments’, because alliances and complementarities are numerous. As we have seen earlier, it is to the advantage of lawyers and financiers to collaborate in stock market regulation procedures: the latter gain legitimacy, the former access to a previously inaccessible market. In the same way, it is not in the interest of business-law professionals to sever communications with their peers, since their value, for financiers or entrepreneurs, is precisely that they are the bearers of the social legitimacy represented by law and justice, due to the universal character of these institutions. In brief, in these internal struggles within the market in expertise, there is no question of eliminating one’s adversary or competitor. At the most—and it is already a lot—each camp hopes to improve its position in the hierarchical ranks of prestige or power. Indeed, this is probably the main stake in the business lawyers’ strategy for independence. What is looked for is less independence as an end in itself than the social recognition it carries. The formation of the group cannot be dissociated from their collective plan for professional—and social—promotion for which they could provide the means. It is at this level that inter- and intra-professional competition can be seen. These promotion strategies necessarily strive against each other for supremacy, but that does not mean that the game ends in a draw. To valorize their position, in the eyes of their peers as well as in those of potential clients, these practitioners have no other solution than to upgrade the legal tech niques which represent their capital. Lastly, not only do they produce law, but by ‘legalizing’ financial conflicts, they help to‘depersonalize’ them by introducing some of those universal values of which they are the guardians…and the dealers. PART II: RESHAPING THE PROFESSIONAL FIELD In Part II, as in Part I, the internationalization process serves to cast light, but here it is structures of the different national legal fields that have been exposed—well as called into question—by the opening of borders. The notion of a ‘structural dimension’ is taken here in its broadest sense, in that it covers both the division and the internal classification of legal labour, and the relations of this professional field to economic and political power. A first group of studies is particularly concerned with the confrontation of different legal cultures within a context of increased international competition. Thus in Chapter 6, John Flood asks whether diversity and the strong national identity of legal cultures is a handicap for business-law firms when compared with their closer competitors (more specifically, the big multinational conglomerates, increasingly multiprofessional, such as the Big Six) in a market for advice which is becoming global, or at least ‘regional’. The opening of borders could stimulate the redefining of territories and hierarchies between both complementary and competitive knowledge. His detailed observation of practices leads him to a relatively pessimistic view of the future of these professionals of law, whom he describes as ‘a potentially endangered species’. In fact, the gap can only grow larger between business practitioners, ‘who will compete aggressively and not feel bound by the ideological and cultural constraints lawyers impose upon themselves’. For this reason, while accountants are coming closer to their ambition of being the ‘monitors of world economic order’ (Montagna 1990), the legal profession risks being increasingly marginalized and pushed out of the market for economic and financial advice ‘unless it can transcend national boundaries’. This is far from being the case, particularly in countries of the civil law tradition, where lawyers are closely allied with the state. Even in

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the Anglo-Saxon world, where market logic is better accepted, the growth of big firms collides with a whole series of deontological rules, such as those which forbid conflict of interest. Indeed, the more radical reformers or ‘legal entrepreneurs’ would like to get rid of these rules that they consider anachronisms. But they encounter the hostility of professional organizations where the guardians of the temple maintain respect for tradition by relying on the support of the small practitioners who continue to exercise their trade in a more conventional manner (Dezalay 1991). Vittorio Olgiatti tackles the same theme but from a slightly different angle. Indeed, although he too underlines this strong identification of the legal professions with the national cultures that produced them, he tends to think that this symbiosis, far from disappearing into an increasingly global merchant logic, could on the contrary be reinforced. It could even make these professionals the ‘guardians of that socio-legal diversity’ that he considers an essential component of Europe’s patrimony. The value that he attaches to the diversity of national legal cultures drives him to a conclusion that, although in essence close to John Flood’s, is less pessimistic. Unlike the latter, for whom cultural barriers can only slow down the ‘ineluctable and irreversible’ process of market globalization, Olgiatti considers that, at least in the area of law, the American corporate law model can be challenged. He observes that the implantation of these big firms in Europe is so far limited in number, and that professionals in the Old World prefer network systems more in conformity with their traditions. He also notes that, far from levelling differences between national legal cultures, European integration in fact acknowledges them by reaffirming the power of national professional organizations in the respective markets: notably in all that concerns the accreditation of foreign producers. In brief, according to him, the current situation is characterized more by a ‘continuity in change’ than by some ‘legal big bang’. However, he does not deny the tensions introduced by the co-existence of deeply antagonistic professional models, but he attributes these tensions to the pluralism of normative systems in modern societies (Teubner 1986), a phenomenon that long preceded the internationalization of exchange, even if this has intensified it. These two readings of the confrontation between national legal cultures and an increasingly transnational market in services are essentially complementary. The first is centred around Anglo-American business-law practitioners, lawyers or accountants, whereas the second takes into account the whole Italian legal field where business lawyers remain marginal. One is more pragmatic, whereas the other is more normative. But these differences of vision and appreciation are in themselves instructive, not only because they reflect the old cleavage between civil and common law tradition that, as Flood properly reminds us, determines the attitude of professionals towards the state and the market, but also because this twofold slant spotlights the fact that stakes—and the profits—the internationalization of financial markets are not the same when viewed from the City of London and from Italy. Accordingly, the strategies of professionals are necessarily different, depending on whether they come from the new geographic heart of capitalism (Sassen 1991) or from its peripheries. Professionals of law are directly concerned by this remodelling of the international division of labour. Rivalry between national systems for the production of law has opened new perspectives and overturned once-secure positions. For a better appreciation of the strategic options of these different professional bodies, it is necessary to enumerate what each fears to lose or hopes to gain, as seen from their respective positions in the field of political and economic power. On this level of analysis, the cultural variable becomes crude. National legal fields assemble a mosaic of individuals and groups that is highly diverse in terms of prestige and social power. And this social diversity only increases with a return to a dual society—and justice (Heinz and Laumann 1982; Bancaud and Dezalay 1994). To take just one example, this new international elite of corporate lawyers has little now in common with the marginalized French or Italian petits juges who react with a ‘corporatist-populist’ defence.

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Again, the shock of internationalization has exposed and revived schisms in the world of learned professionals as well as in the social world, which are as ancient as they are determined by social origins (Bourdieu and de St Martin 1982). The prohibitive fees of the big North American universities, whose education provides access to the market in international law, makes them the preserve of the richest students. This internationalization strategy is thus one of the royal roads by which the inheritors of a cultured, cosmopolitan bourgeoisie maintain their privileges, at a time when comparatively easier access to higher education has watered down and increased competition in the field of expertise. This is one of the main components of internal political confrontation in the professional field that has been amplified by the opening of borders; particularly in Europe, where a major section of the legal elite sees in this ‘return to law’ (Cohen-Tanugi 1985) the possibility of ‘reconquering’ ground lost since the war to state power (Abel-Smith and Stevens 1967). This means confronting not only the rise of state technocracy, but also the advancing new fields of knowledge which conform better to the new economic intervention logic that privileges efficiency over respect for formal legal rules. Here again, the cultural variable fails to explain these complex developments that are so decisive for the understanding of current strategies. For this, one would need to hone the analysis and reintroduce that other social and political dimension that is far too often absent from professional discourse. This is the subject matter of the next two chapters. In essence, this game of musical chairs can only be understood in terms of relationship and time. It is thus with reference to the rise in the number of business management graduates that Michael Hartmann describes the erosion of what once was a monopoly by lawyers of positions of power in the big German banks. This loss of influence is all the more visible since they occupy no more than one-sixth of management positions, compared to a third thirty years ago. Interpretation is delicate. Indeed, one can evoke objective elements such as the complexity of new financial technologies which demand new professionals who are better-trained in economic analysis and in dealing with numbers. But that is not enough. Hartmann observes that, if lawyers have lost out in terms of recruitment, they have managed to maintain their privileged status in that, unlike their competitors, half of them still occupy the highest echelons. The pyramid has been eroded, but from the bottom. A generational issue, true, but what else? Should one deduce that this loss of influence is going to continue, or even accelerate, as young MBAs climb the hierarchical ladder? And how should we interpret it? Should one incriminate the inappropriateness of a legal lore fashioned for judges (Rueschemeyer 1973), still redolent of the old adage, Judex non calculat? Perhaps so, but this technical explanation is insufficient. Even if they do not appear in statistics, the social variables have to be considered, particularly in countries where, according to Dahrendorf (1969), law faculties were the traditional mould for the reproduction of an elite which, paradoxically, expressed scorn for the legal learning taught to them. Doubtless because, taking into account its social capital, it requires only a veneer of legal culture to occupy the most powerful positions in the fields of economy or state. Under these conditions, is this little piece of social history, which one is tempted to read as an episode in the battle between fields of knowledge, not also—or mainly—just one facet in the battle for power between the different factions of the dominant class? A similar interpretation appears in David Sugarman’s analysis of the complex relations between lawyers and accountants. In this type of profession, social capital and technical competence are tightly interconnected. Indeed, it was through their ability to draw up legal documents that Victorian solicitors wheedled their way into the privacy of the dominant classes to become their confidants and men of business. But, from the strength of this position, they practised a number of professions: from bankers, debt collectors, estate agents or managers, to politicians or lobbyists for the more fortunate. One could have said that ‘beneath the attorney’s wig sleeps half a dozen professionals’ (Reeder 1966). It is from this point that we need to

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begin our attempts to understand the ambiguity between lawyers and accountants. The distinction was far from obvious a hundred years ago. Accountancy was a technique rather than a profession, and solicitors, for the most part, kept their clients’ accounts in order. Bankruptcy management, and latterly its prevention, gave accountants the opportunity to become recognized as proper professionals with their own field of expertise. They owed it to the contempt of the more ‘noble’ professions for this rather base activity. For a long time accountants lived ‘in the shadow of the legal professions’ like poor relations. The gentlemen of law conceded to them these servile, lowly jobs with little attempt to disguise their disdain. Despite the deference they showed to their elders and betters, whose very usages and institutions they went so far as to copy, these newcomers to professional dignity played the role of scapegoat. By condemning the appetites of these pseudo-professionals the aristocrats of law kept them in their place, but they also called to order those learned professionals too openly seduced by the charms of deal-making. The legitimacy of law carries its obligations. Because it originates in these—still very lively—class rivalries, the history of power relationships between the dominant and the dominated in the professional field are full of fairly ambiguous reactive situations (Dezalay 1993a). Strategies of systematic expansion and diversification and promotion of accountancy know-how are in great part fed by these parvenus in the professional world’s craving for revenge. It also benefited from the self-sufficiency of professionals who favoured the aristocratic logic of numerus clausus (Abel 1988), even if it meant neglecting the new opportunities offered to merchants of expertise through the rise of state capitalism (Abel-Smith and Stevens 1967; Weir et al. 1988; Charle 1992). To analyse the power play and the strategies involved in the social capital reproduction of the dominant classes, it is necessary to adopt a clear line of thinking. Unfortunately, apart from a few notable exceptions (Larson 1977; Auerbach 1986; Powell 1988), academic studies of the professions tend shortsightedly to take professional ideology literally, as if the ideal of collegiality and the cult of learning automatically excluded social determinisms and dominances. Perkin (1989) explains the origins of this blindness extremely well. The professional group is the culmination of a middle-class political project to abolish upper-class privileges and also to reach beyond antagonisms based on class. By introducing itself as a ‘classless class’ (Perkin 1989:391), the intellectual bourgeoisie becomes a legitimate engineer of social mediation and peace. These standard bearers, meaning the intellectual or the expert, play a central role in this political manoeuvre: they place their competence at the service of the various social interests they wish to represent. But to remain credible, these ‘social engineers’ must go beyond their own social backgrounds in order to become ‘free-floating mental operators set apart from their social origins’ (ibid.). One therefore understands better why learned discourse on professionals remains silent on these questions of class. The very credibility of social mediation through these experts is at risk. So the taboo on social origins is powerful. And it is all the stronger in that it has been well assimilated by the academics who themselves are the products and producers of the meritocratic social order (Domhoff 1983). These thoughts on the place of lawyers within economic power cannot pretend to be more than a vague outline—and an invitation to continue research along these new avenues, where nearly everything remains to be done. Meanwhile, and in preparation for deeper speculation, in the last chapter Sol Picciotto and Joe McCahery draw up a sort of balance sheet of findings—the best conclusion to this book one could imagine. We are taken back to its central theme: that of a professional rivalry that stimulates the ‘creativity’ of practitioners and accelerates the ‘legalization’ of regulation. This hypothesis—a feature of their work—is elaborated from the critical re-readings of consecutive approaches to the sociology of the professions and legal theories of regulation. It is an attempt to combine doctrinal thinking on the indeterminacy of rules with developments in the sociology of the professions. It is difficult, but all the more commendable in that they still had to test their hypothesis in practice—in this case, that of the regulation of insider trading. To

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demonstrate that the redefinition of rules and practices not only corresponds to macroeconomic logic but is also determined by the specific interest of professionals, they had to carefully re-examine jurisprudential advances by insisting on the antagonistic and complementary strategies of agents and institutions of regulation and private-sector practitioners in the light of recent changes in the North American field of legal practice. The chapter thus summarizes and illustrates hypotheses in the book as a whole; or, more precisely, the avenues of research we have tried to open and those that remain to be explored. In fact, are not these legal-financial battles that have marked the end of the ‘roaring eighties’ casino capitalism’ (Strange 1986) merely a new episode in this conflict between parvenus and gentlemen, which seem one of the invariables of financial market history (Sampson 1989; Chernow 1990; Hobson 1990)? The rivalry between those who are part of the establishment and those excluded from it—but who are ready to do anything in order to get in—strikes most observers (Bruck 1988; Ehrlich and Rehfeld 1989; Lewis 1989; Burough and Helyar 1990). It also exists within the professional world (Lederman 1992). But these ‘young Turks’ are as close to the poachers as they are to the game-keepers. The desire for social revenge can just as easily feed the creative imagination of professional mercenaries willing to serve the restructuring of financial capitalism as the repressive zeal of those who contribute towards it legitimacy (Stewart 1991). The frontier between these two roles is far from watertight: because more game-keepers turn to poaching, but also because the two contribute, in their fashion, towards a rationalization of financial capitalism that goes hand in hand with expansion (Dezalay 1993b). This is equally valid for all those who believed they were striving for its ‘moralization’ but were in fact working towards its ‘modernization’. Corruption, underhand dealings —or baksheesh, insider trading, are all so many reminders of an era not so long ago when capitalism relied essentially on highly personalized relationships (Braudel 1979). This is less true today when intermediaries hide behind know-how and formal technique. The field of expertise tends thus to merge with the places and the institutions where it—legitimately— exercises economic power. For this reason, it is closer to the internal battles of the dominant classes. Might it not be time for sociology of the professions or of regulation to take off its blinkers and become, once more, a component of a sociology of power struggles in the field of knowledge? REFERENCES Abbott, A. (1988) The System of Professions, Chicago, 111.: University of Chicago Press. Abel, R. (1988) The Legal Profession in England and Wales, Oxford: Basil Blackwell. —— and Lewis, P. (eds) (1989) Lawyers in Society, vol. I, parts 2 and 3, Berkeley, Cal.: University of California Press. Abel-Smith, B. and Stevens, R. (1967) Lawyers and the Courts: A Sociological Study of the English Legal System, 1750–1965, London: Heinemann. Albert, M. (1992) Capitalismes contre capitalismes, Paris: Seuil. Auerbach, J. (1986) Unequal Justice: Lawyers and Social Change in Modern America, London: Oxford University Press. Bancaud, A. (1993) La Haute magistrature entre politique et sacerdoce, Paris: LGDJ. —— and Dezalay, Y. (1994) ‘Des grands prêtres du doit au marché de l’expertise juridique: transformations morphologique et recomposition du champ des producteurs de doctrine en droit des affaires’, Revue politique et management public, no. 3, September. Bihr, A. (1992) ‘Malaise dans l’état-nation: mondialisation du marché, nécessaire decentralisation’, Le Monde diplomatique, February 1992. Bourdieu, P. (1981) ‘Décrire et prescrire’, Actes de la recherche en sciences sociales, no. 36–7. —— (1989) La Noblesse d’état, grandes écoles et esprit de corps, Paris: Editions de Minuit.

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—— (1991a) ‘Les juristes, gardiens de l’hypocrisie collective’, in F.Chazel and J. Commaille (eds) Normes juridiques et regulation sociale, Paris: LGDJ. —— (1991b) ‘Epilogue: On the possibility of a field of world sociology’, in P. Bourdieu and J.S.Coleman (eds) Social Theory for a Changing Society, Boulder, Col.: Westview Press. —— and de St Martin, M. (1982) ‘La sainte famille’, Actes de la recherche en sciences sociales, no. 44–5. —— and Wacquant, L. (1992) Responses, Paris: Seuil. Boyer, R. (1986) Capitalismes fin de siècle, Paris: PUF. —— (1993) L’après Fordisme, Paris: Syros. Braudel, F. (1979) Civilisation matérielle, economie et capitalisme, Paris: A.Colin. Bruck, C. (1988) The Predator’s Ball: The Junk Bond Raiders and the Man who Staked Them, New York: Simon & Schuster. Burough, B. and Helyar, J. (1990) Barbarians at the Gate: The Fall of RJR Nabisco, New York: Harper & Row. Castells, M. (1992) ‘Four Asians tigers with a dragon head: a comparative analysis of the state, economy and society in the Pacific Rim’, in R.Applebaum and J. Henderson (eds) States and Development in the Asian Pacific Rim, London: Sage. Charle, C. (1992) ‘Les grands corps’, in P.Nora (ed.) Les Lieux de mémoire, Paris: Gallimard. Chernow, R. (1990) The House of Morgan, New York: Touchstone. Clarke, M. (1986) Regulating the City: Competition, Scandal and Reform, Milton Keynes: Open University Press. Cohen-Tanugi, L. (1985) Le Droit sans l’état, Paris: PUF. Dahrendorf, R. (1969) ‘Law faculties and the German upper class’, in W.Aubert (ed.) Sociology of Law, London: Penguin. Delors, J. (1993) ‘L’avenir invisible’, Le Monde, 8 November 1993. Dezalay, Y. (1990) ‘The Big Bang and the law: the internationalization and restructuration of the legal field’, Theory, Culture & Society, 7. —— (1991) ‘Turf battles and tribal wars’, Modern Law Review 54:792–809. —— (1992) Marchands de droit, la restructuration de l’ordre juridique international par les multinationales du droit, Paris: Fayard. (To be published in English, Evanston, 111.: North Western University Press.) —— (1993a) ‘Multinationales de l’expertise et “dépérissement de l'état” ’, Actes de la recherche en sciences sociales, no. 96–7. —— (1993b) ‘Des notables aux conglomérats d’expertise: esquisse d’une sociologie du “big bang” juridico-financier’, Revue d’economie financière, 25, 1993. —— (ed.) (1993c) Batailles territoriales et querelles de cousinage: juristes et comptables sur le marché européen du droit des affaires, Paris: Librairie Générale de Droit et de Jurisprudence. —— and Garth, B. (1993) ‘Du charisme a la routine: la transformation du petit cénacle savant de l’arbitrage en un marché de la off-shore litigation pour les multinationales du droit’, to appear in La Legitimation du pouvoir et du droit, Actes du Colloque Franco-Allemand des anthropologues du droit. Domhoff, G. (1983) Who Rules America Now?, Englewood Cliffs, N.J.: Prentice-Hall. Ehrlich, J. and Rehfeld, B. (1989) The New Crowd: The Changing of the Jewish Guard on Wall Street, Boston, Mass.: Little, Brown. Galanter, M. and Palay, T. (1991) Tournament of Lawyers: The Transformation of the Big Law Firm, Chicago, 111.: University of Chicago Press. Gordon, R. (1984) ‘The ideal and the actual in the law: fantasies and practices of New York City lawyers, 1870–1910’, in G.Gawalt (ed.) The New High Priests: Lawyers in Post-Civil War America, Westport, Conn.: Greenwood Press. Granovetter, M. and Swedberg, R. (eds) (1992) The Sociology of Economic Life, Boulder, Col.: Westview Press. Griffiths, J. (1985) ‘Four laws of interaction in circumstances of legal pluralism’, in A.Allott and G.Woodman (eds) People’s Law and State’s Law, Doordrecht: Fores Publishing. Hancher, L. and Moran, M. (eds) (1989) Capitalism, Culture and Economic Regulation, Oxford: Clarendon Press. Heinz, J. and Laumann, E. (1982) Chicago Lawyers: The Social Structure of the Bar, New York: Russell Sage. Hobson, D. (1990) The Pride of Lucifer, London: Hamish Hamilton. Ingham, G. (1984) Capitalism Divided: The City and Industry in British Social Development, London: Macmillan.

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Larson, M. (1977) The Rise of Professionalism, Berkeley, Cal.: University of California Press. Lederman, L. (1992) Tombstones: A Lawyer’s Tales from the Take-over Decade, New York: Farrar, Strauss & Giroux. Lewis, M. (1989) Liar’s Poker: Two Cities, True Greed, London: Hodder & Stoughton. Martines, L. (1968) Lawyers and Statecraft in Renaissance Florence, Princeton, N.J.: Princeton University Press. McBarnet, D. and Whelan, C. (1992) ‘Legitimate rackets: tax evasion, tax avoidance and the boundaries of legality’, Journal of Human Justice, Spring 1992. Milgrass, P.R., North, D.C. and Weinfast, B.W. (1990) ‘The role of institutions in the renewal of trade: the law merchant, private judges and the Champagne fairs’, Economics & Politics, 2: 1–23. Mintz, B. and Schwartz, M. (1985) The Power Structure of American Business, Chicago, 111.: University of Chicago Press. Montagna, P. (1990) ‘Accounting rationality and financial legitimation’, in S.Zukin and P.DiMaggio (eds) (1990) Structures of Capital: The Social Organization of the Economy, Cambridge: Cambridge University Press. Moran, M. (1991) The Politics of the Financial Services Revolution, London: Macmillan. North, D.C. (1990) Institutions, Institutional Change and Economic Performance, Cambridge: Cambridge University Press. Perkin, H. (1989) The Rise of Professional Society: England since 1880, London: Routledge. Powell, M. (1988) From Patrician to Professional Elite, New York: Russel Sage. Powell, W. and DiMaggio P. (eds) (1991) The New Institutionalism in Organizational Analysis, Chicago, 111.: University of Chicago Press. Reeder, W. J. (1966) Professional Men, London: Methuen. Rueschemeyer, D. (1973) Lawyers and their Society, Cambridge, Mass.: Harvard University Press. Salais, R. and Thévenot, L. (eds) (1986) Le Travail: Marches, régles, conventions, Paris: INSEE/Economica. Sampson, A. (1989) The Midas Touch: Money, people and power from West to East, London: Hodder & Stoughton. Sassen, S. (1991) The Global City, Princeton, N.J.: Princeton University Press. Stewart, J. (1991) Den of Thieves, New York: Simon & Schuster. Strange, S. (1986) Casino Capitalism, Oxford: Basil Blackwell. —— (1988) States and Markets, London: Pinter Publishers. Teubner, G. (1986) Dilemmas of Law in the Welfare State, Berlin: de Gruyter. Trachtman, J.P. (1993) ‘International regulatory competition, externalization, and jurisdiction’, Harvard International Law Journal, 34(1): 47–103. Trubek, D., Dezalay, Y, Buchanan, R. and Davis, J.R. (1993) Global Restructuring and the Law: The Internationalization of Legal Fields and the Creation of Transnational Arenas, Working Paper, Global Studies Research Program, Madison: University of Wisconsin. Wade, R. (1990) Governing the Market, Princeton, N.J.: Princeton University Press. Weir, M., Orloff, A. and Skocpol, T. (eds) (1988) The Politics of Social Policy in the United States, Princeton, N.J.: Princeton University Press. Zukin, S. and DiMaggio, P. (eds) (1990) Structures of Capital: The Social Organization of the Economy, Cambridge: Cambridge University Press.

Part I

Chapter 1 The construction of international taxation Sol Picciotto

INTRODUCTION No major deal by transnational corporations (TNCs) takes place without consideration of the tax implications and optimal tax arrangements. Indeed, a great many investments and transactions are formulated on the basis of analysis of tax advantages, very often due to anomalies in the interaction of different tax systems, and lawyers play a key part in devising such transactions and financings. The basic patterns and strategies for minimizing tax liability of international investments were developed by the large TNCs themselves, and in-house specialists still play a major strategic role in tax planning for such large corporations, using local firms of accountants or lawyers where necessary for tax compliance procedures. However, competitive pressures caused the increasingly widespread use and availability of facilities for international tax avoidance. Such devices and services are now marketed by a plethora of professionals. The increased complexity of the field, and the trend, especially in the US, towards reliance on more formal rules and procedures have created a specialism, dominated so far by Anglo-Saxon firms of lawyers and accountants. In the US especially, not only do most large law firms supply an international tax specialism, there are several boutique firms offering international corporate legal services in which tax advice is a major component; and international tax has long been a glamorous stage for sole practitioners and consultants of various kinds. Many of the US tax specialists have held high tax policy positions with the US government (and there is even some reverse flow, at least at the top levels). However, taxation lies on the boundary between the fields of law and finance; hence, accountancy firms have a stronger presence in tax compliance work, and the rapid globalization of the Big Six accountancy firms has enabled them to offer a broad-ranging service to international investors. British solicitors, for example, historically allowed accountants to secure the work of giving tax advice to clients, while the specialist tax Bar was available to give opinions and conduct litigation when necessary. In the process of competitive inter nationalization of corporate legal practice which has been taking place (Dezalay 1991) this is one of many factors which gave the US law firms an edge over European lawyers. With the explosive growth of corporate legal business since the 1960s, the UK commercial solicitors, in common with other European business law firms, have been attempting to recoup the lost ground. However, they are having difficulty competing with the large international accountancy firms, which have enormous tax departments, on the basis of which they are also offering a multidisciplinary service, giving advice on corporate law generally (Eburne 1991; Page 1991). The lawyers argue in turn that the accountants’ approach is too orientated to compliance (rooted in their role in negotiation with the Inland Revenue and frequent

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recruitment of former tax officials), while in contrast lawyers have greater independence and can offer a more creative approach; certainly, the largely routine work done by the accountants involves less valueadded and lower fees. Lawyers can also offer client confidentiality, which may be an important factor if the accountancy firms’ legal departments are inadequately insulated from the responsibilities to regulators and investors which are part of the auditor’s function. The law firms have also developed strong links with transnational investment banks, whose globalization and financial intermediation role provides a good complement to the former’s nationally rooted legal expertise, especially in devising tax-sparing financing vehicles (Brady 1991). Significantly also, the gathering momentum of European Community co-ordination of direct corporate taxation since 1990 (Airs 1992) has opened up for law firms a field in which they can more easily claim a particular expertise, since it relates to other areas of EC law with which lawyers have an established familiarity, notably competition law and corporate law harmonization, rather than to the fields which the accountants can more easily contest, such as corporate finance. Whatever the particular advantages of different professional groups, the ability to provide advice on the interaction of national tax laws, within the framework established by the network of bilateral tax treaties, is a key element in the competition among transnational firms of professionals. In turn, this competition provides a spur to innovation in the structuring of commercial and financial transactions. Not only do these corporate professionals compete for business in the markets for their services, it is important to understand that they themselves help to construct those markets. Their business and corporate clients operate in markets which by their nature are regulated, and professionals play a key role in the mediation of such regulation, by structuring their clients’ transactions. Although this is largely an ideological process, it is rooted in the cumulative structures of the historically developed processes of organization of economic relations and their interaction with the state. This chapter aims to trace the historical development of international tax ation as a dynamic process of mediated regulation. It will focus on the role played especially by lawyers in the development of the process, through the exploration of the implications and limits of the rules which underpin it. Both the construction of the concepts and their application have involved an interaction between lawyers acting for corporate clients and state officials, who are often also lawyers. There has also been an intermingling and interchange of roles: state officials have sought advice or received representations from private lawyers, whether as experienced (though often partial) professionals or acting directly on behalf of clients; and it is a frequent pattern in most societies for experienced state officials to be recruited by the private sector. These interactions have reinforced the ideological community of specialists in international taxation, which has been nurtured by specialist associations, journals and meetings. However, they retain to a degree an advocate’s sense of the role they are cast to play in each case when acting on behalf of a client, whether state or private. There is a symbolic relationship characteristic of regulators and regulated, although with special features resulting from the nature of each particular field of regulation. THE DEVELOPMENT OF AN INTERNATIONAL TAX FRAMEWORK This section will examine briefly the historical development of international taxation as a legal field, focusing mainly on British law, but also examining that in other countries as appropriate. The aim is to show that legal rules developed as part of a general process of economic and social change, which they also helped to mould. Also, I stress that a central feature of abstract legal rules is their looseness or indeterminacy (see, further, McCahery and Picciotto, Chapter 10 in this volume). This provides the space for them to interact with economic and social activity, an interaction which is essentially mediated by lawyers.

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The importance of the differential incidence of national taxation of international activities for the competitiveness of transnational corporations (TNCs) is not new, but dates back to the beginning of the twentieth century, as the developed capitalist states moved from reliance on tariffs and duties to the direct taxation of incomes to finance the welfare-warfare state. The legitimacy of income taxation rests on the liberal principle of equal incidence on all citizens in respect of income from all sources. As such taxation was introduced by national states, but within a relatively open world economy, its application to income derived from international transactions or transnationally organized businesses has depended on the scope of tax jurisdiction asserted by states. This has focused crucially on the definition of the taxable subject, and on the methods developed for allocation between states of income according to source. The key concepts and principles underpinning this application emerged from an international debate which began in the 1920s, involving state officials and professionals representing business, which established both a normative system and a contested terrain of regulation. The application of income taxes to business income or profits by many countries, and the rise in tax rates to finance the First World War, led to the institutionalization in many states of a technocratic bureaucracy with a high degree of discretion,1 and the emergence of tax evasion and avoidance. National taxation of internationally organized business created a significant arena of contestation, involving both overtly political debates about the scope of taxation, and a process of enforcement and avoidance in the ‘penumbra’ of the key concepts and rules (see McCahery and Picciotto, Chapter 10 in this volume). In relation to international taxation, this has focused most importantly on the definition of the relevant subjects and the evaluation and allocation of taxable revenue or income between them. Globally orientated business complained from the beginning of ‘international double taxation’, and this has remained a key issue. Company residence or citizenship Great Britain Such complaints were expressed early in Britain, where income tax was long-established and had, since its first enactment in 1798 and its reintroduction in 1842, applied to the income of all residents from all sources, worldwide. When business began to make increasing use of the corporate form, in the last quarter of the nineteenth century, the question of company ‘residence’ became important. The courts decided that companies were ‘resident’ if controlled from the UK, and could therefore be liable to British taxes on profits even from business carried on wholly abroad.2 In 1906, they went further and upheld a Revenue assessment on De Beers, a company formed in South Africa and operating mines there, because ‘the directors’ meetings in London are the meetings where the real control is always exercised in practically all the important business of the company except the mining operations’ (De Beers v. Howe 1906). However, there was further ambiguity over the conceptualization of the profits from a business carried on wholly abroad: if this constituted a ‘trade’ carried on by the company, it would be taxable on the ‘arising’ basis, but if it was income from foreign ‘possessions’ it might only be assessed when remitted.3 Mitchell v. Egyptian Hotels (1914) appeared to decide that the company was only liable on a ‘trade’ if it was carried on at least partly in the UK; but a majority of the judges took the view that the same facts that established ‘residence’ implied that part of the trade was in the UK. Despite this fundamental confusion in the legal position, caused especially by the various misunderstandings and disagreements in the opinions of the diverse judges in the Court of Appeal and House of Lords in the Egyptian Hotels case, this important legal principle was not further clarified by test case or statute.4

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The concept of company ‘residence’ remains a key one in British tax law, yet it has never been given a statutory definition. Key elements of ambiguity as to its scope have provided a flexibility which appears to have suited both the Inland Revenue and corporate tax planners, at least during the period of international economic expansion in the 1950s and 1960s. Provided a business entity was properly managed wholly outside the UK, it could be used to shelter foreign earnings.5 In 1951 the Revenue’s powers were reinforced by broad statutory provisions requiring a company to obtain prior permission to transfer its residence abroad, transfer any part of its business to a non-resident, and even to issue a debenture (create a debt) through a non-resident company over which it had control.6 These powers were used to try to regulate the taxation of retained earnings from foreign operations of British-based company groups or TNCs, and to negotiate an acceptable rate of taxable remittances, by granting consents subject to conditions or undertakings. It appears that a common condition was to require the repatriation of a specified proportion of the profits accumulated overseas, such as 50–60 per cent, although due to the secretive and flexible nature of the procedure, the details are known only to those involved (Simon 1983–: para. D 4.112; Ashton 1981: 119). However, the specifics of the statute offered avoidance opportunities: for example an ‘off-the-shelf’ company which had no trade or business could start a UK branch and later become non-resident without consent; and such a company could also be set up by a directly owned non-resident subsidiary of a UK company (Dewhurst 1984). The criminal sanctions imposed by the section required proof of intent: but in practice company officers having taken authoritative legal advice could argue that they honestly believed no breach was involved, and could not be convicted without contrary evidence. No prosecution was brought in the four decades of life of the provision (ibid.). Although the Revenue tried to cling on to a broad (and vague) rule of company residence, within which it could reach informal accommodations with taxpayers’ advisers, by the 1970s this became increasingly untenable. On the one hand, the rule became easily and widely avoided, since ‘control’ was generally taken to mean the place where the key board meetings were held, and was therefore easy to manipulate. Not only could this affect the tax liability of foreign subsidiaries of British TNCs, but also foreign-resident companies could be formed with substantial business in the UK, avoiding liability to advance corporation tax, as well as corporation tax on overseas business and investment income and realized capital gains. Conversely, board meetings could be held in the UK if it was advantageous to import the losses of unprofitable subsidiaries via the group relief provisions. On the other hand, a broad approach to residence, which would not rely only on the location of board meetings, might not be upheld in the courts, since its results would be too sweeping. It might suit the Revenue to include in principle all unremitted income of foreign subsidiaries; but this could widen the net too far, for it could include, for example, foreign subsidiaries of non-British TNCs with regional headquarters in the UK, an increasingly frequent and desirable pattern following Britain’s entry into the EC.7 It seems that both changes in the patterns of international investment, as well as the increasingly aggressive use for tax avoidance of ambiguities in the rule, undermined the existing regulatory framework. Proposals were put forward in 1981 for a statutory definition of company residence based on the place where ‘the management of the company’s business as a whole was conducted’, but were attacked as too vague and broad. Instead, the government in 1984 enacted measures, in line with similar provisions introduced by other OECD countries, taxing the deemed foreign income of controlled foreign corporations (CFCs: see below), and further came into line with other states in 1988 by providing that any company incorporated in the UK is deemed resident there for tax purposes (FA 1988, s. 66). However, the test of central management and control has not yet been replaced, and this, as well as the requirement of approval for the issue of debentures by foreign subsidiaries, remains as a fall-back for the Revenue: thus, for example,

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a tax adviser has warned that foreign companies formed for investment in UK real estate (to avoid capital gains tax) may be treated as UK resident (Yerbury 1991:33). Germany Similar issues arose in Germany, where the Corporate Tax Law introduced in 1920 introduced the combined test of the ‘seat’ of a company or its place of top management.8 Thus, companies effectively managed from Germany but incorporated abroad (often to avoid high German tax rates on their foreign business) could be taxed in Germany on their business profits;9 and the Tax Administration Law of 1934 explicitly provided that a foreign subsidiary whose business was integrated with that of its German parent company should be regarded as managed and therefore resident in Germany.10 However, the ‘place of top management’ test did not include control of investment decisions, but focused on actual business management; and majority ownership was not necessarily top management, even if the majority shareholder was informed and consulted about important investment decisions.11 The rule ‘required a complete financial and organized integration’, and the courts finally held that it meant that the parent company must itself be carrying on a business of the same type as that of its dependent ‘organ’ and with which it was integrated.12 Thus, the German residence rule did not apply to a foreign holding company, and in practice became ‘essentially elective’ (Landwehrmann 1974:249). Rapid growth in the use of foreign intermediary companies in the 1960s to shelter the income of foreign subsidiaries led to political pressures, and the government produced a report on international avoidance (the Steueroasenbericht, or Tax Oases report, of 1964), and then enacted an administrative decree based on the general anti-avoidance provisions of the Tax Administration Law. However, the trend of court decisions was to restrict the scope of these provisions, which cast doubts on the validity of the decree. Hence, the government enacted an International Tax Law in 1972, modelled on the US Subpart F provisions of 1962, permitting taxation of the receipts of certain types of foreign base companies as the deemed income of their German owners. France and the USA In other countries the concept of the taxable subject developed differently, resulting both from the different social and political roots of the income tax and the influence of business lobbies on the legislature. Thus, in France the tax on business and commercial profits introduced in 1917 was one of a range of schedular taxes on different types of revenue, considered to be separate from and parallel to the personal individual income tax; although companies were taxed on their interest and dividend income from securities (considered as movable property) whether the debtor was in France or abroad. In the USA, the federal income tax introduced in 1917 applied to US citizens and companies incorporated in the US. This had far-reaching implications, since it meant that US TNCs operating through subsidiaries formed abroad could escape US taxation on foreign retained earnings until remitted. However, even a company formed outside the US was (and is) liable on income from business ‘effectively connected’ with the US, and the US source of income rules have consequently been an important focus of tax enforcement.13 The tax treaty system and the emergence of international tax planning Complaints by business against the unfairness and burden on their competitiveness of ‘international double taxation’ led to varied political responses. In Belgium, when the courts held in 1902 that the tax on a trade or

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industry could apply to the global income of a company carrying on business partly abroad, it immediately led to business pressures to exempt foreign-source income; although this failed, the law was changed to halve the tax rate applied to profits earned by foreign establishments (ICC 1921). Similarly, the complaints by British firms which grew as tax rates increased and other countries introduced income taxes, led to an arrangement introduced in 1916 within the British Empire to allow the deduction from the rate of UK tax of the rate of Dominion or colonial tax on the same revenue, up to half of the UK tax rate; but the Royal Commission of 1919–20 supported the Revenue view that broader co-ordination must be internationally agreed. The US corporation tax applied to the worldwide earnings of a US company (though not to its subsidiaries incorporated abroad, as mentioned above); complaints from US firms that this made them less competitive in foreign markets led to the introduction in 1920 of the foreign tax credit, which was also allowed against the underlying profits from which remitted dividends were paid from overseas subsidaries. Pressures by business were orchestrated as an international campaign particularly through the International Chamber of Commerce, which was given observer status with the League of Nations, and which has continued to play a key role in bringing together and articulating business and professional opinion on this and other similar matters. The League referred the matter to its Finance Committee, but hopes of a comprehensive international agreement were dashed because differences between national tax systems were too great. The best that could be achieved (following a major international conference in 1928) was agreement on model bilateral tax treaties, to be used as a basis for negotiation between states. These allocated tax rights, allowing states to tax business profits provided they were earned within their territory through a ‘permanent establishment’, and to tax residents on their world-wide income, provided they either exempted business profits taxed abroad or gave a credit for foreign taxes paid. Although not a member of the League, the US participated in its Fiscal Committee, set up after 1928 on the recommendation of a US lawyer, Mitchell Carroll, who had carried out studies of European tax law for the Commerce department and then moved to the State Department and became the American representative on that Committee (see below). The model tax treaty provided a flexible basis for minimal co-ordination of the application of national taxes to international activities. Although relatively slow progress was made in the negotiation of bilateral tax treaties in the 1930s (about sixty were concluded), the US-UK treaty negotiated in 1944–5 laid the basis for the post-war treaty network. Both Britain and the US actively engaged in negotiation and the network of treaties spread. After the UN failed, due to political conflicts, to resume the work of the League in modernizing the model, the initiative was taken by the OEEC/ OECD. However, the USA and the UK, as leading capitalexporting countries, rejected pressures both from business and from developing countries and other capitalimporting countries to allow total exemption of taxes on foreign-earned profits, since their Treasuries feared it would encourage competitive lowering of taxes and stimulate capital export. However, under the laws of both countries it was possible to defer home country taxation of foreign retained earnings, provided they were earned by foreign subsidiaries (in the case of British TNCs, if they were controlled outside the UK).14 This encouraged a rapid post-war growth of foreign direct investments, which took place largely on the basis of reinvested foreign earnings and foreign borrowings. This was the context for the institutionalization of international tax avoidance or ‘planning’. Already in the inter-war period the imperfect and haphazard co-ordination of international taxation had created both surprising anomalies and sudden vast increases in tax liability, leading to a sense of injustice, as well as loopholes which were quickly exploited, both in the structuring of international business and for the tax sheltering of private and family wealth. The continuation of high wartime marginal tax rates provided an incentive, and the authorities were slow to develop countermeasures, despite occasional publicity about tax dodging. For example, in the early 1920s the UK Inland Revenue, following publicity given to the case of

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Sir Robert Houston, found that many private investment companies had been formed in the Channel Islands under nominee ownership; but attempts to persuade or compel the islands under the British Crown to accept restrictions on non-resident ownership of companies and co-operation in enforcement of taxes failed, largely due to objections from the business lobby.15 In the US, Congress passed legislation against foreign personal holding companies in 1934, which was tightened up in 1937. This followed Treasury evidence to a joint Congressional Committee on Tax Evasion and Avoidance set up by President Roosevelt, showing a rapid growth of US-owned holding companies in the Bahamas (sixty-four companies set up in 1935–6), Panama, Newfoundland and other low-tax jurisdictions. The complex political, moral and economic, as well as legal, issues raised by the issue of tax jurisdiction were shown in the cause célèbre of the Vestey family (owners, amongst other businesses, of the Dewhurst chain of butchers’ shops). The Vestey brothers had left the UK in 1915 and moved the control of their business to Argentina, to avoid the consequences of the British rule on residence of companies. William Vestey was one of the businessmen who pleaded to the Royal Commission in 1919 for measures against international double taxation, stating that, while his tax position in Argentina suited him admirably, he would prefer to come back to Britain to live, work and die. He also wrote to the Prime Minister, Lloyd George, stating that if the brothers could be assured that they would pay only the same rate of tax as the American Beef Trust paid on similar business, they would immediately return. Failing to receive such assurances, they took legal advice from 1919 to 1921, as a result of which they established a family trust in Paris. Returning to London, they leased all their properties, cattle lands and freezing works in various countries to a UK company, Union Cold Storage, stipulating that the rents should be payable to the Paris trustees. The trust was set up so that its income should be used for the benefit of their family members (but not themselves); the trust deed also gave the Vestey brothers power to give directions to the trustees as to the investment of the trust fund, although subject to such directions the trustees were given unrestricted powers. In the meantime, the Revenue had put through Parliament in 1936 and 1938 very broad provisions which aimed to prevent a UK resident from continuing to enjoy income by transferring assets to a foreign company or trust and receiving from it loans, capital payments or other benefits. However, the terms of the statute were extremely widely drafted, especially the notion of ‘power to enjoy’ income derived by the UK resident as a result of the asset transfer. To be fully effective against any possible circumvention, the provisions aimed to include any beneficiaries and to tax the whole of the income sheltered (potentially including all the income of the transferee whether or not derived from the transferred assets), even if not actually paid over to the resident beneficiary. This gave the Revenue very broad powers; the provisons were later denounced in the standard monograph on the subject by an eminent QC and tax Counsel as creating a ‘preposterous state of affairs’ which could only be made tolerable by the Revenue’s exercise of ‘discretion as to whom, and how and how much income to assess’, a discretion so wide as to amount to a ‘suspension of the rule of law’ (Sumption 1982:116, 138). Following the death of Lord William Vestey, the Inland Revenue assessed his executors and his brother Edmund for the years 1937–41 for a total of £4 million, in respect of the receipts of the Paris trust. These assessments were upheld by the judges until the case reached the House of Lords in 1949. Evershed LJ in the Court of Appeal considered that the power to give the trustees directions gave the brothers effective control over the revenues produced from the assets, and that this was a benefit which amounted to a ‘power to enjoy’ income (Vestey’s Executors v. IRC 1949:69). The House of Lords disagreed, on the grounds that under English trust law the trust funds were to be applied for the benefit of the beneficiaries; the brothers’ power to give directions gave them no more than a right to direct the trustees to give them a loan on commercial terms, which would not amount to a payment or application of the income for their benefit as contemplated by the statute (Lord Simonds: 83; Lord Reid: 121). In any case, the power to direct the investments was given to them jointly, while the statute referred

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plainly to the power to enjoy of a person, in the singular.16 Thirty years later the Vestey trust gained an even more decisive victory when the House of Lords confined the scope of the anti-avoidance provisions of the statute to the actual transferor and not other beneficiaries (Vestey v. IRC 1979).17 Business justified international avoidance in terms of the inadequate arrangements for co-ordination of national taxes on international business and for prevention of international double taxation. For example, in pressing the government for a US-UK tax treaty in 1944, British firms with US subsidiaries said that due to the large US withholding tax on dividends they had been forced in the 1930s to repatriate their profits by ‘unsatisfactory expedients’ such as over-invoicing.18 The development of the treaty network shifted attention to the inadequacy of the foreign tax credit and the exploitation of tax deferral. By setting up intermediary companies in convenient locations, TNCs could minimize their global tax liability on retained earnings. Taxable profits of operating subsidiaries could be reduced by high deductions of interest (thin capitalization), and tax-deductible payments to related firms for technology, insurance, shipping, marketing and managerial services; by routing such payments through intermediaries located in convenient treaty countries, to base companies or holding companies in low-tax ‘havens’, the firm’s overall tax liability could be minimized. Tax havens and transfer pricing An important element in international avoidance has been the development of jurisdictions offering ‘off-shore’ facilities. These are not confined to the ‘classical’ tax havens, which offer low or no taxes, no foreign exchange controls for non-residents, and a high degree of bank and company secrecy. Many countries have either deliberately offered specific advantages to attract particular types of investment (for example, The Netherlands, Ireland, Singapore), or could be implicitly used for such due to peculiarities in the interaction of their laws with other countries. For example, the British rule taxing resident companies was for some time exploited by foreigners forming UK companies controlled from abroad (this was reputedly popular among Italian dentists). In addition to tax advantages, offshore jurisdictions offered freedom from banking and other regulations, which led to their rapid development from the early 1960s. This was initially tolerated by central banks and other regulatory authorities, as a means of providing international finance without the balance of payments problems caused by hot-money flows. Equally, big business and its professional advisers could justify their use of tax haven intermediary companies as providing an efficient means of raising and allocating investment finance, justified by the limited toleration of tax deferral. There was an awareness, however, of the need to negotiate the limits of such toleration. For example, a professional symposium in the late 1950s included a discussion comparing a Bahamas-Curaçao (now Netherlands Antilles) set-up as more ‘respectable’ than one based on Panama or Liberia (Tax Institute 1960: 211–12). Where an arrangement overstepped the limits of tolerability, the tax authorities could take action under the broad, discretionary rules which had been developed either by case-law or statute. In addition to the general rules and anti-avoidance provisions on company residence mentioned above, most national laws recognized the possibility that ‘sham’ transactions could be disregarded, although this was considered possible only in extreme cases. For example, in the US, in a case where the taxpayer, a resident alien, had completely failed to keep books clearly reflecting his income, the Tax Court agreed to disregard foreign corporations set up by him and to treat moneys received by them as received for the taxpayer’s use and benefit, which entitled the Revenue to compute his income (Factor v. CIR (1960). Another key case in the US Tax Court involved ‘back-to-back’ financing: promissory notes of a US company to a Bahamian affiliate had been transferred to a newly formed Honduran affiliate in exchange for its own notes bearing the same interest rate (Aiken Industries Inc. v. Commr. 1971). The court held that the Bahamian company was

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not entitled to treaty relief from withholding tax on the interest since it was not the ‘recipient’ of the interest. However, it is difficult to ignore the existence as a separate entity of an intermediary company if the transaction does not directly pass-through: for example, where it receives dividends, it is hard to treat it as a mere nominee if it has no legal obligation to pass on revenue received to a beneficial owner (Perry R.Bass v. Commr. 1968). Regulation based on bargaining within the framework of broad discretionary rules can be functional if there is sufficient understanding and acceptance of parameters between the players, that is, if there is a relatively small universe of ‘repeat players’, perhaps socially homogenous or operating within a shared professional ideology. It becomes dysfunctional if the underlying legitimizing principles are called into question, for example by broader public debate, or by the arrival of newcomers into the arena. Competition from newcomers can result either from demand by clients for a more aggressive approach to advice about regulatory avoidance (due to increased competition in the markets in which those clients are engaged), or from renewed competition among the professionals or professional groups offering such advice; although these demand and supply factors of course interact. The limits of bargained tolerance then become less clear, and recourse to authoritative adjudication by courts is unpredictable due to the vagueness of the overarching general rules. This frequently leads to the development of a much more specific framework of rules, whether as administrative rules or guidelines, or as formal law. But such attempts to establish a clearer, more specific and explicit delineation of the limits of acceptability depend on the existence of an adequate legitimizing perspective. Specific ‘bright line’ rules are also less flexible, and more open to avoidance strategies. Hence, a regulatory framework based on specific rules can equally become unstable, prompting recourse by the regulator to the underlying broader and more sweeping rules. However, once a regulatory field has been defined by specific rules as well as broad principles, it is rare for the detailed rules merely to be swept away or disregarded: rather, they are re-evaluated and replaced. Thus, there is a general tendency towards juridification, the enactment of more rules and regulations to define and structure the limits of economic transactions, although always based on the reconsideration and redefinition of the underlying broad liberal principles. Attempts to establish a more specific set of internationally agreed rules to limit international tax avoidance have been made in relation to the taxation of income accruing to foreign subsidiaries (defined as controlled foreign corporations, or CFCs); and in defining rules for transfer pricing between affiliated corporations. Taxation of CFC income on an accrual basis was first introduced by the US in the Subpart F provisions of 1962. The effective exemption from US taxation of the income of foreign subsidiaries unless remitted (discussed above) came to have an increasing significance as foreign direct investment by US TNCs grew rapidly in the 1950s (Surrey 1956:827). Proponents of foreign investment argued for complete exemption, and several legislative proposals to this effect were made in the 1950s; but closer study showed that the bulk of such investment was carried out by a small number of large corporations and mostly from retained earnings, so that the most that could be politically justified was the limited deferral sanctioned under existing rules.19 Congress rejected Kennedy Administration proposals to end deferral, but enacted the Subpart F provisions, which taxes the US shareholders of a CFC on their share of certain undistributed profits, broadly within the category of ‘passive’ income (although this is defined by specific provisions of the statute and regulations). Paradoxically, however, the result was effectively to legitimize tax deferral within the parameters defined in Subpart F (which became the focus of subsequent lobbying and amendment), and to stimulate further the use of tax haven intermediary companies. As public attention became focussed on the use made of tax havens, not only by ‘respectable’ business but by a variety of tax evaders including organized crime, political pressures grew to take action. Technical analysis also showed that the opportunities for tax arbitrage and evasion were distorting international

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investment flows. Provisions similar to those of the US have subsequently been introduced by most of the OECD countries: Canada (1971), Germany (1972), Japan (1978), France (1980), the UK (1984), New Zealand (1988) and Australia (1989).20 These define a CFC, in various ways, as an entity formed in a lowtax country and substantially owned by residents of the taxing state; and they deem the shareholders to be liable to tax on its ‘passive’ income. The effect is to introduce more precise rules defining when a foreign subsidiary may be taxable, and on which of its unremitted income. The ownership limits for a CFC create avoidance potential; and the need to define ‘passive income’ legitimizes other activities as validly carried out in low-tax havens (for example, transportation). It is significant that relatively little tax revenue has been produced in most of these states by these provisions.21 The move to CFC taxation was not directly coordinated internationally, although the OECD Fiscal Committee subsequently issued a report justifying it and discussing its limits (OECD 1987:II). In contrast, the principles of transfer price evaluation have been discussed at length, first in the League of Nations Fiscal Committee, and more recently in that of the OECD. The League commissioned a major study, financed by the Rockefeller Foundation, of the tax treatment in thirty-five countries of the allocation of international business income, co-ordinated by Mitchell Carroll. In the course of this study, Carroll visited some twenty-six countries and met officials and business contacts made through the ICC. The massive report Carroll produced (League of Nations, 1932, 1933) showed that national administrations mostly assessed local branches and subsidiaries on the basis of their separate accounts, but asserted powers to adjust those accounts if they considered there had been ‘diversion’ of profits due to under—or overpricing of transactions with related entities. Various criteria were used for such adjustments, including a comparison of profits or return on assets of the local entity with both other similar firms and as a proportion of the group of which it formed a part. However, it was considered impracticable to establish an international machinery or even criteria for a global method of assessment and allocation. The outcome was therefore broad agreement on the ‘arm’s length principle’: that is, that the accounts of branches or subsidiaries could be adjusted to ensure that their profits were those that would have accrued if the conditions between them had been those of independent enterprises dealing at arm’s length; this was included in the model tax treaty, and became the corner-stone of transfer price treatment. The arm’s length rule is a classic example of a general principle; it provided legitimation for the allocation of costs and profits between branches and subsidiaries of a TNC based on non-discrimination in comparison with purely national firms. However, each state must have (and was given) the power to scrutinize and if necessary adjust intra-firm prices; so the arm’s length rule merely postpones the need to agree on the basis for interstate allocation. Rather than tackle the issue directly by trying to obtain international agreement for a global approach and a formula for apportionment, the arm’s length principle entailed relying on national legitimation processes, backed up by an administrative process for ad hoc resolution of problem cases by bargaining between the national officials and professional representatives of business. This arrangement broke down when, as with tax havens, the issue of transfer pricing also became politicized during the 1960s, as part of a more generalized debate about the power of ‘the multinationals’. Here again the US took the lead, again with pressures in Congress in 1962 that the Treasury and IRS should more actively police the transfer pricing rules and make proposals for more specific regulations. Indeed, stricter enforcement had already begun, and business itself was anxious that the statutory powers of s. 482 of the Tax Code should be spelled out in detailed rules. Eventually, regulations were agreed in 1968, and have formed the basis not only for US practice, but also of an attempt to establish an internationally agreed set of rules. This is clearly important, since unless there is co-ordination between states making such adjustments, double taxation will result. An evaluation of these efforts is not possible here (see Picciotto 1992: ch. 8). Briefly, the exertions of the OECD Fiscal Committee, the main body co-ordinating this process, have

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produced only a series of discursive reports. Not only has it proved impossible to agree specific rules, it has become clear that, since what is at stake is essentially the definition and allocation of the tax base of internationally integrated corporate groups, the issue requires an international legitimation process. The arm’s length principle, in combination with the other main principles of the model tax treaty originating in the pre-war debates, had resulted in establishing a normative legal framework for allocation of tax rights, the legitimation for which was left to national political mechanisms. The arm’s length principle has become ‘the hostage of the bilateral treaty network’ (Vann 1991:105), and the tax treaty system itself has become inflexible. This implies a need to politicize the issues, to establish a new legitimation basis for a more explicit allocation regime. However, national officials as well as business representatives and tax advisers are extremely reluctant to see this take place, since it would undermine the existing processes of negotiated accommodation. Instead, there is an increasingly specialized and technical discussion, largely dominated by US lawyers, since it is the US procedures and rules22 which are the most elaborate, and which have the most cogency due to the importance of their application both to outward investment by US TNCs and inward investment, rapidly growing in recent years, by foreign TNCs into the US. THE DYNAMICS AND IDEOLOGY OF INTERNATIONAL TAX PLANNING When the question of ‘international double taxation’ first came into the public arena, it was treated as a problem in the sphere of public finance, primarily the province of economists. Thus, the League of Nations initially set up a committee of experts, consisting of four eminent economists (Bruins, Einaudi, Seligman and Stamp) whose report discussed tax allegiance, arguing that modern taxation was based on the ability to pay which gave primary tax rights to the state of residence, but involved also other elements of allegiance (for example, the location of an activity) attributable to the state of source of the income. Before they had reported, however, the issue had also been linked to that of capital flight and tax evasion, and a second Committee had been set up, of ‘technical experts’, consisting of government officials from Treasury or Revenue departments. This development was viewed with some suspicion by business representatives, who pointed to the overriding importance of facilitating free international capital movements; and the International Chamber of Commerce at its 1922 Congress condemned ‘all proposals attacking the freedom of exchange markets or the secrecy of banking operations’, although several members of the ICC’s Fiscal Commission thought that the problem of evasion should not be ducked (ICC 1925). The Technical Experts (who became the Fiscal Committee) linked the proposed arrangements for prevention of international double taxation to the prevention of fiscal evasion also, and proposed provisions for mutual administrative assistance in assessment and collection of tax. They emphasized that the combating of fraud would be for the general good; but also acknowledged that it was important to avoid the appearance that the international arrangements for administrative assistance entailed ‘an extension beyond national frontiers of an organised system of fiscal inquisition’ or an ‘organised plan of attack on the taxpayer’ (League of Nations 1927, 1928). Ironically, it was precisely in such terms that, over sixty years later, a multilateral convention for administrative assistance in taxation, drawn up through the OECD and the Council of Europe, was denounced by business groups and representatives. Largely due to this type of opposition, international administrative co-operation in enforcement and collection of taxes has been minimal, and has taken a secretive and discretionary form. As it became clear that international taxation was not just a policy issue which could be resolved by a comprehensive intergovernmental agreement, but opened up a whole field of administration and regulation, it became the province of officials on behalf of government, and of lawyers and accountants on behalf of

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private clients. For the structuring of their networks of foreign companies and trusts, businessmen consulted lawyers, especially in centres such as New York and London where corporate legal practice had already become established since the late nineteenth century. Lawyers began to become involved also in the official debates and discussions, when bodies representing business were consulted, notably the ICC. The principles and issues raised by international taxation became widely debated from the 1920s, increasingly in legaltechnical terms. Two of the Experts on the first committee set up by the League of Nations to consider the matter, although themselves economists, were invited to give lectures at the prestigious Hague Academy of International Law (Seligman 1927; Einaudi 1928). Mitchell Carroll One of the key figures in the development of international tax arrangements was Mitchell Carroll, who has already been mentioned. Carroll was in many ways characteristic of the US cosmopolitan liberal stratum of bankers and lawyers of the 1920s and 1930s (van der Pijl 1984), yet at the same time he was an unusual figure. In a memoir published in his eightieth year (Carroll 1978) he gave a highly personal account of his life and work. After graduating from Johns Hopkins University in 1920 he chose to go to Paris to study international law and French law, and also used his time in Europe to learn Spanish and German as well as French, and to obtain law degrees in both France (licence) and Germany (JD, Bonn). Returning to Washington, D.C., he was employed briefly in the law office of William C.Dennis specializing in international law, and then worked for the Department of Commerce while studying for his US law degree at George Washington University. He had already decided to focus on the field of ‘international law of importance to corporations’, and from his contract with American businessmen he concluded that, within this, ‘the most lively subject was the foreign taxes on American business’ (Carroll 1978:25). He prepared pamphlets for the Department of Commerce on the taxation of American business in a number of European countries, combining research visits to those countries with developing business and political contacts; for example, he attended the 1925 Brussels Congress of the International Chamber of Commerce on behalf of the Zinc Institute. On a visit to Geneva (where he had spent a summer as a student) he learned from the League of Nations secretariat that the State Department had not replied to an invitation for the US to participate in the Committee of Technical Experts studying double taxation and fiscal avoidance (due to the political opposition in Congress to the League). In Washington he gathered political and business support for such participation, and subsequently accompanied Professor Adams, the economic adviser to the Treasury, to the important meetings in 1927 and 1928, which resulted in the first model tax treaties. In 1929–30 he became involved with negotiations with the French government, following complaints from American firms with French subsidiaries who had been subjected to French taxation on dividends distributed in the US, in the same proportion that their assets in France bore to total assets. The outcome was the path-breaking USFrench tax treaty.23 Carroll’s apotheosis came in 1931, when the League’s Fiscal Committee asked him to conduct a comparative study of taxation of international business. It was funded by a $90,000 grant from the Rockefeller Foundation, and Carroll was to visit as many as possible of the thirty-five countries to which the Committee had sent a questionnaire, and discuss the compilation of the national responses by local officials. While in Geneva he received an invitation to a ball given by the Assembly of the League, and happened to be introduced to a young widow:

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I invited her to the ball and she was such a delightful partner that I decided to ask her to marry me. I had travelled alone round Europe again and again, and on my trip for the League I concluded she was sent by good fortune to convert incidentally my tax survey into a lune de miel. (Carroll 1978:43) They were indeed married a few months later and duly accomplished their international tax honeymoon (partly in his new wife’s ‘big Buick coupé’). They covered the US and Canada; Europe from Dublin to Athens; Egypt and India (‘we paused at Agra and beheld the stupendously beautiful Taj Mahal in the light of a February full moon. Taxes seemed immaterial in such splendor’); and went through much of south-east Asia (including Bali) to Japan. According to Carroll’s account, the Japanese officials were extremely courteous and polite but quite unresponsive, and he himself prepared the Japanese report, based on inquiries at the US embassy and among US firms. Returning home, via Hawaii, Mexico and Cuba, he spent the following spring and summer synthesizing the report, which was indeed a seminal document, especially in establishing the ‘arm’s length’ principle for evaluation of intra-firm transfer prices (League of Nations 1932, 1933; see Picciotto 1992: ch. 1.5). From 1933 Carroll practised as a lawyer in New York, where the contacts and knowledge he had gained proved invaluable in negotiating solutions to difficult international tax problems for various TNCs, and acted as lobbyist or advocate for business groups, supporting tax treaties, defending tax relief arrangements such as the foreign tax credit, and helping to devise new ones such as the Western Hemisphere Trade Corporation. In the meantime, he had succeeded Professor Adams in 1934 as the US member of the League’s Fiscal Committee,24 and in fact chaired the Committee from 1938 to 1946, bequeathing from its work a report containing a consolidated version of the model tax treaties with an explanatory Commentary, which formed the basis of the rapid post-war growth of a network of double tax treaties. He also helped to found the International Fiscal Association, and in 1939 was elected its first President, which he remained until 1971. As Carroll puts it, the IFA has provided a major forum for ‘an exchange of ideas contributed by all types of fiscal advisers, officials, corporate executives, lawyers, accountants, professors, and students of the international aspects of taxation’ (ibid.: 88), although undoubtedly the dominant voice has been that of the private professionals. Carroll explains that he was able to accept nomination as its president while serving as chairman of the League committee ‘Because I was a private citizen and no conflict was involved—both organizations being dedicated to promoting the same objective’ (ibid.: 90). For some thirty years he seems to have followed a pattern of crossing to Europe by Italian or French boat, and visiting clients en route to the venue of the annual IFA conference, where he enlivened his presidential address by reciting tax variations on student parodies of familiar verses by Lamartine, Heine, Lorenzo de’i Medici, Cervantes and Virgil.25 He also chaired the International and Comparative Law committee of the American Bar Association at the time of the Dumbarton Oaks and San Francisco meetings to found the United Nations (while also acting as consultant to the State Department on international tax), and organized meetings in various mid-West cities to explain the proposals and try to develop a more internationalist perspective among rank-and-file ABA members. Carroll was clearly an old-style ‘gentleman lawyer’, whose tax practice appears to have consisted of helping to resolve major anomalies and difficulties experienced by large TNCs, such as Unilever, Morgan Guaranty Trust and ITT. The notable examples of such cases which he himself recounts generally involved interceding directly with governments, including persuading negotiators to include provisions in pending treaties to resolve the issue in question (ibid.: 113–15). He speaks of his role as that of intervening on behalf of his clients in order to put a rational solution to the state officials, if necessary finding a practical formula that could bypass the rigid bureaucratic application of a rule which had produced the unreasonable or

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anomalous decision which required rectification. While one clearly cannot take the cases he mentions as being necessarily representative of his daily work, given the period in which he practised and his cultural style it is hard to imagine him operating in one of today’s bureaucratized law firms working on tax-driven deals such as double-dip leasing or complex currency/interest-rate swaps. Nevertheless, this is the world which he helped to create, both ideologically and in consequence of the regulatory arrangements which he helped to devise. Mediating between business and the state Carroll’s career demonstrates in particular the key role of the professional in mediating between private interests and public policy expressed through the state. The apparently objective and independent status of the professional allows a person such as Carroll to act simultaneously as a ‘consultant’ for the State Department, a ‘national expert’ on the League’s Fiscal Committee, and a private practitioner advocating the interests of business firms. This role is underpinned by the important, or even dominating, role of professionals in the ideological activities of associations, both those which are explicitly organizations of business groups, such as the ICC, as well as the more broadly based specialist institutions such as the IFA. Their national associations, international committees and periodic international assemblies bring together the specialists, both in-house corporate officers and private professionals (whether lawyers or accountants), for discussion meetings, education sessions and mainly informal lobbying. Conducted in technical terms, the dominant concern of most of the discussions is the minimization of the tax burden on business. Although academics and even government officials are involved, at least in the specialist organizations, it is generally in a subordinate or even servile role. Nevertheless, although public officials and private practitioners may share a common technical vocabulary and ideology, they maintain a sense of the different interests they represent. The symbiotic association of government officials and corporate lawyers has the characteristics of any poacher-gamekeeper relation, but with special features due to the specifics of the regulated field involved. A primary advantage of private practitioners is their control of information, both of the latest techniques and of their clients’ transactions. This can be used to keep a jump ahead of the enforcers in the development of new manoeuvres; but perhaps more important, it means that the state officials must undertake some level of consultation and even negotiation in introducing new rules or taking an enforcement initiative, to ensure that it does not have unforeseen undesirable consequences and will work effectively. There is an underlying common interest in a stable and functioning regulatory environment, which is facilitated by the existence of various forums for the development of a shared professional ideology: meetings, associations, journals. Movement of individuals is also common, although normally the career trajectory is from the government to the private sector. This again reinforces the private practitioner’s domination of knowledge production. State officials acting as regulators or rule-enforcers have the advantages of access to state power, to initiate enforcement action, or the promulgation of new rules, referred to as the monopolization of legitimate symbolic violence by Bourdieu (1986:3). While this gives them a power of initiative in the political field, the political processes of legitimation also constitute a contested arena, in which those with economic power have considerable political influence too. Moreover, there is an important interaction between the political and legal arenas, since political action takes the form of the enforcement or promulgation of rules. Hence, as mentioned above, there is an important common interest in preventing unpredictable undesirable effects and ensuring functional operability. It is here that lawyers are involved, in formulating proposals for legislative amendments, briefing papers and other technical-legal roles essential to political lobbying.

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Another important advantage of the private professionals is their national opportunism. State officials are tied to a specific national state bureaucracy and hampered by its often rigid hierarchies, divisions of political and administrative competences. and strict protocol; and although intergovern mental state structures have been important and should not be under-estimated,26 they are restricted by the still essentially national orientation of legitimation processes, sometimes referred to as national ‘sovereignty’. Instructively, means have been found of developing more functional processes of co-ordination of state administration, usually through semi-formal channels circumventing some of the limitations of intergovernmental diplomacy. Private parties, however, both business enterprises and their professional advisers, are able not only to exploit the various disjunctures of national state policies and instrumentalities, but most importantly, to develop these disjunctures to their advantage. This is perhaps the central lesson of the extended example I have provided, of international taxation. The ambiguities of the key central rules (relating to the definition of the legal subject of taxation and the allocation of revenues between subjects) create an arena of contested legitimation, also due to national differences and disjunctures. A common theme in the ideology used to justify international tax avoidance, for example by making use of tax havens, is that the problem lies not with the havens’ (lack of) regulations, but in the inappropriate, ineffective or unfair character of the regulations being avoided. Thus, Luigi Einaudi, who was one of the economists who authored the report for the League of Nations in 1923, argued that the existence of haven states puts pressure on others whose taxes are badly administered to make their taxation fairer (Einaudi 1928: 35–6). It was much later, as outlined above, that international tax planning developed the techniques which enabled TNCs to minimize their global tax liability on retained earnings. Their defenders or apologists argued that this was a legitimate measure to average international tax rates, or reduce them as far as possible to the lowest rather than the highest rates (Bracewell-Milnes 1980). Most commonly, the tax avoidance or ‘tax planning’ functions of practitioners is ideologically legitimized by a conspiratorial, deprecatory humour about the evil of taxes.27 Finally, the professionals did not merely take advantage of existing disjunctures or inadequacies of interstate co-ordination: they have themselves played an active role in developing them. They frequently offer, or are called upon for, help in designing the legal and administrative facilites of ‘off-shore’ jurisdictions: for example, a British tax lawyer amended the trusts law of the Cayman Islands in 1967 to avoid changes in the ‘power to enjoy’ rules enacted in British law; while in 1976 the same islands reinforced their bank secrecy laws on American advice following the decision of the US district court in the Field case (1976). One of the main motivating factors for states which have developed convenient legal and administrative regimes for use as ‘havens’ has been the importance of fomenting or developing a ‘financial services sector’. The justification in terms of job-creation is generally rather thin, in quantitative terms; but the benefits are undoubtedly substantial for the professional sector, often aided in this aim by benefits (not always legitimate) which it can offer to helpful politicians. NOTES 1 For example, in the United States, in administering wartime taxation of ‘excess profits’: Brownlee (1989:1617– 18). 2 Calcutta Jute Mills v. Nicolson; Cesena Sulphur v. Nicholson (1876). However, tax rates were low, and since the income tax was a single tax, companies were permitted to deduct at source the tax due on dividends paid to (and taxed as the income of) shareholders and credit the amounts against their own liability; the only potential losers were foreign-resident shareholders who were thereby obliged to pay UK taxes. But in the 1876 cases the British court said (with an imperial arrogance which is hard to imagine today) that if foreigners wished to place their money

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3 4 5

6

7

8

9 10 11 12

13

14

in London, they ‘must pay the cost of it’. In contrast, in 1984 Britain (in a joint move with the US) introduced an exemption for non-residents from withholding tax at source for interest on quoted Euro-bonds. Although this facilitates evasion by such non-residents of their home-country tax, it was considered necessary if London and New York were to continue to compete as international finance centres with offshore havens. Income from a trade is Case I of Schedule D, income from securities is Case IV, and possessions Case V; most income falling within the latter two become taxable on the arising basis after 1914. The issue is still of interest and the subject of legal reconstruction: see Sheridan (1990); Booth (1986). Thus, the Revenue lost an attempt to tax the entertainer David Frost who in 1967 set up a foreign partnership with a Bahamian company to exploit interests in television and film business outside the UK (mainly his participation in television programmes in the USA); the courts rejected the view that the company was a mere sham to avoid tax on Frost’s global earnings as a professional, since the company and partnership were properly managed and controlled in the Bahamas and their trade was wholly abroad: Newstead v. Frost (1980); until 1974 income derived by a UK resident person from the carrying on of a trade, profession or vocation abroad was taxable under Case V only on remittance: ICTA 1970, s. 122 (2)(b) repealed by FA 1974, s. 23. These become ICTA 1970, s. 482, and an important vestige still remains in ICTA 1988, s. 765. The Revenue issued rules for general consents, and applications for special consent were made to the department of the Chief Inspector (Company Residence). Applications, except in straightforward cases, were referred to an outside advisory panel, sitting in private (although allowing the attendance of the applicant’s representatives), whose task was to weigh the advantages to the applicant against the prospective loss of revenue and foreign exchange, and to recommend to the Chancellor whether it would be in the national interest for permission to be granted (Simon 1983–, para. D4.119). The position was further complicated by tax treaties, since in cases where a company is treated as resident by both treaty partners, the treaty definition of residence applies. Britain’s older treaties defined residence as where the business was ‘managed and controlled’, while later treaties used the test in the OECD model, of ‘place of effective management’. Although for a while the UK view was that the two terms were synonymous, the Revenue subsequently accepted that in the light of interpretations in other OECD countries, a difference existed (see Statement of Practice 6/83, reissued as amended as SP 1/90). The seat is the registered head office, which for a company formed under German law must be somewhere in Germany. The tax statutes of the various German states preceding this law, dating back to the Prussian Income Tax Law of 1891 which established the liability of corporations to income tax, were based only on the company’s seat (Weber-Fas 1968:218). Ibid.: 240, provides a translation of some of the main decisions of the German tax courts on this provision; see also Weber-Fas (1973). Steueranpassungsgesetz s. 15, Reichsgesetzblatt 1934–I, p. 928. Reichsfinanzhof Decision III 135/39 of 11 July 1939, translated in Weber-Fas (1968:246). Thus, in a case where the parent company co-ordinated four subsidiaries which operated railways, supplying them with rolling stock, and generally managing their financial, legal, investment and administrative activities, its operations were held to constitute representation of the group to the outside world, and thus of a different type from the actual business carried on by the affiliates themselves (Decision of the Reichsfinanzhof of 1 April 1941, I 290/40: [1942] Reichssteuer-blatt p. 947). Major changes were made in the 1980s to taxation of business carried on in the US through corporations formed abroad (often in tax havens such as the Netherlands Antilles), culminating in changes to the source of income rules and a new ‘branch tax’ introduced by the Tax Reform Act 1986. Both countries also enacted tax concessions for foreign investment: in the US the Western Hemisphere Trade Corporation, although enacted in 1942 to encourage foreign investment, was instead more used for the unintended purpose of exports (Surrey 1956:832–8); despite strong arguments for its abolition, Congress-found that this would upset established patterns of trade, and instead widened the exemption to create the Domestic International Sales Corporation (DISC) in 1971, and later the Foreign Sales Corporation (FSC). The UK from 1956 to 1965 provided exemption for the special category of Overseas Trade Corporations.

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15 See Johns (1983:85); Pocock (1975:62–7); Public Record Office file IR 40/ 7463. 16 This loophole was partly blocked by Finance Act 1969, s. 33. 17 Although the position was substantially restored legislatively in 1981 (Finance Act 1981, ss. 45–6, now ICTA 1988, ss. 739–41) the liability of beneficiaries other than transferors became limited to the benefits actually received and not the entire income from the transferred assets (Sumption 1982: ch. 7). 18 Representations made to the Foreign Office, and used to overcome Treasury objections to the US tax treaty (Public Record Office file FO371/38588). The US IRS since 1928 (Revenue Act, s. 45) had had powers to adjust such transfer prices to prevent this type of evasion which, judging by this evidence, was less than fully effective. 19 Exemption was argued by the IDAB’s Rockefeller Report Partners in Progress of 1951, and the Eisenhower Administration put proposals to Congress in 1953–4. However, economists have generally argued that deferral distorts investment decisions (Alworth 1988), although studies for the US Treasury pointed out that it is difficult to isolate the advantage for investment abroad without consideration of the lower effective marginal tax rate produced by other subsidies on domestic investment (Hufbauer and Foster 1977). 20 For a detailed comparison of the measures of the first six, see Arnold (1986). 21 See Picciotto (1992: ch. 7) for a more detailed evaluation. 22 Such as the new proposals for s. 482 regulations, published in early 1992, six years after the amendment to s. 482 in the 1986 Tax Reform Act on which they are based, and following four years of debate of the famous White Paper of 1988 (US Treasury 1988). 23 This was drafted in 1930 (Carroll, being the only participant in the negotiations who spoke both English and French, played a key mediating role) but not signed immediately due to French business pressures; according to Carroll, the Counsellor in the US Paris embassy obtained the signature of the French Minister of Finance in 1932, in exchange for a US favour which the latter had requested (Carroll 1978:41). The treaty was not ratified by France until 1934, after the US Congress had passed a provision authorizing retaliation against residents of countries imposing discriminatory or extraterritorial taxes. 24 Although the US was not a member of the League, since this was a committee of experts it was able to nominate an individual, who was then appointed by the League to the Committee. 25 For example, his ‘Odyssey of Five Decades in Developing International Tax Law’ begins:

Of payers and imposers of taxes I sing Who fight ‘evils’ of double taxation By limiting tax to one place and one time To obviate confiscation. 26 For example, political scientists who deride the political limitations of the League of Nations usually ignore its important role in tax matters, discussed above. 27 To take a typical example, Carroll (1978:97) remarks that the 1950 Congress of the IFA ‘was held in the ideal city for discussing tax problems arising out of devaluations, namely, Monte Carlo, which imposed no income tax’.

REFERENCES Airs, G.J. (1992) ‘EEC direct tax measures’, in Tolley’s Tax Planning, Croyden: Tolley Publishing. Alworth, Julian S. (1988) The Finance, Investment and Taxation Decisions of Multinationals, Oxford: Basil Blackwell. Arnold, Brian J. (1985) ‘The taxation of controlled foreign corporations: defining and designating tax havens’, British Tax Review, 286–305; 362–76. —— (1986) The Taxation of Foreign Controlled Corporations: An International Comparison, Toronto: Canadian Tax Foundation. Ashton, R.K. (1981) Anti-avoidance Legislation, London: Butterworths. Booth, Neil D. (1986) Residence, Domicile and UK Taxation, London: Butterworths.

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Bourdieu, Pierre (1986) ‘La force du droit: elements pour une socioligie du champ juridique’, Actes de la recherche en sciences sociales, no. 64: 3–19. Bracewell-Milnes, B. (1980) The Economics of International Tax Avoidance: Political power versus economic law, Deventer: Kluwer. Brady, S. (1991) ‘The Banks’ new money machine’, Euromoney, December: 27. Brownlee, W.Elliot (1989) ‘Taxation for a strong and virtuous republic’, Tax Notes, 25 December: 1613–20. Carroll, Mitchell B. (1978) Global Perspectives of an International Tax Lawyer, Hicksville, N.Y.: Exposition Press. Dewhurst (1984) ‘Getting the measure of s. 482’, British Tax Review, 282. Dezalay, Yves (1991) ‘Marchands de droit: L’expansion du modèle “americain” et la construction d’un ordre juridique transnational’, Travaux de recherche, no. 3, CNRS, Centre de Recherche Interdisciplinaire de Vaucresson. Eburne, Andrew (1991) ‘Accountants and lawyers heading for a showdown’, International Financial Law Review, May, 15–18. Einaudi, Luigi (1928) ‘La cooperation internationale en matière fiscale’, Académie de Droit International, La Haye, Receuil des Cours, 25:1–123. Hufbauer, Gary and Foster, David (1977) ‘US taxation of the undistributed income of controlled foreign corporations’, in US Treasury, Essays in International Taxation, Washington, D.C.: US Government Printing Office. ICC (International Chamber of Commerce) (1921) Double Taxation: Report of Select Committee to First Congress, Brochure no. 11, Paris: ICC. (1925) Report of 3rd Congress (Brussels), Group Meetings. Paris: ICC. Johns R.A. (1983) Tax Havens and Offshore Finance: A Study of Transnational Economic Development, London: Frances Pinter. Landwehrmann, Friedrich (1974) ‘Legislative development of international corporate taxation in Germany: lessons for the United States’, Harvard International Law Journal 15: 238–97. League of Nations (1923) Economic and Financial Committee. Report on Double Taxation Submitted to the Financial Committee, 5 April. Document EFS.73.F.19. —— (1927) Double Taxation and Tax Evasion. Report by the Committee of Techni-cal Experts, April. Document C. 216.M.85. 1927II. —— (1928) Double Taxation and Tax Evasion. Report by the General Meeting of Governmental Experts on Double Taxation and Fiscal Evasion, Geneva. October. Document C.562. M.178. 192811. —— (1932) Taxation of Foreign and National Enterprises, vol. 1: France, Germany, Spain, the UK and the USA, Doc. no. C.73.M.38, 1932II A 3, Geneva: League of Nations. —— (1933) Taxation of Foreign and National Enterprises, vols 2 and 3; and Methods of Allocating Taxable Income, vol. 4, Doc. no. C.425.M.217 1933II A 18, Geneva: League of Nations. OECD. Committee on Fiscal Affairs (1987) International Tax Avoidance and Evasion: Four Related Studies, Issues in International Taxation, no. 1, I: Tax Havens: Measures to Prevent Abuse by Taxpayers; II: Double Taxation Conventions and the Use of Base Companies; III: Double Taxation Conventions and the Use of Conduit Companies; IV: Taxation and the Abuse of Bank Secrecy, Paris: OECD. Page, Nigel (1991) ‘Taxing times: quality vs quantity?’ Legal Business Magazine, July/August: 18–24. Picciotto, Sol (1992) International Business Taxation, London: Weidenfeld and Nicolson. Pocock, H.R.S. (1975) The Memoirs of Lord Coutanche: A Jerseyman Looks Back, London and Chichester: Phillimore. Seligman, Edwin R.A. (1927) ‘La double imposition et la cooperation fiscale’, Académie de Droit International de la Haye, Receuil des Cours, 20: 463–603. Sheridan, Denis (1990) ‘The residence of companies for taxation purposes’, British Tax Review, 78–112. Simon (1983–) Simon’s Taxes, rev. 3rd edn (loose-leaf, with updating service), London: Butterworth. Sumption, A. (1982) Taxation of Overseas Income and Gains, 4th edn, London: Butterworth. Surrey, S.S. (1956) ‘Current issues in the taxation of corporate foreign investment’, Columbia Law Review, 56: 815. Tax Institute (1960) Taxation and Operations Abroad, symposium conducted at the Tax Institute, Princeton, New Jersey. US Treasury Department (1988). ‘A study of intercompany pricing’, discussion draft (the White Paper).

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van der Pijl, Kees (1984) The Making of an Atlantic Ruling Class, London: Verso. Vann, R.J. (1991) ‘A model tax treaty for the Asian-Pacific region?’, Bulletin for International Fiscal Documentation, 99–111; 151–63. Weber-Fas, Rudolf (1968) ‘Corporate residence rules for international tax jurisdiction: a study of American and German law’, Harvard Journal on Legislation, 5: 175–251. (1973) Internationale Steurrechtssprechung. Die Entscheidungen des Reichsfinanzhofs und Bundesfinanzhofs zum Recht der Deutschen Doppelsteuerungsabkommen, Cologne: Carl Heymanns Verlag. Yerbury, Paul D. (1991) ‘Tax developments: United Kingdom’, International Business Lawyer, January: 32.

TABLE OF CASES CITED Aiken Industries Inc. v. Commissioner (1971) 56 T.C. 925. Calcutta Jute Mills v Nicholson; Cesena Sulphur v. Nicholson (1876) 1 T.C. 83, 88. De Beers v. Howe [1906] A.C. 455. Factor v. CIR (1960) 281 F 2d 100; cert.den. (1961) 364 U.S. 933. In re Grand Jury Proceedings, US v. Field (1976) 532 F. 2d. 404. Newstead v. Frost [1980] 1 W.L.R. 135. H.L. Perry R. Bass v. Commissioner (1968) 50 T.C. 595. Vestey v. IRC [1979] 2 All E.R. 225; affd. [1979] 3 All E.R. 976. Vestey’s Executors v. IRC (1949) 31 TC 1.

Chapter 2 Calculating corporate failure Peter Miller and Michael Power1

Corporate failure has neither the objectivity nor the immutability often attributed to it. Of course, it is possible to measure and chart the volume or rate of corporate failures, and this can be taken as an indication of recovery or decline for the economy as a whole. Moreover, the failure of individual companies clearly can have devastating consequences for individuals, families, and even entire towns and regions. But, important as these dimensions of corporate failure are, it is more than a given statistical event or personal experience. The intense criticisms of the financial reporting function that often follow major corporate failures frequently miss the point, in so far as such criticisms appeal to corporate profitability and asset strength as an underlying economic reality that has been hidden from view. The moment of corporate failure is more complex than such ‘realist’ appeals would suggest. For corporate failure is itself constituted out of an assemblage of calculative technologies, expert claims and modes of judgement. Accounting does not function here as a mirror that reflects an underlying economic reality, one that law has only to acknowledge and regulate. Rather, the calculative technologies of accounting provide financial norms around which complex processes of negotiation of domains and outcomes can take place. The calculation of corporate failure has a significance for liberal societies that goes beyond the constitution of a domain to be governed and a technology that makes this possible. Such societies must devise a balance of arrangements in which companies can be allowed to fail according to the rules of the market game, while there must also exist orderly and equitable arrangements for the regulation and satisfaction of residual claims on the failed entity. The philosophy of ‘level playing fields’ demands suitable arrangements for dealing with injured players: …it is essential to free market competition that only the fittest survive and that the unfit and the unlucky fail… Equally, it is important that bankruptcy law be used sparingly to recover as much as possible for creditors where an individual is genuinely beyond redemption, and not be available for aggressive creditors to oppress an individual in temporary difficulties over a modern debt. (Clarke 1986:140) Despite the varied state preoccupations with corporate failure, the precise conditions of entry to, performance in and exit from the corporate domain highlight a general problem for liberal mentalities of government: how to administer activities made possible by complex interrelationships between different orders of claimant in such a way that economic and social life is not unduly damaged by the workings of the market, and yet to do so without giving rise to a limitless expansion of the domain of political intervention. That is, a governmental concern with corporate failure focuses attention on the issue of how to enact a principle of limitation that can be applied to governmental actions, such that things will occur for the best, in conformity with the rationality of government. As Michel Foucault has rather elliptically expressed it, ‘if

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one governed too much, one did not govern at all’ (Foucault 1986:242). For government has to deal with complex and independent realities such as society and the economy that have their own laws and mechanisms which cannot be completely penetrated by regulatory mechanisms. Not only is it unnecessary to seek to govern too much, since economic processes contain their own intrinsic mechanisms of regulation, but it is harmful in so far as it is likely to give rise to effects other than those desired (Burchell 1991:126).2 The calculative expertise of accountancy operates today as a way of seeking to resolve this problem of liberal government. The recognition of a realm of potentially ‘private’ knowledge, one that government is obliged to acknowledge in its own interests, opens up a space for the calculative technologies of accountancy to occupy. A principle of limitation of the domain of political intervention can be reconciled, by calculative expertise, with a recognition of the decisive political significance of formally private activities. Calculative expertise is constituted as an art of government of the economy within a problematic of government that makes the finitude of the state’s power to act an immediate consequence of the limitation of its power to know (Gordon 1991:16). It is into this opening between governmental rationalities and economic knowledge that accountancy has inserted itself as a way of objectifying and intervening in an aspect of economic life that is intrinsic to liberal modes of government. This dual requirement of a general limitation of governmental intervention, together with an obligation to govern, is none the less a particularly difficult challenge for liberal rationalities of government (Miller and Rose 1990). For corporate failure sharply highlights this dilemma and gives rise to a whole series of potential problematizations of liberal rationalities. Here, the harshness of an economy left to the play of formally private forces is most vividly exposed. Here also, logics other than those of the market are demanded and sometimes brought into play, whether these be government subsidies, indirect government support for regions and industries, supra-national mechanisms, state-centred systems of welfare and insurance, and much else besides. In cases of corporate failure, and especially at those moments when these become more numerous, the boundaries and limits of liberal modalities of government are given clearest practical expression, albeit in a variety of ways.3 And pragmatic difficulties can rise in the administration of corporate failure, for instance when there is public criticism over the fee levels of insolvency practitioners, the agents of regulation of corporate failure in the UK, due to the contrast between the fate of ‘innocent’ depositors and investors and the earnings of these financial experts.4 Corporate failure is thus a particularly acute problem for liberal mentalities of government, in so far as mechanisms are required for administering the collapse of contractual relations, yet these mechanisms have to remain firmly in the domain of the ‘private’ economy (Castel 1976). It is here that calculative expertise finds its true vocation. In the UK, the ascendancy of the know-how of the accountant expressed not simply the rationality of the enterprise (Montagna 1990) but also a particular rationality of government, one in which the figure of the expert, operating ‘beyond good and evil’ and formally separate from the state, has come to play such a valuable role (Rose and Miller 1992). In certifying, adjudicating and intervening in instances of corporate failure, the calculative expertise of accountancy has sought to remove such events from the controversial and conflicted terrain of politics, and to place them firmly on the calm yet beguiling territory of truth; calm because the products of accounting calculations have the aura of objectivity, beguiling because the truths of accounting are subject to market forces like any other commodity. Corporate failure is constituted and administered within and through the complex of interrelations formed between these competing demands and aspirations, and on a territory made up through competition and conflict between agents, opinions and know-how. We need to be attentive to this ‘pragmatic’ dimension of the domain of corporate failure (Boltanski and Thevenot 1991). We need to address the devices and mechanisms through which particular agents construct and impose an order upon an otherwise indecipherable flux of events, as well as the discursive realm within which are set out the ideals and

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aspirations of particular ways of governing. Corporate failure has no existence independent of this assemblage of ideas and interventions, and of the territories within which it is enacted. Whilst the administration of such territories and the events that populate them take varying occupational forms in different countries, particularly in terms of the relative functions of lawyers and accountants, it is not the demarcations between formally separated and legitimated bodies of expertise that is of central importance.5 Rather, it is the interplay between calculative technologies, expert authority and judgement, and political rationality that is decisive in the administration of corporate failure. For the specific calculative technologies of accountancy have no natural locale, they can operate just as readily within the territory of the accountant, the lawyer or other hybrid domains of corporate expertise. Moreover, failure as much as success can be constructed by the ‘creative’ technologies of accountancy, thereby defining the terms in which claimants on the resources of the enterprise can articulate and pursue their interests. By examining the roles of specific calculative technologies with an assemblage of diverse components, we can begin to understand pronouncements of corporate failure as a particular moment within the liberal government of economic life. The calculation of corporate failure can be analysed in terms of three principal moments. First, it concerns the strategies for financial representation of corporate performance prior to failure, and the search for adequate definitions of success and failure within the economic system. Second, it is a question of the arrangements for those companies which, having been pronounced as failed, enter an administrative system for the efficient satisfaction of claimants’ rights on the assets of the business. These two moments are linked by a ‘politics of knowledge’ in which the rules of exit from the economy are constructed and linked to institutional arrangements for dealing with failed companies. There is a third, hybrid case in which a company that is unable to pay its debts is subject to rescue and reconstruction prior to the machinery for administering corporate failure being brought into play. Since the actors in this market for corporate diagnosis and cure overlap in significant ways with insolvency practice, corporate failure cannot be adequately understood without consideration of this third case, and of the various forms of expertise that surround it. As a way of illustrating these different moments of corporate failure, let us consider first, by means of an example, the negotiability of corporate failure. THE NEGOTIABILITY OF CORPORATE FAILURE The negotiability of corporate failure is illustrated clearly by the recent case of Brent Walker PLC in the UK. This example confirms the well-known adage that if a person owes the bank £1,000 then that person is in trouble, but if the amount is £1,000,000 then it is the bank that has a problem.6 To put the point another way, scale has a significant bearing upon the incentive structures within which the calculation of corporate failure takes place. Such calculations are likely to bear a complex relation to the attitudes, expectations and actions of the claimants on a ‘failing’ company’s assets. Brent Walker expanded rapidly in the corporate environment of the 1980s via a series of acquisitions, the largest being the bookmakers William Hill. This growth was founded upon a complex network of bank loans. In autumn 1990, difficulties in servicing these loans became apparent and, as the company was ‘technically insolvent’ in the sense of liabilities exceeding assets, the possibility of receivership, whereby some of the major banks would seek to recover their security, was likely. However, two of the businesses in the Brent Walker group, the pubs and betting offices, were trading profitably and this created the ‘window’ through which an escape from receivership might be possible. The complexity of the various creditors of Brent Walker, with whom any rescheduling and restructuring of debt would need to be agreed simultaneously, was potentially prohibitive for any such rescue plan. There

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were nearly sixty main bank lenders with different levels of exposure and security on the loans. This network had arisen during a period when banks were competing internationally to lend money at the expense, so it is argued, of more considered assessments of the security for such loans. Indeed, the level of corporate collapses in the UK in the early 1990s has been accompanied by extensive criticisms of bank lending policies, triggering well-worn debates on the role of the mechanical as opposed to the discretionary dimensions of lending policy. Indeed, the first moment of calculating corporate failure described above is constituted by a network of institutions, and their demands for rational and routine forms of ‘credit knowledge’ as a basis for financing economic expansion. The rescue of Brent Walker has been described as the ‘largest in UK corporate history’ involving complex negotiations with creditors whose perceived position depended upon the likely actions of others.7 Calculation played a central role in this elaborate brokerage: ‘Throughout the process, banks were calculating whether they would be better off approving a refinancing or calling in a receiver.’8 The restructuring was conducted for each claimant against background calculations of likely gains from receivership as compared with the option of rescue and some form of dilution of the strength of existing claims. In this respect, the most sensitive group of claimants were the large bondholders who were faced with the choice of initiating receivership or converting secured debt into some form of equity interest. Because the cost-benefit calculations of each bank necessarily included expectations about the behaviour of other banks, teams of corporate advisors sought to advise, mediate and crystallize their actions simultaneously. Calculation and negotiation were intimately related in the reconstruction of these financial claims.9 The idea that corporate failure, far from being an objective state of affairs, is constructed within a network of economic calculations, expert interventions and negotiation may appear counterintuitive. But the example of Brent Walker provides clear evidence of this. For in the UK contest, corporate rescue emerges at the threshold of legal arrangements for insolvency, and of a market that is conventionally seen to determine the ‘reality’ of corporate survival. In such an arena, accounting functions as part of a strategy for persuading creditors to realign their interests. It is in this intermediate space at the gateway to insolvency law that accountants as expert ‘calculators’ compete in the market for corporate advice with lawyers, consultants and other specialists, a market characterized increasingly by narrow professional attention to the facilitation of transactions regardless of broader social purposes (Dezalay 1990). Here, the calculative technologies of accountancy trigger legal processes, and provide the knowledge of those processes that law comes to administer after the event. Regarding the first moment of corporate failure described above, the financial representations prior to the constitution of failure are varied, dispersed, and not solely the domain of the professional accountant. While financial statements are an important centre of gravity for this activity, secondary calculations have developed and been widely institutionalized in the form of analyses of significant ratios. In this domain accounting numbers, if not accountants themselves, play a role in the emergence of credit analysis and other bodies of analytical knowledge. The prediction of corporate failure is the more or less explicit ideal of such calculative technologies. In the next section we consider the emergence and institutionalization of this calculative technology of ratio analysis as a basis for defining the moment of corporate failure. We argue that the hopes invested in ratio analysis as a quasi-scientific predictive technology obscure the fact that such ratios become internalized by corporate stakeholders and form an important basis upon which perceptions of health and sickness are made. Furthermore, ratio analysis is a form of abstract knowledge in Abbott’s (1988) sense, and has not generated or been incorporated within the relatively bounded enclosures that so often characterize the intensification and defence of the powers of particular bodies of expertise (Rose and Miller 1992:188). Ratio analysis has operated within diverse professional territories, and has been mobilized

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in diverse strategies for the government of economic life. Thus there have been very specific institutionalizations of ratios for regulatory purposes. For example, in the regime for defining and controlling the ‘capital adequacy’ of financial institutions, accounting numbers feed into ratio calculations as norms which define matters such as solvency. We consider this example further below. Once the moment of failure has been pronounced and certified it may, but not always as the example of Brent Walker shows, enter the second phase of administrative arrangements. In contrast to the first moment, these arrangements are normally closely regulated by law. However, control of this administrative process is varied; in the UK it is dominated by the insolvency practices of the ‘Big Six’ firms of accountants whose activities straddle both the legally created market for insolvency administration and the extra-legal market for corporate rescue. In the former, creativity is a breach of regulatory duty, in the latter it is a competitive necessity. In the next section we briefly consider the nature of these arrangements, not only as the expert ‘certification’ of events, but also in a broader sense as the basis for the governance of a particular moment of economic life. By coming within the legal machinery for insolvency management, the failure of a company is ‘authorized’, and further calculative technologies are set in motion under the control of insolvency practitioners. The role of these practitioners is a complex one within a liberal economic system, for it is a contradictory mixture of regulatory agent for the state and private sector entrepreneur. The calculation of corporate failure requires and inspires a vast and heterogeneous labour of accumulation and tabulation of numbers. Events and phenomena are transformed into information of a type suitable for linking diverse economic claimants to regulatory programmes. Just as the point of failure of the human body is reciprocally linked to a medical expertise that has sought constantly to know and define, as well as pronounce, the ‘moment of death’, so too is the failure of the corporate body a comparable matter of calculative expertise. Indeed, in the publication of documents such as Company Pathology by County NatWest in 1991, and the associated use of terms such as ‘company doctor’, the parallels in vocabulary are obvious. From this point of view, the insolvency practitioner has as distinctive an occupational position as the mortician but with the important exception that resurrection is, in unusual cases, a possibility. Indeed, to the extent that insolvency practitioners do not simply represent ‘financial distress’ but enact a complex diagnostic chain (Abbot 1988:44) then they are more akin to arbiters of life and death itself. But where the possibility of a return trip exists, the fees of the ferryman can be very high. MAKING CORPORATE FAILURE CALCULABLE The Insolvency Act 1986 is the most recent statutory attempt to represent and intervene in the matter of corporate failure in the United Kingdom. With this piece of legislation we appear to have reached firm ground with the following definition of insolvency: ‘insolvency’, in relation to a company includes the approval of a voluntary arrangement under Part 1, the making of an administration order or the appointment of an administrative receiver. (Section 247[1], Insolvency Act 1986) But this legal definition of insolvency is a procedural matter, rather than one that takes us to the heart of insolvency as an economic event. It sets out the formal procedures available for the administration of insolvent companies, yet it fails to define or refer to the economic substance of insolvency or company failure. It offers no assessment or judgement on such a crucial question as company health. Rather, by appeal to the formality of legal process, it creates a legal space within which such matters can be negotiated. In substance, the administration of failure remains dependent on extra-legal representations of insolvency. For

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example, before the court can make an order which temporarily freezes creditor rights and prevents a company being put into liquidation, experts such as accountants will be instrumental in persuading it that such an order will promote its survival or the more advantageous realization of the assets. The matrix of rules, rights and duties that law elaborates comes into play only after a relevant claimant party has successfully appealed to and invoked its procedural mechanisms. It is important to examine the different institutional pressures for the regulation of insolvency that vary from one country to another, leading either to the ‘bureaucratic rationalization of rule’ (Rueschemeyer 1989) or to the moral regulation of markets (Halliday and Carruthers 1990). It is important also to consider the cultural variation in the ways in which accountants, on the basis of their position in a particular system of professional knowledge, are able to transform their abstract technological resources into jurisdictional control of such tasks (Abbott 1988). For, as we shall see, this can act as an important corrective to the parochialism of much Anglo-American scholarship in the rise of the professions. But in the concern to rectify a parochialism that is both theoretical and empirical, the significance of these ‘turf’ squabbles and rivalries needs to be set in the broader context of social arrangements which link chains of calculative technologies to the administration of failed companies (Dezalay 1991). For it is through such chains of calculation that the legal regulation of insolvency has come to be dependent on extralegal bodies of expertise. Accountancy provides the basis for these calculative technologies which are largely external to the complex procedural rules of insolvency law. Before corporate failure can be internalized within the legal system, it has first to be represented and calculated as an economic event by means of the calculative technologies of accountancy. It is the calculative preconditions for the legal regulation of insolvency that concern us in this section of the essay. Although we consider the question of professional control of the market for insolvency services below, there is more to an understanding of recent changes in this area than a tracing of the various proposals, counter-proposals and rivalries between diverse bodies, whether these be viewed as driven by ‘state sponsorship’ or ‘professional co-optation’ (Halliday and Carruthers 1990). There is also more to understanding these calculative preconditions than accounting understood as financial reporting. For the diagnosis of corporate health and failure has become indissociable in certain national contexts from the calculative technology of ratio analysis. Ratio analysis provides a way of thinking about and calculating events that promises to distil the complex and disparate nature of a corporation into an economic essence. It is part of the ‘symbolic field’ within which corporate actions can be made visible to a wide range of constituencies (Bourdieu 1977, 1990a, 1990b). Certainly, businesses failed before the advent of ratio analysis, but the emergence of ratio analysis has transformed the nature of corporate failure and opened it up to a new regime of judgement and assessment. Ratio analysis has a history of its own that is distinct from such processes as the professionalization of accountants in the UK, one that has developed in close association with insolvency work. Ratio analysis emerged in the United States in the 1890s, where the concerns on the part of banks and other credit institutions to demonstrate the solvency of borrowers demanded a new knowledge of corporate health (Dev 1974; Horrigan 1968). The growing institutional distance and impersonality between capital providers and businesses, as compared with continental Europe, contributed to the dissemination of a new body of analytical knowledge capable of acting at great distances (Miller 1991; Miller and Rose 1990). Forms of ratio analysis emerged and became established as a basis for providing a particular visibility to the temporal structure of financial flows in distant organizations. The ‘short term’ became an object of calculation and concern, and accounting classifications such as ‘current assets’ provided intermediate levels of aggregation for further calculative purposes. Performance and liquidity ratios were developed that held out the seductive promise that the ability of a company to meet

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debts as they fall due might be distilled into a single figure or, more likely, a hierarchical cluster of figures (Miller 1992). Today, ratios have become self-evident ways of representing and calculating the condition of a company both for external credit and for internal monitoring and control purposes. The latter function has its origins in the hierarchy of ratios developed by the du Pont Company in which systematic interrelation rather than single figure dependency created a new ‘science’ of managerial knowledge in the organization of analytical components (Horrigan 1968:286). A system of ratios that sought to provide ‘indicators of the status of fundamental relationships within the business’ was first elaborated in the early 1920s (Bliss 1923). The novelty of this quantifying aspiration is indicated by the criticisms that it provoked. Thus Gilman (1925) argued that ratio analysis, and the computation of industry norms in particular, diverted analytical attention from a more comprehensive view of the corporation. However, the quantifiers won out over those who called for particularistic understandings of corporations. Institutional innovation was an important aspect of this rise of the quantifying ideal. Thus the National Credit Office was established in the 1930s, and the newly formed Securities and Exchange Commission, which influenced both the supply and content of financial statements, also began to publish ratio data of its own. The promise of a calculative expertise that would predict corporate failure and make possible scientific control of the enterprise was not unilaterally endorsed. A number of studies appeared in the 1930s in the United States that sought to explore or challenge the ‘efficiency’ of ratios in these respects. More recent prediction studies, such as Beaver et al. (1968), have their origins in this earlier programmatic optimism in the function of ratios. But whilst the more hopeful promoters of definitively predictive ratios were to be disappointed, largely due to growing preoccupations with the methodology of these studies, certain ratios began to assume a centrality in the calculative network that had developed around the phenomenon of corporate failure. For example, from the solvency focus of US banks in the late nineteenth century emerged the stipulation that ‘quick assets’ were the only basis for loans and that the debt limit of a borrower was exceeded when liabilities were greater than 50 per cent of quick assets (Dev 1974: 62). In addition, the rationale for a 2:1 ratio between current assets and current liabilities, as Dev points out, was that companies were considered more from a liquidation angle than as ‘going concerns’ (ibid.: 62). Ratio analysis thus emerged as a key link or relay in a chain of calculative operations carried out in diverse institutional sites by distant economic actors. Despite, or perhaps because of, its parasitic relationship to financial accounting, ratio analysis made possible new ways of acting upon enterprises. It helped to foster a particular conception of time horizons, and an exclusively financial way of knowing corporations, one that did not require detailed understanding of financial statements. It was through ratio analysis that the concerns and actions of disparate agencies, such as the Federal Reserve, the SEC and market analysts, were able to be linked together as ‘users’ of financial accounts, and that secondary calculations could be brought into play.10 The origins of the problem of ‘short termism’ in finance markets is undoubtedly linked to the development of these calculative bodies of periodic knowledge, and their constitutive implications for the routine assessment of ‘performance’. Once ‘performance’ ratios can be calculated, performance can be known relative to institutionalized time horizons. Such time horizons may differ according to cultural patterns of financing arrangements, macroeconomic management strategies, and the structural settings in which the interests of claimants upon the corporation can be expressed. But caution is needed here with respect to traditional images of the differences between German and US corporate financing cultures. It is not so much that the supposedly more intimate and long-term relationship between German banks and small businesses dispenses with the need for ratios. Rather, by comparison with the USA, such ratios occupy different institutional arenas and public spaces, and develop within different networks of ways of knowing and acting upon the corporation.

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Indeed, one may contrast regulatory optimism concerning impersonal scientific bases for the control of corporate life with those that emphasize the virtues of personal contact.11 The calculative technology of ratio analysis can function differently according to the different locales and networks within which it is inserted. But the relations between such a calculative technology and the institutional settings in which it operates are not those of exteriority. Ratio analysis not only answers to the demands of particular agencies, but helps to constitute the type of relations that can be established between economic actors. Moreover, in so far as calculations carried out in one locale are linked to calculations carried out elsewhere, we need to attend to the whole chain of calculations within which ratio analysis is embedded. For example, changes in the format of financial statements need to be understood as driven in part by an SEC programme for collecting industry-wide ratios (Horrigan 1968). Calculative expertise thus comes to link the individual enterprise with wider governmental concerns for rational economic management. In turn, the knowledge that ratios provide can act as important inputs into regulatory demands for improved financial reporting. The development of ratio analysis in the United States needs to be understood in relation to the emergence of credit institutions with a broad portfolio of clients whose affairs they would seek to diagnose at a distance. Attempts to represent the financial position of a multiplicity of clients in a distilled, visualizable and comparable form by means of ratio analysis provided informational relays between formally distinct economic entities. But ratio analysis not only answered the demands of a particular situation, it also helped to foster and maintain arm’s-length relationships between credit institutions and their clients, and between government and individual corporations by the particular way in which it claimed to know the economic situation of companies. What ratio analysis lost through the absence of close contact and appreciation of the underlying accounting constituents of a ratio, it gained by providing in a single number, or cluster of numbers, an economic essence that could be displayed and compared in charts, graphs and tables, and that promised to distil the performance of a company into a single figure. It was around this quantifying ideal embodied in ratio analysis that a certain regulatory optimism and a distinct occupational trajectory emerged. For ratio analysis did not require expert knowledge of doubleentry book-keeping. Ratio analysis would provide, or so it was hoped, the foundations of a ‘predictive’ and ‘scientific’ technology for credit purposes. As with so many other attempts to represent and act upon the financial condition of an enterprise, this quantifying aspiration was an integral component of a liberal mode of seeking to govern economic life (Miller 1991; Miller and Rose 1990). For the ‘rules’ of a new ‘credit barometrics’ (Wall 1919) that were formulated by 1905 were driven by the passage of the Federal Income Tax Code and the formation of the Federal Reserve Board in 1914. The demand for ratios should thus be understood not as the outworking of an independently constituted market, but as itself formed out of government concerns to intervene via intermediary mechanisms at a macroeconomic Federal level, and to promote a new systematicity in banking knowledge via the mechanisms of the Federal Reserve. Ratios, unlike the financial statements upon which they depend, thus provided an ideal means for both representing economic processes and intervening in them. The calculative technologies of ratio analysis established themselves as economic norms, rather than as rigid ‘rules’ to be applied without regard to particular circumstances. Definitive scientific prediction gave way to expert judgement. Spheres of discretion and debate opened up around such norms. Within this space the ‘facts’ of corporate ‘health’ could be negotiated by the interested parties, and out of this a more general ‘accounting jurisprudence’ emerged to address the adequacy of ratios as the basis for financial analysis. Thus it was argued that the 2:1 minimum standard was not appropriate for all businesses. Other relations were appealed to as likely to throw light on this ratio, in particular with regard to the ‘quality and not merely the quantity of the current ratio’ (cited in Dev 1974:62). The possibility that ratios might mislead as well as

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illuminate was suggested, and the ability of static ratios to provide a visibility to cash flows was questioned. But such debate and dissent is precisely what gives vitality to such a domain of quantification. For it keeps open the hope and the aspiration that one might refine and modify such calculative norms so as to better capture an elusive economic essence. The ideal of prediction was thus indelibly imprinted on the credit analysts’ imagination. Criticisms over the mechanical utilization of calculative routines are not restricted to ratio analysis. They are to be heard equally in relation to the use of variance analysis as well as in relation to discounting techniques used for investment appraisal. Indeed, the very conception of economic viability is the site of debate and struggle, not only over personal livelihood and the economic survival of entire regions, but over the calculative technologies themselves, especially where these have become ‘official’ modes of economic representation (Cooper and Hopper 1988). But, as the Brent Walker case illustrates, this does not limit the ability of such technologies to operate as norms around which decisions can be made and disputes organized. Indeed, it is precisely by opening up such spheres of judgement, proposals and counterproposals that calculative technologies come to act as reference points and economic norms. They play such a role when they are departed from just as much as when they are adhered to. Such financial norms also make possible, and come to be linked up to, further calculations. The claims to science are closely bound to a particular density of calculative knowledge in which the complexity of internal linkages and the relation to the possibility of insolvency creates a new expert domain for analysis. Bodies such as business schools and credit agencies began to collect such data and to disseminate it.12 Businesses and lenders increasingly appealed to such norms which began to be embodied in credit agreements and started to become a condition of obtaining credit. Average ratios for public utilities were calculated, as were average industry ratios, which quickly became norms for credit assessment. Accepted as expressing fundamental relationships for assessing corporate viability, the very notions of insolvency and solvency became inseparable from such calculations. Just as cost was a category that had to be constructed rather than discovered (Hopwood 1987; Miller and O’Leary 1987), so too with financial analysis more generally (Hines 1988). Ratio analysis, as it developed in the USA, is a regulative norm that suffuses not just perceptions of corporate failure, but of corporate health also. As time progressed, the ratios themselves moved beyond their role as external ‘measures’ of corporate health, and became constitutive aspects of the corporate domain. As Watts and Zimmerman have remarked: One reason accounting data might be useful in predicting bankruptcy is that bond indentures and lending agreements often use ratios to restrict managers’ actions…. Breach of a covenant involving accounting ratios, however, does not necessarily lead to bankruptcy. Hence, there is no mechanical association between accounting ratios and bankruptcies because defaults are defined using those ratios. (Watts and Zimmerman 1986:113) Governing by numbers, in the form of ratio analysis, is thus more than a response to an immediate demand. Economic life is itself constituted in a particular fashion out of the aspiration that ratio analysis would provide a calculative knowledge of corporate affairs. Ratio analysis functions as a kind of social epistemology that helps to shape wider perceptions of corporate failure. In recent years, this institutionalization of ratios has taken on new forms, most notably within specialist regimes for the regulation of corporate life. This is illustrated clearly by the debates about the implementation of ‘capital adequacy’ rules for banks. In this instance, industry-specific ratios are intended to define prudent, but not too restrictive, solvency margins which can then be mobilized for regulatory purposes. Following the 1974

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banking crisis, the Bank of England engaged in a detailed study of liquidity requirements and the basis for the measurement of capital. It also sponsored initiatives to establish a committee of bank supervisors under the auspices of the Bank for International Settlements (BIS), commonly referred to as the Basle Committee. This committee sought to provide acommon capital framework to secure the soundness of the international banking system in which measures of ‘capital adequacy’ could be refined. Whilst the details of the capital adequacy regime are beyond the scope of our present argument, it is important to note that the calculation of capital adequacy involves ‘risk-weighted’ adjustments to accounting-based figures for assets, which then enter a further calculation of the relationship between assets and liabilities. These regulatory developments have occurred outside a formal legal framework, thereby further strengthening the potential role of ratios as calculative norms that set the terms of private standardsetting regimes. Whilst these ratios are likely to be reinternalized by the law, obtaining statutory force in Europe through the Solvency Ratio Directive and the Own Funds Directive, their function in the markets for normativity (Teubner 1992) is one that derives from the calculative technology they provide for knowing and intervening in economic life. It is this capacity of ratios to provide a normative knowledge of corporate affairs that is the key to understanding their mobility across institutional and professional boundaries. ‘Solvency’ ratios have also given rise to a secondary market for creative accounting. Initially, this seems to have been directed towards increasing the capital (the numerator of the capital/asset ratio) of financial institutions by the use of such devices as convertible debt instruments.13 More recently, there has also been creativity on the asset (denominator) side, for example by attempts to transfer one asset ‘off balance sheet’ in exchange for a risk-free asset such as cash (securitization). The institutionalization of ratios in these ways has a reciprocal effect on the market for advisory services, particularly accounting. While ratios have emerged from the calculative regime of financial reporting, their significance as norms creates incentives for creativity in the data base from which such ratios have been derived. Ratio analysis is thus one component in a complex chain of calculations, institutions and forms of judgement. Far from being simply a convenient shorthand, ratio analysis bears a complex, even dialectical, relation to financial accounting practices. Where these two calculative apparatuses differ is in their susceptibility to control by specific bodies of expertise (Abbott 1988). While accountants have more or less closely controlled the process of financial reporting and audit,14 the analysis and the use of ratios has been dispersed into a wide variety of organizational settings. Ratio analysis has the property of being an abstract body of knowledge in Abbott’s sense, one that is jurisdictionally mobile because it involves both too little and too much expert inference; too little because ratio techniques can be easily routinized; too much because ratios have become embedded in very specialized and industry-specific purposes. It is this capacity of being amenable to routine yet dedicated applications that has enabled ratios to be used in such diverse occupational territories. The characteristics of stability, mobility and combinability (Latour 1987) are developed to such an extent in ratio analysis that this calculative technology can function equally well in a variety of institutional settings. To summarize, we have examined the complex development of ratio analysis as a tool for calculating the success and failure of corporations. By virtue of the distinctive position it occupies within the market for capital flows, ratio analysis needs to be understood as having a different institutional trajectory from that of financial reporting. The development and use of ratios in the context of transformations in the US economy at the turn of the century provides a contrast, at least in quantity if not in quality, between that country and continental Europe, and reminds us that we cannot consider such ratios as merely technical artefacts. Rather, ratios need to be understood as specific cultural products. Accordingly, to the extent that corporate failure is constituted by such ‘impersonal’ networks as ratio-based analysis, it too is less an objective fact and more a matter of

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culturally specific arrangements for relating debtors and creditors, for sharing risk between the state and the private sector, and for managing the spatial and temporal horizon of corporate activity. Such arrangements give rise to, and are constituted by, expert services for their discharge. It is here, at the point where calculative norms intersect with expert judgement and professional competition in the market for insolvency services that the phenomenon of corporate failure is fabricated. It is to these issues of professional competition that we now turn in considering the second moment of corporate failure, the administrative arrangements for failed companies. CALCULATIVE EXPERTISE AND THE GOVERNMENT OF CORPORATE FAILURE A familiar narrative tells of the rise of the accountancy profession in Britain during the nineteenth century on the back of successive waves of bankruptcies. This narrative stands in need of modification or extension. Rather than locating such a development solely on the plane of a collective mobilization project that can be called professionalization (Willmott 1986), or viewing such a process as linked to the insertion of accounting into a position of decision-making within the global function of capital (Montagna 1990) and the market for corporate takeovers (Espeland and Hirsch 1990), it is on the plane of shifts in rationalities and technologies of government, and the role of particular bodies of expertise within these, that it should be understood. Or, in Abbott’s (1988) terms, we need to consider the array of ‘tasks’ represented by accounting in conjunction with the aspirations to a settled ‘jurisdiction’. The tensions implicit in a liberal modality of governing corporate failure took a particular form in the United Kingdom. While the techniques of accountancy had been known for centuries, ‘professionalization’, as we would ordinarily regard it, only began in Scotland as a branch of the legal profession and in England in response to laws requiring the audit of newly created joint stock companies. In particular, English accountants emerged as an ‘amalgam of solicitors, bankers, and others who had shared during the middle nineteenth century the jurisdiction of bankruptcy and receivership’ (Abbot 1988:74). UK accountancy emerged as a body of expertise within the orbit of corporate failure in a number of stages during the mid-nineteenth century. The Bankruptcy Act of 1831 paved the way for an increase of accounting work by making the final discharge conditional upon a favourable report on the accounts by an ‘official assignee’. The 1844 Companies Act went considerably further, in ending the requirement of parliamentary sanction for the incorporation of a joint stock company with limited liability. This was to considerably enlarge the terrain of calculation, negotiation and, ultimately, dispute in the case of corporate failure. The 1844 Act, by providing for the appointment of auditors and the proper keeping of accounts, represented an intensification of the regulation of corporate health by disclosure. Thus, accounting’s jurisdiction emerged from a series of critical socio-legal and organizational changes; the creation of the joint stock company to mobilize family capital and, as a consequence of the unregulated growth of such entities, the need for experts in law and money to wind up their affairs (Abbot 1988:94). It was the Companies Act of 1862 that came to be called ‘the accountant’s friend’ (Brown 1905:318), and of which Stacey remarked: ‘Perhaps no other professional community, living upon the fruits of trade, commerce and industry, has benefited to the same degree as did accountancy from the enactment of the Companies Act in 1862’ (Stacey 1954:37). The Companies Act 1862 established the position of official liquidator in an arena that was initially one of competition ‘between new and established professions’ (Edwards 1989:262–3). In particular, there was concern among lawyers that ‘the whole affairs in bankruptcy have been handed over to an ignorant set of men called accountants’. There was widespread suspicion that individuals calling themselves accountants at this time were merely doing so in order to get

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this work on behalf of creditors. Whatever the motivations, the passing of this Act immediately made possible an expansion of the calculative expertise of accountancy, even though other activities such as auditing were not to be rendered compulsory until 1900, and even though this was not to pass formally into the hands of accountants until the Companies Act of 1948. The ascendancy of accountancy in the UK is therefore intimately linked to its role as an expertise of corporate failure (Armstrong 1987; Edwards 1989). Making money out of the misfortunes of others is not just a recent trait of accountancy expertise. Reference to liquidations and bankruptcy work were prominent in petitions for Royal Charter by aspiring professional bodies. By contrast, claims to expertise in auditing were very much an afterthought, and were not central to the portfolio of claimed competencies of accountants in the mid-nineteenth century. The UK profession emerged on a wave of state-sponsored tasks, generated in the wake of criticisms of the accounting function itself. Indeed, paradoxically it is the failings of accountancy which are responsible for its professionalization. The paradox is lessened in the context of a liberal state increasingly dependent on the calculative functions of accounting which it is not in a position to provide itself. Accounting emerges within a complex dialectic, a politics of success and failure, within which each perceived failure becomes a condition of the further intensification of accounting rather than its abandonment. The recent experience of the UK illustrates the complexities of state-sponsored transformation of insolvency practice. For example, the formation of the Insolvency Practitioners Association in the UK in the early 1970s, a specialist body established as a voluntary trade association without entry requirements or minimal standards of technical competence, can be interpreted both as a problem and a cure for liberal forms of government. Unable and unwilling to engage in direct service provision itself, state regulatory initiatives must inevitably appeal to existing associations of expertise via such processes as licensing. Thus, the Insolvency Act 1986 requires that insolvency practitioners be licensed, but the details of the necessary attributes and competences, a mixture of ethical and technical competence, is delegated to bodies seeking authority to license practitioners under the Act.15 However, not all insolvency practitioners were members of the IPA and, as a loose association of practitioners with varying primary professional allegiances, it was unable to establish a monopoly over the licensing process. The Institute of Chartered Accountants in England and Wales (ICAEW) obtained authorization under the Insolvency Act 1986 and established its own insolvency practitioners committee (IPC) within the ICAEW in addition to the IPA. Other established bodies, the Institute of Chartered Accountants in Scotland and the Chartered Association of Certified Accountants, also obtained authorization to license insolvency practitioners. For an accountant member of such bodies, it no longer makes sense to obtain authority to practise indirectly via the IPA when this can be obtained directly through one of the professional accounting bodies. There can be little doubt that the Insolvency Act 1986 was a stimulus to existing professional bodies to create internal associations to rival the weaker IPA. Thus state initiatives in this case caused the existing and fragmented accounting profession to claim recognition for licensing. But, given the small number of practitioners affected, it soon became evident that some form of co-operation was necessary for co-ordinated liaison on such matters as examinations of professional competence (Turton 1988). Thus, a new hybrid organization has been created—the Society of Practitioners of Insolvency (SPI)—under the auspices of which joint examinations of competence will be administered.16 Hence, while the IPC, IPA, and other bodies continue to function for licensing purposes, the SPI functions at a different level for accreditation and, it seems, as a vehicle for more effective lobbying of the state (Singleton-Green 1990). Inter-professional competition has not been entirely eradicated by the creation of an umbrella organization. Rather, it is no longer possible to conduct such competition in terms of exclusive claims to

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knowledge and experience. Thus while the IPC and the IPA may compete in the market for memberships, the SPI functions as an overall co-ordinating body. How-ever, the ICAEW, via the IPC, regulates the conduct of examinations and can build upon its experience and resource base in, for example, the development of technical guidance notes for insolvency practitioners. This makes the IPC the effective centre for gravity for the codification of insolvency know-how, a position of power which mirrors ICAEW control of the Consultative Committee of Accountancy Bodies (CCAB), an umbrella organization similar to the SPI (Willmott 1986:573). Hence, state regulatory initiatives do not simply ‘map’ onto existing configurations of expertise but may have the unintended effect of promoting new forms of organization and associations at the expense of those which already exist. While the Insolvency Act 1986 has been recognized as a ‘major factor in the consolidation of best practice’ (Singleton-Green 1990), this cannot simply be understood at the level of calculative technology but also concerns the terms of establishing and strengthening jurisdictions over practices. This negotiation of domain in the United Kingdom contrasts markedly with developments in the USA where the historical conditions of demand for accountants were different, embodying a greater emphasis on the attestation function: The dispersion of American society and capital weakened personal and familistic capital mobilization, forcing an early reliance on public stock and investment. American stockholders and financiers, often far from the objects of their investment, had an enormous need for reliable information…. (Abbott 1988:227) The new jurisdiction over the attestation of capital is distinct from the UK accountant’s roots in insolvency work. For the US practitioner there were not the same opportunities for ‘counter-cyclical’ work as there were for his or her UK counterpart. Indeed, insolvency work was much more marginal in the professional domain, conducted by a distinct body of legal practitioners, as compared with the UK. Only in the wake of an emerging market for restructuring did the large investment banks begin to displace this network of insolvency boutiques.17 The same conditions of capital mobilization which generated a demand for ratio calculations (and also an intensive state demand for statistical knowledge) gave US accounting a different jurisdictional trajectory from its older UK origins (Miranti 1986) in which insolvency practice was certainly a more marginal activity for accountants and lawyers. In France, too, insolvency practice was much less of a mainstream activity in comparison with the statesponsored elite professions. Receiver-ship was defined as a non-monopoly within French legal work, in contrast to many other areas where the state was active in defining and promoting professional work (Abbott 1988:160–1). Like morticians, there was even an element of stigma. The analogy is apt, for the Tribunal de commerce was more of a morgue than a hospital, a place to which one took the casualties of industrial restructuring (Dezalay 1989). But the legislative reforms of January 1985 transformed both the notion of corporate failure and the terrain on which it was to be constituted. With this law was produced a new articulation of juridical and calculative know-how. Within this new territory, whilst the juge consulaire appears to be the primary beneficiary, calculative expertise also has a considerably enhanced role to play. For it is through such expertise that is enacted the shift from a concern with ‘failed enterprises’ to ‘enterprises in difficulty’. With this shift is opened up the possibility of transforming the conception and the practice of corporate failure. A principle of negotiation between the different partners in an enterprise replaces a judicial process

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centred on a hierarchy of claims of creditors. The enterprise in question is one for which a reorganization plan, one set out according to a calculative knowledge of an economic unity, is to be formulated according to the canons of modern management. The legitimacy and neutrality of judicial procedures is thus itself to be secured by an appeal to the objectivity of the calculative expertise on which such a plan is based. Legal expertise sanctions negotiations that take place according to the calculations that can be produced of a failing enterprise. The juridical order thus finds itself in a curious position: both dependent on calculative expertise, as well as arbiter of its deployment in cases of conflict. This aggiornamento of the legal machinery illustrates its capacity to regenerate itself in response both to the increasing number of corporate failures, and in reply to the criticisms of judicial disinterest and incompetence in commercial matters. But this ‘modernization’ has a sting in its tail, for its helps to promote a market for precisely that calculative expertise to which legal judgement has to defer. In these different ways, the calculative technologies of accountancy come to be woven into the conception and practice of corporate failure. Far from seeking to demonstrate the primacy of one body of expertise over another, it is this interweaving of calculative expertise within the functioning of the legal machinery and mentality that is decisive (Miller and Power 1991). There is an historical specificity to those moments when law appears to recognize limits to its present way of functioning, and when it seeks to redefine its boundaries and its relationships with other bodies of expertise such as psychiatry to accounting. At such moments one can speak of a form of auto-regulation of certain domains, a legal pluralism (Teubner 1992) which emerges in the play between different bodies of expertise. To understand variation from country to country in the ways in which corporate failure is constituted and administered, we need to distinguish calculation from calculators; we need to differentiate specific tasks from the occupational forms in which they subsist; and we need to focus on the alliances and relays established between distinct forms of expertise, the new ways of thinking and acting upon corporate failure that emerge in the interstices between expertises. An interdisciplinarity at the level of ‘know-how’, and at the level of the technologies through which agents intervene and act, challenges traditional demarcations between occupations (Dezalay 1992). Internal fragmentations within both accounting and the law have in turn created opportunities for specialized cross-border alliances in areas such as tax and corporate finance (Freedman and Power 1991). Such relationships do not so much cross professional territories as create new ones. Whereas corporate failure in the UK is an event that is registered initially ‘outside’ the law, within a territory constituted as ‘economic’, it is internalized by law for administrative purposes, according to particular conceptions of appropriate ways to govern the economy. Accountants thus act here as mediators between the economic and the legal domains. In other countries their function is less pronounced, and their calculative skills are orchestrated in a position of subordination to the authority of legal expertise. Even the creation of specialized ‘faculties’ by the ICAEW has an ambivalent role. For this has attempted on the one hand to secure the position of accountants in specialized markets, while on the other hand undermining the ethos of the generalist, an ethical resource which has been crucial to the articulation of the self-image of accountancy as a ‘profession’. Despite these pressures for fragmentation, the calculative expertise of accounting offers the possibility of a specific modality of regulation. It constructs distinctive patterns of information for regulating domains and activities, and in the process transforms those domains. The relation between these regulatory patterns ‘from below’ and the law ‘from above’ is complex and disputed. Teubner (1985, 1987a, 1987b, 1987c) refers to such developments as processes of ‘juridification’, an historically specific proceduralization of law linked to transformations in the welfare state. This is supplemented by more pluralistic conceptions of local legal process, and the self-generation of procedural norms in global markets (Teubner 1992).

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But we need to grasp also the transformative capacities of those calculative technologies that have developed typically within the territory of the accountant. Such technologies have developed in relation to attempts to regulate particular forms of the economic domain in congruence with particular governmental rationalities (for example, orderly markets for capital provision), and by drawing on specific bodies of administrative knowledge. Accountancy provides ways of representing and intervening in economic processes and events by recognizing their solidity and complexity qua economic phenomena that possess their own distinctive characteristics, regularities and possibilities of disturbance. The ascendancy of accounting expertise in the administration of corporate failure in the UK is thus not simply a matter of gaining legitimated and legally sanctioned control of a certain terrain. It is also important that accountancy provides a complex of ‘creative’ technologies or tasks for intervening in corporate failure and perceiving it as an economic event, one that can be diagnosed, adjudicated and even predicted in economic terms. It is this ability of accountancy to represent and make corporate failure calculable that explains much of its ability to sustain, and have legitimated, its claims to such a territory. For at the same moment, ratio analysis has distilled the ‘essence’ of corporate success and failure into an ever-widening variety of settings. In particular, we need to recognize the role of co-ordinator which may draw creatively upon different specific expertises without threatening jurisdictional control over the management of the process. In the UK, largely due to their close link with insolvency work in the nineteenth century, accountants have managed to occupy the substantive role of orchestrator even as the knowledge base of insolvency practice has demanded ever greater levels of legal knowledge. The latter has been satisfied by a mixture of outright delegation to subordinated legal experts, and a gradual process of internalization in which the knowledge base of insolvency practice has become re-legalized without diluting the jurisdictional position of accountants. Hence, the relation between tasks, technologies and jurisdictions is complex and fluid. As accountants have shown, it is not always the case that routine tasks cannot become the basis of settled jurisdictions for professional work. So it is necessary to pay careful attention to the nature of the tasks themselves in the context of the specific manner in which they are mobilized and institutionalized. While ratio analysis has been widely dispersed, other ‘routine’ calculative practices such as procedures for asset realization, have been more tightly allied to insolvency administrative procedures. In turn, positions in adjacent and overlapping markets for corporate reconstruction and advice have provided additional jurisdictional protections for insolvency practitioners. CONCLUSION Rather than view corporate failure as a given event that comes to be regulated either through professional co-optation or state sponsorship, the phenomenon of failure needs to be located on the plane of rationalities ad technologies of government. A focus on the calculative technologies (Miller and Rose 1990) or tasks (Abbot 1988) provided by accounting, and their ability to provide a way of representing and acting upon the economic realm in accordance with its own regularities and mechanisms, makes possible an understanding of the different operations of accounting at crucial points in the life of the enterprise. We have drawn attention to the constitution of the domain of corporate failure, and to the rationalities of government in relation to which calculative technologies, such as ratio analysis, are called upon to operate. This focus provides an institutional basis upon which to explore the different trajectories of accounting expertise in countries as varied as Britain and Germany. The concept of expertise, understood as a set of technologies and legitimated claims to competence, forces one to attend to the various proto-typical practices which emerge from relatively stable professional territories and are mobilized in new ways outside them. From this point of view, a profession is simply a special occupational case of settlement in a fluid

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assemblage of know-how, of markets for particular tasks, and of strategies for jurisdictional control of such markets which are interrelated in varying ways with particular state projects. Complex relations of dependency come to be formed between particular bodies of expertise, dependencies which are registered in partnerships of increasing durability, and which will establish new lines of occupational development. In this chapter, we have suggested how, in an historically specific context, law encounters certain limits in seeking to regulate the economic domain of insolvency. As we have shown, this domain is one that has already been constituted in part by the calculative technologies of accountancy. Such ‘limits’ are indissociable from the complex of historically specific rationalities and technologies of government that set out the objects, objectives and limits of government. Accountancy is much more than a passive agent of legal administration in relation to the objective facts of corporate failure. Accountancy occupies a particular position within the regulation of corporate failure by virtue of the calculative technologies which it has generated, and which constitute the very field that the law seeks to regulate. Ratio analysis, as a means for representing and intervening in corporate health as well as in corporate failure, helps to constitute this domain of economic knowledge of the enterprise. A particular modality of expert administration of corporate life thus become possible, even though the occupational locales within which this takes place may vary from one country to another. NOTES 1 An earlier version of this paper was presented to the European Working Group on Corporate Professionals, Vaucresson, 10–11 June 1991. The authors are grateful for the helpful comments of Anthony Hopwood. 2 Cf. also A.O.Hirschman, The Passions and the Interests, Princeton, N.J.: Princeton University Press, 1977. 3 In the UK during the early 1990s the collapse of many small businesses has been linked to direct criticisms and scrutiny of the lending policies of the clearing banks. Thus banks are implicated in corporate failure. See, for example ‘When bankers talk mumbo jumbo’, Financial Times, 14 April 1992. There was also considerable debate on the subject of special tax breaks and other interventions for Lloyds of London names who had suffered unusually large losses. Cf. ‘Names hope for taxation relief’, Financial Times, 18 June 1991. 4 See, ‘To the liquidators the spoils’, Independent, 15 January 1992; ‘The undertakers’, Evening Standard, 22 January 1992; ‘Touche shunned over BCCI bill’ and The bucks stop here’, Independent on Sunday, 26 January 1992. 5 It should be stressed that when we talk about the ‘administration’ of corporate failure this is intended in a general sense to cover the full range of insolvency procedures required by law, and not the narrow sense of administration established in the UK Insolvency Act 1986. 6 The recent problems with Olympia and York also demonstrate this clearly. See ‘Olympia & York on the brink’, Financial Times, 15 May, 1992; ‘The Olympia & York insolvency’, Financial Times, 16 May 1992. 7 See ‘Miraculous restructuring of Brent Walker is finalised’, Financial Times, 31 March 1992. 8 See The impossible can be done at once, but miracles take longer’, Financial Times, 16 April 1992. 9 See ‘Receivership threat to Brent Walker’, Financial Times, 9 September 1991; ‘Brent Walker bondholders back new rescue’ Financial Times, 9 September 1991; ‘Brent Walker bondholders refuse to back refinancing’, Financial Times, 10 September 1991; ‘Crisis deepens at Brent Walker’, Financial Times, 11 September 1991; ‘Brent Walker near to deal on bonds’, Financial Times, 8 October 1991; ‘Brent Walker set to unveil restructuring’, Financial Times, 18 November 1991; ‘Brent Walker venture unravelled’, Financial Times, 18 March 1992; ‘Brent Walker rescue moves a step nearer’, Financial Times, 23 March 1992; ‘Last bank signs terms of Brent Walker restructure’, Financial Times, 28 March 1992. 10 It is partly through their perceived mechanical dependence on ratios, ignorant of the underlying creativity of accounts, that criticisms of analysts have been articulated recently in the UK. See D.Gwilliam, ‘Polly Peck—where

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11

12

13 14

15

16 17

were the analysts?’, Accountancy, January 1991:25; A.Sugden, ‘A lesson in company pathology’, Accountancy, October 1991:32. It could be suggested that where a closer relationship between financial reporting and credit assessment requirements exists, then the institutional development of ratio analysis as a distinctive function is less likely. Thus, in Germany where accounts have developed under a much stronger creditor orientation than elsewhere ratio analysis did not need to develop in the manner in which it did in the USA. In general, therefore, there is a close relationship between the emergence of ratio analysis, the aspirations of credit ‘science’ and the institutional arrangements for corporate financing. Dev (1974:66) notes that the Harvard Business School and the credit agency Robert Morris Associates both started to collect annual ratio data in 1923. The Bureau of Business Research, University of Illinois, published a number of bulletins in the 1920s and 1930s giving average ratios for several public utilities. And also ‘swaps’. Cf. ‘Citicorp moves to lift capital ratios with swap offer’, Financial Times, 13 May 1992. This is clearly an exaggeration, given the internally fragmented nature of the accounting profession (Willmott 1986) and the rise of the accounting content of company law. But it is suitable to provide a contrast with the even greater dispersion of ratio based activities. We do not examine the details of the development of the Insolvency Act 1986 (see Clarke 1986:140 for a discussion of the dilution of the Cork Committee proposals) but it is worth bearing in mind the extended regulatory functions created for insolvency practitioners by the concepts of ‘fraudulent’ and ‘wrongful trading’. In addition, the Company Directors Disqualification Act 1986 effectively gives insolvency practitioners a leading role in the prosecution of directors, a role which has not been entirely successful (Wheeler 1991), due in part to conflict of interest but also to the culture of insolvency practice for which this policing role is largely new. Hence, in formalizing the jurisdiction of insolvency practitioners the state also attempted to graft new functions on to existing practices, a process which has met with some resistance. From 1 April 1990, practitioners seeking authorization under the Insolvency Act 1986 must pass the Joint Insolvency Examination Board Examinations. These specific conditions of emergence within a market for reconstruction rather than insolvency also parallel the greater reconstructive emphasis of Chapter 11 arrangements as compared with Corporate Voluntary Arrangements under the Insolvency Act 1986. ‘In the US…the notion that corporate casualties should be rehabilitated is deeply engrained.’ See ‘Why Chapter 11 does not tell quite the whole story’, Financial Times, 8 May 1991; ‘More than one way to respond to insolvency’, Financial Times, 21 November 1991.

REFERENCES Abbott, A. (1988) The System of Professions: An Essay on the Division of Expert Labour, Chicago, 111.: Chicago University Press. Armstrong, P. (1987) ‘The rise of accounting controls in British capitalist enterprises’, Accounting Organizations and Society, 12 (5): 415–36. Beaver, W.H., Kennelly, J.W. and Voss, W.M. (1968) ‘Predictive ability as a criterion for the evaluation of accounting data’, Accounting Review, 43 (4): 675–83. Bliss, J.H. (1923) Financial and Operating Ratios in Management, New York: Ronald Press. Boltanski, L. and Thevenot, L. (1991) De la justification: les économies de la grandeur, Paris: Gallimard. Bourdieu, P. (1972) Outline of a Theory of Practice, Cambridge: Cambridge University Press; first published in French, Paris: Librairie Droz, 1972. Bourdieu, P. (1990a) ‘Social space and symbolic power’, in In Other Words: Essays Towards a Reflexive Sociology, Cambridge: Polity Press; first published in French, Paris: Editions de Minuit, 1987. Bourdieu, P. (1990b) The Logic of Practice, Cambridge: Polity Press; first published in French, Paris: Editions de Minuit, 1980. Brown. R. (1905) History of Accounting and Accountants Edinburgh: Blackwood.

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Burchell, G. (1991) ‘Peculiar interests: civil society and governing “the system of natural liberty”’in G.Burchell, C.Gordon and P.Miller (eds), the Foucault Effect: Studies in Governmentality, Hemel Hempstead, Herts.: HarvesterWheatsheaf. Castel, R. (1976) L’Ordre psychiatrique, Paris: Editions de Minuit. Clarke, M. (1986) Regulating the City: Competition, Scandal and Reform, Milton Keynes: Open University Press. Cooper, D. and Hopper, T. (1988) Debating Coal Closures: Economic Calculation in the Coal Dispute, 1984–5, Cambridge: Cambridge University Press. Dev, S. (1974) ‘Ratio analysis and the prediction of company failure’, in H.Edey and B.S.Yamey (eds), Debits, Credits, Finance and Profits, London: Sweet & Maxwell, 61–74. Dezalay, Y. (1989) ‘Le droit des faillités: du notable a l’expert. La restructuration du champ des professionnels de la restructuration des entreprises’, Actes de la recherche, no. 76–7:2–29. —— (1990) ‘The Big Bang and the law: the internationalization and restructuration of the legal field’, Theory, Culture & Society, 7:279–93. —— (1991) ‘Territorial battles and tribal disputes’, Modern Law Review, 54 (6): 792–809. —— (1992) Marchands de droit: la restructuration de l’ordre juridique international par les multinationales du droit, Paris: Fayard. Edwards, J.R. (1989) A History of Financial Accounting, London: Routledge. Espeland, W.N. and Hirsch, P.M. (1990) ‘Ownership changes, accounting practice and the redefinition of the corporation’, Accounting, Organizations and Society, 15 (1/2): 77–96. Foucault, M. (1986) ‘Space, knowledge, and power’, in P.Rabinow, (ed.), The Foucault Reader, Harmondsworth, Middx: Peregrine Books; first published in Sky-line, March 1982. Freedman, J. and Power, M. (1991) ‘Law and accounting: transition and transformation’, Modern Law Review 54 (6): 769–91. Gilman, S. (1925) Analyzing Financial Statements, New York: Ronald Press. Gordon, C. (1991) ‘Governmental rationality: an introduction’, in G.Burchell, C.Gordon and P.Miller (eds), The Foucault Effect: Studies in Governmentality, Hemel Hempstead, Herts.: Harvester-Wheatsheaf. Hacking,—I. (1986) ‘Making up people’, in T.C.Heller, M.Sosna and D.Wellbery (eds), Reconstructing Individualism, Stanford, Cal.: Stanford University Press. Halliday, T.C. and Carruthers, B.G. (1990) ‘The state, professions and legal change: reform of the Insolvency Act, 1977–1986’, American Bar Foundation Working Paper, no. 9019. Hines, R. (1988) ‘Financial reality: in communicating reality we construct reality’, Accounting, Organizations and Society, 13 (3): 251–61. Hopwood, A.G. (1987) ‘The archaeology of accounting systems’, Accounting, Organizations and Society, 12 (3): 207–34. Horrigan, J.O. (1968) ‘A short history of financial ratio analysis’, Accounting Review, 43:284–94. Latour, B. (1987) Science in Action: How to Follow Scientists and Engineers Through Society, Milton Keynes: Open University Press. Miller, P. (1991) ‘Accounting innovation beyond the enterprise: problematizing investment decisions and programming economic growth in the UK in the 1960s’, Accounting, Organizations and Society, 16 (8): 733–62. —— (1992) ‘Accounting and objectivity: the invention of calculating selves and calculable spaces’, Annals of Scholarship, 9 (1–2): 61–86. —— and O’Leary (1987) ‘Accounting and the construction of the governable person’, Accounting, Organizations and Society, 12 (3): 235–65. —— and Power, M. (1991) ‘Accounting, law and economic calculation’, in A.G. Hopwood and M.Bromwich (eds), Current Research on Accounting and Law, Hemel Hempstead, Herts.: Prentice-Hall. —— and Rose, N. (1990) ‘governing economic life’, Economy and Society, 19 (1): 1–31. Miranti, P. (1986) ‘Associationalism, statistics and professional regulation: public accountants and the reform of financial markets 1896–1940’, Business History Review, 60:438–68.

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Montagna, P. (1990) ‘Accounting rationality and financial legitimation’, in S.Zukin and P.DiMaggio (eds), Structures of Capital: The Social Organization of the Economy, Cambridge: Cambridge University Press, 227–60. Moran, M. (1991) The Politics of the Financial Services Revolution: The USA, UK and Japan, London: Macmillan. Rose, N. and Miller, P. (1992) ‘Political power beyond the state: problematics of government’, British Journal of Sociology, 43 (2): 173–205. Rueschemeyer, D. (1989) ‘Comparing legal professions: A state-centred approach’, in R.L.Abel and P.S.C.Lewis (eds), Lawyers in Society: Comparative Theories, Berkeley, Cal.: University of California Press, 289–321. Singleton-Green, B. (1990) ‘Taming a tough profession’, Accountancy, November: 114–15. Stacey, N.A.H. (1954) English Accountancy: A Study in Social and Economic History, 1800–1954, London: Gee. Teubner, G. (1985) ‘After legal instrumentalism? Strategic models of post-regulatory law’, in G.Teubner (ed.), Dilemmas of Law in the Welfare State, Berlin and New York: De Gruyter. —— (ed.) (1987a) Autopoiesis in Law and Society, Berlin and New York: De Gruyter. —— (ed.) (1987b) Juridification of Social Spheres: A Comparative Analysis in the Areas of Labor, Corporate, Antitrust and Social Welfare Law, Berlin and New York: De Gruyter. —— (ed.) (1987c) ‘Juridification: concepts, aspects, limits, solutions’, in G.Teubner (ed.), Juridification of Social Spheres, Berlin and New York: De Gruyter, 3–48. —— (1992) ‘The two faces of Janus: rethinking legal pluralism’, Cardozo Law Review, 13 (5): 1443–62. Turton, R. (1988) ‘Specially for insolvency practitioners’, Accountancy, December: 122. Wall, A. (1919) ‘Study of credit barometrics’, Federal Reserve Bulletin, March: 229–43. Watts, R.L. and Zimmerman, J.L. (1986) Positive Accounting Theory, Englewood Cliffs, N.J.: Prentice-Hall. Wheeler, S. (1991) ‘Directors’ disqualification’, paper presented at the Third International Conference on Fraud, Corruption and Business Crime, Liverpool University. Willmott, H. (1986) ‘Organising the profession: a theoretical and historical examination of the development of the major accountancy bodies in the UK’, Accounting, Organizations and Society, 11 (6): 555–80.

Chapter 3 Technological warfare The Battle to Control the Mergers and Acquisitions Market in Europe Yves Dezalay* (Translated from French by Brian Cleeve)

Any analysis of the international transplantation of the rules that govern economic activity will generally succumb to the one of two conflicting biases. On the one hand, some see it guided by legalistic reasons: the search for ‘better’ rules. On the other hand, others argue that dominant economic powers infiltrate and transform weaker systems. Both tend to minimize their differences by suggesting that there is a certain degree of legal and institutional convergence that reflects and reinforces the socio-economic one. The transformation is therefore almost mechanical and can proceed only in one direction. However, even a superficial examination of the international scene shows that the very importance of the conflicts in progress makes the outcome uncertain. Too much is at stake in the redefining of the rules which govern business development for this redefinition to be left to chance, whether that chance is guided by legalistic or economic forces. It must also be recognized that the proponents of the two conflicting theories have a personal interest in the matter. They are not simply analysts. They are actors in the drama. They are helping to create the rules which they are defining. And if they define in one way rather than another, they will benefit from what they help to create. They are like the medieval clerks who, by their legal expertise, made themselves indispensable to their kings. They wear several hats: as producers of learned discourses; as impartial experts serving the public weal; and as ‘merchants of regulatory know-how’ if not to the highest bidder then at a very high price. Can anyone imagine a better example of the relationship between law and economics than these ‘business professionals’ who personify the interweaving of market, state and academia? They are courtiers, bowing now to politics, now to business, now to both at once; and then to the occult mystery of ‘law’, whether social or economic. And as Thompson (1975) reminds us, that element of mystery is vital. The law cannot support the claims of a dominant class to rule unless it seems to be—and actually sometimes is— impartial. All this is born out by examining the emergence of an American style mergers and acquisitions (M&A) market in Europe and its attendant regulation. Before describing the context within which this regulation emerged, this chapter will consider the principal actors who have contributed to this significant drama; first, those Wall Street lawyers and bankers who manufactured these new technologies; and second, their export to Europe, particularly via Germany. It will concentrate on the period leading up to the implementation of the European Communities regulation on mergers.

* An earlier and longer version of this paper, which summarizes the first findings of a research project on the regulation of the M&A market in Europe, funded by the French Ministry of Research, has been published under the title “Les professionnels des affaires et la regulation internationale du marché des entreprises’, Revue politiques et management public. September 1991, no. 3.

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TECHNOLOGIES DETERMINED BY THE STAKES OF THE PROFESSIONAL FIELD The specific advantage of mergers and acquisitions as a field of study derives from the importance and multiplicity of the stakes, which can be observed at several levels. First of all, the level of politics: in presenting the new institution for the regulation of competition the French Minister of Finance recalled that M&A played a central role in redefining the world of economic activity. He concluded that such a heavy responsibility belonged almost by definition to the domain of political authority. In fact, if the project to create a European rule on concentration has taken nearly fourteen years to come to fruition, it is because states are naturally reluctant to surrender what they see as one of the principal instruments of their economic politics and power (Fairburn and Kay 1989; Woolcock 1990). Paradoxically, their partial surrender under Community pressure comes at a moment when the tide of mergers and takeovers is accelerating, particularly in the international field (Prot and de Rosen 1990:25). It is becoming more urgent to intervene because the existing state regulations are becoming less and less adequate, and they contradict each other. The idea of ‘national champions’ is difficult to accept at the European level (Dumez and Jeunemaître 1991). It is therefore on new juridical-political foundations that a new system of regulating business must be built; a system that Brussels is putting forward as a matter of great urgency, itself under pressure from the business community, which longs to see clarified the rules governing ‘external growth’, simply because such growth is ever more central to its strategies. The second level of analysis is better known; it is the one most frequently dealt with in the professional literature where the different regulations are set out in detail to show businessmen how to integrate them into their plans. The readership aimed at is directors and managers of major enter prises (Euromoney 1990). Having restored their financial margins after the heavy losses of the 1970s, they must favour external growth to ensure a position of strength in an enlarged and more competitive market. In this practical literature, which is predominantly a ‘sales pitch’, the authors remind their readers—and, they hope, future clients—that in this greater market only a few major operators will survive. All these ambitions, which reinforce one another, form the great motivating force of European construction. The practitioners who urge, under the pretence of rationality, the formula of ‘one-stop shopping’ for the regulation of mergers, see in it the chance to extend the market for their own expertise across the whole Continent. It is no accident that the major takeovers encourage discussion on European rules and directives. More than all the rest, these rules are born out of actual events and practice. These practices need to be analysed in a broad and comprehensive fashion. For example, the decisions to merge or to acquire new business entities are taken by the directors according to their analysis of the market and their strategic choices. But the shaping of their plans and often the carrying out of these plans is done by specialists who are employed within the company or from a firm of consultants. This is even more true in international operations, where the complexity of the regulations is very great and where the future partners can hardly rely on complicity (with each other or with influential officials) to resolve the differences (and difficulties) which inevitably arise. Multinational consultancies consider themselves to be specialists in mediating such difficulties: their accumulated experience allows them to weigh the choice of juridical and financial methods, the progress of negotiations and sometimes even the selection of the future partner (or prey). Their influence and their area of manoeuvre are considerable. To understand how they work it is necessary to analyse their position within their professional field. Obviously the fees represent a powerful motivation; particularly for those kinds of operation that are reputed to be ‘cost insensitive’. It is not however the only one: these experts know very well that their professional authority constitutes their symbolic capital. Their prosperity as consultants depends on their ability to construct and to gain recognition for their expertise.

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To understand the emergence of all these juridical-financial technologies which shape and make possible these strategies of ‘external growth’, it is not sufficient to say that they answer a need. Key inventions for the development of the M&A market—such as leveraged buy out or ‘poison pills’1—bring into play rules of the game which are independent of the economic field, such as those which subordinate hierarchy and prestige to the mastery of a specific technique. This holds good for the autonomy of these professional fields: it is at this price that this particular category of ‘men of affairs’ distinguishes itself from mere gobetweens, in order to gain the authority and social advantages which are the privileges of the expert. To the degree that these new rules on mergers and takeovers validate or disqualify these types of expertise born out of professional practice, they affect not only the strategies of the entrepreneurs, the degree of independence and the power relations between states; they are inseparable from the dynamic of the professional fields in which these new technologies have seen the light of day. In effect, they do not simply furnish the terms and the protagonists of the debate; the multiplication of learned international meetings favours the emergence of a professional consensus concerning transnational solutions to regulatory problems. If these arguments are sufficient justification for departing from the professional arena in order to analyse the multiple stakes and prizes created by the European regulation of the M&A market, they do not justify concentrating on this analysis alone, which is the failing of some sociologists who specialize so narrowly that they limit their interest and analyses to their clients and their problems. On the contrary, the precise importance of these business lawyers arises from the fact that they stand at the crossroads where politics, law and economics meet. Their strategies in the field of law are determined by the structure of the field of economic power which defines the social resources they can mobilize, and vice versa. It is convenient to begin this rapid overview of the actors in the European debate on the regulation of the M&A market by looking across the Atlantic, not because of a taste for paradox, but because it is there that most of the technologies involved have been invented, as much by business practitioners as by the regulators. Arguing from their own experience, the Wall Street professionals have gained a leading position in the European arena. Their influence goes far beyond their numerical importance. First, by being copied: European consultants imitate their Wall Street predecessors. But still more because of the sanction of their success: the legal solutions towards which Community law is tending—particularly concerning merger control or judicial tactics in takeover battles—are all inspired by a practice which the Wall Street experts understand and master better than anyone else because they invented it. From many aspects therefore it is the ‘North American legal model’ which is in the process of imposing itself in the world of European business, as previously happened in Great Britain, where the growth of the City’s invisible trade accompanies—and accelerates—industrial decline. WALL STREET AND THE INVENTION OF A NEW EXPERTISE Most commentators rightly underline the pre-existence of North American experience in mergers and acquisitions. They are traditionally two of the chosen means for reshaping American industry. Like bankruptcy, this activity is cyclical: the great waves of M&A, like those of 1898–1904, of the 1930s or at the end of the 1960s which marked the end of post-Second World War prosperity, have had the most profound effects on the economic landscape. The return of such a wave of M&A in the 1980s both reaffirms this fact and adds a new element. For the first time, ‘blue chip’ companies are threatened; restructuring is no longer confined to the absorption of more or less bankrupt small and medium-size businesses by great conglomerates using this means to widen their interests or increase their share of the market. The number of acquisitions in 1988 is half that of 1969, but the average value of the transactions is ten times greater (Prot

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and de Rosen 1990:55). We are entering the era of ‘mega-deals’. In their turn, the great conglomerates are themselves becoming vulnerable. This is notably the case with those created in the previous wave of takeovers. New predators are slicing them up, slimming them down and selling them off piece by piece. Contrary to the most widely held opinion, this new situation cannot be explained solely by the appearance on the scene of such famous corporate raiders as Carl Icahn or T.Boone Pickens (Bruck 1988). The high profile of these famous ‘soldiers of fortune’ must not make us forget the role played by their troops: the ‘experts in grey flannel suits’. Without the work and inventiveness shown by these lawyers, accountants and investment bankers, the raiders would undoubtedly have remained in the wings of the economic theatre like the ‘vultures’ that swarm in every crisis period to undertake the menial tasks of capital restructuring. Their opportunity arose from being able to rely on the sophisticated abilities of brilliant and ambitious young men rich only in university degrees. The loyalty of these mercenaries was guaranteed by their ambition and the resentment felt by these middle-class experts, who were often newly arrived immigrants, against the ‘old guard’ who alone had access to the great Wall Street law firms (Bruck 1988:331). It is impossible to understand the impact and the effect of this new wave of financial restructuring unless the sociological characteristics of the different protagonists is taken into account (Brooks 1988:76, 104). Its aggressive nature and sophisticated technology is fed by the class rivalry between the gentlemen of the business world, over-reliant on the power of the ‘old boy network’ to bother about investing in techniques, and the educated upstarts, excluded from the Establishment, who can only hope to make their way by aggressive use of their knowledge. Pushed into areas disdained by their older-established rivals (areas such as bankruptcy, hostile takeovers, junk bonds and pension funds), these experts in narrow fields have become specialists in technologies that were previously despised (such as proxy battles, judicial ‘guerrilla warfare’, tax and financial engineering) which they try to revalue by exploiting all their potentialities or by applying them to new fields (Nora 1987:88). Like gun-powder in ancient China, all these techniques were known but their use was strictly limited and controlled by the hierarchical structures of the different professions. Only by joining together could they create an explosive mixture, capable of threatening even the best-established enterprises. The power of the technology used in hostile takeovers derives from the fact that these legalfinancial battles are fought out simultaneously on several levels and they create a reconstruction of technical know-how. This is why, to explain this phenomenon, the feelings of exclusion and revenge which drive a great many of these new professional mercenaries must be taken into account (Sampson 1989:47): the similarities in their social progress help to explain the ties of professional collaboration which have been created in this new field between financiers, lawyers and accountants or tax experts. Whatever their initial speciality, they all insist on their ability to operate as multidisciplinary teams and to keep the ball in constant play (Johnston 1986:33–4). The strength of these new networks derives from the social homogeneity of their members. It is no accident that all, or nearly all, the ‘M&A stars’ found in most of the great battles, such as Milken, Wasserstein, Flom, Lipton…pride themselves on being the first generation of professionals to emerge from the “ghetto of the garment industry”’ (Bruck 1988:205). The solidity—and hence the strength—of this political alliance is nourished by its social cohesion. The ideology of these newcomers (Ehrlich and Rehfeld 1989), who declare openly that they are at war with the Establishment, is in line with that of the new predators who present themselves as the champions of small shareholders against the unfair privileges of the industrial grandees. Effectively, the shareholders of the target companies, whose value increases by about one-third when raided, are the major gainers from these transactions. The intermediaries also profit since their gains are proportionate to the amounts at stake. It matters little that these ‘small shareholders’ are no more than a myth in a financial market now dominated by institutional investors (such as the pension funds) holding between 40 per cent and 60 per cent (even 70 per cent of certain large enterprises; cf. Prot and de

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Rosen 1990: 66) of the shares traded on Wall Street. There is again a certain populist ideology that acts as the bond in this heteroclite alliance at the centre of the new wave of M&A against the Establishment of the blue chip corporations. This reversal of fortunes has been short-lived; the reaction of the dominant groups was not long in coming. The efficiency of these new techniques has invited imitators at the same time as it has contributed to the rapid advance of its creators. The great law firms and financial houses of Wall Street have quickly understood the advantage they can draw from these new weapons, whether to sell to their clients, for handsome fees, the most sophisticated means of defence, or to provide them, for even more exorbitant sums, with weapons with which to attack their rivals. The first hostile takeover launched by one of the great investment banks on Wall Street (Morgan Stanley) dates from 1974; but it was from the 1980s onward that the craft of M&A became a real industry, relying on intensive research and financial analysis, the systematic prospecting for ‘targets’ or potential ‘hunters’, and fierce competition between the different ‘stables’ to involve themselves in the great deals or to lead the hit parade published regularly by the specialist press. The investment banks, the establishment (‘white shoe’) law firms, and even a certain number of consultancies from that point had departments specializing in M&A. These services employ up to several dozen highly paid specialists who consider themselves—and are considered—the elite of their professional world. This is not solely because of their enormous salaries— which are in line with the profits they obtain for their respective firms—but because this specialization and intense competition generates ‘a frenzied process of innovation. They refine increasingly the technology of the hostile takeover…. The techniques of defense are progressively improved along with the growing violence of attacks’ (Nora 1987:189). Moving on from passive defence (principally the different forms of ‘poison pills’ or ‘golden parachutes’), active defence is increasingly seen by means of mergers or recapitalization which in one way or another oblige the defender ‘to do to himself what one is trying to avoid allowing the raider to do to him: to restructure’ (ibid.: 190). The highest sophistication is to profit from the raider’s attack to mount a counterattack oneself (a method called ‘pacman’); or, better still, to come to the rescue of the target under the honourable disguise of a ‘white knight’, which allows one to devour it with its willing consent. As the use of financial techniques such as MBO (management buy-out), junk bonds, bridge loans or mezzanine financing allow one to launch attacks with no more than 10 per cent of one’s own money, take-overs are put within the reach of anyone—or almost anyone—and, however big, no corporation or conglomerate is any longer safe from these attacks. Every company head feels himself to be prey or hunter, if not both at once. Because of this Wall Street mind-set, a mixture of aggressive entrepreneurialism and technological sophistication is penetrating the business world step by step, where it is replacing a less-formal culture (Macaulay 1963), more concerned for its continuation—in which are inscribed its strategies and its web of relationships—than for immediate financial profits. The extension of a ‘raid psychosis’—with its reverse, the development of a raider mentality amongst company directors—is the good fortune of lawyers. As the abundance of capital and the sophistication of financial technologies open up almost unlimited possibilities, the law and the courts are becoming the favoured battlefield for these takeovers, both for defence and attack. From the opening of hostilities, both hunter and prey mobilize armies of lawyers and start litigation in all possible courts. For the one as much as for the other, winning in court counts less than acquiring tactical advantage: to intimidate and demoralize the opponent or to ruin his public image in order to force him to negotiate; to gain time in order to find new solutions. The lawyers are all the more skilful at employing these guerrilla tactics because they operate sometimes as attackers and sometimes as defenders. No one knows better the weaknesses of a system of defence or of attack than its inventor or the inventor’s closest competitor. The more sophisticated these systems, the more indispensable these highly specialized legal hired guns become.

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The ambiguities of the law and the complexity of a federal judicial system increases their room for manoeuvre considerably, making all sorts of delaying tactics possible. The virulence of political confrontations concerning takeovers makes every legislative and even every legal decision uncertain. Recent events have brought into the light of day the fragility of over-indebted enterprises in the aftermath of a leveraged buy-out (LBO) and a number of stock exchange scandals culminating in the collapse of Drexel and the unravelling of the networks contrived by Milken which had created the strength of the junkbond market. This seems to weight the political scales in favour of the anti-raider camp—an alliance of the industrial grandees of the business round table, the unions and local politicians who are concerned about factory closures and the draconian slimming-down of workforces, and a small number of professionals, such as Felix Rohatyn and Marty Lipton, who, having helped to launch this phenomenon, are now made uneasy by its excesses. In contrast, the Wall Street professionals remain, for the most part, opposed to any intervention by Congress aimed at dissuading hostile takeovers. Without these, they say, a stock exchange already sickly is in danger of real collapse. They rely also on the support of bodies like the SEC (Securities and Exchange Commission) which remain impregnated by a neo-liberal creed in regard to the ability of the financial market to regulate itself and the effectiveness of takeover as a counterweight to the power and independence of company directors. Whatever the issue of this conflict of interests, the M&A market has more or less cleaned itself up. The increasing scarcity of junk bonds is making financial raids much more difficult to mount; at the same time, the wave of restructuring to which they have contributed is bringing about the disappearance of their favourite prey, the giant conglomerates built up in the late 1960s. In short, the big industrial operators— American or multinational—find themselves masters of the field, free to reutilize for their own plans the technologies invented for the raiders. The slowing-down of the internal North American market is accelerating a process of internationalization that was already well underway. Europe appears as a marvellous new playing field for the ‘magicians of takeover’ eager to export their know-how. THE EMERGENCE OF A EUROPEAN M&A MARKET To compensate for the relative exhaustion of their home market, the Wall Street professionals are turning towards a Europe that they are inclined to consider as their ‘New Frontier’. Their optimism is increased by a poll conducted by Peat Marwick, according to which 62 per cent of European companies say that they are seriously considering a merger or an acquisition in Europe. They are also convinced that they are far better equipped to exploit this potential market than their European look-alikes and rivals; first, by reason of the reputation and contacts they enjoy among the leaders of the major enterprises; and next, because they believe that they alone command the financial, human and technological resources demanded by complex transnational deals. Cosily installed in their protected markets, the European financiers and lawyers have rarely put a nose beyond their own frontiers. This is because they are seriously handicapped by the small size of their firms, and by national jealousies and peculiarities, whereas the self-promoting argument of the North American consultancies emphasizes their experience of a continent-wide market and of deals involving a multiplicity of courts. Some of them do not hesitate to add that their method of organization is particularly well adapted to the needs of M&A which demand the rapid mobilization of a team of specialists, juggling with international assessments and tax systems, as much at ease in negotiations as in the arcana of company law and who are, above all, willing to work themselves to exhaustion and beyond. All these qualities, according to them, are those of North American lawyers rather than of their European

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counterparts. Even if the latter do get a move on, their handicap remains that of the newcomer in a market where long establishment is one of the supporting pillars of supremacy. On this level American lawyers possess a serious advantage. The recent attacks by the M&A ‘young Turks’ against the grandees of Wall Street have served only to re-establish the authority of the ‘white shoe’ law firms (Smigel 1964); an authority which goes back sufficiently far to be ‘naturalized’ and consolidated in legitimate institutions such as the antitrust laws. These ‘law factories’ are in fact contemporaries of the first great wave of mergers and industrial concentrations of which they were one of the essential tools. This contribution to the process which gave birth to monopoly capitalism was the origin of a lasting prosperity; first, by reason of the close links forged on this occasion with the great financial operators who they guided through the maze of anti-trust legislation; and then, because the symbolic capital of know-how and juridical instruments built up at this period constitutes, to this day, a key element in the toolbox they market. It is on this foundation that they have set up shop in the European capitals where they hope to reproduce the success that forms the basis of their fortune. They used to impose themselves as go-betweens or brokers between politics and the demands of the different factions in the business world. In this effort, they follow the double-role strategy that has served them so well in Washington. First, they offer, discreetly and benevolently, their technical advice to a new bureaucracy that is all the more receptive because it is faced with an immense task—that of designing, and then of imposing, a regulatory system that must apply to a whole continent; while at the same time it lacks any experience and has to establish its authority in the face of claims by state or professional organizations, each jealous of its own small kingdom. Simultaneously, these multinational firms of expertise guide their clients through the maze of rules that they themselves know better than anyone else because they participated in their creation and development. Is this optimism exaggerated, characteristic of the almost imperial arrogance of a professional group so sure of the superiority of its own juridical-political system over other systems that it dismisses too facilely as archaic? Perhaps not. The great strength of this legal expansionism is to advance under cover of institutions arrayed in the bright colours of progress and efficiency, but which also ratify the strategic advance of those who conceived them. It is under the banner of anti-trust legislation that these modern missionaries—landed by the plane-load at Brussels airport—preach their doctrines to recreate a religion that has served them and their clients so well across the Atlantic for almost a century: that of the defence of liberty against the hydra-headed monster of state intervention. The unification of the ‘Europe of affairs’ is surely the equivalent of the great railway building that at the end of the nineteenth century introduced two of the most characteristic institutions of North American monopoly capitalism: the large law firms of Wall Street, which put their technical knowledge and their political legitimacy at the service of ‘robber barons’ such as J.P.Morgan; the Sherman Act, forerunner of a method of regulating mergers and concentrations that made the judge the umpire of a political balancing act between the appetites of the great Wall Street financiers and the fears of a middle class of small businesspeople, whose populist ideology expressed the fierce determination to defend social and commercial structures menaced with extinction (Sklaar 1988). Paradoxically, in posing as strict defenders of the concept of market competition faced by a federal government inclined to favour the new arguments in terms of rationalization and economic efficiency, the judges of the Supreme Court were not acting solely in accord with a professional ideology and social background that predisposed them to become the defenders of the ‘little man’ against the monopolies; they also contributed to the institutionalization of the power of Wall Street law firms as intermediaries, as necessary as they were legitimate, in the field of business restructuring. The complexity and severity of the legal mechanisms made these firms indispensable to the financiers who employed them; they also allowed them to manifest a certain independence with clients whose power tempted them always to reduce these lawyers to the level of employees, if not hired guns (Gordon 1984).

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Even if such a scenario is not improbable in a European situation, a similar result cannot be obtained without effort. For that reason the large Wall Street houses spare neither their time nor their resources. They multiply seminars and meetings in which these New York prima donnas explain the subtleties of the M&A game to a selected audience of business leaders, high officials and aspiring professionals. They distribute a vast number of brochures and newsletters among their potential clients that set out to explain and dissect the latest developments in law and politics that may affect practice on one side or other of the Atlantic. Finally, these experts, always overworked and whose time is worth gold, never hesitate to devote hour upon hour to activities that appear gratuitous, such as the production of articles, even of books, falling midway between learned commentaries and promotional literature; in the same spirit, they cultivate their image among journalists: it is a matter of becoming known outside the narrow field of the initiated. This is the purpose served not only by the general financial press but also by the new ‘trade publications’ specializing in general corporate legal practice or more narrowly focused on M&A, which are a kind of Who’s Who, constantly revised, where the titles of nobility are the number and magnitude of deals brought to a happy conclusion, with particular mention of the inventors of any new and especially ingenious method of attack or defence. All these non-profit-making—or not immediately so—activities are really investments designed to create a European M&A market or, to be more precise, to open it up and reshape it to ensure its homogeneity and the pre-eminence within it of this new kind of expertise. In fact these firms never advance into completely virgin territory. Mergers and acquisitions were not unknown in Europe before their arrival. There as elsewhere, cartels, the swallowing up of less successful rivals and vertical concentration are inherent in capitalism. They are, like bankruptcies, one of the principal instruments of the circulation of capital. But this phenomenon took on a wholly new dimension from 1985 onwards. While the number of such transactions decreased in the USA, it doubled in Europe between 1985 and 1988. The rupture is even more severe if one considers only those transnational operations which increased their value tenfold during the same period (Prot and de Rosen 1990:22). The United States and the United Kingdom remain the favourite areas for M&A, but European companies are, given the commitment to a single European market, discovering the opportunity presented by external growth. There is nothing exceptional about these rapid fluctuations. The M&A market is cyclical in nature. The great waves of ‘merger mania’ (1890–5, 1930–5, 1967–72) mark the end of periods of expansion. Outside these periods of intense reconstruction, this kind of activity once again becomes marginal, not solely because of the reduced stakes but because it ceases to be a full-time activity for the professionals engaged in it. Just as Mr Jourdain ‘made prose’, a small number of merchant bankers, politicians and high officials carried out M&A without knowing it, or rather, without feeling the need to make it known. Again, outside these periods of frenetic activity where the importance of the stakes led to a certain degree of visibility, this high-profile mediation activity was better carried out in the wings of the economic scene. The chief operators were private institutions such as Morgan Grenfell, the Deutsche Bank and Lazard (Ferris 1984: 137). Where governments involved themselves in the game, as did the French Ministry of Finances and, although in a more punctilious manner, the Industrial Reorganization Corporation, nevertheless it remained discreet, if not secret. Each of these national territories had its own rules— usually unwritten. The lawyers, like the journalists, were only invited to hear the bans read. Where there were disagreements it would have been unheard of to call in a judge or to appeal to public opinion. The workings of these closed markets, reserved to its initiates, was at the opposite pole to the American system where the press published details of the ferocious battles between various groups. Competition had to be discreet in this private club, where things were arranged by the ‘gentlemen members’. In every way it could only have a limited impact, given the very weak fluidity of this market. It was a far cry from the ‘beauty contests’ introduced by the yuppies

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of Wall Street. The power of these old-style intermediaries was drawn from a web of long-standing relationships (Bourdieu 1989:516). Restructurings that led to good results contributed to the redefinition and reaffirmation of their respective spheres of influence. The limited number of initiates allowed these ‘mediators of business’ to work in the shadows and to enjoy at least a relative serenity. Because they limited the risks, these power groups escaped the infernal rhythm that characterizes the modern atmosphere of M&A because it has been invaded by newcomers who do not feel themselves in the least bound by any ‘gentlemen’s agreements’. The cyclical character of this activity favours the renewal of the game’s rules at the same time as there is a change of players. By definition, the almost ‘domestic’ (Boltanski and Thevenot 1987) method of regulation that we described cannot function in a large market. The narrowness and the personalized character of the networks of trust and influence which support these practices prevent any rapid adaptation to a booming demand. To construct supple and effective mechanisms of regulation requires time. It is this inertia of traditional structures which in times of crisis leaves the field open to intruders. These modern carpetbaggers cannot depend on the same resources as those whose places they mean to take. Their whole effort therefore aims at creating new rules that are more favourable to technical rather than to gentlemanly methods. It is for this reason that the debate stimulated by the modern type of M&A takes on at times the furious nature of a war of religion. The differences of opinion about the opportunities presented by these new juridical-financial technologies in fact conceal a confrontation between two power cultures: the one founded on long existence and close ties between its members, the other simply on competitiveness and skill. Against the ‘aristocracy of business’, anxious to preserve a moral code and ‘good manners’—which also effectively protect its market against the ‘barbarians’ —there is opposed a meritocracy determined to make its techniques and its ‘workaholic ethic’ prevail, denouncing archaic methods, amateurism and the ‘pals together’ mentality of the Establishment. ‘It is the computer versus the business lunch.’ Françoise Chirot (1988) describes this contrast very vividly: Lazard are the champions of this intimacy between finance and industry which is indispensable to this kind of marriage. There is nothing like dining regularly and informally with the bosses of large companies in order to get some feeling about their strategies and offer them at the right time the very ‘affair’ they were dreaming of. Only long-existing relationships confer this privilege. Newcomers to this business are obliged to use more pragmatic methods. ‘We are not “grands seigneurs”, so we rely on techniques’, pleads Simon Luel, a Credit Lyonnais Director. It is these newcomers who create the success of the American method whose great merit is that it can be easily copied: much more so than the old boy network. These imitators acclimatize those techniques and facilitate their institutionalization. Instead of running the risk of being denounced as the expression of a dominant economy, these technologies make themselves invaluable by seeming to be the means by which a somewhat sclerotic professional culture can regenerate itself from within. This process of homologation of an expertise of which they are the inventors confirms the seniority and supremacy of these North American pioneers. To give themselves prestige, the local disciples boast about the professionalism of their Wall Street ‘professors’ that they contrast with the archaism of the Continental establishment. Preceded by this aura, the ‘high priests’ of this new professional culture gain entry by the front door into the European market to cream off the most prestigious and profitable deals. The same journalist who described the contrast between ‘the secret kings of Paris’ and the modern M&A workaholics goes on to point out out that these latter are still ‘far from having the professionalism and sophistication of the American originals whom they imitate and envy.’

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The diffusion of juridical practices from a dominant economy can all the more easily give the impression of mimicry because the same logic— that of the challenging of orthodoxy by the young Turks—is at work simultaneously in different juridical cultures. The most ambitious or the most highly motivated of the local professionals are eager to imitate the techniques and expertise of their foreign opponents. Thus they accelerate the internationalization and the penetration of their own market without any need for the dominant economy to resort to a sort of ‘gunboat policy’. The power of the American model derives also from the competition which sets against one another the various centres of power that until now have shared out the European territory. Who will carry the day here? If the logic of international division of labour prevails, it is clear that London would have good reason to claim control of the European M&A market. The power of its financial market, the concentration of resources and skills, the extent and long existence of its network of international relations: all pre-destine it to play a central role in reshaping European industry. Everything points in this direction, except the reluctance of the other European capitals—and of the national elites—to be content with a subordinate role. In playing on the legal formalism of EEC mechanisms, the countries of Continental Europe are putting in place new judicial modes of regulating the M&A market which threaten the self-regulation of the City, the basis of its independence and authority. Under these conditions, it can only bow to necessity by changing over to American regulatory practice. This is not without internal difficulties and skirmishes; but to the greater satisfaction of the US law mega-firms, and perhaps still more to that of their British counterparts, the rapidly growing firms of City solicitors who see in this breaking of moulds a favourable opportunity to shake off to some degree the condescension of the merchant bankers, at the same time as they see an exceptional chance to consolidate their advance vis-à-vis their continental rivals in the European legal market. To give a more concrete description of the interplay of these forces gathered round the creation of new Community institutions in which new geographies of power are taking shape, we need to analyse two neighbouring and complementary areas which still preserve their specific character: that of the control of mergers and that of regulations governing takeovers. THE ANTI-TRUST ‘MISSIONARIES’ AND THE COLONIZATION OF COMPETITION LAW The emergence of European competition law illustrates very well this close interweaving between professional practices and law-making. It also witnesses the complexity of the paths via which juridical devices are imported. We have already seen that American firms arrive in Brussels in the firm expectation of exploiting their expertise in anti-trust regulations. Effectively, in choosing a mechanism of this type to regulate the M&A market the Community authorities give value to an expertise in which these firms are unequalled and they also help to open up to them the European market of M&A. In so far as the law can provide arguments for defending oneself against a hostile takeover, this type of legal competence becomes one of the criteria by which the defender—or the attacker— chooses their counsel. Nevertheless, one should not be satisfied with too simplistic an explanation, or think in terms of a conspiracy. It would be pointless to trace the more or less hidden influence that these multinational law firms have exercised, or sought to exercise, in the process of elaborating these rules; not because lobbying does not exist in Brussels—after all these same firms claim it as one of the skills they intend to use—but more simply, because in the event it is not necessary. It is in very openly exercising their metier of defending their clients’ interests before the Luxembourg Court that these American lawyers have pressed the cause of a European competition law, which is also their own cause. In requesting European judges to intervene and prevent an attempted takeover

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—a tactic currently used across the Atlantic to gain time (Tomasic 1990)—they have given the Commission bureaucrats the means they were looking for to give life to projects which until then had lain dormant in their files… since 1973. The legal verdicts offered the possibility of putting pressure on states reluctant to surrender any authority. Paradoxically these rules have been applied before being promulgated. Law has been born out of practice. Brussels’ initial projects encountered a united front of opposition. Countries where a mechanism for controlling competition already existed were ill-disposed to abandon it in favour of Brussels. Others—notably France —preferred to argue in terms of industrial policy. When Peter Sutherland wanted to re-establish these projects on the agenda, he relied on decisions by the Luxembourg Court which opened the door to control by the Commission in all matters of concentration on the basis of articles 85 and 86 of the Treaty of Rome. Very cleverly this Irish barrister knows how to ensnare large companies in his plans; he has made them realize that without an appropriate system of regulation he intends to use to maximum effect the opportunities offered by the Court. Such a sword of Damocles is not at all attractive to business leaders in view of the advent of the Single Market. They are therefore not simply content to urge the Commission to go ahead; they are also putting pressure on their respective governments to institute as soon as possible a system of ‘one-stop shopping’ control based on clear criteria. All the way along the large law firms have played a decisive if discreet role. If they intervened, it was for the benefit of their clients. Were their interests not the same? Before the judge they plead in favour of an extended application of articles 85 and 86 to a type of transaction that the authors of the Treaty of Rome could not have foreseen. In parallel, in front of the political and bureaucratic authorities, they emphasize how much the present legal confusion and uncertainty makes the adoption of new regulations a matter of urgency. But in all these cases, they are simply playing their classic roles of advocates and competition law experts. Moreover, these proceedings and, in a more general manner, all the interventions in which their interests and those of the clients coincide with the Commission’s, have allowed these American law firms to create a growing familiarity with the functionaries of the Competition Directorate. In this way they are progressively confirmed as the ideal intermediaries for company directors who wish to negotiate a preliminary agreement on any project for a merger or an acquisition. To the degree that they have ‘the ear of the Commission’ they can predict with some degree of certainty what will be acceptable and what will not. More exactly, they are in a position to give their clients advice on how to put together an acceptable proposal. The analysis of the relationship between professional practice and the law-making process would not be complete without an examination of the key role played by the Bundeskartelamt and, more generally, by the German competition law specialists (Holzapfel 1988). This influence, moreover, is not in opposition to that of the US law firms; it complements it in giving it a complexion of political legitimacy. All through the negotiations the German representatives have argued that Community control of mergers should take into account only competition criteria. They have vehemently denounced any temptation to allow any other consideration of social or industrial policy, insisting that it would open the door to endless political pressures and quarrels in which Community control would risk becoming bogged down forever. Their influence has been even greater in regard to the practical implementation of these new regulations. The Bundeskartelamt (BK), with its 230 officials, represents the principal reservoir of skill and experience on competition regulation at the European level. Its British counterpart, the Monopolies and Mergers Commission (MMC) has no more than thirty part-time members, most of whom are at the end of their careers, if not retired. Only the Department of Trade and Industry (DTI) and the Office of Fair Trading (OFT) possess full-time inspectors; and a recent Parliamentary report found them to be understaffed. In these circumstances, the influence of ex-members of the BK, who were already in significant numbers in Brussels (Hermann 1989:245), can only increase with the constitution of the Merger Task Force. The highly

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legalistic style of German anti-trust practice has a good chance of being reproduced at Community level. This will not displease the many US law firms setting up shop in Brussels to exploit what they are already sure is a profitable arena. By a curious turn of history, the Germans, who strongly protested against the imposition of anti-trust legalisation by the American occupation authorities—legislation intended to prevent the re-establishment of the powerful industrial cartels of the Nazi period—today find themselves the godfathers of these regulations in the European field. Beyond its anecdotal character, this phenomenon of diffusion suggests three comments of a more fundamental kind. The BK has succeeded in its implantation in Germany by presenting itself as the ‘iron fist’ of the Mittelstand in the face of the voracious appetites of the large industrial companies. As has happened in the USA (see above) the success of legal practitioners in the area of competition derives from the fact that the anti-trust law was the result of a political compromise, leaving lawyers and judges with the responsibility to manage collectively social antagonisms which the legislators cannot—or do not wish—to resolve. The ambiguity of the law allows the lawyers to play their favourite public role as ‘defenders of the little man against the bully’, while at the same time selling their services to the ‘bullies’ to protect them against the very rules which they helped to codify. This multiplicity of contradictory roles cannot be explained simply as a kind of professional propensity to schizophrenia (Gordon 1984). It must be seen as the product of social diversity within the professional field, reinforced—if also hidden by the dynamic of professional careers. Regulatory bureaucracies, in Europe as in the USA (Spangler 1986) serve as a gateway to social and professional advance for young people richer in diplomas than in family influence. This type of recruitment is in conformity with their ideology as defender of small and medium-size companies against ‘Big Capital’. The legalism and technology on which this authority builds its position also serves as a passport for these professional newcomers who will eventually use in private practice the know-how and the contacts acquired during their period with the regulatory agencies. These similarities help to explain why the anti-trust ‘transplant’ has taken so well in the German body. It is not enough, however, to explain the international expansion of this legal mechanism. Thus, barely has the Community endowed itself with a European competition law than certain people are already moving on to the next stage, negotiating an agreement on this subject between the EC and the US. One must also take into account the existence of an international body of experts using the same vocabulary and the same methods. Their proselytism contributes to this rapid diffusion that they make appear a rationalization as necessary as it is inevitable. In some ways these technical experts act as missionaries. And it is not necessary to seek their advice in order to hear a long presentation of their anti-trust philosophy, which sometimes takes on the glamour of a religious creed, concerning the virtues of competition law as the best regulator for the market. For the upholders of this faith, the state is designated as the great sinner whose untimely interventions upset a beautiful equilibrium. National politics not only falsify the true play of market forces, they pervert the strict mechanism of the anti-trust laws. It can even happen with national competition policies when the regulatory agency is not immune from political influence. This is why most of these experts insist so strongly on the need for a European competition authority statutorily independent of the Commission. Such transnational proselytism also legitimizes the pretension of these competition specialists to act as mediators between states and multinational corporations. For their greater benefit… The last comment suggested by this story is the veritable rout of informal mechanisms, such as the MMC, when confronted by very much more formalized institutions. By definition, these informal bodies reproduce themselves only with difficulty and export themselves poorly. There are strict limits to the effectiveness of the ‘gentlemen’s club’. The product of time, it needs time to reproduce itself. It also and always proves difficult to make its rules respected outside the circle of its members and initiates: a lesson

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that recurs in an even more striking manner, in the story of the Takeover Panel and its European misadventures. FROM GENTLEMEN’S CODES TO ‘JUDICIAL GUERRILLA WARFARE’ Even if the City could surrender with sufficient grace to the American-German legalism in the area of merger control, it was quite a different matter when it came to the regulation of takeovers. While the question of concentration was not a priority for these financiers, traditionally distancing themselves from industry (Ingham 1984), the idea of takeover regulation was crucial to them. As on Wall Street, speculation arising from these operations forms a great part of stock exchange activity. Further, the business of advising on M&A represents one the principal sources of influence and commissions for the merchant banks. It was vital for these firms, if they wanted to keep control of an increasingly international market, that the rules of the game on the European level should be clarified and rationalized: on the condition, of course, that this harmonization should take place according to the British model; that is to say, in extending the influence of institutions and rules which are the best guarantee of these merchant bankers’ dominant position. Indeed, the trump cards held by the City are not negligible. Its spokes-people justly claim that nearly three-quarters of European M&A are finalized in London. It also has a good head-start in regulatory experience, arising from an unprecedented wave of mergers in the late 1960s, a period when such transactions represented up to 6 or 7 per cent of GNP. It is the code of good conduct and the system of selfregulation set up at that time—and perfected since—that the City hopes to see accepted by the Community so that it may serve more or less as a model for the institutions in course of development for other financial markets. The preliminary design, proposed by DG XII as a basis for negotiation, is largely inspired by the British model. Even so the city has not spared efforts in the course of negotiations: press campaigns the mobilization of British representatives in the Commission and the European Parliament, numerous transfers of officials from the DTI or the TOP to Brussels. Today disillusion is commensurate with the efforts deployed. The British are the most virulent critics of the proposed directive on takeovers. The merchant bankers declare themselves deceived in their hopes of seeing the whole panoply of institutional dispositions demolished, behind which continental businesses shelter from ‘raiders’, while at the same time profiting from the opening of the British market in which they can act as ‘raiders’ themselves. Further-more, they denounce the legalism of the Community arrangements which they fear will destroy the informal ones worked out over the years by the City, in opening the gates to American-style takeovers. Rather than selling its own regulatory techniques to its European partners, the City feels now obliged to fight on its home ground in order to preserve it. To understand this reversal of positions, it is necessary to go back to the origins of this mechanism of self-regulation. The story of the emergence of hostile takeovers in the 1950s is a reminder of the features we have already noted in describing the transformation of Wall Street’s methods during the 1980s. The plot and the actors are the same (Sampson 1982: 178): newcomers profiting from the obscurities and lack of definition of the rules to poach the preserves of the Establishment, bypassing established traditions! After the first shock, a counterattack is launched on several fronts, the Establishment opens its ranks to the braver— or luckier—of the poachers; its most dynamic sections take over on their own account those new tactics that have demonstrated their value. At the same time, the ‘guardians of the Temple’ strive to tame the fiercest ardours of the innovators and cut the ground from under them in the name of a subtle distinction between ‘good’ and ‘bad’ takeovers (Roberts 1989). This defensive reaction is explained by the risks which this type of scenario brings to the whole financial community. To use public opinion as a favourable witness too often in these juridico-financial battles is not

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without its dangers. The politicians, whether Labour or Conservative, could be tempted to play on the populist sentiments of a public all the more sensitive to the excesses of financial brigandage because it suffers the consequences directly. In these cases, the bankers’ pragmatism urges them to take over the game themselves by acting as their own housekeepers and guardians. Therein lie the origins of these systems of self-regulation. It is also the source of the criticisms levelled at them. At the end of the 1950s the electoral success of the Labour Party revived fears in the City of seeing an external guardian imposed on them, such as the Securities and Exchange Commission (SEC). Under the leadership of the Bank of England the great merchant banks finally decided to put their house in order. The first takeover code, which in fact never dared breathe its name, contented itself with extremely timid ‘recommendations’. Meanwhile these same great banks, such as Morgan Grenfell, were realizing the opportunities offered by these new techniques (Sampson 1982:179). Unfriendly takeovers no longer appeared ‘deplorable’ and ‘unfit for gentlemen’, but as ‘means of reviving failing or poorly managed industries’. In brief, it was no longer a question of forbidding them but simply of avoiding, as far as possible, any excesses which could tarnish the City’s image. The self-regulation adopted aimed above all at ‘washing one’s dirty linen in private’ in order to limit the public disquiet that would harm everyone. It was also a strategy to protect against the newcomers, who were unlikely to submit with good grace to the rules of a club that left them with the beggar’s portion. The ‘barbarians’ being thus held at bay, the ‘gentlemen’ could devote themselves serenely to the ‘good’ takeovers. The 1960s saw a proliferation aimed at industrial restructuring. Some were even launched with the support of the Industrial Reorganization Organization created by the Labour government. All the great City houses profited with delight, as this manna dropped from heaven into their laps, and they did not concern themselves too much with the code of good conduct that they had imposed on themselves. The haziness of the rules and their elastic character left plenty of room to violate, if not its letter, certainly its spirit, in order to gain victories for their clients or to increase their own profits. As Hobson (1990:121) describes it: ‘Regulation was light; the Governor raised his eyebrow, not his hand.’ In 1963 and again in 1968, with the promulgation of the City Code and the creation of the Panel on Takeovers (TOP), the rules remained ineffective to prevent every shady deal. The TOP had been provided with a battery of sanctions and a fulltime staff (mainly active practitioners from the merchant banks, city solicitors and brokers on secondment), but it remained according to Hobson ‘a flawed body, run by merchant bankers for merchant bankers’ (ibid.). The critics of this institution had an easy task in denouncing its ineffectiveness, as in such cases as the takeover launched against Gallaher by Morgan Grenfell and Cazenove on behalf of American Tobacco. In spite of the open and proven infractions of the rules, the guilty parties, pillars of the Establishment, extricated themselves fairly easily with a mild penalty that hurt neither their profit nor their reputation. Since then, it is true, both the Code and the Panel have been strengthened. But the development of the regulations had done no more than follow—belatedly—the new tricks of the financiers. Real sanctions are rare and public admonitions seem powerless to control the frequent minor transgressions. To these critics who consider the TOP to be a toothless tiger, its defenders reply that the more legalistic systems, like the one in operation in the US, have proved no more efficient at preventing abuses. In an era of permanent flux, like that of takeovers, it is impossible, they emphasize, to keep to the letter of the law, unless one were to employ an army of lawyers and encouraged a division of labour in which the financiers gave autonomy to these men. In contrast, they preach the merits of the British system. According to them, self-regulation brings a moral tone to the profession from within. The informal and pragmatic character of the TOP, the encouragement (which is almost an obligation) to preliminary consultations, leads operators to question themselves concerning the legal basis of their action before it is too late. The accent is on the spirit rather than the letter of the law. When a new problem arises, the rapid intervention of the Panel, the informal

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and practical nature of its decisions, allow it as a general rule to arrive at rapid decisions that conform to the spirit of the Code and are generally acceptable. The best proof, they say, of the system’s virtues is that the courts usually refuse to intervene in the quarrels occasioned by takeovers, even when they are asked to do so by one of the parties. In this debate, it is clear that both sides argue in conformity with their own interests. The plea of the Panel’s members is a direct reply to the threats from the Community proposals (Tait 1989), while criticisms of it come principally from all those who feel excluded from the game, notably the solicitors. These latter are all the more vehement because they are becoming more assertive in general. Having for a long time played the role of technical but unobstrusively devoted collaborators of the merchant bankers, the large firms of City solicitors are eager to profit from the opportunity offered by the Common Market. They are looking for a bigger slice of the cake represented by M&A. This does not prevent them from keeping their distance from North-American hyper-legalism: a distance that helps to protect them from their Wall Street rivals. Nevertheless, in private these City solicitors are not slow to emphasize the weaknesses of British selfregulation. The Panel, under cover of pragmatism, refused to consider itself bound by precedents. In the absence of a true legal code, uncertainty is at its maximum. Look to see who profits from this. If you want to launch a hostile takeover in the London market, you have to turn to the services of a well-established merchant bank. It alone will have the ear of the Panel, it alone will know what you can and can’t do. Without it you run the greatest risks. This lawyer, closely connected to the Panel, concludes: ‘It is the most formidable defense of their monopoly that a professional group could dream of possessing.’ The feeling of exclusion, which lies behind these criticisms is none the less not without foundation. In reply to a question about the growing influence of lawyers in takeovers, a previous Director of the Panel emphasized that ‘merchant bankers, and not the lawyers, remain the principal link between the TOP and the parties to a bid. The Panel would like to keep it that way’. He continued by advising the parties not to look for lawyers to represent them, under the pretext that these latter are not familiar with the Panel’s practices (Financial Times Conference on Mergers and Takeovers 1990). Even more than these inter-professional rivalries, the British model can be explained by the dominant position of the City and the gulf which separates it from the industrial world. Self-regulation is the privilege (in the strict sense of the term) of a dominant group which until now, thanks to its sociological homogeneity and the importance of its political influence, has been able to avoid all exterior intervention, whether from the courts or, even more so, from some state bureaucracy such as the SEC. The highly liberal concept which prevails in Britain in regard to takeovers reflects the dominance of the financiers over the engineers. In contrast to their American counterparts, the merchant bankers of the City were scarcely involved in the first wave of industrial restructuring (Ingham 1984: 163). At that period, the Empire and ‘overseas’ investments constituted the chosen field of action for the little world of cosmopolitan patricians from which were recruited the heads of the great merchant banks. It took the dissolution of the Empire and above all the difficulties of the pound to make this oligarchy draw in its horns and repatriate some of its capital. But that is not to say that it abandoned its prejudices against any direct participation in industrial affairs. When, after the First World War, the great merchant banks reinvested in the home market, they chose to do it by means of a system that allowed them to intervene in the financing and reshaping of companies but at a distance, without dirtying their hands. This control at a distance was only made possible by the powerful influence they possessed, whether with the Bank of England or the Treasury, which allowed

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them to resist the emergence of an industrial policy. With the help of these two key institutions, government saw itself denied any rights over the internal operations of the City, and it also had its hands tied in the matter of intervening in industry. Nothing must hinder the freedom of the financial market. Labour’s hostility to the liberal handling of takeovers is not founded on the social cost alone of this financial piracy; even more fundamentally it reflects the antagonism between two concepts of industrial policy: that of the Labour Party—shared by a section of the industrial world—according to which the state should play a key role in industrial restructuring in order to ensure that public welfare and economic rationality prevail; on the other side are those who condemn this as ‘corporatism’ or ‘state monopoly capitalism’, and who consider that any political interference can only distort the freedom of the financial market, which alone knows how to make the best use of capital. This camp, led by those who defend this liberty all the more vigorously because they are its principal beneficiaries, have had things all their own way since the beginning of the 1980s, under the banner of Thatcherism. Unfortunately for them, in spite of the liberal ideology which governed the creation of the ‘grand market’, it seems they are having some difficulty in imposing their liberal programme on their European partners. The objections of these latter appear to be sociological and political rather than ideological. The ambitions of the City, which are revealed all too clearly under the flag of liberalism, find themselves up against other power structures little inclined to give way without a fight. In the conflict at a European level over the legality of anti-takeover devices, the same opposition between two concepts of the regulation of the M&A market is found. The game is merely more complex, to the extent that these concepts are rooted in institutions which are themselves the fruit of specific national histories. The arguments are identical with those we have sketched out for Great Britain even if the alliances they reveal are different. For the one, these transactions are like any other, and only the complete freedom of the market can ensure its efficiency. It is necessary therefore to eliminate all artificial barriers against takeovers. The shareholders must be free to accept any offer made to them, even if unfriendly. The freedom of these shareholders is moreover the best protection against abuses of power by company directors. The potential bids recall them again and again to their obligations towards the shareholder. According to the old liberal dogma, the risks (of bankruptcy, like those of a hostile takeover) are the corollary of the freedom to do business. For the other side in the argument, it is on the contrary essential to restrain this free flow of the M&A market. Enterprises are regarded as more or less a public resource which must be manipulated with a caution that reflects the degree to which it affects complex social interests, particularly those of its employees and the neighbouring community, but also its trading partners. According to the supporters of this idea, the control exercised, de facto or de jure, by public authorities—or big banks, as in Germany— simply reflects the importance, as much social as economic, of the web of relationships inherent in industrial activity. The rarity of hostile takeovers in Germany does not mean that it has been spared the wave of restructuring through mergers: 802 in 1986; 887 in 1987; and 1100 in 1988, with a total value of DM 135 billion (Carrone 1990). It is simply that the methods and the operators are different. As Blandin (1989) writes, ‘In RFA, it is not etiquette to give free play to the market.’ All must be done, if not in a friendly way, at least by the intermediary—and sometimes under the ‘friendly’ pressure of the great banks which keep a firm grip on the M&A market. Even if these two models are often labelled as ‘Continental’ and ‘Anglo-Saxon’ (Albert 1992) the difference between them is far from clear-cut. As we have seen in regard to Great Britain, the dominance of one or the other camp is never complete and national institutions reflect specific historical compromises, which can always be challenged if the balance of forces changes—as is the case with the internationalization of the M&A market. In each of these camps, therefore, one can see developments which anticipate and facilitate the harmonization devised by Brussels (Hermann 1989:233). Groups that were until

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now in the minority recognize the possibility of forging external alliances in order to make their voices heard. The expression of these disagreements makes the formulation of entrenched national positions less easy. The global situation becomes the more confused because neither of the two concepts seems able to impose itself clearly at the European level. We can therefore see a situation being created after the American model, in which the ambiguity of the regulation reflects the difficulties of finding a political compromise between the existing forces. The importance of the judicial forum arises from the inability of political authority to take sides and declare unequivocally in favour of one or the other of the two antagonistic systems. The legal battles created by takeovers are not simply tactical; they are also skirmishes in the confrontation of competing strategies concerning the regulation of the M&A market: all to the greater profit of the legal hired guns, who are also regulatory experts. Paradoxically it is in the City of London—that paradise of informal regulation—that this re-evaluation of the role of the business lawyer can be seen most clearly. It is there, it is true, that the inducements are greatest. Whatever their distrust of legal formalism and judicial intervention, the financiers are above all realists. Since legal tools have become an essential component in financial strategies, they rely more and more on lawyers and they bring them in at an earlier stage in the deal-making process. The lawyers, for their part, have not sat on their hands in the presence of these new opportunities. Even more than their US counterparts, large City firms have merged in order to follow—nay, to anticipate—the evolution of their market. As is the case across the Atlantic, they seek to recruit politicians: at one and the same time to open for themselves—and therefore for their clients—the doors of the national and Community regulatory agencies, and because the politicization of the legal field demands other types of skill than strictly technical knowledge. A new kind of expert is in the process of emerging, who does not hesitate to come out of discreet obscurity to play the role of ‘M&A stars’ for the media—even if it means tainting a little the egalitarian ideology of these law firms who like to see themselves as ‘the ultimate example of Athenian democracy’. It is true that their fees (up to £500 an hour for major takeovers) are in line with the risks run— or the booty amassed by their clients. As one of these new stars of business law said: ‘City lawyering has become very high profile!’ For the moment, the most typically British institutions, such as the Takeover Panel, continue to resist this legalization of business. Meanwhile, even the most ferocious defenders of the ‘gentlemen’s codes’ are well aware that they are fighting a rearguard action: the City can scarcely hope to become one of the main centres of a global financial market while retaining the charms and privileges of an exclusive club. It is not by chance that shortly after Big Bang the British authorities began to erect a far more formal judicial framework with the Financial Services Act, a real godsend for the law firms. The opening up towards Europe governs this evolution, which can only accelerate. The Community institutions give to these new legal experts new weapons, at the same time as it opens up to them new fields in which to try them out: weapons of legal harassment imported from across the Atlantic but still ill-regarded by the City Establishment. From that undoubtedly comes the passion for European law which reveals itself by excess investments of every kind, of which some observers question the good sense. Opening an office in Brussels represents a gamble that is both risky and expensive, even for the biggest firms. For the middling or provincial firms, it must be asked if these international alliances are really sensible. The multiplication of conferences and of de luxe brochures and newsletters analysing recent directives create the feeling of a certain waste of energy and resources. It is as if these professionals had discovered a new El Dorado which justifies abandoning their traditional prudence. Certainly, the advantage gained by British law firms over their Continental rivals allows them to hope to obtain the lion’s share in the new European market for corporate legal services. But this applies only to the more powerful ones; it is by no means sure that there will be room for all. In every way, it seems that this frenzy of investment goes far beyond reason. Perhaps it serves to erase a part of the

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respectable mediocrity and a long tradition of prudence which condemned these solicitors always to play second fiddle, in the world of business, as in the professional field. Whatever the reason—and whatever the final disappointments—this enthusiasm for Europe among British lawyers favours the advance of the new American financial-legal practices. Thus, by a kind of reversal of history the City (traditionally the great bastion and defender of informal justice) now finds itself the point of export for the ‘law of business’ in Europe. Whatever its professional logic, this conversion can only increase the complexity of the ‘Brussels game’ and contribute still more to its ‘Americanization.’ NOTE 1 A legal device which is designed to deter takeovers by considerably raising the cost of acquiring a company.

REFERENCES Albert, M. (1992) Capitalismes contre capitalismes, Paris: Seuil. Blandin, C. (1989) ‘La forteresse s’entrouvre’, Le Monde Affaires, 25 May 1989. Boltanski, L. and Thevenot, L. (1987) Les Économies de la grandeur, Cahiers du Centre d’Etudes de l’Emploi, Paris: PUF. Bourdieu, P. (1989) La Noblesse d’Etat, Paris: Editions de Minuit. Brooks, J. (1987) The Takeover Game, New York: E.P.Dutton. Bruck, C. (1988) The Predators’ Ball, New York: Simon & Schuster. Burrough, B. and Helyar, J. (1990) Barbarians at the Gate: The Fall of RJR-Nabisco, New York: Harper & Row. Carrone, L. (1990) ‘Conquérante Allemagne’, Le Monde Diplomatique, August 1990. Chirot, F. (1988) ‘Entremetteurs pour capitaux en fusion’, Le Monde Affaires, 28 May 1988. Dezalay, Y. (1991), ‘Territorial battles and tribal disputes’, Modern Law Review, vol. 54. —— (1992) Marchands de droit: La restructuration de l’ordre juridique international par les multinationales du droit, Paris: Fayard. Dumez, H. and Jeunemaître, A. (1991) La Concurrence en Europe. De nouvelles règles du jeu pour les entreprises, Paris: Seuil. Ehrlich, J. and Rehfeld, B. (1989) The New Crowd, Boston: Little, Brown. Euromoney (1990) European Corporate Finance Law. A guide to M&A and Corporate Restructuring Legislation, London: Euromoney Publications. Fairburn, J. and Kay, J. (eds) (1989) Mergers and Merger Policy, Oxford: Oxford University Press. Ferris, P. (1984) Gentlemen of Fortune: The World’s Merchant and Investment Bankers, London: Weidenfeld & Nicolson. Gordon, R. (1984) ‘The ideal and the actual in the law: fantasies and practices of New York City Lawyers, 1870–1910’, in G.Gawalt (ed.), The New High Priests: Lawyers in Post Civil War America, Westport, Conn.: Greenwood Press. Hermann, A.H. (1989) Law vs. Business, London: Butterworths. Hobson, D. (1990) The Pride of Lucifer: The Unauthorized Biography of a Merchant Bank, London, Hamish Hamilton. Holzapfel, H.J. (1988) Recht und Praxis des Unternehmenskaufs, Cologne: Verlag Kommunication Forum. Ingham, G. (1984) Capitalism Divided? The City and Industry in British Social Development, London: Macmillan. Jay, S. (1988) Portrait of an Old Lady, Harmondsworth, Middx: Penguin. Johnston, M. (1986) Takeover, New York: Penguin Books. Macaulay, S. (1963) ‘Non-contractual relations in business’, American Sociological Review, 28(1). Nora, D. (1987) Les Possédés de Wall Street, Paris: Denoël. Prot, B. and de Rosen, M. (1990) Le Retour du capital, les fusions-acquisitions en France et dans le monde, Paris: Editions Odile Jacob.

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Roberts, R. (1989), ‘How the City puts its house in order’, Financial Times 4 and 5 October 1989. Sampson, A. (1982) The Changing Anatomy of Britain, New York: Random House. —— (1989) The Midas Touch: Money, People and Power from West to East, London: Hodder & Stoughton. Smigel, E. (1964) The Wall Street Lawyer, New York: Free Press of Glencoe. Sklaar, M.J. (1988) The Corporate Reconstruction of American Capitalism, 1890–1916: The Market, the Law and Politics, Cambridge: Cambridge University Press. Spangler, E. (1986) Lawyers for Hire, New Haven, Conn.: Yale University Press. Tait, N. (1989) ‘Calcutt continues a Takeover Panel tradition’, Financial Times, 18 March 1989. Thompson, E.P. (1975) Whigs and Hunters: The Origin of the Black Act, London: Allen Lane. Tomasic, R. (1990) ‘The expanding role of the large corporate law firm: the case of takeover litigation in Australia’, unpublished working paper. Woolcock, S. (1990) European Mergers: National or Community Controls? Discussion paper no. 15, London: Royal Institute of International Affairs.

Chapter 4 A new judge for a new system of economic justice? Alain Bancaud and Anne Boigeol (Translated from French by Dennis Breen)

Nowadays in France developments in the system for regulating the economy are causing a recomposition of institutions and a transformation of professional role models. A good example of these trends is provided by changes in the judiciary. The latter, which previously remained on the periphery of the business world, is playing an increasingly central role in a new system. As a result, it has been obliged to redefine the principles on which it has traditionally based its autonomy and legitimacy. The judge’s position (and that of all legal experts operating in a segment of economic regulation whose structure has not yet been established) depends on the success of what the President of the Supreme Court has called a ‘cultural revolution’ (Drai 1988).1 What is at stake is even greater, since we are witnessing the birth of a new means of regulating society, in which jurists practising private law will have to improve their professional situation. RECOMPOSING THE SYSTEM OF ECONOMIC REGULATION Traditionally, judicial judges (as opposed to those of France’s administrative jurisdiction) have played only a limited role in settling economic disputes. As Pierre Lascoumes (1985) pointed out, political authorities have passed on the surveillance and handling of ‘commercial illegalities’ to groups within the business community and to administrative supervisory bodies. This separation was all the easier (as we shall see later), given magistrates’ and lawyers’ traditional lack of interest in trade and business matters (Karpick 1987). Moreover, industrialists and businessmen were equally anxious to steer clear of state justice. The latter, they felt, contained many flaws (including excessive publicity at hearings and judges’ poor knowledge of economic restraints), making it inappropriate for solving their problems. Today, although judicial judges still do not play a leading role in settling economic disputes, their position is none the less well defined, and is perhaps changing, mainly as a result of recent trends in the supervision of economic and financial markets. Of course, there are still whole areas in which the judge is avoided. For example, a large proportion of business disputes are settled by commercial arbitration. There are still cases that come before the judge only on appeal, such as those handled by the commercial courts, whose jurisdiction is part of the legal system but which are composed of non-professional magistrates from the world of industry and commerce. Except for certain civil and criminal cases which, from first instance, come before judicial judges,2 the latter usually hear only appeals of cases concerning the ‘noble’ economy (that is, involving national and international companies and financial deals). Consequently, only a small number of magistrates become competent to hear economic cases, and the vast majority of judges have only a very hazy knowledge of this sector. It is mainly the judges of the Paris Court of Appeals who are confronted with these economic questions, because national and international company head offices are heavily concentrated in the Paris area.3 As a result, 22 per cent of civil cases that come before this court are based on commercial law. The Paris Court

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of Appeals alone hears a quarter of appeals against decisions by French commercial courts. Its importance has been further boosted by the new powers it received following recent changes in competition and stock exchange law. These reforms4 reflect a certain change in how the supervision of economic activity is conceived. There appears to be a tendency to give judicial judges more responsibility for legal supervision of the economy, at the expense of administrative bodies. In some ways, there is a ‘replacement of direct state supervision by other organizations that combine independent administrative authorities with self-regulation’ (Viandier 1989). The reforms, which aim to strengthen legal security in economic and financial markets, are one consequence of major changes in business law. The law is playing an increasingly strategic role in economic battles (Dezalay 1992). This integration of economic matters into a legal framework, which is taking shape mainly under pressure from US lawyers, is accompanied by a growing need for measures to ensure that market forces operate normally. Not only must transactions be legally watertight, but the economic and financial ground-rules should be backed up by the law. As a result, businessmen must not only think about being fair to their clients when they make deals: ‘They have to respect market rules, which means doing nothing, alone or with others, that could interfere with competitive forces’ (Piniot 1991). As Viandier (1989) wrote about the new powers of the COB (France’s Securities Exchange Commission); ‘The globalization of financial markets, an increasing number of players and major improvements in equipment, have made a consolidation of security measures necessary.’ The stock exchange crash of October 1987 and various scandals linked to offences by insiders have made this consolidation even more urgent, and it must be accompanied by an increase in the ‘trans parency’ of financial markets. Legal security in economic and financial markets is thus a rapidly developing area, and is helping to reorganize the legal system by repositioning the profession and its institutions. This repositioning of institutions due to the reforms can be examined by considering the two major points that shape them: (a) increased powers of authorities responsible for the stock exchange and competition; and (b) the Court of Appeals’ new powers, and their consequences for the structure of the French legal system. These reforms strengthen the idea that institutions situated on the periphery of the legal system should, at first instance, deal with unfair competition and surveillance of the stock markets. These institutions are shaped by the fact that they include businessmen, financial experts and magistrates. They have the advantage of being closer to economic circles than is the legal profession, giving them an expertise that specialists in law cannot be expected to possess. They are ‘better able to appreciate the economic value of the offence’ and ‘more realistic in their choice of penalty’ (Mourre 1990). The fact that these commissions are more suitable for business disputes is further illustrated by the means at their disposal. The COB, for example, ‘has wider, more flexible powers of repression than judicial judges’ (ibid.: 270), especially in investigations. As a result, the already well-established principle that handling commercial disputes requires, at first instance at least, special institutions in which business circles are well represented, has been applied to the COB once and for all. Although supervision of economic and financial markets is to be carried out by authorities situated on the periphery of the judicial system, the reforms have gone a long way towards making these authorities similar to judicial courts. The magistracy’s presence in these commissions has been increased. The COB, which previously contained only one magistrate, an advisor to the Supreme Court, now contains two more senior magistrates, one from the Conseil d’Etat (the Supreme Court for administrative justice), and one from the State Audit Office. Furthermore, the anti-monopoly board and the COB now have their own powers to impose fines. Lastly, the functioning of these authorities has been aligned with that of the judicial system by

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the introduction of hearings, which include cross-examination, and greater attention to the judicial basis of decisions. Jurists have carried on heated debates concerning the legal status of these new authorities. The conclusion is that they are not administrative commissions and they do not have real jurisdiction, but are a phenomenon belonging to a ‘new legal structure’, and some people even speak of ‘near-jurisdiction’ (Drago 1987). This integration of economic questions into a legal framework provides jurists with a new market, and the process already appears to be well advanced. For example, before 1989 the COB’s decisions on the acceptability and the terms of a takeover bid were almost never contested before the administrative tribunal. However, ‘since we made this sort of dispute a judicial question every single takeover bid has been referred to the Paris Court of Appeals’ (interview with a magistrate). The judicial judge’s new powers are symbolically important in so far as they are slightly at odds with the French legal system’s tradition of dual jurisdiction, as a result of which appeals against the administrative commission’s decisions were within the competence of the administrative courts. There is no shortage of arguments to justify this transfer of competence from the administrative to the judicial structure. The most frequently cited motive is the necessity to unify case law concerning competition or the stock market. In both these areas the Court of Appeals already hears disputes that come before the commercial court and the civil and criminal jurisdictions. It has thus acquired some competence, but this is not complete. While the Court of Appeals handled legal disputes arising from takeover bids, it was not competent to rule on the acceptability of these bids or their terms. Until recently, the Court of Appeals heard cases related to unfair competition, but was not familiar with practices which could interfere with competitive forces; that is, agreements, or abuses of a dominant market position. It is logical, therefore, that it hear appeals against the COB’s decisions or those of the anti-monopoly board. This bringing together of disputes under the authority of the Supreme Court, via the Paris Court of Appeals, is ‘certainly capable of endowing new French competition law with the consistency and authority it was partly lacking before’ (Bolze 1988:174). The administrative justice system is also considered too ineffective to regulate the economy. It is very slow, and steps for dealing with urgent matters are rarely used and very lengthy (Gaudemet 1990). In fact, all arguments lead to the conclusion that the administrative jurisdiction is not suitable for solving business disputes. During discussions on the proposed reform of the anti-monopoly board, it was reaffirmed many times that the judicial judge is the lawful arbitrator for companies…appeals to the civil jurisdiction are more suitable for economic questions…the principles drawn from administrative law are not the most appropriate for solving problems involving purely private affairs.5 If the administrative jurisdiction does not have the necessary competence to deal with matters of legal security, the judicial judge is expected to have it, or to acquire it; this, as we shall see, requires changes in his professional customs. This turning away from the administrative jurisdiction is indicative of a general decline in ‘the elaborate construction of French administrative law…whose light is fading inexorably’, as a chief clerk at the European Court of Justice remarked (Calvet 1991). It is becoming increasingly clear that ‘the traditional dichotomy of the legal system is not suited to economic law where public interests are interwoven with the protection of private interests’ (Bolze 1988). Criticism of this durability undermines the administrative jurisdiction and, as Europe becomes a single entity, some jurists are expressing doubts about its ability to adapt, given the Conseil d’Etat’s past positions on Community law (Gaudemet 1990). As a result, by redrawing frontiers between the legal and the administrative jurisdictions, measures designed to guarantee the legal security of markets are helping to accelerate the recomposition of France’s legal system.

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REDEFINING THE JUDGE’S PROFESSIONAL ROLE MODEL Regulating the business community not only challenges French legal institutions. It is also a cultural challenge that affects the basic principles underlying the judicial judge’s traditional role model. The legal profession, which has always favoured general competence and a single conception of law and justice, must deal with increasingly specialized business law and more technical hearings. This process was set in motion by major law firms, who have acquired a taste for specialization from US lawyers, and who are trying to meet the needs of their big corporate clients, while creating protected market niches. Moreover, when asked to appreciate the economic implications of some decisions, and to settle cases that are often economically very important, judicial judges have to reconsider their relationship with the world outside the ‘legal profession, as well as with the knowledge and know-how of experts from other fields. Their introduction to the regulation of business matters poses as many questions about their inability to chair debates and to reason in an extra-legal context, as it does about their familiarity with groups of specialists that tend to form around, and dominate, the various segments of economic supervision. These circles of specialists contain legal experts, businessmen, members of administrative or para-administrative courts, lawyers (usually from major international law firms), and university and corporate jurists. The judge’s competence, like that of other participants, will be tested by these circles. They form the framework into which everyone must fit, and inside which everyone will become a specialist in his chosen field. To be accepted into such circles, one must be able to show a certain objectivity with regard to oneself, the interests one represents, and the most traditional forms of the institution to which one belongs. Specialists get to know each other through discussions at conferences, training courses, briefings, workshops, or through inter-professional mobility. As a result, magistrates in charge of the new economic cases are quite often dispatched to the COB, the anti-monopoly board, and the Ministry of Finance. It is worth noting that this mobility constitutes a resource that can be individual or collective. The magistrates in question tend to hold several different positions at once, thus forming a network. Significantly, the dominant institutions such as the COB also function as meeting points for people who are themselves nuclei. In order to understand the nature and extent of what is at stake, it is important to remember that the judiciary is based on a tradition of withdrawal from, and suspicion of, the business community.6 Businessmen have avoided the judge, and have always preferred to come to agreements and to settle disputes themselves; and politicians have tried to separate the judiciary from other elites, in order to dominate it more easily. Moreover, judges themselves have remained aloof from a segment of society they do not know, and tend to look upon with increasing distrust. With regard to the business community, judges have been torn between a feeling of incompetence and a sacred conviction of their own superiority. The legal profession’s strategy for distinguishing itself from the rest of society has, in fact, been based on nonmaterialism and distance from the world of money. Meanwhile, changes in its recruitment system furthered this detachment. Members of the mercantile middle classes have rarely been found in the judiciary, while other segments of the dominant class disappeared progressively. Although in the nineteenth century the judiciary included idle-rich gentry, from the twentieth century onwards these were progressively replaced by the provincial bourgeoisie (whose status was declining), middle-ranking civil servants and members of the lower-middle classes. For such a judiciary, the economically well-off classes to which it did not belong, or no longer belonged, became an unknown world that is distrusted. This world was often thought to be getting excessively rich, at too fast a pace, and even in a questionable manner. In his History of the Magistracy, a senior magistrate denounced a cult of ‘oversized fortunes; and ‘goods which were, in varying degrees, dishonestly acquired’, and emphasized that the ‘noble career’ of a judge involved ‘raising oneself above the shabbiness and the material considerations of everyday life’ (Rousselet 1957). In 1934, during the opening ceremony of the Supreme Court, another stated: ‘magistrates are not men of property, and that is

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fortunate. If it were possible, some would try to achieve this goal. And to attempt to become a man of property is to demean oneself.’ Apart from discovering and recognizing a social milieu which was previously ignored and disdained, a whole tradition of professional reserve is being reconsidered. While the major state bodies were trying to push back the boundaries of their profession by carrying out exchanges with other branches, judicial judges were intent on protecting the integrity of their profession by demanding of their superiors that they control the recruitment process. While other state bodies were broadening their horizons in an attempt to achieve their worldly ambitions and to further their pretensions to being the state’s right arm, judicial judges were sheltering behind the technical irreducibility and the ethical superiority of legal know-how. As one senior justice put it, introducing economic, social or psychological considerations amounted to ‘cross-breeding’ and ‘undermining the soundness of good judgment’ (Mimin 1972). Undoubtedly, this deep-rooted distrust mellowed as time passed, and judges recognized they could not ignore economic questions. At the same time, however, they added that these were secondary matters, in which they were not really competent, and which, in any case, constituted potential threats to the unity and neutrality of justice. At best, they treated these questions as raw data, only gradually integrating them into a legal framework by roundabout, even underhand, means. The judicial judge responsible for regulating economic matters is going to find several aspects of his professional life questioned: not only his relationship with the world in general, but also with his own power, his aloofness as well as his political carefulness. Since the French Revolution, the judiciary has been based on strict submission (both practical and symbolic) to the law. The law has been its compass and its lighthouse, its strait-jacket and its reference. During the 1970s, a senior magistrate wrote that a judge would feel like an orphan without the law. Undoubtedly, this relationship has become less reverential over the years, but the legal profession’s rule has always been to speak in the name of the law, and only in the name of the law. More generally, the judiciary has tended to be satisfied with the role of law enforcer rather than lawmaker, and to specialize in the form and authority of the law rather than legal politics. Moreover, it took refuge in the sceptical realism of the practitioner, who knows the Utopia of major reforming ambitions, and the illusion of strong principles constantly made obsolete by commerce. It has always had feelings of illegitimacy concerning politics, and incompetence in economic matters. If it now finds itself obliged to create the law, it does so as little as possible, and reluctantly. One magistrate, who is typical of his peers, wrote: ‘Innovation is indispensable nowadays, but it should be kept to a strict minimum’ (Breton 1975). The judiciary did not pretend to establish principles of case law that would become ‘general reference points’, as the Conseil d’Etat hoped to do at one time. Its principles were more modest, often implicit and established very slowly. They remained imprecise to avoid being contested and so that, later, they could be interpreted freely. When he did not have the law to guide him, the judicial judge tended to emphasize ‘the intentions of the legislator’, to take refuge in a wait-and-see policy (putting off the establishment of a principle on the pretext that the time was not right); in a pragmatic policy (judging each case on its merits); in a laconic policy (no one except himself understanding or interpreting his decisions and definitions). But in economic matters, the judge finds himself in unfamiliar territory, where he is expected to leave aside his carefulness and his role as guardian of the law’s exactness and stability. In the area of economic law more remains to be done than has been done. Very often the law does not exist, or it is too general or too old to be applicable. Moreover, the business community needs predictable, explicit, fast and flexible answers to legal questions, and not answers that are rigid, constantly put off, or made incomprehensible and unpredictable by imprecision and indecision. Fundamentally, a new conception of the law, the way it is created and its authority, is in the making: a new, less ritualized, less general, less abstract law, that takes into

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account the reality of the business world. The judicial judge, who retains the power to impose sanctions, will have to reconsider the penalty and its severity. It will have to be more severe, to distinguish between fraudulent and professionally abnormal practices (Piniot 1991). If the judicial judge continues simply to uphold the law and to remain aloof, he could miss the chance to improve his position that is provided by this type of case, which is noble and could extend his power, or even raise him in the hierarchy. Moreover, the efficiency, both practical and symbolic, of the law and justice is in the balance. In particular, systematically falling back on the fiction of submission to the letter of the law raises questions concerning legal techniques and the law’s credibility, just as the impossibility of imposing some sanctions undermines the judge’s authority and credibility. This situation is at the heart of a debate currently taking place within the judiciary. It would be more accurate to say the upper echelons of the judiciary, since these matters involve high-ranking judges who, in general, have been chosen by the most important judicial authorities and are under the direct control of the most important legal authorities. Appeals against decisions by institutions responsible for regulating the markets come before the Paris Court of Appeals (the ‘first chamber’ to be exact—the court is divided into seven of these chambers), which is presided over by the President of the Appeal Court. The judges involved in this debate fall into one of two categories. First, there are those who uphold the judicial tradition of reserve. They see themselves as technicians of the letter of the law and the sanction. They are uncomfortable about mixing with specialists from other fields, and refer to experts almost systematically. ‘The less we say the better’ is their motto. They see their judgment as the conclusion of a case rather than an opportunity to make the rule of law clearer and more predictable. The other category of judge comprises those who see the changes in economic regulation as a chance to improve their position. They believe that the judge should create law every time he has the opportunity, and he should not hesitate to become an expert in economic policy and to fraternize with other specialists. They see themselves as efficient, tolerant specialists of a legal formalization which is less rigid than that traditionally defended by their peers. They believe that ‘the object of a law is more important than its form’, and they claim to be more concerned with consensual acceptance of the rule than with its formal perfection (interviews). They use simplified methods to adapt to the business community, and they take it upon themselves to teach the regulatory bodies to respect the procedure of hearing both parties, to justify their decisions and to set precedents. This type of judge has often occupied other posts, where he could judge more creatively, and where he could familiarize himself with the interests and know-how of other participants. This openness of mind often makes him reluctant to return to a jurisdiction where the role of the judge is less inventive partly because of tradition and partly because the structure of economic regulation tends to make the higher paraadministrative instances the strategic centre of the field. The judicial institution is being challenged by the revolutionary and far-reaching nature of the changes. At the moment, people are wondering if the ‘new economic magistracy’ will become a specialized branch, locked in a noble cell, or a model that others will imitate. It is worth noting, in conclusion, that the judicial judge does not control the situation in which he finds himself, and he may have to change more radically than he expects. Lawyers who are interested in the extension of the market for appeals against decisions by para-administrative tribunals are being drawn into the new branch. Overall, the major international law firms, whose leading clients are big multinational corporations, are working on a strategy to improve the position of lawyers. This strategy requires a judge who is prepared to leave aside his traditional reticence regarding the business community, his carefulness and even his dependence on the state. As artisans of the internationalization and legal codification of the market, these law firms tend to look to the judge as the arbitrator between corporations and state or parastate tribunals, between EC authorities and national institutions as well as between state and EC law, in the

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formulation of which big corporations have a certain influence. This should encourage French judicial judges to resist their patriotic inclinations, and to form alliances with their peers at the Court of Justice in Luxembourg. European judges are leading a movement towards improving the position of magistrates, not just within the legal field, but also in the power structure. NOTES 1 See also the President of the Paris Court of Appeals, M.Ezratty’s opinion in ‘La lettre des juristes d’affaires’ 21 May 1990, no. 20. 2 Of all judgments handed down by the civil courts 5–7 per cent concern ‘business law’ (Minister der la Justice, Les Chiffres de la justice, 1991, La documentation française). About 7 per cent of all sentences in penal matters concern economic and financial delinquency (Lascoumes 1985). 3 On this subject, see Caro (1990:17–21). 4 Ordinance of 1 December 1986, concerning price controls and competition; completed by the law of 6 July 1987, which transferred disputes arising from the anti-monopoly board’s decisions to the civil jurisdiction.

• Law of 22 January 1988 on the stock exchange. • Law of 2 August 1989 concerning the security and transparency of financial markets. 5 Speech by M.Chavannes, Deputy Minister for Finance and the Economy, in the French Parliament, 18 December 1986, concerning the possibility of contesting the anti-monopoly board’s decisions before the civil jurisdiction. 6 Concerning the principles on which the judicial magistracy is based, see Bancaud (1993)

REFERENCES Bancaud A. (1993) La Haute magistrature judiciaire: entre politique et sacerdoce, Paris: LGDJ, coll. Droit et société. Bolze C. (1988) ‘Le transfert du contentieux des decisions du Conseil de la concurrence a la Cour d’appel de Paris, Recueil Dalloz Sirey, xxv. Breton A. (1975) ‘L’arrêt de la Cour de cassation’, Annales de l’Université de Toulouse, 23. Calvet H. (1991) ‘Le juge, une idée neuve en Europe’, Esprit, March-April, 55–62. Caro, J.Y. (1990) Les Dimensions économiques de la decision judiciaire: perceptions et pratiques des magistrats, Paris: Conseil de la Recherche du Ministère de la Justice. Dezalay, Y. (1992) Marchands de droit. La restructuration de l’ordre juridique international par les multinationales du droit, Paris: Fayard. Drago, R. (1987) ‘Le Conseil de la concurrence’, La Semaine juridique, Doctrine, 3300. Drai, P. .(1988) in ‘Entretiens de Nanterre. Nouveau droit de la concurrence’, Semaine juridique, 27 October 1988. Gaudemet, Y. (1990) ‘Crise du juge et contentieux administratif en droit français’, in J.Lenoble (ed.), La Crise du juge, Brussels: Storia scientia; Paris: LGDJ. Karpik, L. (1987) ‘La morale comme catégorie d’action collective’, speech to Journées annuelles de la Société Française de Sociologie, Bordeaux, 20–21 November 1987. Lascoumes, P. (1985) Les Affaires, ou l’art de l’ombre. Les délinquances économiques et leur contrôle, Paris: Le Centurion. Mimin, P. (1972) Le style des jugements, Paris: LGDJ. Mourre, A. (1990) ‘La repression des infractions boursières après la loi no. 89–531 du 2 août 1989 relative a la sécurité et a la transparence du marché financier, Gazette du palais Doctrine, pp. 265–72. Piniot, M.C. (1991) De la justice des marchands a la justice de l’entreprise et des marches, La justice, Paris: La Documentation française, coll. Les cahiers français, no. 251. Rousselet, M. (1957) Histoire de la magistrature française, Paris: Plon.

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Viandier, A. (1989) ‘Sécurité et transparence des marches financiers’, La Semaine juridique, Doctrine, 3420.

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Chapter 5 German corporate lawyers Social closure in autopoietic perspective Ralf Rogowski

INTRODUCTION Corporate lawyers have benefited from recent political and legal changes in the unified Germany and in Europe more than other groups amongst German lawyers. They gained both in size and in strength by playing a significant part in the marketization and privatization processes of the former GDR economy. They also gained from changes in the regulation of the German legal profession. The recent reforms of legal services, which are a result of European legal harmonization as well as national legislative, judicial and professional efforts, have led to some relaxation of the strict professional rules concerning the organization of the law firm and the specialization of lawyers. These reforms enabled German corporate law firms to achieve strategic advantages within the German legal profession. The leading firms are now able to participate in international competition over legal services for multinational corporations, banks or insurance companies. They also engage in interdisciplinary rivalry with auditors and other professions. Indeed, corporate lawyers have become a distinct group within the German legal profession. This development of corporate lawyering in Germany can be described as a process of social closure. External systemic processes within the economic and legal systems have made it possible for corporate lawyers to develop strategies to exclude other lawyers from certain types of legal business. However, the social closure happens within the legal system. Thus, despite their business clientele and their closeness to the business world, it is important theoretically and empirically to analyse corporate lawyers as components of the legal system. This group forms part of the structure of the operationally closed legal system which is, like other systems, ultimately guided by its needs of self-reproduction or autopoiesis. The development of corporate lawyering is related to processes of internal, structural differentiation and segmentation of the legal system. Within the legal system the group of corporate lawyers was able to adopt strategies of monopolization of and specialization in certain fields of law. Through this social closure corporate lawyers have become the leading force in the transformation process of the German legal profession into a competitive specialized industry for legal services. THE SOCIAL CLOSURE OF GERMAN CORPORATE LAWYERS The concept of social closure was introduced by M.Weber in analysing processes of societalization (Vergesellschaftung) in communities and was further developed in studies of the intermediate level of social stratification and intra-class relations.1 According to Weber’s concept the closure of a social group is characterized by the monopolization of specific economic opportunities which is directed against competitors. The social closure is an attempt to maintain or enhance privileges. The purpose of

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monopolization is the closure of social and economic opportunities to outsiders and the dominant feature of social closure in a social community is thus the power of exclusion.2 Corporate lawyers within the German legal profession The development of corporate lawyers into a distinctive group within their profession shows the classical attributes of social closure, that is, monopolization and exclusion: German corporate lawyers are exclusively engaged in a number of areas of legal advice; they have established their own recruitment patterns; and they have adopted powerful forms of organization which grant strategic advantages over other segments of the legal profession. Their salaries are significantly higher than the average for lawyers and they occupy a high social status within the legal and economic systems as well as in society at large. Social closure of the group of corporate lawyers is a phenomenon located within the amorphous German ‘legal profession’ which has never formed a homogeneous profession. One outward sign of diversity is that a member of the German legal profession is usually not called a ‘lawyer’ but a ‘jurist’. The formal unifying characteristic of German jurists is that they have passed the two legal state examinations. Admission to the Bar is not a sufficient criterion to characterize the majority of German lawyers. Only 30 to 40 per cent of German jurists are practising attorneys; the majority (60 to 70 per cent) either hold judicial office (about 15 per cent) or public office (about 25 per cent) or are in private employment (about 25 per cent).3 Three factors have been emphasized in characterizations of German jurists from a comparative point of view: an academic understanding of law through legal education and legal doctrine; a special emphasis on written texts and communication of experiences through written legal texts; and a state-centred understanding of the role of the legal profession with judges forming the centre of the profession.4 These features characterize the work and attitudes of German corporate lawyers as well and they create the general conditions for corporate lawyering in the German legal system. The special strategies and work patterns adopted by corporate lawyers which enable social closure only treat or handle these features in an innovative fashion. There is still little lateral mobility between the various sub-groups of German jurists. Becoming a judge entails starting a separate judicial career immediately after completing legal education. Only to a limited extent do transfers occur between administrative lawyers working for regulatory agencies and practising attorneys. The rule is still that a young jurist begins a judicial, an administrative or a lawyer’s career and stays in his or her track. The career of a corporate lawyer proceeds along such a separate track. Corporate law firms recruit newcomers from a small group of young top graduates with no practical legal experience. However, the young graduate needs more than top grades in the two legal state exams to become a corporate lawyer. The candidate needs also a legal doctorate and preferably an American master’s degree. On average, the first four years are spent as a salaried attorney. Thereafter there might be a transitional period as a profit-sharing partner without real decision-making power before becoming an equal partner and later perhaps a senior partner. The strict entry conditions make it impossible for young lawyers who lack top grades or an additional foreign legal education to enter the exclusive club of corporate law. In order to achieve high grades in legal exams, a postgraduate degree or a foreign education, it is necessary for the prospective candidate to invest in private crash courses for optimal exam preparation and in additional university fees. Only candidates who enjoy substantial family support from parents or spouses in financial and cultural terms and who engage in strategic career planning thus have a chance of becoming a corporate lawyer.

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These recruitment patterns also constitute the main barrier for experienced lawyers from non-corporate legal practices to enter the world of corporate law. These recruitment conditions are a major factor in preventing lateral mobility within the legal profession. In fact, they form a most powerful mechanism of social closure through exclusion. However, corporate law firms face a dilemma by insisting on exceptional degrees as the main entry requirement. High degrees guarantee, on the one hand, the special status of this group of lawyers among practising lawyers and, indeed, within the whole group of qualified jurists. To lower the formal entry requirements or to adopt criteria independent of the legal education system and the formal recruitment patterns of the legal profession could entail a loss of status and reputation within the profession. However, on the other hand, the qualification of these candidates is rather one-sided because their main achievement has been success in the German legal education system. This education system with its two tiers of academic and practical training in law prepares students almost exclusively for a judical career. The law firm runs the risk that these recruits are good on law but are not good lawyers, and therefore need increased on-the-job training during their first years of practising corporate law, or they may even turn out, after the probationary year, to lack partnership qualities and then are a lost investment. Furthermore, because of the limited supply of candidates with the highest law degrees the corporate law firms have begun to compete for them by raising the starting salaries. These salaries are now well above DM100,000 in the larger corporate law firms and are thus already higher than the average income of an established non-corporate practising lawyer. The candidates with exceptional law degrees are put in a strong bargaining position; it is reported that it is often rather they and not the corporate law firm who conduct the interviews during recruitment. The dilemma of professional regulations Like other practising attorneys, corporate lawyers and their law firms are regulated by professional rules administered by professional bodies. Because of the self-regulation of professional rules the German legal profession is called a ‘free profession’. There exist two main self-regulatory institutions of the ‘free profession’ of lawyers in Germany: the Chamber of Attorneys (Rechtsanwaltskammer) and the German Association of Lawyers (Deutscher Anwaltsverein). There is mandatory membership of the Chamber whereas membership of the Association is voluntary. These professional bodies enforce a unitary scheme of professional regulations regarding disciplinary control of the conduct of lawyers and the legal form of law firms. However, the paradigm of these professional regulations is still the solo practitioner and not the reality of large law firms. The system of self-regulation of the legal profession faces the dilemma of traditionalism and innovation. It is criticized by corporate lawyers as dominated by the traditional interests of solo practitioners, rural lawyers and small law firms. Thus, corporate law firms tend to neglect the local Bar. However, some firms consider participation in the running of the local Bar as good for public relations and political campaigning for innovation. Although the legal work concerned with professional regulations is not regarded as very prestigious among corporate lawyers, it is sometimes internally recognized as a pro bono activity which is best taken care of by a non-specialist senior partner. The existing German law regulating the legal profession is still widely considered as highly restrictive.5 German lawyers and law firms are legally prevented from publicly advertising their services. Lawyers can only practise in the district of the appellate or district court of their residence. Maintaining branches of law firms in other court districts is not allowed and is considered unethical and a violation of the ‘locality principle’. The only exception so far is the establishment of a supra-local law firm (überörtliche Sozietät).

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In particular, the idea of liberalizing the organizational form of the law firm has created tensions within the self-regulatory bodies of lawyers. The proposal to allow the formation of joint-stock or limited liability companies of lawyers (Rechtsanwaltsgesellschaft) has been successfully rejected by the Chamber.6 Thus the supra-local law firm must still be run as a partnership. All partners are personally liable for the handling of cases of each partner in any of the offices of the law firm. An expansion of the law firm into a supra-local law firm means an increase in risk and thus, in practice, an increase in premiums for private insurances. The partnership model creates an obstacle to forming large units because if partners have to bear the potential losses of another partner, they need to know each other personally in order to develop the necessary trust relations. An anonymous and bureaucratic law firm is too risky for a partnership. Thus the partnership model prevents law firms embarking on innovative investment strategies. The professional bodies supported the introduction of the specialist lawyer. Specialization can either mean being a specialist in a certain field of law or specializing in interdisciplinary work. The Chamber of Attorneys is given the right to award the title of specialist lawyer (Fachanwalt) in administrative, tax, employment or welfare law.7 These titles can be obtained as an additional qualification to the obligatory two legal state exams after attending specialist courses which are run by the professional bodies. The second form of specialization, i.e., interdisciplinary qualifications, is valued among corporate lawyers, especially in the form of the double or triple qualification as tax consultant and auditor. The organization of corporate lawyering The social closure of the group of corporate lawyers is significantly enhanced by their organization, it is characterized by (a) monopolization of and specialization in certain fields of law; (b) flexible, international and multidisciplinary law firms; and (c) special work ethic and image of corporate lawyers. Monopolization and specialization Corporate law firms have monopolized certain areas of law and types of cases. These include, for example, banking law. The leading corporate law firms in Germany’s banking capital, Frankfurt am Main, have established long-standing working relations with legal departments of banks.8 These relations are based on trust and mutual respect. Corporate law firms receive cases for which bankers deliberately want external representation despite sufficient internal resources in their legal departments. This is particularly the situation when it comes to litigation.9 In the area of banking and corporate finance cases corporate law firms become active on both sides, i.e., for banks and for clients of banks. Another area of exclusive activity for corporate law firms is anti-trust or competition law and merger and acquisition (M&A) cases. Major German M&As at the end of the 1980s, such as Daimler and MBB or the negotiations between Thyssen and Krupp and the Pirelli case,10 were arranged with the participation, and often under the leadership, of a small number of German elite lawyers. This group specializes in takeovers and the modernization of company structures and they sometimes advise both sides at the same time, ignoring the ethically problematic nature of such practices. Monopolization of certain fields of legal advice does not prevent German corporate law firms from offering comprehensive legal advice to the corporate client. Thus the legal work of corporate law firms covers traditional fields of law such as contract law, conveyancing, partnerships and company law as well as employment law and administrative law. Most corporate law firms have developed special reputations in certain fields of law, including competition, cartel or anti-trust law, banking and financial law, tax law, intellectual property and administrative and environmental law.11

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Monopolization is achieved through accumulating professional capital and creating a complex organization of the corporate law firm. However, it requires that corporate law firms adapt the internal structure of their organization. The firms have to differentiate internally according to fields of specialization. In these fields the law firms need to be equipped with specialist official and non-official material containing the information used by the administrative, judicial or private decision-makers in the field. An effect of departmentalization is that it enhances the visibility of the firm as an actor in a certain field of law and therefore increases the chances of monopolization. Flexible, international and multidisciplinary law firms Because of the nature of their clientele and the complex nature of corporate cases the corporate law firms need flexible organization. In M&A situations the large German corporate law firms adopt increasingly a socalled American style of lawyering. They offer a team of highly qualified specialists who are able to assess the company considered for takeover. These staff are prepared to engage in complicated legal matters at short notice and are experienced in co-operating with non-legal specialists in an M&A team. M&A cases are very lucrative for corporate law firms. The largest German law firm12 estimates that they constitute 20–30 per cent of their turnover. These cases are challenging because they enable corporate lawyers to become ‘corporate architects’ and prime movers in changing the landscape of business organizations. However, corporate law firms consider that M&A cases do not provide a steady flow of income because they seem to depend on business cycles or economic conjunctures. The necessity to prepare for M&A and other large-scale cases is a major factor in increasing the size of law firms. It needs to invest substantially to be successful in this business. The bigger the law firm the easier it is to spread the large investment costs. Law firms which are not able to grow and to transform their internal organization according to needs of flexible specialization have recently lost their status as corporate law firms. Reasons were that their firm philosophy was, for example, dominated by the idiosyncratic interests of their founding patriarchs, and that they were thus losing out in the M&A business and then dropping rapidly from the exclusive club of corporate law firms. A further trend in the organization of corporate lawyering is related to interdisciplinary work. Corporate lawyers increasingly acquire double qualifications as tax consultants or auditors. Furthermore, accountants and auditors are increasingly accepted as partners and are employed in a small auditing company (Wirtschaftsprüfergesellschaft) owned by the corporate law firm. In general, however, German corporate law firms have not crossed the boundaries between disciplines; none has become multidisciplinary. They still prefer a division of labour, and delegate accountancy and auditing work to large and influential accountancy or auditing companies with which they have long-established relationships. There is a significant trend toward increased delegation of non-legal tasks in corporate law firms to nonlegal professionals, leading to a concentration of the advocates’ efforts on purely legal work. Co-ordination of tasks as a result of supra-local mergers has led to increased bureaucracy in corporate law firms. Administrative officers are employed to co-ordinate activities, and committees are set up to decide on recruitment strategies, salaries, computers, public relations and the corporate identity issues of the firm. Work ethic and image of corporate lawyers Law firms have created a work ethic which demands a strong commitment to the firm in exchange for high salaries or profits. Working hours for young lawyers are unlimited and they are expected to work after hours

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and at weekends. However, the recruits, who are mostly young males, consider long working hours a sign of high prestige which distinguishes them from other members of their cohort. The offices of corporate law firms are located in city centres dominated by the financial and commercial world. They are scarcely distinguishable from the surrounding financial service institutions or consultancy agencies. The interior of the offices conveys an atmosphere in which managers feel at home. Some firms have adopted a corporate identity with a logo and matching colours of note paper, wall paper and furniture. The stylish furniture and the interior decoration carry the message that the corporate lawyer can distinguish between an uninhabitable court room or administrative office and the climate of corporate boardrooms. And the elitist and international character of their legal business is expressed through the display of abundant art objects. A feature of the work-style of corporate lawyers is that they operate often under considerable time pressure. They are assisted by law firms which are usually equipped with the latest office technology. The most up-to-date telecommunication services and computerized libraries are used for video conferences to co-ordinate negotiation and litigation strategies. There are regular international business contacts which involve a substantial amount of travelling. Communication with clients or other lawyers is often in English or in another foreign language. And the corporate lawyer needs social skills which include not only an acquaintance with the legal system but also the cultural environment of his international clients. The litigation strategies of these elite lawyers are characterized by strategic planning over an extended period of time, intensive preparation and high stakes.13 They are familiar with the procedural requirements and the complicated substantive legal issues in appellate courts and in the Federal Supreme Court. In addition, they are the main actors in the system parallel to the judicial system at national and international level, that is, arbitration, which is of highest importance in commercial matters. In their areas of specialization, corporate lawyers take part actively in developing the legal doctrine of their specialist field of law through contributions to legal journals and magazines. Indeed, these specialists often feel superior to academics and judges in understanding the intricacies and implications of certain legal matters. And they sometimes take pride in offering to lecture on their legal field in universities. A number of German law schools try to bridge the world of legal academia and the world of the legal profession by involving corporate lawyers in teaching commercial and company law. Within the hierarchy of practising attorneys corporate lawyers constitute the top of the legal profession. Although the names of their law firms are still unknown to a wider audience, and although even normal German ‘jurists’ may have heard of these firms only by chance, business magazines and other relevant publications have begun to portray them as the most influential players in corporate takeover games.14 Through these reports it is known that amongst corporate lawyers partners earn profits of DM1 million or more per year: more than ten times the average income of a practising German lawyer.15 However, they differ significantly among themselves in style and reputation, ranging from the flamboyant socialite, known to stretch the law to its limits, through the fatherly adviser, to the retiring and cautious civil servant. The growth of corporate law firms in Germany The German legal profession has doubled in number from the beginning of the 1960s to the middle of the 1980s. The number of qualified ‘jurists’ rose from about 62,000 to roughly 125,000.16 The number of practising attorneys rose faster than the number of jurists in general, and among practising attorneys the growth rate of corporate lawyers is higher than in other segments. There are a number of reasons why German corporate law firms have found it necessary to increase considerably in size in recent years. Some of the reasons have already been mentioned; they include the

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pressure to differentiate internally in order to specialize in certain fields of law, and the need to be prepared to engage in team work in situations of large and rapid transactions, such as M&A cases. The large German law firms have also felt the need to be present in the major countries of their international clientele. This includes the establishment of offices in New York and Brussels and in European capitals. Further growth factors were the assumption of increased competition with large foreign law firms both internationally and in Germany and expansion of lawyering in the eastern parts of Germany. German corporate law firms expanded in two waves. The first wave came with the recognition of international competition and activities in Brussels. The second wave came with the merger or expansion of law firms into supra-local law firms accompanied by a new interest in opening offices in Berlin. The first wave started in the middle of the 1980s. The debate on the freedom to exercise a profession at European level was the result of implementation of articles 52 and 59 of the Treaty of Rome (EEC) and efforts to enhance the internal market in the wake of the Single European Act of 1986. The right to take up or pursue activities as a self-employed person and to set up and merge undertakings (known as freedom of establishment protected by art. 52 EEC) and the freedom to supply services (granted by art. 59 EEC) protect competitors from other EC member states in so far as these provisions constitute rights to equal treatment with nationals of the host member state of the community. German law firms feared a loss of influence on their home ground because larger and financially more powerful law firms of other EC member states were allowed under EC regulations to compete directly with them. However, this threat is now taken less seriously with respect to the capacity of German law firms to be successful in the German as well as the European legal services market. The European law on professional freedom grants foreign lawyers only a limited right to practise in Germany, which is even further limited by national German professional rules. The foreign lawyer must become a member of a local German Bar and set up an office in the district of the local Bar and, most importantly, is restricted under German law to give legal advice only on his home law.17 The foreign lawyer cannot use a professional title other than that of the country where he has been admitted to practise. However, German lawyers nevertheless claim reverse discrimination18 because German professional regulations prevent them from establishing offices in other cities (except by forming a supra-local law firm) whereas foreign law firms can establish more than one office in Germany under European law.19 The internationalization of legal practice was first recognized by German corporate law firms in the middle of the 1980s; German law firms began to engage in mega-lawyering.20 They became especially active in European law in the 1980s because they feared that the area of supra-national law would be captured by big British, Dutch or American law firms. They tried a number of strategies in Brussels: some established their own offices in Brussels; fourteen of the one hundred biggest German law firms had such offices in 1992. Other law firms co-operated with foreign or other German law firms in establishing a joint office in Brussels. In addition there exist rather exclusive clubs of leading European corporate law firms which meet informally. Smaller corporate law firms have begun to engage in European economic interest associations.21 Although rather cautiously, German law firms also engage on the international level outside Brussels. Twenty-six of the hundred largest German law firms had up to three offices in a foreign country in 1992. Six firms had offices in New York, five in Paris, three in London and three in Tokyo. In addition, firms had offices in Beijing, Budapest, Prague, Stock-holm, Vienna and Warsaw.22 The movement of mergers and other forms of expansion of law firms was supported by decisions of the German Supreme Court which granted legal status to so-called supra-local law firms.23 A supra-local law firm can now operate in more than one German city without violating professional rules. However, the Association of Attorneys is still rather critical of this development. It clings to the traditional principle that a

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lawyer and a law firm should reside only in the locality of the court district in which the lawyer is registered (Lokalitätsprinzip) and uses this as an argument against national law firms.24 The German corporate law firm used to be very small. Unlike its American or British counterparts, it was proud to be a ‘boutique shop’. However, the situation has changed significantly in the last three years. The largest German corporate law firm in 1989 doubled in size within three years. It increased from forty-one lawyers (twenty-six partners and fifteen associate attorneys in 1989)25 to eighty-four attorneys in 1992. In June 1991 three of the leading twenty corporate law firms merged into a ‘supra-local’ firm (Bruckhaus, Westrick & Stegemann).26 This firm had 112 partners and associates in 1992 and is now the largest German law firm. The mergers in the second wave included new organizational relations with the leading Berlin law firms (Raue, Bezzenberger, Finkelnburg and Quack, italicized in Table 5.1). However, these links between powerful West German firms and Berlin firms can hardly be called mergers. Berlin was, prior to unification, considered a province within the world of legal practice. Thus the traditional Berlin firms were not equal partners in these mergers and were, rather, ‘bought’ by the West German firms (at least in the case of Raue and Bezzenberger). Most of the new Berlin offices of the West German law firms which are not linked with older West Berlin firms do not interfere with and, indeed, are not interested in the local Berlin market for legal services. Their sole interest is in the East German market and in particular in dealings with the Berlin-based privatization agency Treuhandanstalt. This government agency is responsible for the introduction of a market economy in East Germany through the sale of the former state-owned companies. Corporate lawyers represent both the Treuhandanstalt and German and foreign investors and previous proprietors in these privatization deals. They capitalize on the legal uncertainties which derive from the unclear legal scope of the Unification Treaty and its implementation, from unresolved property claims and from unpredictable competition or anti-trust law administered by the main competition agency (Bundeskartellamt) which is also based in Berlin. Corporate lawyers have been highly successful in exploiting the new economic and legal opportunities in the former GDR. The legal problems surrounding unification have strengthened their role as power-brokers, mediators and facilitators for companies and politicians. And corporate lawyers could protect their monopoly in important fields of law and thus strengthen the social closure within the legal profession. Competition or co-evolution? Inter- and intraprofessional relations Corporate lawyers are better equipped than other lawyers to engage in strategies of market expansion. Blankenburg27 has analysed a paradoxical relationship between the monopoly for legal advice and restrictive markets. He argues that the legal monopoly of German attorneys in giving legal advice is detrimental to the development of strategies of market expansion; an increase in competition through abolishing the legal monopoly would force lawyers to develop new forms of legal advice. However, his notion of the progress of the legal profession as a positive effect of competition Table 5.1 The 33 largest corporate law firms in Germany in 1989 and 1992 (no. of lawyers per firm) 1992

1989

Bruckhaus Westrick Stegemann

112

Pünder, Vollhard, Weber & Axster Boden Oppenhoff Rasor Raue

96 84

75 (1989:3 firms) 30 41

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GERMAN CORPORATE LAWYERS

1992

1989

Wessing Berenberg-Gossler Zimmermann

80

Gleiss Lutz Hootz Hirsch & Partners Droste Killius Triebel Rädler Raupach Bezzenberger Schön Nolte Finkelnburg & Clemm Haarmann, Hemmelrath & Partner Beiten Burkhard Mittl & Stever Gaedertz Vieregge Quack Kreile Nörr, Stiefenhofer & Lutz Baker & McKenzie (Döser Amereller Noack) Hengeler Mueller Weitzel Wirtz

75 72 62 62 60 56 55 48 42 42

Weiss & Hasche Boesebeck, Barz & Partner Sigle, Loose, Schmidt-Diemitz & Partner Heuking, Kühn, Herold, Kunz & Partners Feddersen Laule Scherzberg Undritz Deringer, Tessin, Herrmann & Sedemund Ohle Hansen Ewerwahn Fiedler & Forster Schürmann & Partner Esche Schümann Commichau Schlütter, Lüer & Görg Ronkel Schmitt & v der Osten Brandi Dröge Plitz & Heuer Thümmel, Schütze & Partner Schilling, Zutt & Anschütz Dr Schackow & Partner Peltzer & Riesenkampff Scholz Kraatz Dittmann & Partner Büsing, Müffelmann & Theye Sources: Pritchard (1992:123) and Wilhelm (1989:74).

40 39 38 37 35 34 n.a. 30 24 22 20 19 18 n.a. 16 16 15 15 n.a.

24 (1989 only 1 firm) 27 n.a. n.a. n.a. n.a. n.a. n.a. 21 24 43 (1989:2 firms) 16 n.a. 23 34 15 18 29 n.a. n.a. n.a. n.a. n.a. n.a. 17 13 n.a. n.a. n.a. 13

overlooks intraprofessional processes of segmentation and social closure which are independent of competition. Legal monopoly does not prevent the profession from developing new forms of social or economic advocacy and public- or private-interest lawyering. In fact, the social closure of corporate lawyers shows how this group used legal monopoly to actively engage in developing strategies to enlarge the market for their legal services. An example of market expansion is the rediscovery of tax law by corporate law. Tax law used to be an area of legal advice traditionally neglected by the legal profession. Corporate lawyers are seeking to recapture

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tax law from the auditing and tax consultancy profession. However, they hesitate to compete openly in this field of law; they argue defensively, insisting that this market expansion of legal services derives directly from clients’ wishes and that it is not meant to challenge the traditional monopoly of tax consultants and auditing companies. They want to offer advice on tax law only as an additional form of legal advice. The tax consultancy companies and auditing companies which have been established by corporate law firms are comparatively small in size. There are good reasons for German corporate law firms not to engage in open competition with the large accountancy firms. The leading six accountancy firms are truly international and all organized like large corporations. There exists only one truly international corporate law firm, which originates from the US.28 A number of other American and British law firms have also developed strong international networks.29 However, these law firms cannot match in size, financial resources or power any of the Big Six or other large national accountancy firms. Thus law firms have an interest in not provoking these companies to develop aggressive market expansion strategies which could undermine the business opportunities of German corporate law firms. A further reason for corporate lawyers to engage only in cautious market expansion strategies is related to the quality of legal advice. Corporate law firms take pride in high-quality legal advice and thus are reluctant to offer advice on tax law which is of a lower quality. This attitude might be a reason for the slower growth of German law firms compared with common law countries. There is an informal understanding among corporate lawyers that their strength lies in precise and informed legal advice which justifies an exceptional fee. A superiority in the quality of legal advice is thus seen as a guarantee to prevent disastrous competition. Corporate lawyers are less defensive with respect to other segments of the legal profession. However, competition is again not an accurate description of their relations. Corporate lawyers instrumentalize the existing means of German jurists and perhaps add a few new styles of lawyering. To some extent the strategies of corporate lawyers can even be described as ‘exploitation’ of their position within the legal profession in order to monopolize certain fields of law; this is a major feature of social closure, according to Weber. Furthermore, there are signs of reaction against this ‘exploitation’ among those lawyers considered ineligible to be corporate lawyers and thus excluded from legal work monopolized by corporate legal practice and from the cosmopolitan atmosphere of corporate law firms. These reactions can be labelled, following Parkin, as ‘solidarism’ against social closure.30 This ‘solidarism’ against ‘exploitation’ can be detected in discussions of the professional bodies of lawyers in which proposals of corporate law firms, for example, to introduce limited liability law firms, arouse opposition from lawyers working in small and medium-sized practices who tend to dominate the politics of the Chamber and the Association. However, what seems to characterize the development of the legal profession is not competition but differentiation. There are divergent trends occurring in the various segments of the legal profession which develop independently into complex legal fields. The stratum spans corporate law at one end to family law, employment law and social welfare law at the other. Welfare law, for example, has become an area which requires rather sophisticated specialist knowledge and it is thus not surprising that there has emerged a group of para-legal advisers dealing with it exclusively, including legal representation before the social court. What seems to be emerging is a new structure which divides the legal profession along functional lines. However, this does not mean that intraprofessional relations decrease. They demand new forms of cooperation based on mutual recognition. Special intraprofessional relationships exist between corporate lawyers and salaried lawyers employed in the legal departments of banks, insurance companies or large corporations or in auditing or tax consultancy companies. These in-house lawyers are legal counsellors who have sometimes achieved a quasiindependent status within their corporation. However, the distinction between the function of internal and

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external legal advice is seldom blurred. In fact, truly external legal advisers seem to be becoming increasingly important because top managers consider them more trustworthy and innovative in carrying out risky transactions. In-house lawyers are by contrast viewed as ‘brakemen’ on innovation and, because of their status as employees, managers often hesitate to develop personal relationships with them.31 The status of in-house lawyers varies between the economic sectors. In comparing in-house lawyers in German industrial companies, banks and insurance corporations, M.Hartmann found both stability and change in status among this academic elite in industry.32 He observed a significant downgrading of the status of lawyers working for insurance companies, whereas the status of lawyers working for banks, often in the capacity of directors, remained relatively high. Lawyers in industry tended to work almost exclusively in separate legal departments and had lost influence in top management. The relation of legal departments with corporate law firms was found to be selective. Legal departments are interested in autonomy and they cooperate only with outside law firms when they can dominate the legal activities. Only in cases which require specialist knowledge, such as competition law, or which have led to litigation will legal departments co-operate closely with external law firms.33 In particular, expertise in the legal representation of corporations in court and during administrative proceedings is the most valuable asset of corporate law firms. Indeed, the share of litigation work, which is reported to amount to 20–30 per cent of the total workload of the corporate law firm, scarcely indicates the importance of litigation for the law firm.34 In general the strength of corporate lawyers in their relationships with legal departments of corporations and banks lies in their ability to engage in sophisticated litigation.35 We can conclude that both the interprofessional relations with auditors and tax consultants and the intraprofessional relations with in-house lawyers and other practising attorneys are not dominated by competition. It is thus more accurate to view these relations as linkages which enable co-evolutionary developments.36 The developments which occur in each profession and in each segment of the profession are not a direct result of competition. However, the different professions or segments observe each other and use their selective contacts to create internal structures and develop strategies which can lead to coevolution of the different fields. The idea of co-evolution, which presupposes development along different tracks, requires an analysis of the differences between these tracks. It is thus necessary to adopt a broader theoretical approach which is able to analyse processes at the level of the profession as a whole and treat it as a field or system with its own structure. The study of the profession of corporate lawyers can benefit here from the most recent development in social systems theory which assumes radical autonomy of systems as a result of the need for self-reproduction or autopoiesis. AN AUTOPOIETIC PERSPECTIVE ON CORPORATE LAWYERS For an analysis of the legal profession it is useful to combine the ideas of autopoietic systems theory and social closure. The concept of social closure as originally proposed by Weber emphasizes the economic motivations of groups within communities. In this concept they are driven by self-interest to monopolize economic opportunities. However, for the study of professions the social closure concept needs some refinement. This can be achieved by switching to structural or systems theoretical types of analysis. The legal profession is then conceived as a field, an arena or a system. Bourdieu analyses the correlation of interests and social fields by viewing interests only as conditions of the functioning of fields which are themselves shaped by these fields. Law is analysed as a field which has its own power to generate interests.37 The agent in the field owns a particular habitus which derives from a number of sources, including his education, social background and socialization into the field. However, if,

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for example, the corporate lawyer as an agent in the legal field insists on a habitus which is independent of the field of corporate law and if he derives his habitus from the work experience of a solo practitioner’s office or from a non-legal environment, then he can be compared in Bourdieu’s terms with Don Quixote ‘who puts into effect in a transformed economic and social space a habitus which is the product of a previous state of the world’.38 In other words, Bourdieu emphasizes structures and their qualities which generate the main conditions of a social field. His approach stands to some extent in the tradition of a theory of social systems which was first outlined by Talcott Parsons who also applied systems theory specifically to the study of professions.39 Parsons emphasized in abstract theoretical terms the relation of the professional practice with the social structure and the universal values of modern societies. Abbott, in his ‘The System of Professions’, expounds on this approach in stressing the developmental aspect of professional systems. He analyses the process of professionalization in which the system of a profession is constituted by competition and exclusion.40 The strength of Abbott’s analysis lies in the empirical and comparative approach to the study of professions. However, the weakness of his approach relates to an insufficient theoretical understanding of internal mechanisms which enable the process of professionalization. Whereas Parsons and Abbott analyse mainly structures and their capacity to adapt to changes occurring in the system’s environment, the theory of social systems outlined by Luhmann emphasizes internal processes related to the autopoietic constitution of social systems. The need for self-reproduction is the ultimate factor which shapes the development of systems, according to Luhmann’s theory. The legal system is conceived as a closed system which is constantly concerned with its autonomy and its reproduction or autopoiesis.41 The perception of the world within the legal system is guided by a system-specific selection criterion. This criterion is a binary code by which the system can decide if a fact or a situation is legally relevant or not. It is the control over the application of the binary code which renders the legal system autonomous. Furthermore, from the viewpoint of this autopoietic systems theory, the relation with other social systems is perceived in terms of structural coupling rather than direct interventionism or steering.42 Thus the relationship of the legal system and the corporate world is only indirect. The legal system constructs its own reality of the corporate world according to legal norms. The corporate lawyer who acts within the legal system as a broker shapes the legal construction of the corporate world. In litigation he intervenes strategically on behalf of his clients by construing the facts of the cases and influencing the development of legal doctrine by proposing specific argumentative or discursive figures. An example is the field of competition or anti-trust law. In order to challenge the regulatory interventions of the German anti-trust agencies and the national anti-trust agency sophisticated legal knowledge and special negotiation and litigation skills are required. To be successful in competition cases the corporate lawyer has to abide by the rules and procedures of the game; these are defined not only by the national legal system but increasingly also by European law which modifies national German competition law and which has created uncertainty about major premisses of German anti-trust legislation. However, this situation offers prominent corporate lawyers opportunities to develop argumentative strategies which can shape the entire field of competition law. Corporate lawyers operate as dealers or brokers, as mediators or executors for an economically very powerful clientele. In the German economic system corporate lawyers became important as a distinctive group of advisers because actors in the economic system increasingly perceived the use of and the protection from legal regulation as important for corporate management, including corporate financing. From the perspective of the economic system corporate lawyers are needed because law has become economically relevant. The price of companies is increasingly determined by legal considerations. Precisely because of the function of law in economic decision-making, corporate lawyers have achieved a prominent

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role as corporate advisers. However, this does not mean that corporate lawyers therefore became part of the economic system. In contrast, corporate lawyers have to be regarded as influential and successful within the legal system in order to maintain their influential role within corporate decision-making. Thus it is closeness to the legal system which makes them attractive for business. Corporate lawyers need autonomy and independence towards their clients in pursuing legal strategies which are not controlled by their corporate clients. Corporations are themselves ‘autopoietic systems’43 which are guided by self-referential decision-making. Unlike in-house lawyers, corporate lawyers remain part of the environment of autopoietic enterprises. The impact of advice given by corporate lawyers to management is ultimately limited by the self-reproductive needs of the organization. The corporate lawyer achieves his advantageous position with respect to management precisely as a result of successful participation in the legal game. As long as the legal game remains informal, because mergers and acquisitions are negotiated informally with the competition agency, the corporate lawyer can play an extra-legal role of negotiator or adviser. However, with a change of the rules of the legal game to litigation and within the debate over legal doctrine, the corporate lawyer has to develop skills in understanding self-referential and self-reproductive processes in the legal system. Within the legal profession the process of social closure of the group of corporate lawyers becomes mainly an internal event of the legal system in autopoietic perspective. Trends to diversify corporate law firms and to incorporate accountants and other professions reflect developments in the legal system. It is the contribution of social closure to the constitution of the sub-system of corporate law within the legal system and its reper cussion on the legal system as a whole which becomes of special interest to an autopoietic analysis. Theoretically and empirically it is important to distinguish between exclusion and competition. Exclusion is a strategy to draw the boundary between the internal world of the system and the external world of the environment. Competition is a specific recognition of the environment within the system. Exclusion is the establishment of structural boundaries, whereas competition is an exercise of power. The previous analysis emphasized that the group of German corporate lawyers hesitates to compete and that they instead resort to developing mechanisms of exclusion. However, on the interaction and organizational level rivalry between corporate law firms and other lawyers seems to be increasing. In this respect it is necessary to introduce a further distinction between intraprofessional and interprofessional relations. Although there is still no open interprofessional competition between lawyers and auditors or tax consultants there is an increasing number of conflicting interests. A prominent example is the interest of corporate lawyers to regain expertise in tax law, which hitherto has been largely left to auditors and tax consultants. Nevertheless, interprofessional relations between auditors and corporate lawyers are better described as the co-evolution of similarly regulated professions than as competition. Intraprofessional relations are also not dominated by competition. The various segments of the legal profession seek division of labour along the lines of certain fields of law (specialization) or certain types of clientele, instead of competition. Corporate lawyers use mechanisms of exclusion openly with respect to other lawyers and competition with respect to other corporate law firms. Furthermore, the success of the corporate lawyer in the legal system has structural consequences. The social closure of corporate lawyers is a sign of reflexive modernization44 of the legal profession. Reforms to liberalize regulation of the German legal profession were directly or indirectly instigated by corporate lawyers, who applied the strategies of corporate restructuring which are used by their clients. This reflexive application of corporate strategies, which is proposed to restructure the legal profession, ultimately undermines the legal basis of the profession. The goal of this modernization process is the transformation of

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the legal profession into an industry for legal services and thus carries the risk, by over-emphasizing the economic aspects of lawyering, that legal practice faces deprofessionalization. However, differentiation and specialization of the legal profession will probably be countervailing processes. The reflexive modernization of the profession will probably lead to decentralization of its internal power structure and thus to a decrease of stratified relations within the legal profession. In this respect the profession reflects the general transformation of modern societies into functionally differentiated societies and the reduced role of the ‘ironical’ state as a mere co-ordinator of divergent interests.45 A division of labour can be envisaged as the future structure of the legal profession in which the different segments of the profession recognize each other because they are both mutually dependent and independent. APPENDIX During the research for this report on German corporate lawyers interviews were conducted with the following attorneys and auditors: Dr Dr Brönner, auditor, Berlin Institute of Auditors and Brönner Auditing Company, Berlin Dr Andreas Fabritius, attorney, Bruckhaus Westrick Stegemann, Frankfurt am Main Dr Horst Helm, attorney, Gleiss Lutz Hootz Hirsch & Partners, Stuttgart Dr Ulrich Hennings, attorney, Döser Amereller Noack (Baker & McKenzie), Berlin Dr Gerhard Limberger, attorney, Bruckhaus Westrick Stegemann, Frankfurt am Main Dr Anton Maurer, attorney, Sigle, Loose, Schmidt-Diemitz & Partner, Stuttgart Dr Hinrich Thieme, attorney, Boesebeck, Barz & Partner, Frankfurt am Main Dr Friedrich Trockels, attorney, formerly Schürmann & Partner, Frankfurt am Main Mr Heinz Vessely, auditor and tax consultant, Pünder, Vollhard, Weber & Axster, Frankfurt am Main Mrs Daniela Weber-Rey, attorney, Pünder, Vollhard, Weber & Axster, Frankfurt am Main NOTES 1 See, on the general concept of social closure, Weber (1968:341–3); and on social closure and intra-class relations, Parkin (1974). 2 Weber (1968:342). 3 See Blankenburg and Schultz (1989); and for the 1970s, Kaupen and Werle (1974) and Luhmann (1975). 4 Luhmann (1975) and Rueschemeyer (1989). 5 Becker (1990), Hommerich and Werle (1987), Husmann (1990), Kleine-Cosack (1990). 6 The Association of Attorneys opted only recently with a narrow majority for the introduction of a limited liability company for lawyers. 7 Paragraphs 42a to 42d of the Bundesrechtsanwaltsordnung. 8 Frankfurt am Main is also the capital of German corporate law. Twenty-seven of the leading hundred German law firms had offices in Frankfurt in 1992; see Pritchard (1992:134–5): See also Griffiths (1992). 9 See Hartmann (1990:81). 10 Wilhelm (1989:70). 11 See the lists of specializations of German law firms in Pritchard (1992:125–133). 12 This is, since 1991, the law firm of Bruckhaus Westrick Stegemann. 13 See, on internationalization or ‘globalization’, Dezalay (1990:10–50). 14 See, for example, Wilhelm in managermagazin, 2 (1989): 68–84. See also Griffiths in Legal Business Magazine, July/August 1992:27–31, and Pritchard (1992:123–68).

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15 See Griffiths (1992:28). 16 Blankenburg and Schultz (1989). 17 See Rabe (1992:148). The European Court of Justice has found that the German restrictions violated EC law in so far as they required that foreign lawyers act always in conjunction with a German advocate even in those cases where under German law no legal representation was required (Case 427/85, Commission v Germany [1988] ECR 1123). 18 The German term used in the discussion of reverse discrimination under EC law is Inländerdiskriminierung. 19 See Eidenmüller (1990) on the relation of EC regulations and German professional rules. 20 Galanter (1983). 21 See Grüninger (1992) on the European Economic Interest Association (Europäische wirtschaftliche Interessenvereinigung, EWIV). 22 Information gathered from ‘Germany: index of firms and location of offices’, in Pritchard (1992:134–5). 23 In particular the BGH decision of 18 September 1989 on 'überörtliche Sozietäten’; see Neue Juristische Wochenschrift, 1989:2890. See also the overview of judicial interpretations of professional regulations by the President of the Federal Supreme Court: Odersky (1991). 24 See Schröder and Teichmann (1990). 25 The largest corporate law firm in 1989 was Boden, Oppenhoff & Schneider in Cologne with 26 partners and 15 associates. See Manager magazin, 2(1989):74. 26 Formed by a ‘joint venture’ between Bruckhaus, Kreifels, Winkhaus & Lieberknecht (Düsseldorf), Westrick & Eckholdt (Frankfurt) and Stegemann, Sieveking & Lutteroth (Hamburg) on 1 January 1991. 27 Blankenburg (1987:207–8). 28 The largest international law firm in Germany is a subsidiary of the leading American law firm (Baker & McKenzie) which took pride in owning 44 offices in 26 countries in 1992 (the German name of the law firm is Döser, Amereller, Noack). 29 Among the 100 leading firms in Germany in 1992, Pritchard (1992:134–5) lists three foreign law firms in addition to Baker & McKenzie: Clifford Chance, Frere Chomley, and Freshfields. 30 On solidarism as a reaction to social closure, see Parkin (1974:9–11). 31 Wilhelm (1989:74). 32 Hartmann (1989 and 1990). 33 Hartmann (1990:51–2). 34 Data provided during interviews. 35 See also Rogowski (1989). 36 See also Rogowski (1992). 37 Bourdieu (1986). 38 Bourdieu (1990:90). 39 Parsons (1939 and 1968). 40 Abbott (1988), esp. ch. 4:86–113. 41 See Luhmann (1985:281–8) and Teubner (1988). 42 See Luhmann (1984). 43 See Teubner (1990:75–8) and Luhmann (1988, ch. 9). 44 See Beck (1992, part III: 151–236). See also Willke (1992). 45 See Willke (1992).

REFERENCES Abbott, A. (1988) The System of Professions: An Essay on the Divison of Expert Labor, Chicago and London: University of Chicago Press. Beck, U. (1992) Risk Society: Towards a New Modernity, London: Sage.

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Becker, E (1990) ‘Nur Advokat? Oder auch Dienstleistungsunternehmer?’, Berliner Anwaltsblatt, 7–9. Blankeburg, E. (1987) ‘Strategien für den Anwaltsstand im Rechtsvergleich’ Anwaltsblatt, 204–9. Blankenburg, E. and U.Schultz (1989) ‘German advocates: a highly regulated profession’, in R.Abel and P.Lewis (eds), Lawyers in Society, vol. II: The Civil Law System, Berkeley, Cal.: University of California Press, 124–59. Bourdieu, P. (1986) ‘La force du droit. Elements pour une sociologie du champ du droit’, Actes de la recherche en sciences sociales, 64:5–19. Bourdieu, P. (1990) In Other Words: Essays Towards a Reflexive Sociology, Cambridge: Polity Press. Dezalay, Y. (1990) ‘Big Bang sur le Marché du Droit: La, Restructuration de Champ des Professionels des Affaires, Vaucresson: CNRS/CRIV. Eidenmüller, H. (1990), ‘Deregulating the market for legal services in the EC’ Modern Law Review, 53:604–8. Galanter, M. (1983) ‘Mega-law and mega-lawyering in contemporary United States’, in R.Dingwall and P.Lewis (eds), The Sociology of the Professions: Lawyers, Doctors and Others, London: Macmillan, 152–76. Griffiths, C. (1992) ‘The main men’, Legal Business Magazine, July/August, 27–31. Grüninger, M. (1992) ‘Aspekte, Strategien und Möglichkeiten einer EWIV von Rechtsanwälten’, Anwaltsblatt, 111–14. Hartmann, M. (1989) ‘Zwischen Stabilität und Abstieg—Juristen als akademische Elite in der Wirtschaft’, Soziale Welt, 40:437–54. Hartmann, M. (1990) Juristen in der Wirtschaft. Eine Elite im Wandel, Münich; Beck. Hommerich, C. and R.Werle (1987) ‘Die Anwaltschaft zwischen Expansionsdruck und Modernisierungszwang’, Zeitschrift für Rechtssoziologie, 8:1–22. Husmann, J.H. (1990) ‘Nochmals: Wer gibt das neue anwaltliche Berufsrecht’, Anwaltsblatt, 64–68. Kaupen, W. and R.Werle (eds) (1974) Soziologische Probleme juristischer Berufe, Göttingen: Mittelstandsverlag. Kleine-Cosack, M. (1990) ‘Wettbewerbslockerung für Rechtsanwälte’, Berliner Anwaltsblatt, 4–10. Luhmann, N. (1975) ‘The legal profession: comments on the situation in the Federal Republic of Germany’, Juridical Review, 20:116–32. Luhmann, N. (1984) Soziale Systeme, Frankfurt: Suhrkamp. Luhmann, N. (1985) A Sociological Theory of Law, London: Routledge & Kegan Paul. Luhmann, N. (1988) Die Wirtschaft der Gesellschaft, Frankfurt: Suhrkamp. Odersky, W. (1991) ‘Anwaltliches Berufsrecht und höchstrichterliche Rechtsprechung’, Anwaltsblatt, 238–47. Parkin, F. (1974) ‘Strategies of social closure in class formation’, in F.Parkin (ed.), The Social Analysis of Class Structure, London: Tavistock, 1–18. Parsons, T. (1939) ‘The professions and the social structure’, Social Forces, 17: 457–67. Parsons, T. (1968) ‘Professions’, in International Encyclopedia of the Social Sciences, vol. 12, New York: Macmillan and The Free Press, 536–47. Pritchard, J. (ed.) (1992) Law Firms in Europe, 2nd edn, London: Legalease. Rabe, H.J. (1992) ‘Dienstleistungs- und Niederlassungsrecht der Rechtsanwälte in der EG’, Anwaltsblatt, 146–52. Rogowski, R. (1989) ‘West German business litigation’, paper presented at the Law and Society Association Meeting in Madison, 8–11 June. Rogowski, R. (1992) ‘Auditors and lawyers in Germany’, paper presented at the Conference ‘Juriste et Comptables’, Paris, 20 November. Rueschemeyer, D. (1989) ‘Comparing legal professions: a state-centered approach’, in R.Abel and P.Lewis (eds), Lawyers in Society, vol. III, Berkeley, Cal.: University of California Press. Schröder R. and E.Teichmann (1990) ‘Die überörtliche Sozietät’, Anwaltsblatt, 22–6. Teubner, G. (1990) ‘Unitas multiplex: corporate governance in group enterprises’, in D.Sugarman and G.Teubner (eds), Regulating Corporate Groups in Europe, Baden-Baden: Nomos, 67–104. Teubner, G. (ed.) (1988) Autopoietic Law: A New Approach to Law and Society, Berlin: de Gruyter. Weber, M. (1968) Economy and Society, ed. G.Roth and C.Wittich, New York: Bedminster. Wilhelm, W. (1989) ‘Wirtschaftsanwälte: Ohne sie läuft nichts’, Manager magazin, 2:66–84. Willke, H. (1992) Die Ironie des Staates, Frankfurt/Main: Suhrkamp.

Part II

Chapter 6 The cultures of globalization Professional Restructuring for the International Market John Flood

We don’t do incentivized quantitative global matrix models of zero-defect just-in-time delivery for potential capital reallocation scenarios in the next decade horizon. (Advertisement for PHH Fantus, Management Consultants)

INTRODUCTION According to Immanuel Wallerstein (1991) the disintigration of Pax Americana has had profound effects throughout the world. America’s political and economic institutions are unwinding and Germany and Japan are mobilizing to become the world’s hegemons, its ‘lenders of last resort’. And according to some economists the world economy is in the depths of a Kondratiev Long Wave which will not reach its next peak until well into the twenty-first century. Similarly, the nation-state is in a state of crisis as countries are torn apart and reformed (Mann 1990). Yet we are supposed to inhabit an economy and society that is increasingly globalized, one in which time zones are now temporary hiccoughs in the quotidian conduct of our affairs. For some, globalization is read to mean Americanization of culture—the ‘Coca-Cola world’— but is it so? Our world then is facing, on the one hand, forces impelling it towards globalization and, on the other, forces of fragmentation. The role, and rule, of law and its providers becomes ever more crucial in adapting societies to these changes (or preventing them). Reflexively, both law and law professionals have themselves to adapt to rapid and extensive change. In some cases professionals have attempted to close ranks and insulate themselves; for example, the law closing the legal profession to foreigners that was enacted in France in 1990. Others have tried to create institutions that transcend conservative demands for closures: for example, the thirteen law firms from four continents that have banded together to open a co-operative law consultancy office in the People’s Republic of China, to take advantage of the anticipated profits that will emerge when Hong Kong reverts to China in 1997 (International Financial Law Review, 1988: 3.)1 The venture Interjura is composed of international law firms—joint shareholders—from the US, England, France, Spain, Italy, Germany, Holland, Sweden, Australia and Hong Kong.2 The office is staffed by a Taiwanese-born, American-trained lawyer. Interjura

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provides the firms and their clients with information concerning technology transfers, joint ventures and large-scale project financings. One benefit claimed of the venture is that the shareholders will get acquainted with each other in closer ways than before. Now Interjura is searching for new locations to establish offices. My purpose in this chapter is to explore and I hope explain through the medium of cultural analysis some of the changes that are taking place. I will argue that change is ineluctable and its effects irreversible—that with the political economy of the nation-state giving way to that of the super-region (the European Community (EC), the North American Free Trade Area (US, Canada, Mexico) and the Pacific Rim), any profession that serves corporate finance and commerce will be in danger of withering unless it can at least attempt to transcend national boundaries. But this is not to say that the organizational and institutional forms that now exist can be reproduced on a grander global scale. The recurring theme in the literature of globalization and change and in interviews I have conducted is that change is dependent on correctly interpreting and adapting to diverse cultures. In using this term I refer to the cultures of nations and periods and the specific cultures of social and economic groups. As might be expected, a term like ‘culture’ is a highly contested one (cf. Smith 1989a; Hebdige 1979; Williams 1976; Geertz 1973). The push of globalization has been checked by the mediation of culture, which is forcing mutations in organizational forms and modes of doing business that, for the most part, professions were unprepared for. There is a competition between the sacred and profane aspects of professions—as institutions conserving the common weal or as goal-orientated, profit-seeking fields of endeavour in fierce competition with other occupations over contested terrains of work (Carr-Saunders 1933; Parsons 1954; Abbott 1988; Flood 1989a; Eburne 1991; Perks 1992). The terms ‘business’ and ‘industry’ are increasingly invoked as descriptors for the law and accounting professions (Zeff 1988). If we were to think of the main output of the legal profession as being litigation, then that has certainly increased; but that would only explain part of the growth in lawyers and legal business (cf. Pashigian 1977; Galanter 1983a; Sander and Williams 1989). But litigation is a relatively small part of most large law firms’ work. Similarly, if we were to think of auditing as the main product of the accounting profession, then that too has increased. But growth in accounting has also been due to many other varieties of business activity such as management consultancy and designing golf courses (Perks 1992:5). The growth in international economic transactions has made the law business more central to the facilitating of business activity. For example, American lawyers are developing new fields such as international environmental work (Barker 1991:91) and international real estate transactions (Clarke 1991: 101). In an article on environmental law practice, a partner at Sidley and Austin was portrayed thus: In his latest move McMahon has set his sights on marketing Sidley’s environmental expertise worldwide. In the field of environmental regulation, he says, the United States has a significant jump on the rest of the world. Agrees partner Lucero: ‘This is an area where the Americans have the advantage. We’ve been working on this for twenty years, working through problems, knowing the laws.’ ‘No one’s talking about setting up offices in Western Europe and competing with local lawyers,’ says partner Stever. But McMahon sees a niche in advising US clients about how environmental laws abroad will probably develop. ‘Sometimes we find our US multinational clients wanting us to work with them and massage the opinions being received from local firms,’ McMahon says. (Barker 1991:91) As a result of such developments professions are beginning to resemble those they serve in so far as they are moving away from the collegial model of organizations to the bureaucratic (Johnson 1972; Nelson 1988).

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But there is a cost to this. As long as the sacred rhetoric of professionalism held sway, occupations regarded as professions were granted the privilege of self-governance and autonomy. The changes taking place will probably result in restrictions on professions’ rights to self-regulation and ultimately promote either a laissez-faire climate or one of external state or super-region driven regulation, as, for example, in the oversight of lawyers by the US Securities and Exchange Commission; the demands placed on tax attorneys and accountants to act as ex officio agents for the US Internal Revenue Service; the oversight of law firms by the UK Securities and Investments Board; and the adoption of the Common Code of Conduct by the Conseil des Barreaux de la Communauté Européenne through Europe (CCBE). This is not necessarily a great loss: in exchange for external regulation, professions will be able to adopt organizational forms more suited to the exploitation of international markets. Professional firms will incorporate, have limited liability and outside shareholders, and form multidisciplinary and multinational conglomerations. They can become true entrepreneurs bidding for business on a transactional basis through ‘beauty parades’ rather than maintaining work through sustained relational contacts. None of this is fantasy. It already exists—the exemplars are the Big Six accounting firms (Economist 1989). In the next section I describe the process of globalization and how culture operates as a brake. And in the following section I analyse the responses of the legal and financial professions to these factors. GLOBALIZATION AND CULTURE Business and commerce are no longer captive to the time zones and politics of their home states. Transnational or multinational corporations (MNCs) —e.g. Ford, IBM, Burroughs-Wellcome—have successfully exploited the decline of empires and post-war booms producing supplies of cheap labour and materials and new markets for their products (Piccioto 1988; Sassen 1991). As a consequence of this success, MNCs amassed substantial earnings overseas and had to construct methods to use the money without repatriating it. One mechanism for resolving the problem was the euro-dollar market, based primarily in London. British banks and law firms became proficient in servicing this market. By the late 1980s the eurodollar market was worth $2,500 billion (McCullough 1988). The eurobond and other eurocurrency markets followed. Since 80 per cent of the eurodollar market was in dollars, there was a strong incentive for American law firms to become involved (Lewis and David 1987). (For example, Cleary Gottlieb Steen & Hamilton has a strong footing in this business.) The Big Six accounting firms were also significantly involved in eurocurrency. With more business being conducted overseas, the financial markets became more attuned to the global market. Technology has given investors and banks the opportunities to play in multiple markets. The New York and London stock markets overlap in time zones and the Hong Kong and Tokyo markets are only a few hours away from the openings and closings of New York and London. With little effort it is possible to play a twenty-four-hour market—an insomniac’s dream. The machination of the American, Japanese and European foreign exchange markets that resulted in the British pound being suspended from the European Monetary System on ‘Black Wednesday’ of September 1992 is a dramatic illustration of how the markets never sleep. The internationalization of markets is a function not only of capital’s desire to maximize profits and extend its reach, but also of the political movements of the past decade or so. In the US, the Carter administration initiated the stream of deregulation and the Reagan administration nourished it; the Thatcher government in Britain gave the movement its philosophical respectability (Crook 1992b:14). Thatcher’s rolling back of the state (cf. Walker 1989)—in welfare policies and through privatizations—has given legitimacy to the new regime of international mercantile capitalism (Johnson 1991). The expansion of the

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secondary market was brought to its present heights with the 1986 ‘Big Bang’ in London (McCullough 1988). The drive to Big Bang was fuelled in part by the release of currency exchange rates from direct state control in 1979 (Smith 1989b). This release prompted the development of futures and options markets in financial instruments and currencies. Releasing the London Stock Exchange from the cartel arrangements that had ruled it, Big Bang—more of an implosion that an explosion—sucked in potential market-makers from the US, Japan and elsewhere. It delivered the large American banks, especially, from the restrictions of the Glass-Steagall Act and made London an attractive site for investment (Hobson 1991). The British government’s move to privatize large parts of government enterprises has stimulated an internationalization of primary markets (Neate 1987). The simultaneous offering of British Gas, for example, on the British, American, Canadian and European markets required the co-ordination of many banks, law firms, accounting firms and renegotiation of several sets of domestic securities laws.3 British Gas is one of a chain of privatizations that includes the water, telephone and electric utilities, the coal industry and the railway industry. Germany, through the Treuhandstalt, is privatizing the businesses of the former East German republic. And with the ‘Velvet Revolution’ in Eastern Europe privatization has become an international sport. Internationalization is also evident as corporate raiders seek investment opportunities overseas. Carl Icahn muscles into Japanese companies; Hoy-lake, the offshore raiding company established by Goldsmith and Roths-child, attempts to take over British American Tobacco (BAT) and its related companies including Farmers Insurance. Similarly, the business failures of the 1990s are international, as in the cases of the Maxwell publishing empire and the Olympia & York construction development business (Carrington and Murphy 1992; Flood and Skordaki 1993). Modern business, then, appears to acknowledge no borders. And the professions that serve capital also are beginning to function in a global system that transcends the nationstate. This process is not, however, unilinear and necessarily progressive. We are not witnessing an inexorable move to globalization that will promote a universal order. Perhaps Michael Lewis grasped the nature of the problem, when, in Liar’s Poker, he said, in conversation with another Salomon Brothers trader: I didn’t know, I gulped, that there were two hundred and eighty-five investment bankers in the whole world. ‘There aren’t,’ he said. ‘There are more. And they are all the same’ In other words, the whole idea of globalization was a canard…. Debt issuance and bond trading were no longer the domain of a single firm, but of hundreds. Many of the new players didn’t share our exalted sense of self-worth. Japanese banks such as Nomura, American commercial banks such as Morgan Guaranty and European monoliths like Credit Suisse were all willing to do the same job as Salomon Brothers in Europe, and for far less pay…. They had the same information we did. Information, with communications, was becoming cheaper and easier to obtain. (Lewis 1989:232–3) First, the type of globalization we are experiencing is in the international financial markets (Crook 1992a); most other spheres of activity are still constituted in micro-markets. There are limits to globalization and these limits are, amongst others, I shall argue, a function of culture. For the restraints of culture often produce unexpected results. The arguments between the United States and Japan over their trade relationships attest to this (Smith 1989a).

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One constraint on globalization is that for the most part international business is located primarily in three super-regions, namely, North America, Europe and the Pacific Rim. Most of Africa, South America and Asia is of minor value to big business compared to the big three regions. This is also reflected in the structure of such supra-national institutions as the Group of Seven.4 Together these three super-regions are a set of inter-locking units that dominate world commerce. Their importance is emphasized in a report issued by the Japanese Ministry of International Trade and Industry which warned of the dangers of unregulated regional economic integration. The report said: ‘We should bear in mind that economic integration may end up significantly reducing the world economy and world trade if the wrong method is employed’ (International Herald Tribune 1991:13). The private sector is also acting on the principle of regionalism in its goal to become global. In an interview the president of Nomura Securities, the largest financial institution in the world, said: We are seeing the emergence of regional economies and regional investment houses that have global links. People once thought globalization meant a simple integrated financial market. That sounds good, and perhaps if everybody agreed on deregulation and standardized rules, we would have that simple integrated market. But in the real world—the world where real business is done—globalization is neither simple nor integrated. (Schrage 1989:71) Another Japanese commentator has written in a similar vein: Decomposing the corporate center into several regional headquarters is fast becoming an essential part of almost every successful company’s transition to global competitor status… [I]t is consistent with recent developments in Europe as it moves toward 1992, in North America… and in Asia…. (Ohmae 1989:137–8) Dicken (1992) points out, using the global advertising companies as his example, that even those services that strive for global reach have problems in attempting to integrate the scattered parts of their companies: that is, globalization has not been achieved. The concept of culture is inextricably important in the analysis of the globalization of business, yet it is elusive. As the statements above demonstrate, the concept of globalization is easy to enunciate but difficult to achieve. Smith (1989a) suggests that culture is often granted the role of a residual category without being fully examined. He warns us not to fall into ‘the trap of thinking of “a culture” as an immutable set of practices, beliefs and meanings’ (Smith 1989a:428; cf. Church 1985). Because culture is tied to place and history, we should think of it as a moving, not a fixed, target. The culture of professions is a reflexive entity: the beliefs, myths, habits, norms and ideas are constitutive of the structures and constituted by them (Silbey 1992). That is, cultural analysis examines the construction of both the history and present social order: it is interested in style as much as substance. It was Weber who said, ‘we are cultural beings’ (1949: 81). These elements of culture display themselves in actual practices and in the media and other texts. In the case of the professional restructuring of the global market we are concerned with two aspects of culture, namely, national culture and organizational culture and their interaction (Soeters and Schrueder 1988; cf. DiMaggio and Powell 1983). For example, in their study of six Dutch accounting firms, three Dutch and three belonging to Big Eight firms and all with Dutch employees, Soeters and Schrueder found that there was significant American influence on the culture of the Big Eight firms. However, they hypothesize that this influence is not so much due to socialization but rather to self-selection, which runs contrary to

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explanations in much of the organization literature. Their study is at least suggestive about the extent of the strength of the force of the ‘Americanization thesis’ that has been promulgated. There are two further points confounding the analysis. They concern the spatial and temporal. When we talk of globalization we essentially refer to markets in financial services rather than what some call the ‘real economy’ of goods. Financial goods are easily and quickly transferable, yet they are produced in three major locations—New York, London and Tokyo—each with its own distinctive regulatory schema and social structure (Sassen 1991). Even with English as a lingua franca for commerce and finance, personal interaction between these three centres is fraught with contingency. Business people agonize over the correct form of manners and meanings embedded in apparently simple statements (Page 1990). For example, Americans and British remark on the apparent inability of the Japanese to say ‘no’ directly. Their very indirection creates impressions of agreement where none exists (Goldenberg 1988). In a geographical sense the world is vast and sometimes unbridgeable, but chronogeographically the world has shrunk almost to the size of a pea. Instantaneous and simultaneous communication is the norm thereby creating the ‘global village’ (Boden 1990). Events such as financial crises and revolutions occur, develop and mutate not within days or weeks but in minutes and hours via satellite news organizations like CNN. And even more mundane, everyday happenings are reflexively adjusted in the same ways. It is the temporal aspect that makes globalization possible; it is space and culture that make it difficult to carry it through to its fullest potential. The struggle for globalization then involves conflict with culture. As I shall indicate in the next section, the hoped-for promise of globalization for the legal profession and less so for the accounting profession has not been fulfilled because in large part these professions have been unable to determine accurately their roles vis-à-vis the other financial professions or how to free law and accounting from their particularistic contexts. But as significant elements of the legal and accounting professions move away from law and accounting proper to business consulting, their chances of expanding overseas improve, but so do the dangers in changing. LAW, LAWYERS, ACCOUNTANTS AND INTERNATIONALIZATION For elite corporate lawyers the legal world contains three systems of importance, namely, the AngloAmerican, the civil and the Islamic. For purposes of this chapter I am excluding the third because of its limited significance over the last decade and a half, especially as OPEC has lost its control over the world petroleum market (cf. Delaunay 1992). The common law and civil code systems are quite different (Whincup 1992), but have nevertheless permeated each other in some countries. For example, the Scottish, Sri Lankan and South African legal systems are essentially civil code types with English common law overlaid. Japan acquired the German code system, which following the Second World War was influenced by American common law (Schlesinger et al. 1988:322). For business transacted in the world—i.e., the three super-regions—these two systems predominate (Glendon et al. 1985). The two legal systems have produced remarkably different legal professions (Abel 1988). While the common law legal professions have produced, at the most, three divisions of judge, advocate and office lawyer (i.e., barrister and solicitor), the civil code system has produced a plethora of types of lawyers—for example, notaries, magistrates, judges, advocates, civil servants, prosecutors—all as discrete categories. Moreover, as Rueschemeyer (1973) has argued, following Weber, common law lawyers are primarily associated with the market, while civil lawyers are aligned more with the state. Even though Rueschemeyer has argued thus, Weber maintained, ‘[Adjudication by honoratiores] may thus well stand in the way of the interest of the bourgeois classes and it may indeed be said that England achieved capitalistic supremacy among the nations not because but rather in spite of its judicial system’ (1978:814; cf. Albrow 1975; Feldman 1991). So, given Weber’s

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categories of legal thought and their relationship to the development of capitalism and to lawyers, why have the common law lawyers been so conspicuously successful in marketing their skills and legal systems, and why have the civil code lawyers lagged so far behind? To begin to answer the question in the context of globalization and culture, I examine the recent developments in the American and major European legal and accounting professions, and then continue looking at the organizational and work aspects. It is clear from a cursory perusal of the financial and legal press that common law lawyers are very closely tied, and have been for some centuries, to the market (Rueschemeyer 1973; Sugarman 1993). In the City of London many connections were formed through the livery companies and the City institutions. Dennett notes that Mihill Slaughter, father of William, co-founder of Slaughter and May, As well as members of the [Stock] Exchange, Mihill had a wide acquaintance among the bankers, accountants, solicitors and promoters whose professional life revolved around the market. It was possibly such an acquaintance with John Morris of Ashurst Morris Crisp & Co. (or perhaps fellowmembership of the Fishmongers’ Company) that led to the offer of an appointment as an assistant solicitor for Mihill’s son William when he qualified in July 1879. (Dennett 1989:16) These traditions were reinforced in 1977 when the City of London Solicitors’ Company made the claim in its submission to the Royal Commission on Legal Services that City solicitors market a product and that product is English law (1977, emphasis added). And Steven Brill emphasized these tendencies from an American perspective when he wrote in 1985 of the takeover of Sullivan & Cromwell by Shearson Lehmann/American Express. A source quoted in the article said ‘we’re going to restructure S & C’s fees so that in mergers and acquisitions they’ll charge a percentage of the deal, the way investment bankers do…. Charging by how long something takes some lawyers is nonsense’ (Brill 1985:14). He went on to say that the normal leveraging of one partner to two or three associates would be replaced by a more economic use of ‘back-office grunts’ at a ratio of one to ten or one to twenty (ibid.). Of course, Brill’s article and the quotations were pieces of inspired fantasy in 1985, but no longer. British legal culture has already begun to realize Brill’s fable. One episode that highlights a legal profession’s joint and several responses to attacks on its core values was the reform of the British profession by the Thatcher government. At the beginning of 1989 the British government published three Green Papers (i.e., discussion papers) on the reorganization of the legal profession. The proposals they contained were far-reaching, radical and dramatic. The Lord Chancellor’s Department proposed: that free competition between the providers of legal services will, through the discipline of the market, ensure that the public is provided with the most efficient and effective network of legal services at the most economical price, although the Government believes that the public must also be assured of the competence of the providers of those services. (Lord Chancellor’s Department 1989:1) The argument proffered was purely economic and in tune with the laissezfaire principles of Thatcherism, with no regard for the traditions of the legal profession (Bishop 1989). In two areas in particular the Green Papers proposed that the legal profession follow the route of others, such as the accountants, and form multidisciplinary practices (MDPs) and multinational practices (MNPs) (ibid.: 43–8). Both MDPs and MNPs could take a corporate form without lawyers necessarily controlling the company. Two surveys, by

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Gouldens (a City law firm) and the City of London Solicitor’s Company, showed City lawyers and accountants greatly in favour of MDPs and MNPs. But they did not agree as to the possible benefits to be conferred. In its response to the Green Papers, the City of London Solicitor’s Company wondered about the identity of the profession and its work (City of London Law Society 1989). The response said: Under an MDP regime, it could be said that solicitors would have a choice: whether to concentrate on essential core legal business and services closely related to it or whether to diversify into the more broadly-based conglomerate consultancy business of which the legal services would merely be a part. The choice, it might be said, would fall to be tested by market forces and this would itself be no bad thing. (Ibid.: 39) After this nod in favour of competition, the Company continued: The trouble with this scenario is that the loss of focus which would be the inevitable result of absorbing the legal function into a larger mixed practice (unless it were run as a discrete business) would tend over a period of time to blunt the public’s conception of even that part of the legal profession which declined to go into MDPs. Whatever were then perceived to be the sins of solicitors practising in a multi-disciplinary form would tend to be visited on solicitors practising independently. This would be most undesirable. If the legal profession is to continue and build on its considerable record of success of serving the public in recent years, it is almost certainly better to do this by concentrating on what it knows and does well. The further it gets away from these things the more likely it is that it will come unstuck and its reputation founder. (Ibid.: 39) This ambiguous approach indicates the multiplicity of constituencies a professional association has to serve (cf. Lee 1992). We can see the pervasiveness of the culture of formalism and legalism, a retreat into a rhetoric of core values, still flourishes when the Company refers to ‘concentrating on what it knows and does well’. Historians have shown that solicitors diversified their portfolios of work continuously to meet actual and perceived client demands (Sugarman 1993): lawyers were (and are) entrepreneurial. Also one could question what the Company meant by ‘record of success’. In spite of their doubts it was understood that City law firms operated within a competitive environment and that too great an adhesion to Luddite principles would only harm their business. Such feelings failed to deter others in the legal profession. The judiciary, barristers and non-City solicitors remained consistently opposed, to the extent that the bar hired Saatchi & Saatchi to run an advertising campaign on the theme: ‘300 years after the Bill of Rights, a Bill of Wrongs…. A system of justice, envied throughout the world, and that has taken over 700 years to develop, has been given just 12 weeks by the Government to justify itself’ (Bar 1989).5 In some respects the Green Papers reflected trends that were already in motion. One example of the trend to transnational business was typified by Macfarlanes, a City firm of solicitors, which formed the coyly phrased ‘strategic alliance’ with O’Melveny & Myers of Los Angeles (Flood 1989a; International Financial Law Review 1989c:6; Rice 1989:16). Other examples were Allen & Overy, one of the London Big Ten firms, opening a Paris office that had ‘strong links’ with a major firm of avocats, Gide Loyrette Nouel (International Financial Law Review 1989b); and Ashurst Morris Crisp opening a joint office in Tokyo with Sidley & Austin of Chicago.6 There are, however, costs to non-merged alliances. Both Allen &

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Overy and Gide Loyrette expressed their commitment to remain independent of each other. Nevertheless, both were reported to have lost substantial quantities of referral business (Fennell 1989c). One partner of a large English law firm talked of his firm’s membership in ‘Le Club’, an elite syndicate of law firms in Europe and the US. He saw it as an alternative to his firm setting up foreign offices.7 The next logical step was taken by the Law Society when it published rules on multinational partnerships (MNPs) (Stewart 1991). However, the insurance requirements of the rules have placed enormous costs on large law firms thus effectively barring any serious MNPs by foreign law firms being set up in the UK, whereas UK firms do not find it so expensive (Flood 1993). The other trend, towards the establishment of MDPs, has been promoted primarily by the big accounting firms. Coopers & Lybrand Deloitte, one of the Big Six, advertises itself as satisfying ‘client needs by developing multi-disciplinary teams of professionals including barristers, solicitors, actuaries, insurance professionals…ex-Inland Revenue…staff, and chartered secretaries’ (Flood 1989a:5). And some law firms have already been approached by investment banks and accounting firms for merger talks. Conversely, one City law firm has considered taking over a smaller firm of accountants. I shall return to the accounting firms below. There is clear evidence that both professions are and have been proactive and entrepreneurial in selling their services. The senior partner of Gouldens, a City firm of solicitors, said that his clients, for example, Lord Hanson, the corporate raider, demanded an entrepreneurial outlook that matched theirs; they were not satisfied with just legal advice. He referred to one client ‘who wanted to know whether he could do a deal. He wasn’t in the least concerned with the legal side. He just wanted to know if he could do it—yes or no.’ Three statistics attest to City solicitors’ commercial success. First, 30 per cent of cases of the Commercial Court’s docket, the elite division of the High Court in London, were between non-British disputants (The Times 1989). Second, in 1988 British law firms generated £300 million in overseas earnings (Law Society’s Gazette 1989).8 Third, the top twenty City law firms accounted for a third of English lawyers’ total fee income of almost £4 billion in 1990 (McCullough 1990). Table 6.1 provides a breakdown among the top twenty City law firms. In terms of globalization, the importance of the EC Single Market is marked. It affects not just the European legal professions, but also the American and Japanese. In a speech Jaques Delors, President of the EC Commission, prophesied that by the end of the century, over 80 per cent of the European Community’s laws would issue from Brussels rather than member states’ legislatures.9 And in the eyes of many lawyers Brussels has become the Washington, D.C. of the east, where it is necessary to have a presence in order to lobby the Commission (Sontag 1989). For example, the government of Hong Kong retained a Belgian law firm to advise on EC anti-dumping law: the first time a government has hired a law firm to advise on international trade (International Financial Law Review 1989a; cf. Rozen 1990). One English lawyer stated that up to 70 per cent of his chargeable time was spent on lobbying. Yet another commentator has remarked that ‘lobbying the European Commission is like trying to push a jelly with a blancmange’ (Burnside 1989: 49). Lawyers are becoming more open about being lobbyists in Brussels (Flood 1993). But there is a Table 6.1 Top 20 law firms in England and Wales by market share based on gross fees in 1989 Law firm

Gross fees (£ millions)

Market share (%)

Clifford Chance Linklaters & Paines Lovell White Durrant Slaughter and May

183.8 113.1 97.5 85.8

4.2 2.9 2.5 2.2

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Law firm

Gross fees (£ millions)

Market share (%)

Freshfields Allen & Overy Herbert Smith Simmons & Simmons Denton Hall Norton Rose McKenna & Co Nabarro Nathanson Richards Butler Cameron Markby Hewitt Evershed Wells & Hind Wilde Sapte Stephenson Harwood Clyde & Co Turner Kenneth Brown Alsop Wilkinson Total for top 20 Other (9,795) firms All firms Source: McCullough (1990:7)

81.9 74.1 70.2 70.2 68.3 68.3 54.6 50.7 48.8 42.9 42.9 39.0 35.1 35.1 35.1 31.2 1,302.6 2,597.4 3,900.0

2.1 1.9 1.8 1.8 1.7 1.7 1.4 1.3 1.2 1.1 1.1 1.0 0.9 0.9 0.9 0.8 33.4 66.6 100.0

clear division between the outlook of the English and the American law firms. English lawyers are convinced that American lawyers do not have the nous to operate in the EC. They suffer from the perceived defects of being extra-Communitarians and being overly aggressive in their tactics (Rice 1990). As one lawyer described it, Thinking you can bully a Commission bureaucrat because you are a hot-shot lawyer from Washington loses you friends very quickly.’ The rules of the lobbying game are such that the client’s name is rarely disclosed to the Commission. The allure of the Commission has been strong: by 1989 113 foreign law firms had established offices in Brussels (Burnside 1989). With the advent of the Merger Regulation, however, ‘many firms on both sides of the Atlantic with strong competition/anti-trust/M&A practices felt unable to stay away any longer’ (Rice 1990). The burgeoning of the EC as an area for practice has intensified the scope of differences between the common law practitioners and the civil code lawyers. The aggressive Anglo-American style of lawyering contrasts markedly with the European cottage style. But the EC was largely, until the entry of the UK, the preserve of the civil lawyers. Nevertheless, Rice notes, ‘To succeed in Brussels, [Anglo-American] firms need to form alliances with the best European corporate lawyers and bring them into partnerships on equal terms. Over the years this is what Clearys has done and that is why Cleary Gottlieb Brussels is to many the only true European law firm around’ (1990:33).10 Mega-law has been fundamentally a North American and British phenomenon (Gallanter 1983b; Flood 1989b; Dezalay 1991). Despite its short history, mega-law has begun to establish a culture that is evidenced by the introduction of a vigorous legal press (Powell 1988)—for example, in the US, The American Lawyer, The National Law Journal, The Legal Times of Washington; in the UK, The Lawyer, The International Financial Law Review, Legal Business—which has lionized certain lawyers for their ‘macho’ approaches to the law (cf. Lisagor and Lipsius 1988; Wolfe 1987; Stevens 1987; Stewart 1983). The tenth anniversary

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issue of The American Lawyer, for example, wrote this of Joe Floam of Skadden Arps, the lawyer who pioneered the hostile takeover: One can admire the superlatives that attach to Joseph Flom, or be jealous of them. But there is no denying them and no denying that Flom personifies the best aspects of the new age of lawyering. Joe Flom, 65, is among the best lawyers in the profession, an Old World generalist with encyclopedic recall of case law and deal and litigation strategies, a whirlwind of creativity, a near-caricature of perseverance. He defines the concept of client service. He is also the consummate lawyerbusinessman, a visionary entrepreneur who took Skadden, Arps, Slate, Meagher & Flom from a 160– lawyer, $30 million-revenue, mostly one-practice shop ten years ago to a 1,000–lawyer, multifaceted, multioffice institution that will gross $400 million in the 12 months ending this March [1989]. (Brill 1989:66–7) The point about these encomiums is that they are a collaborative exercise between the law firms and the journalists (one can draw analogies with labelling theory and deviance amplification theory here). They are an attempt to establish the hegemony of the legal profession over others by boosting, and an attempt to write a new culture of the corporate law firms. The journals heighten their status and sales by boosting the prestige of mega-law and its firms hone their public relations images through the journals and an increasingly competitive market; and so it goes on. In England the City law firms have similarly been able to boost their images through their long-standing ties with City financial institutions, upon which they were formerly reticent. Freshfields, one of the oldest City firms, traces its connections back to 1743 when Samuel Dodd, one of its partners, was appointed solicitor to the Bank of England, still one of its clients (Slinn 1984). At least two other City firms— Slaughter & May and Linklaters & Paines—have commissioned and published histories to circulate to their clients and others. These provide interesting exemplars of the use of history for ideological purposes. Elite law firms are revelling in this hagiography. It reveals them as spirited, virtuous and progressive. And the English legal press now writes similar profiles to those in America. Legal Business described a planning lawyer, David Cooper, at Gouldens, thus: ‘All my friends are my clients,’ he claims. ‘I don’t have a private life.’ That is the only possible explanation for the fact that he personally billed £1.75m last year…. That means that Cooper’s department… billing £2.4m, was responsible for more than ten per cent of… Goulden’s gross fees last year… Cooper claims that he probably works 4,500 and 5,000 billable hours a year—which boils down to between 12 and 13 hours every single day of the year—and an average of nearly £400 an hour if based on a strict hourly basis. ‘Work it out,’ he challenges, ‘I start at 7am and start charging, charging, charging.’ (Dillon 1992:25) In indulging thus, the Anglo-Saxon firms have certain advantages over the European firms. Many of them have names steeped in history—Freshfields, Sullivan & Cromwell, Linklaters & Paines, Cravath Saine & Moore, etc.— which they can retain even though the named partners are dead, an institutional bulwark against change and fission. The Anglo-Saxon firms can advertise in the US and UK; they can merge freely with other law firms in their countries. But with the diverse types of lawyers in the European countries, law firms have typically remained small. In neither Germany nor Italy can law firms institutionalize a name in

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the manner of the American and English firms, which creates difficulties in establishing stable, enduring identities, nor can they merge with the same ease as the Anglo-Saxon firms. These differences are becoming of more pressing concern now that the EC Commission has issued its directive on recognition of diplomas (Reynolds 1988; Carr 1988). The principle of the directive is that all professional diplomas from member states will be recognized throughout the EC. In some respects the directive has provoked some member states into attempting to tighten their rules. France has generally had a liberal policy towards foreign lawyers, allowing them to establish themselves as conseils juridiques (business advisers) along with French practitioners (but not as avocats with rights of audience) (Boigeol 1988; Morton 1988). With the French legal profession having fused the avocats and conseils juridiques into a single group of avocats, the Bar now requires that any lawyer wishing to give advice in France must be a member of the French legal profession (International Financial Law Review 1991a:2).11 Given the small size of French law firms and their fears of a post–1992 Anglo-Saxon invasion, it is understandable that they are trying to preserve, albeit monopolistically, their legal and organizational cultures. A partner in Gide Loyrette & Nouel put it this way: There is no feeling of panic as to the future of the smaller French law firm. In some ways this is unfortunate. French lawyers have not really grasped the dimensions of what will happen, as they don’t think that there will be any radical change. And yet there are going to be some serious competitors. Associations will become much more usual. The advantage of an association is that it enhances the international development of firms, which gives the client the confidence that they will be dealt with by someone whom you consider to be the best. (Muinzer 1990) Conseils juridiques were not embedded in the ideology of the ancien regime. They possessed the freedom to take any form they wished, from partnership to limited company. But now the profession is one of avocats, with the Bar trying to reassert its primacy by prying into the commercial affairs of the firms—wanting to see tax returns and details of personal and firm income (Stewart 1992a). Some business law firms are considering moving out of the Paris Bar to the Nanterre locality which includes La Défénse and Neuilly where many of the legal offices of the large accounting firms are based. The pressures of internationalization are strong. In preparation for 1992, exchange controls were relaxed, the French government liberalized in the conduct of financial work and banks and new financial institutions from the US, UK and Japan have been created in Paris. Whereas these institutions are benefiting from liberalization, for law firms in France cross-border mergers with foreign firms have been thrown into confusion with the new law. These pressures can be exemplified by the situation in the German legal profession. The German Bar has a stiff set of restrictive practices, which generally restricts lawyers (Rechtsanwalt) to practising within their own localities and prohibits firms from merging across localities (Morton 1989). A recent decision in the European Court (Commission v. FDR 1988) ruled invalid the requirement that a local lawyer must be present in the court-room with a foreign lawyer.12 Some law firms with international practices have interpreted this decision to mean that they can merge across localities. A partner in a Hamburg firm commented: Our competitors are the Anglo-Saxon firms, the specialist boutique firms and the chartered accountants, who do a great deal of business advisory work in Germany. How do we resolve this

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impasse? I believe that if a number of the leading firms get together and agree to flout the rules we might achieve something, but one firm alone cannot do it. (Morton 1989:iii) In part, these conflicts arise because to German lawyers international work and business law have never been a mainstream form of work; instead, the emphasis has generally been on court work. Thus in order to gain expertise in the field, young lawyers have sought training in the US or the UK, thereby risking ‘contamination’ with Anglo-Saxon entreprenuerial mores. Nevertheless, the unexpected political union of East and West Germany has thrown German lawyers into a classic field of Anglo-Saxon law, namely, privatization. The Treuhandanstalt, the trust set up to sell off East German businesses, has created a huge volume of work: The role of the lawyer is…‘different from what is normally required in West Germany’ and much closer to the Anglo-Saxon model. A heavy involvement at the pre-merger stage, coaching clients, structuring, formulating proposals, advising on strategy and lobbying all form part of what the lawyer may be called upon to do. The lawyers love it. ‘We just know so much more about the process, the thinking of the parties and the valuation of risks’…. (Stewart 1992b:15) An extreme situation obtains with the Italian legal profession. The dominant theme of law practice is the culture of individualism (Carr 1989; Olgiati and Pocar 1988; Stewart 1992e). Elite lawyers aspire not to partnership but to solo practice. Carr (1989: iii) describes the situation thus: The root of the law firms’ historical inability to grow lies in one simple fact. As they themselves openly admit, they are trained from the cradle to be prima donnas. No Italian wants to be one amongst many. From law school on the majority of Italian lawyers aspire to set up their own firm. Bucking that trend can cause difficulties, as one lawyer in what, in Italian terms, is a large firm illustrates, ‘When I returned from the US and joined this firm my father said “What’s the matter? Don’t you have the courage to set up on your own?”’ Institutionalizing a law firm is fraught with difficulty. Retaining young lawyers means competing with the better salaries offered by the banks, for example. The political economy of Italy is such that most large international financial deals are made in Milan, but require the sanction of the government in Rome, creating pressure on a number of firms to try to maintain offices in both cities. In addition, the 1939 law on professional associations prohibits the formation of a true partnership, so ‘all letters and opinions have to be signed by the individual lawyer, not the partnership, leaving the lawyer alone responsible’ (ibid.: iii). Yet law firms exist as de facto entities (cf. Olgiati 1993).13 This emphasis on individualism subverts moves to more collectivist organization-building, which in turn feeds the Italian ideology of professionalism that is antagonistic to the internationalization of business law. As a result, in Italy mega-law firms such as Baker & McKenzie are gaining ground in international law practice and the big accounting firms (with their hybrid accountant-lawyers, the commercialisti) are also offering advice on the legal aspects of putting deals together. In Europe, as in the Pacific Rim, the Anglo-Saxon common law culture has begun to prove its hegemony, in the form of business people wanting to do deals based on it, in preference to the civil code counterpart. But this hegemony operates within limits, namely, that lawyers perceive themselves as lawyers and not

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businessmen. MacDonald articulates this conundrum well from the perspective of an American lawyer: ‘I believe modern lawyering and law firms have always been conducted as a business enterprise. For some reason, many leaders of our profession seem to cringe at this thought’ (1989:594). This ideological constraint militates against the kind of expansion that the big accounting firms have undergone. The success of the accounting firms vis-à-vis law firms in internationalizing can be traced to a heterodox view of business development. Accounting firms have piggy-backed on their auditing—which gives them a global picture of any client and an invaluable entrée, an advantage denied lawyers —and diversified into fields other than auditing, such as management consultancy, tax and corporate reconstruction (Montagna 1974; Stevens 1981; Perks 1992). The Price Waterhouse Annual Review for 1986–7 shows, that of all the services offered by the firm—audit, tax, management consultancy and insolvency—management consultancy grew by 27 per cent over the previous year, more than twice the rate of auditing (Price Waterhouse 1986–7:5). There is an equivalence between law and accounting here. The core knowledge bases of both are subject to similar cultural constraints: law and accounting are jurisdiction-bound. For example, the British and French accounting conceptions of ‘true and fair’ views in accounts are quite different (Freedman and Power 1992; Kerviler and Standish 1992); and attempts to introduce standardization and harmonization into accounting practices are recognizably distant (Waters 1989; Freedman and Power 1992; Weetman et al. 1992). Even the international accounting bodies, such as the International Federation of Accountants (IFAC), put forward a grand vision along the lines of ‘the global accounting profession is becoming a reality’ (Barrett 1992:110). Yet they follow it with the rider, ‘IFAC’s ethical and auditing standards are now widely accepted even though true harmonization is not possible because of differences in cultures and regulations of various countries’ (ibid.: 113). Accountants also frequently assume the role of broker between professions. The director of international services at a Big Six firm stated: When the client wants to invest in a foreign country operation, he needs advice on tax structures, restrictions on capital investment, and the like. He comes to the public accountant and not the investment banker. Taxes play a very important part in this role. There is a lot of work relating to new tax treaties. Just yesterday I had a West German client sitting [here] who needed advice on how to structure sales to get the best tax advantages so as to not hinder his company’s overall operations in other countries. Very frequently clients will ask us, ‘Can you recommend bankers?’ Or, ‘Can you recommend lawyers?’ We suggest several and let them make the final choice. Very frequently we have to tell even the largest MNCs they need them, especially attorneys. (Montagna 1986:107) In continental Europe the accounting firms have been particularly successful in establishing MDPs. For example, in France Arthur Andersen has twenty-five full-time lawyers in tax, company law, M&A, and labour law; Coopers & Lybrand Deloitte has 120 legal professionals in tax, business law and labour law; Ernst & Young has fifty-five full-time lawyers in tax, company law, M&A, contract, EC, competition, labour, intellectual property, banking and finance (Eburne 1991:18). One accountant argued, ‘We want to be seen as the number one business advisers; and the law is very clearly relevant to that. The demarcation point is very fluid. There is an increasing overlap and competition in all services that can be described as business advisory services’ (ibid.: 16). Whereas the MDP principle grew from the tax work, the accounting firms’ legal work is favouring corporate and company law over tax. Although the accounting firms more or less remain partnerships, they have altered their internal structures to reflect modern bureaucratic trends. Instead of the simple partner and associate division of the

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law firms, accounting firms have seven or eight levels, namely, junior, supervisor, senior supervisor, manager, partner, executive and senior partners (Montagna 1974:20). This enables the accounting firms to leverage their staff more thoroughly and extract more rent from them than the law firms (cf. Galanter and Palay 1991; Brill 1985). Even the largest international law firm pales into insignificance against the size of the Big Six. The largest accounting firm in the world, KPMG, the result of a merger, has 5,540 partners and an annual revenue of $4.13 billion; the smallest of the Big Six, Arthur Andersen, has 2,016 partners and an annual revenue of $2.82 billion (Economist 1989).14 Even Skadden Arps, one of the most successful megalaw firms, generated only $400 million in gross revenues in 1988 (Brill 1989) and $500 million in 1990 (Brill 1991). Expansion and concentration, although they create potential for greater rewards, nevertheless produce conflict. The recent attempt by Arthur Andersen and Price Waterhouse to merge into the largest accounting firm in the world with 4,642 partners and annual revenues of $5.038 billion failed because of conflicts of interest over clients and, especially important, cultural differences in organization. Arthur Andersen operates as a single, centralized partnership, whereas Price Waterhouse has a more decentralized arrangement allowing more autonomy to regions (Waller 1989). And, despite more than three months of negotiations, the partnerships of the two firms could not reconcile their disparate corporate cultures. Moreover, some national regulations barred the merger. Specifically, both Japan and Canada would have disallowed the merger in their respective countries, which would have left the firm with potentially competing branches in those countries. Law firms face these conflicts to an even greater extent than the accounting firms. Flom asks: ‘Is there a limit? Yes, there is a limit on the growth of a law firm because of anachronistic rules that are being applied. Take conflicts of interest’ (Federal Bar Council 1984:97). The recent failed takeover bid for British American Tobacco by Hoylake highlighted the difficulties that result from restrictions on conflict of interest (American Lawyer 1989). Cravath Swaine & Moore, acting for BAT, accused Skadden Arps, acting for Hoylake, of a conflict because of having been counsel for Farmers Group, an investment bank that had been taken over by BAT the previous year. Conversely, Skadden accused Cravath of conflict because it was acting for both BAT and Rothschild Holdings, a partner in Hoylake. Cravath attempted to withdraw its representation of Rothschild Holdings, but Rothschild sued to prevent Cravath from representing BAT. The suit was settled by Skadden withdrawing its Los Angeles office and one of its New York partners from the work. This exemplifies the continuing imposition of a relational ideology on what has become a transactional business. In other words, the diminution of long-term relationships between law firm and client in favour of the short-term transactional relationship has not been mirrored in the rules that govern these practices. So as the ideology of business gains ground, the strains between it and the sacred forms of professionalism intensify and the role of the lawyers begins to change. Some law firms are also recognizing the need to loosen ties. Baker & McKenzie’s non-American offices are largely staffed by local lawyers; this has earned the firm the reputation of being a franchise law firm—a ‘McDonalds’ (Stevens 1987). Skadden Arps sees itself composed of a series of interlocking boutiques rather than as one big firm, but largely within one legal system. Arnold & Porter has established wholly owned subsidiaries in financial consulting, general consulting and real estate consulting, which places lawyers in the role of co-ordinator, planner and organizer, a role which, Fitzpatrick says, will take lawyers into the twenty-first century (Fitzpatrick 1989). For law firms, the limits of globalization are inherent in their jurisdictions. The example of the privatization of British Gas demonstrates this clearly (Neate 1987). The UK government intended to issue the shares simultaneously in the UK, Europe, Japan, the USA and Canada. Essentially, there were few problems between the UK and Europe: the UK prospectus was used with a ‘wrap-around’ with Europe-

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specific information. With the USA, Canada and Japan there were major problems with the advertising of the issue and the drafting of the prospectus. The UK government was planning a massive advertising campaign ahead of the publication of the prospectus. The other jurisdictions absolutely forbade any puffing before the filing of their registration documents with securities and exchange commissions. The US and Canadian lawyers had to promise their Commissions that no advertisements would enter North America from the UK, even though with everyone concerned with modern communications technology that promise would be hard to keep. The UK lawyers had hoped to use the document drafted by the UK merchant bank, but the US and Canada lawyers declared that was impossible. This led to the drafting of a ‘North American’ prospectus, which had to be translated into French for the benefit of Quebec. One dramatic difference between the North American and English documents was in describing the future of the company: the English saw this as portraying a rosy future and the Americans required the risks be emphasized. One of the English lawyers described the process this way: Certainly this whole question of how to write prospectuses for various jurisdictions, whose requirements are different in the way I have been describing, is one of the biggest practical difficulties faced on an international share offering of the British Gas variety…it is obviously absolutely critical that the same detailed message is being given worldwide about the company, even though the prospectus may have to be in a different order and in some respects apparently different in content…. On the Gas offer, we at Slaughter and May as solicitors to the UK Government, carried out a massive physical checking exercise on all the later drafts of the United States, Canadian and Japanese prospectus, comparing them with the UK base document and marking precisely where there were changes, whether of order or of substance, or even of punctuation, so that these could be carefully examined against the UK base document and assessed by those senior people in the clients and in our firm who were responsible for the UK prospectus. The objective was that at the end of the day all those concerned with the prospectus, in all jurisdictions, would be satisfied that none of the changes made had altered the basic message. (Neate 1987:69–70) Thus, even when the transaction is one that covers the world, it is rendered problematic by particularistic cultural concerns.15 And even the players in the game found difficulties. As it was primarily a British offering the leader of the professional advisers’ team was the merchant bank, with the lawyers playing handmaiden. For the British this was normal and unquestioned; for the Americans it was perverse. There the lawyers are in charge of this kind of enterprise. They see themselves as the quarterback of the team, planning strategy and tactics (Fitzpatrick 1989). It should be mentioned here that sometimes the term globalization is used synonymously with Americanization. This is a fundamental error. There may be some Americanization of culture but it may be preferable to talk of the export of American techniques that are adapted to local cultures and so become local knowledge. An illustration is the creation of the ‘vitamin pill’ defence of Consolidated Gold Fields against the Minorco takeover by John Grieves of Freshfields (MacErlean 1992:7). Grieves said he derived the idea from Marty Lipton of the New York firm of Wachtell Lipton who invented a takeover defence called the ‘poison pill’ (Borden 1989:43). Similarly, there have been situations where American lawyers have been involved in European takeovers, but the consequence of these high-profile activities is that they are copied quickly. Such knowledge can not be patented, so the active life of such expert knowledge is short because its ideological component is low compared to its technical value, that is, the shift from indetermination to technicality is rapidly made (Jamous and Peloille 1970).

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If, however, business transactions can be uncoupled from their immediate environment, that is, the transaction does not have to be sanctioned by the local law, then law firms might be able to market a particular type of law for transactions. For example, the Japanese prefer to use English law in debt security work (Scrivenor 1989). Although this should logically give English firms the advantage, sometimes such agreements are made entirely by non-English lawyers. This raises questions about the subsequent interpretation of the agreement. Will that interpretation be grounded in an English cultural perspective or something that only approximates it, a neological English legal culture that will be refracted through an alien system? One area of activity that is directly uncoupled from local law is lobbying, and one can compare American and English efforts in Brussels, as I did earlier. It is evident that the American lawyers have not been conspicuously successful in their endeavours. One can then ask what particular skills American lawyers have that others do not? A certain entrepreneurial flair, an explicit aggressiveness— perhaps. At best we should think of the Americanization thesis as an interesting hypothesis that requires much testing before we can verify it. There is currently a dearth of evidence for testing. And we should ask what would be the appropriate kinds of evidence in this case. No research has yet broached this systematically. Is it possible for lawyers to maintain a separate role as competitors in international business markets from the accountants and the investment banks? Probably, but it may well be a localized one (cf. Fitzpatrick 1989). As long as lawyers are tied to particular conceptions of the role of law and operate within particular legal systems, others in the international financial field will compete aggressively and not feel bound by the ideological and cultural constraints lawyers impose on themselves. The French government’s tender for lawyers to advise on the creation of a unified business law for the franc zone resulted in competition from such law firms as Slaughter & May and Jeantet & Associés. But the victor was Ernst & Young Juridique et Fiscal (Stewart 1992d:9). Possibilities for escape from confinement of particular systems lie in the development of alternative structures such as international commercial arbitration. As business begins to rely less on domestic forums for dispute resolution, lawyers are being called on to devise new sets of ‘anational’ norms (cf. Marriott 1992:2). Arbitration agreements represents a new form of lex mercatoria that is independent of state systems and can be purchased in many forms at many sites (Teubner 1992). And it is interesting that the accountants already consider themselves the inheritors of the lex mercatoria (Renshall 1992). The development of EC law as a regional legal system offers lawyers signal opportunities to create new legal forms special to their sets of expertise, especially with the aid of the Brussels and Lugano Conventions on jurisdiction (McLachlan 1992:40). At bottom, the problem is the nature of law itself. Historically, it has been grounded in diverse cultures and has rarely been deployed across them in the same manner as accounting or business principles. In many respects then, the forces of globalization are creating a tumultuous environment for a potentially endangered species. NOTES 1 The law firms are well situated. China has been displaying a greater rate of economic growth than most western nations: its rate of growth since 1978 has been 9 per cent per year and the annualized rate of growth for GNP has been 14 per cent for 1992 (Economist 1992:14). 2 The law firms involved in Interjura are: UK: Ince & Co, Marriott Harrison Bloom & Norris; US: Thelen Marrin Johnson & Bridges, Wilmer Cutler & Pickering, Bracewell & Patterson; Australia: Minter & Ellison; Spain: J & B Cremades; France: Gide Loyrette Nouel; Sweden: Mannheimer & Zetterlof; Hong Kong: Masons & Marriott; Holland: Nauta van Haersolte; Germany: Triebel & Weil; Italy: Ughi & Nunziante.

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3 In view of the increase in international mergers and acquisitions, the Securities and Exchange Commission (SEC) is relaxing its rules for foreign investors in the US. They will only have to comply with their own securities regulatory schemes. The SEC has also permitted the New York Stock Exchange to extend its trading hours in recognition of the internationalization of the market place (Labaton 1991:11). 4 The member states are: United States, United Kingdom, France, Germany, Japan, Italy and Canada. 5 After a brief period for review and reply to the Green Papers, the British government issued its legislative proposals in the form of a White Paper. With the exception of a few minor sops to the Bar, the government remained committed to its original ideas (Ford 1989; The Times 1989; cf. Zander 1990). The proposals were enacted in the Courts and Legal Services Act 1990. Those most disturbed by the proposals were, in Dezalay’s words, ‘the sages and scholars of the law’ (the Bar) (cf. Fennell 1989a; 1989b). As a former Lord Chancellor put it, ‘The solicitor is a man of business, a barrister is an artist and a scholar’ (Aylett 1978:160). With its traditional monopoly over rights of audience in the courts and hence litigation, the Bar has never appeared to give much consideration to the business of law. However, the Bar is as business-minded as the City solicitors and other professionals for whom they work, especially as many barristers now work in law firms. The commercial Bar has formed an association known as COMBAR and publishes a directory of its members and their specialties. Sets of chambers distribute glossy brochures advertising their skills. Barristers compete with solicitors for work at the international level: London chambers have already established branches in cities like Paris and Brussels. And at the 1992 Bar Conference the president of the Law Society warned the Bar to forgo assuming the role of solicitor in addition to their customary rule of advocate. 6 Some law firms are using cross-jurisdictional joint ventures, like Ashurst and Sidley, as a means of setting up offices in Eastern Europe. Ashurst also has the reputation of being the law firm everyone would like to merge with. 7 There is an array of alliances, joint ventures, EEIGs, etc., that various law firms in Europe and the US are experimenting with as alternatives to opening offices. These alternatives are especially important for the mediumsized firms that are unable to finance international expansion by conventional means (cf. Stewart 1990, 1992c). 8 One City solicitor I interviewed was not at all concerned about the American invasion of lawyers to London. He said, ‘I think English lawyers are much better than most Americans, except for those in New York and Boston— who are almost English anyway. The reason is we use language with precision, whereas American lawyers use language in blocks to convey emotion, so English documents are drafted better. Americans are much too prolix.’ But another solicitor wrote, There has been allowed to develop a form or style of drafting, possibly stemming from anti-avoidance tax legislation, which ranges from ambiguous to downright vague, such that it is all too often impossible to know with any certainty whether or not a given course of action will or will not turn out to be within the law’ (Legge 1991:3). 9 One example of far-reaching EC legislation is the merger regulation, which will shift the control of international mergers and acquisitions from local jurisdictions to Brussels—a case in point was Hanson’s attempt to take over ICI. 10 Some lawyers I interviewed are convinced there has been a retrenchment in Brussels because the American lawyers could not apply the same techniques as in Washington, D.C. (cf. Greenhouse 1991). Griggs (1992), a member of the UK delegation of the CCBE, has predicted that the EC Commission will soon propose a new structure for European professions that will not be bound by discipline or borders. 11 There are indications that the EC Commission might take action over the French reforms of the legal profession (International Financial Law Review 1991b:4). 12 This was reinforced in 1991 when the European Court decided the case of Sagen v. Dennemeyer, which said that ‘a UK based patent attorney, Dennemeyer & Co Ltd, could continue issuing patent renewal notices to its German based client companies in spite of a German law which effectively gives local patent attornies a monopoly in patent work’ (Stewart 1992a:18). 13 Stewart (1992e) notes that some firms have now reached fifty to sixty lawyers strong.

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14 In the International Accounting Bulletin of January 1990, the international personnel of the then Big Five accounting firms were: KPMG: 74,000; Ernst & Young: 68,300; Coopers & Lybrand: 62,500; Arthur Andersen: 51,400; and Price Waterhouse: 41,000. 15 The current Maxwell Communications Corporation UK insolvency and US Chapter 11 bankruptcy is causing such headaches over co-ordination of seemingly incompatible legal regimes to the UK Chancery Division judges and the US Bankruptcy Court judges that they have now set up an ad hoc informal communication line between them to ensure they do not contradict each other (Moss 1992; Carrington and Murphy 1992).

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Delaunay, Jean-Claude (1992) Les Services juridiques dans les relations économiques Euro-Arabes (services, cultures, mondialisation), Villeneuve d’Ascq: USTL. Dennett, Laurie (1989) Slaughter and May: A Century in the City, London: Granta Editions. Dezalay, Yves (1991) Marchands de droit, Vaucresson: CNRS. Dicken, Peter (1992) Global Shift: The Internationalization of Economic Activity, 2nd edn, London: Paul Chapman. Dillon, Karen (1992) ‘Profile: top billing’, Legal Business Magazine, April: 22. DiMaggio, Paul J. and Walter W.Powell (1983) ‘The iron cage revisited: institutional isomorphism and collective rationality in organizational fields’, American Sociological Review, 48:147. Eburne, Andrew (1991) ‘Accountants and lawyers heading for a showdown’, International Financial Review, May: 15. Economist (1989) ‘Top accountancy firms’, Economist, 30 Sept. 65. Economist (1992) ‘Deng’s last show’, Economist, 10 Oct.: 14. Federal Bar Council (1984) The Changing Nature of the Practice of Law, conference proceedings. Feldman, Stephen M. (1991) ‘An interpretation of Max Weber’s theory of law: metaphysics, economics, and the iron cage of constitutional law’, Law and Social Inquiry, 16:205. Fennell, Edward (1989a) ‘Crumbs of comfort: solicitors have in general been cheered by Lord Mackay’s White Paper proposals’, The Times, 1 Aug.: 27. Fennell, Edward (1989b) ‘Sharing the secrets of success’, The Times, 15 Aug.: 29. Fennell, Edward (1989c) ‘Firms banking on Paris’, The Times 29 Aug.: 29. Fennell, Edward (1990) ‘London leads the global race’, The Times, 18 Sept.: 35. Fitzpatrick, James F. (1989) ‘Legal future shock: the role of large law firms by the end of the century’, Indiana Law Journal, 64:461. Flood, John (1989a) ‘Megalaw in the UK: professionalism or corporatism? a preliminary report’, Indiana Law Journal, 64:569. Flood, John, (1989b) ‘Megalaw and MDPs: UK and US’, The City of London Solicitors’ Company Newsletter, Aug.: 5. Flood, John (1993) ‘Conquering the world: multinational legal practice and the production of law’, in E.Skordaki (ed.), Social Change and the Solictors’ Profession, London: Oxford University Press. Flood, John and Eleni Skordaki (1993) Corporate Failure and the Work of Insolvency Practitioners: Professional Jurisdiction and Big Corporate Insolvencies, ACCA Certified Research Report: London: Association of Certified and Corporate Accountants. Ford, Richard (1989) ‘Mackay pledges flexible and speedier legal system’, The Times 20 July: 4. Freedman, Judith and Michael Power (1992) ‘Law and accounting: transition and transformation’, in J.Freedman and M. Power (eds), Law and Accountancy: Conflict and Co-operation in the 1990s, London: Paul Chapman. Galanter, Marc (1983a) ‘Reading the landscape of disputes: what we know and don’t know (and think we know) about our allegedly contentious and litigious society’, UCLA Law Review, 31:4. Galanter, Marc (1983b) ‘Mega-law and mega-lawyering in the contemporary United States’, in R.Dingwall and P.Lewis (eds), The Sociology of the Professions: Lawyers, Doctors and Others, London: Macmillan. Galanter, Marc and Joel Rogers (1988) ‘Corporations in court: trends in American business litigation’, unpublished paper. Galanter, Marc and Thomas Palay (1991) Tournament of Lawyers: The Transformation of the Big Law Firm, Chicago, 111.: University of Chicago Press. Geertz, Clifford (1973) The Interpretation of Cultures, New York: Basic Books. Glendon, Mary Ann, Michael W.Gordon and Christopher Osakwe (1985) Comparative Legal Traditions, St Paul, Minn.: West Publishing Co. Goldenberg, Susan (1988) Hands Across the Ocean: Managing Joint Ventures with a Spotlight on China and Japan, Cambridge, Mass.: Harvard Business School Press. Gordon, Robert W. (1984) ‘The ideal and the actual in the law: fantasies and practices of New York City lawyers, 1870– 1910’, in G.Gawalt (ed.), The New High Priests: Lawyers in Post-Civil War America, Westport, Conn.: Greenwood Press.

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Graving, Richard J. (1989) ‘The international commercial arbitration institutions: how good a job are they doing?’, American University Journal of International Law and Policy, 4:319. Greenhouse, Steven (1991) ‘U.S.lawyers flock to Brussels’, New York Times, 13 May: 1. Griggs, Jeremy (1992) ‘The potential for barristers in the Europe of the twenty first century’, unpublished paper. Hebdige, Dick (1979) Subculture: The Meaning of Style, London: Methuen. Hobson, Dominic (1991) The Pride of Lucifer: The Unauthorised Biography of Morgan Grenfell, London: Mandarin. International Financial Law Review (1988) ‘Interjura in Beijing’, International Financial Law Review, 7:3. International Financial Law Review (1989a) ‘Stand up and fight!’ International Financial Law Review, Feb.: 2. International Financial Law Review (1989b) ‘Hands across the Seine’, International Financial Law Review, March: 3. International Financial Law Review (1989c) ‘Linking hands across the pond: the forging of the O’Melveny/ Macfarlanes association’, International Financial Law Review, July: 6. International Financial Law Review (1991a) ‘Inside: French lawyers denounced’, International Financial Law Review, Feb.: 2. International Financial Law Review (1991b) ‘EC Commission on the warpath,’ International Financial Law Review, May: 4. International Herald Tribune (1991) ‘Tokyo warns on trade blocs’, International Herald Tribune, 1–2 June: 13. Jamous, H. and B.Peloille (1970) ‘Professions or self-perpuating systems? Changes in the French university-hospital system’, in J.Jackson (ed.), Professions and Professionalization, Cambridge: Cambridge University Press. Johnson, Christopher (1991) The Economy under Mrs Thatcher, 1979–1990, Harmondsworth, Middx: Penguin. Johnson, Terence (1972) Professions and Power, London: Macmillan. Kerviler, Isabelle de and Peter Standish (1992) ‘French accounting law: origins, development and scope’, in M.Bromwich and A.Hopwood (eds), Accounting and the Law, Hemel Hempstead,: Herts.: Prentice-Hall and ICAEW. Labaton, Stephen (1991) ‘U.S. may ease rules for foreign issuers’, International Herald Tribune, 6 June: 11. Law Society’s Gazette (1989) ‘Lawyers’ foreign earnings up 25%’, Law Society’s Gazette, 86:2. Lee, Robert G. (1992) ‘From profession to business: the rise and rise of the City law firm’, Journal of Law and Society, 19:31. Legge, M.H. (1991) ‘Lawyers in the firing line’, International Financial Law Review, May: 3. Lewis, Michael (1989) Liar’s Poker: Two Cities, True Greed, London: Coronet Books. Lewis, M.K. and J.T.Davies (1987) Domestic and International Banking, Oxford: Philip Allan. Lisagor, Nancy and Frank Lipsius (1988) A Law unto Itself: The Untold Story of the Law Firm of Sullivan & Cromwell, New York: Paragon House. Lord Chancellor’s Department (1989) The Work and Organization of the Legal Profession, Cm 570, London: HMSO. MacDonald, Duncan A. (1989) ‘Speculations by a customer about the future of large law firms’, Indiana Law Journal, 64:593. MacErlean, Neasa (1992) ‘Corporate finance: tactically American’, The Lawyer, 28 July: 7. Mann, Michael (1990) The Rise and Decline of the Nation State, Cambridge, Mass.: Basil Blackwell. Marriott, Arthur (1992) ‘The multi-national connection’, Law Society’s Gazette, 29 July: 2. McCullough, Vince (1988) Economist Pocket Guide to the New City, London: Economist. McCullough, Vince (1990) ‘City lawyers’ Big Bang brings new competition,’ Investors Chronicle, Aug.: 7. McLachlan, Campbell (1992) ‘United Kingdom’, in J.Carr (ed.), Dispatching the Opposition: A Legal Guide to Transnational Litigation, London: International Financial Law Review. Montagna, Paul (1974) Certified Public Accounting: A Sociological View of a Profession in Change, Houston: Scholars Book Co. Montagna, Paul (1986) ‘Accounting rationality and financial legitimation’, Theory and Society, 15:103. Morton, Christina (1988) ‘Paris lawyers—preparing to take on the world?’, International Financial Law Review, Nov.: ii. Morton, Christina (1989) ‘Can German lawyers break the chains?’, International Financial Law Review, March: i. Moss, Gabriel (1992) ‘Jeux sans frontières?—some problems of international insolvencies’, unpublished paper.

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Chapter 7 Process and policy of legal professionalization in Europe The Deconstruction of a Normative Order Vittorio Olgiati

the road to the free market was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionalism… K.Polanyi For this is the paradox of a society which, from the eighteenth century to the present, has created so many technologies of power that are foreign to the concept of law: it fears the effects and proliferation of those technologies and attempts to recode them in forms of law… M.Foucault FOREWORD As Michel Foucault has shown, the mapping of ‘occupations’ and ‘services’ has always played a relevant role in the structuration of (western) society. Particularly in times of large and rapid social changes, attempts to produce ordered tabulations of all possible work areas, skills and professions were highly rewarded. Undoubtedly, they provided empirical guidelines to advance scientific formal knowledge, enforce social control and implement any sort of political programme. Given such a historical cultural background, it comes as no surprise to note that a great deal of study and research is nowadays turning up on this tested line of attack to approach the issues of social stratification and functional differentiation that crowd ‘transitional’ processes of European unification at present. Within the disciplinary area of sociology of law, a number of scholars concerned with processes of legal professionalization have been particularly influential in renovating such a recurrent cultural climate. As a matter of fact, in recent decades significant transformations have occurred in the province of law. Economic cycles and technical developments substantially influenced legal structures, roles and functions; new informal boundaries between professional jurisdictions and/or technical performances have emerged; new credentialling systems and market shelters have been claimed; new legal services have also been demanded and created. Charting processes of professionalization and niches of production to reconstruct a grid that could be of use for social and institutional arrangements has thus become a current exercise. Notwithstanding the relevance of documents and knowledge that this sort of academic operationalism is able to array—and notwithstanding the potential critical use which could be made of it—the aim of this study is rather different. Instead of providing a taxonomic account of what European legal professions actually do in terms of work, know-how, skill and attributes, or offering a list of professional patterns related to certain professional models, an attempt will be made here to focus on some general problematic variables which concern both the process and the policy of legal professionalization in Europe.

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In fact, if one agrees that professions do not just find things laid down for them, but ‘construct their problems as they work with them’ (Abbott 1986; Bourdieu 1986; Larson 1988), the issue of how such a subjective activism is anchored by formal and informal power structures can hardly be underestimated. Structural and functional elements of professionalism in general and of the legal profession in particular are ‘based on forms of political domination’ (Burrage et al. 1990). Therefore the study of how changing patterns of the legal professions are disposed at local, national and transnational level requires something more than a mere ‘cartographical’ survey. It involves a perception of the nature and dimension of the transformations occurring in the broader socio-normative domain and the ability to treat legal order and legal professions as genuine variables. In brief, as Freidson would put it, to understand the state of the socially constructed universe at any given time, or its change over time, one must understand first the broader social organization—the institutional setting —that permits the definers to do their defining. THE CASE STUDY: TOWARDS A ‘ONE-DIMENSIONAL’ PROFESSIONAL FRAMEWORK? In many discussions on the legal professions, changes in the worldwide economic system and rising competition in the so-called ‘market’ for legal services have been depicted as the forces that are driving the legal field in Europe towards an unprecedented general restructuration. In particular, the increasing commercialization of law and the diffusion of multidisciplinary and multinational corporate law offices have been pointed to as two major structural trends in contemporary legal professionalism. Thus, it seems that there is no alternative: before the end of the decade European legal practices concerned with business ‘are likely to be restructured along the lines of the big international and multi-disciplinary conglomerates, in the form of capitalistic societies using outsider investors. In short, these would be service firms, like others, where the advantage of legal and judicial services would be simply one of the services on offer’ (Dezalay 1990). This statement is based on a number of indicators. The expansion of economic competition not only provides a wide range of supply, it also requires specific technical and structural devices. To the extent that these components differ from traditional arrangements, they imply an irreversible detachment of the legal professions from the humanistic concerns of traditional legal culture and practice. This, in turn, drives them towards an equally irreversible attachment to the management and decision-making mechanisms of economic production (Irti 1984). Professional action ceases to be legitimized by reference to principles of equity and justice. Instead, it is subjected to the requirements of computability, performativity and efficiency: all typical of economic transactions for profit. In brief, the professional jurisdiction simply becomes a ‘market’ for delivering a particular type of service. A similar legal environment has substantially emerged in Europe only in recent decades, involving the elite segment of the profession. However, since business has enlarged its activity worldwide, the whole legal field related to it has to fit into it fully and comprehensively. By an effect of homology, in fact, the restructuring of the legal market would be but a corollary of what is happening in the economic field: financiarization and globalization of ‘productive’ activity. Given such a context, it seems therefore that European legal jurisdictions and expertise will be basically transformed. More precisely, it seems that ‘entrainés dans le mouvement d’uniformization de l’espace economique mondial, le droit et le pratiques judicaire des États de Communauté Economique Européenne sont condamnés à voir disparaître, par entiers, leurs traditions et specificités nationales’ (Dezalay 1989a). Notwithstanding its appeal, the above picture is, in reality, far from elucidating the whole spectrum of current professional trends. To a certain extent it may lead to an underestimate not only of the historical

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‘rationale’ of the (institutional) process of division of legal labour in Europe, but also of its actual (social) composition and (political) dislocation within the broader social system. In particular, being mainly concerned with the ‘market’ in ‘corporate’ legal professionalism, it may not offer a sufficient account of how the issue of ‘governmentality’ (Foucault 1980)—and consequently the process of institutionalization of (legal) expertise (Johnson 1992)—is currently ‘displaced’ in Europe. If one looks more closely at the overall European law-in-context at present, one cannot but note that, 35 years after the Treaty of Rome and contrary to widespread media opinions, the number of professional models that are competing to achieve, control or extend different professional traits is as high as the variety of ‘local discretionary legal systems’ and legal traditions and cultures that are at the core of these models. Even in European regions where the process described above has been consciously implemented by a state policy, there are and will remain—as a recent study on ‘tomorrow’s lawyers’ in the United Kingdom has demonstrated (Thomas 1992)—conspicuous discrepancies in the reordering of professional bodies and jurisdictions. On the other hand, in countries where no specific policy has apparently been enforced—as in the case of Italy— the possibility is quite apparent of a number of compromise solutions based on a generalized intertwining of attributes and performances between ‘mature’ legal professions and ‘new’ legal practitioners at a structural as well as at a functional level (Alpha 1989). Last, but not least, none of the above contradicts, but rather confirms, a more general commitment of official EC law policy-makers. First, because EC programmes concerning any sort of professional services are nowadays explicitly orientated to give priority to future decentralized strategies for managing diversity; and second, because—as will be discussed in detail in this study—EC directives and decisions enforced so far, by duplicating rather than simplifying traditional professional monopoly devices, are also confirming that legal professions in Europe are and will continue to be anchored to both national bodies and official positive (national) law. Given such clear evidence of the complexity of the province of legal professionalism in contemporary Europe, it seems therefore quite appropriate to approach the topic by assuming a more comprehensive sociolegal perspective. From this particular starting point, in fact, one may have a better view of either the battlefield in which competing professional models are forced to act, or the actual coigns of vantage that (for now) they have been able to achieve. THE CASE STUDY: THEORETICAL GUIDELINES The number of variables and the quality of arrangements that could be taken into account to try to enlighten the process and policy of legal professionalization in Europe at present compel us to establish two basic methodological guidelines. On the one hand, to deal with a historically determined set of questions (rather than a selective collection of concurrent and/or complementary materials), so that the study could fit in and stimulate further action-orientated research strategies. On the other hand, to focus on the core problems of the socio-legal field as a whole, rather than to deal with some of its segments or complementary ramifications only, so as to avoid, as far as possible, the risk of overstating (in a deterministic fashion) their conjunctural impact on the overall evolutionary trends. In fact, to the extent that one is aware of the complexity of the Old Continent, one cannot ignore the interrelation between the ‘thickness’ (Geertz 1987) of European socio-legal heritage and the unpredictability of the outcomes of current programmes of European Strukturbildung. Therefore, it seems particularly useful to look at the constitutive elements of European institutional domain: law, economy, politics and culture, as intertwined institutionalized mechanisms, and from this starting point to look at the developmental rationale that they embody.

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For this reason, the above-mentioned hypothesis of a radical collapse of traditional traits of legal professionalism in Europe—the so-called Big Bang (Dezalay 1990)—will not be taken into direct consideration: to offer a more comprehensive understanding of socio-political and normative dynamics it will be for now, as Foucault would say, ‘suspended’. By contrast, a more plausible and socially adequate research strategy will be considered here: namely, the socio-legal strategy suggested by the works of Wilhelm Aubert. The scientific legacy of Wilhelm Aubert demonstrates that trajectories of modernization in the context of law and society in the West are not one-dimensional, but rather embody an uninterrupted process of continuity and development based on a plurality of variables. This process is always open to any possible relative—and unavoidably problematic—solutions. So problems arising from social dynamics, rather than mere data collections, are considered the real source of enquiry for a proper scientific analysis (Aubert 1989). Of course, the acceptance of this analytic framework does not imply denial of the importance of empirical data: it simply confirms that even such evidence has to be related to the problem of its epistemic conditions. These considerations lead directly to the second theoretical guideline. To be aware of the complexity of the Old Continent also implies the acknowledgement that European socio-legal systems have always been, at one and the same time, localistically divided by conflicting institutions and cultures, and universalistically united by general principles and evolutionary scenarios. This accounts not only for the variety of legal doctrines and plurality of legal systems, but also for the differentiation, overlapping and transplantation of a variety of forms of legal practice at regional, national and transnational level. Additionally, one cannot ignore the fact that the many-headed character of the European socio-institutional realm, as well as its longlasting attempts at convergence and amalgamation of basic structural and symbolic devices, have been emphasized in recent times by specific historical trends. For example, the intensification of transcontinental practices and the cultural impact related to it seems to have reinforced both the heteronomy and isomorphism of the overall European normative system. In this context, convergences and divergences between different socio-legal (local) contexts, professional trends and law-making policies might appear simply as a matter of nominalistic definition if their specific ‘logic’ is not fully understood. And this is a point that can hardly be missed if one only considers that the EC programme for the completion of the internal market consists precisely in a shift of EC official policy from the ‘old’ to a ‘new’ approach to European ‘standards’; that is, to an approach which will be increasingly based on limited general directives from above in favour of substantial law-making from below (Cockfield 1990). In brief, the aim of the study is to focus on professional problems and issues stemming from the context of the European law-and-society unification process as a whole. First, a general overview of the transformations occurring in the overall European legal domain offers the opportunity to consider the nature and meaning of the questions that are on the agenda in the field of European legal professions. The specificity of professional traits vis-à-vis current processes of socio-institutional change will then be discussed in order to have a better understanding of the potential and limits of the professional models presently enforced. In developing this argument, the study also offers a detailed account of the EC’s Janus-headed law policy rationale concerned with the continuity and development of national legal jurisdictions. Finally, prevailing professional trends are analysed to point out their inner contradictions and their prospective impact on European systems of law. A brief concluding comment corroborates the idea that the changing patterns of European legal professionalism are sustained by a new general ‘policy of governmentality’ of expertise in Europe that seems to lead not only towards a great division between different professional fieldworks—that is, between corporate and national-law-orientated legal practices—but also, and above all, towards a new thematization of their technical diversity, cultural identity and political loyality.

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THE PROCESS OF EUROPEAN UNIFICATION: BASIC SOCIOINSTITUTIONAL ISSUES As has been said, an underlying common assumption of current discourses on legal professionalism in contemporary Europe is that the process and policy of legal professionalization are basically heterodirected by market forces. In reality, no one can underestimate or even ignore the fact that, by definition, legal practice and legal professions are what law is: in the last instance, they mirror the state of their art. Changes occurring in the normative realm are, therefore, their primary—not secondary—reference point. If one recognizes this self-evident premiss, it follows that in order ‘to avoid some of the cruder forms of economic determinism associated with market analysis of legal professions’ (Economides 1992)—and to achieve a better understanding of the nature of current legal experience in Europe —it is absolutely necessary to realize the substantial configuration and the lines of development of the legal domain at present. With reference to this point, let us briefly sketch a synthetic but comprehensive overview. One of the most striking aspects of the province of law in contemporary Europe is undoubtedly the emergence of a number of legal systems produced by the so-called (semi-autonomous) socio-legal orders or (autopoietic, i.e., self-referential) socio-legal systems (Moore 1973; Streek and Schmitter 1985; Teubner 1988). These orders have gained in recent times an increasing socio-institutional power and are now able to act as (relatively independent) sources of law. A peculiar trait is that they have grown not only inside the (territorial and functional) boundaries of official state law, but also outside, above and against it. Paradoxically, this growth has been made possible by virtue of a number of institutional shelters provided by each national state at local, national and international level. Another peculiar trait is that the so-called socio-legal orders are not necessarily ‘territorial’ (semi-perfect sovereignty), they aim at coping with the environment according to substantive and situational arrangements (conjunctural elasticity) and mould their structure according to principles of functional differentiation and organizational dominance (purposeorientated particularism). The most distinguishing feature, however, is that they are (still) either semiautonomous, as far as they are sheltered by positive official law, and self-referential, as far as their main aim is to transform external constraints into internal potential, regardless of the broader environmental effects that this may cause. Being (still) basically semi-autonomous and self-referential, they are, therefore, not only legally incoherent, but also, and above all, politically irresponsible. Taking full advantage of such characteristics, they have acquired a large economic and social relevance. Their pressure over (traditional) socio-institutional arrangements provided by each nation-state has also been empowered; so much so that not only are they now competing among themselves to affirm as steadily as possible their respective jurisdictions, they are also claiming a political ‘investiture’—that is, formal legitimation on the part of official law—to act as institutions provided with the potestas of self-government (autonomy), self-management (autarchy) and self-jurisdiction (autocriny). In other words—as the emerging hypothesis of setting up the so-called ‘multi-door-courthouse’ system demonstrates—they are now strategically orientated to challenge social control, cultural hegemony and institutional dominance of the traditional province of states’ law (Olgiati 1991). Within, above and outside such a highly dynamic normative scenario, substantial changes in the structure and functions of nation-state (and of their legal systems) also play a relevant role in shaping the overall European legal domain. First of all, once the dimensions and implications of the legal setting produced by semi-autonomous socio-legal orders have been realized, nation-states have in turn developed a sort of secondary adjust ment. Attempts at decodifying formal-rational rules and procedures, at implementing ‘soft law’ policy-making, and enforcing various forms of alternative justice have increasingly been carried out. Informal devices have also been promoted, to the point of creating a new, peculiar combination of formalism and informalism, re-regulation and de-regulation, repression and motivation, and so on

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(Chouraqui 1989). A major strategic issue, however, has been the devolution—or better, discharge—of quotas of their (traditional) legal authority: on the one hand, in favour of trans—and supranational (public or semi-public) organs and institutions; on the other hand, in favour of sub-national (local and regional) entities. As a direct consequence of this strategy, there is now evident the increasing decomposition and overlapping of almost three levels of official formal-legal sovereignty concerning, respectively, the political-economic control of (transnational) functions, the political-institutional control of (national) structures, and the political-social control of territorial (local) collective and/or individual bodies. A number of traditional centralistic legal arrangements of nation-states —and the whole legal culture related to them—has also been basically altered and/or eroded (Cohen-Tannugi 1985). Universal formallegal patterns, such as the ‘certainty’ of (state) law, and fundamental principles of legal tradition have practically been dismissed or reversed. For example, the Italian Constitutional Court recently stated (decision n. 364/1988) that, due to the actual composition of the legal system, ancient standard rules such as ignorantia legis non excusat and nemo ignorare jus censetur can no longer be universally ascribed even to lawyers. In Belgium a Court of Arbitration—an institution that can hardly be classified according to classic constitutionalism—has been set up (Law 10.5.1985) with powers of immediate and/or postponed annulment of bills and decrees (art. 6.2) with retroactive effect; that is, officially infringing the venerable dictum of the rule of law lex retro non agit. The relative retreat of nation-states’ law and the devolution of legal authority in favour of trans—, supra— and/or sub-national institutes has produced, in turn, two further sources of (still) semi-autonomous legal production which are extremely relevant for the current and future structuration of European legal domain: EC organs and regional governments. EC law-making includes types of primary legislation (such as charters of rights, agreements, etc.), secondary legislation (such as regulations and directives) and court decisions, each of them directly orientated to interfere, in one way or another, with transnational, national and local legal systems. Secondary legislation, in particular, has expanded so much that claims have been made that by the end of the decade it will cover almost 80 per cent of total legal production in Europe. This prospective trend is even more impressive if one considers that the technicality of such legislation is much more complex, situational and asystematic than that of socio-legal orders. Moreover, its content, by rule, hardly matches any pre-existing legal sphere, because by definition it is orientated to create a new, broader legal system. The adoption of the European Single Act in 1987 and the signing of the European Political Union Treaty (Maastricht Treaty) in 1992 increased EC powers to regulate European society to such an extent that even areas of social life which have not been subject to state control until now, will inevitably be affected (Steyger 1992). Regional law-making is also expanding in quantity and quality. Its growing impact on other socio-legal systems is due to its reference to basic social (territorial) issues. On the one hand, it deals with regulatory and administrative problems, such as environment, health, town-planning, which directly interfere with that part of the normative realm that socio-legal doctrine defines as unofficial, intuitive, living legal orders of the so-called Lebenswelt (Habermas 1986). On the other hand, it not only couples with either the legal (national) arrangements of local state apparatuses or the law policy-making of semi-autonomous local constituencies (such as Scotland, the Basque country, Flemings and Walloons), but also with all the ‘local discretionary systems of law’ (Church 1985) that always flourish from ‘paper law’ when this is put into everyday local legal practice. To sum up, if one combines the really muddled results of both the legal action of socio-legal orders and the legal reaction of national state laws together with the flow of legal rules stemming from EC organs, on

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the one hand, and local authorities, on the other, one immediately realizes what an immense, but incoherent and unstable, corpus juris has been made available to contemporary European legal professions. The question, therefore, is this: what consequences will these structural and functional legal changes concerning the most relevant sources of law have on the process and policy of European legal professionalization in Europe? THE EUROPEAN LEGAL PROFESSIONS AT A CROSSROADS The impact of the systems of law sketched above on current patterns of legal professionalism as well as the prospective structuration of areas of legal work in Europe must still come under systematic scrutiny. Yet, it seems quite clear that to the extent that social and economic professional relations are based on or moulded by a set of norms that are formally and substantially contradictory and by a set of legal spheres that are also simultaneously decentred and combined, fragmented and superimposed, up to the point of producing an unequalled context of legal pluralism, legal professions might be compelled to redefine their whole traditional assets (Huyse 1985). As has been noted, the crisis of traditional forms of socio-legal regulation and the explosion of legal pluralism—or, better, the emergence of a state of ‘interlegality’ (Sousa Santos 1988, 1990)—has already provoked, and it is likely to do so even more in the future, explosive effects in the structural and functional ordering of the European institutional domain (Crozier 1980). Within and outside professional jurisdiction, a number of questions about the legal professions’ status roles have already come to the fore. And it is now clear that what is at stake is precisely the epistemic conditions of their basic system of action, that is, the nature and core standards of their technical diversity, cultural identity and political loyality vis-à-vis European society at large. To get an idea of the importance of the problems involved in each of these issues, let us briefly discuss them in detail. From a technical point of view, any attempt to keep under control the differentiated complexity of European normative overproduction has proved so far almost impossible. On the one hand, the implementation of processes of highly selective specialization aimed at coping with such a complexity has broken up the substantive uniformity of interprofessional communications. On the other hand, the implementation of processes aiming at accelerating socio-legal standardization has led to the dissolution of basic binary codes or, if one prefers, the fundamental paradoxes of law—official-unofficial; public-private; formal-informal; action-imputation; deviance-conformity; and so on—so far considered essential to provide legal reasoning and practice with a coherent professional rationale (Luhmann 1988a, 1988b). The real problem, in any case, stems from the fact that actual legal overproduction has substantially undermined the degree of legitimacy of existing professional models. In fact, the infinite diversitas (particularism) of current legal systems technically prevents the acknowledgement of a jus in omnia, that is a universalis citizenship (Pizzorno 1990). Additionally, the type of law-making involved in it does not prevent, but rather exacerbates, internormative conflicts. Teubner (1989) recently summarized the location of these conflicts, by proposing ‘the following differentiation: 1) conflicts between autopoietic social systems; 2) conflicts between quasi-laws of semi-autonomous social fields; and 3) conflicts between subarenas within the law’. Whether this classification is exhaustive or not is not relevant here. For our purposes, it is simply worth noting that such a generalized normative modus vivendi is not only the cause and effect of a situation of disquieting indeterminancy of law, but also creates constant ideological stress in work performances.

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From a cultural point of view, the uncontrolled increase in the complexity of European legal production has been equally traumatic. Attempts at reducing legal pluralism—a task that, according to authors as varied as Friedman and Luhmann, is the major and everlasting ‘knowledge mandate’ of legal professionalism (Friedmann 1989; Luhmann 1977)—has not been successful. European legal professions have thus first experienced a pro found state of cultural disenchantment, and second, a veritable crisis of identity. A process of reconversion, that has occurred within the profession since the 1930s (Olgiati 1987, 1992a; Krause 1988), has been fostered in order to cope with the new situation and to avoid an incumbent ‘logic of decay’. However, even such a professional adverse normative has been and continues to be carried out within a particularly adverse normative climate. Indeed, the epocal transformation of contemporary western society from modernity to post-modernity implies a type of mentality and a number of structural and functional devices that cannot be legally regulated in advance. Visible symptoms of (theoretical and practical) decline of law as a fundamental means of social regulation (Aubert 1989; Foucault 1980) therefore aggravate the equally visible decadence of the legal doctrines and codifications inherited from the Enlightment (Luhmann 1987). The diacronic performances of a plurality of differentiated legal systems, in fact, not only produce—as we have said—a dissolution of fundamental binary legal codes of western legal tradition, but, by preventing the ascription of a logically coherent set of functions, favour a substantial limitation of ‘personal’ and ‘formal-legal’ responsibility. Moreover, basic ‘cross-border legal relations’ (Gessner and Schade 1990) are continuously adjusted and/ or renegotiated outside the framework of a legally prescribed model. Most of them are even performed by means of non-consensual unthematized processes, as the presupposed social consensus is simply an ideological fiction (Luhmann 1979; Offe 1977). Notwithstanding repeated attempts to promote cultural flexibility, caution, discretion, wisdom and restraint, it has thus become clear that [Traditional] norms and doctrines have to be discarded in search for tools for European integration. [Traditional] normative and doctrinal approaches are based on misconceptions of law, and are incapable of producing the changes in attitude and training which are thought to be necessary for unification. (Friedman and Teubner, 1985) As one can see, the dislocation of a plurality of conflicting legal systems within, above and against official state law, as well as the creation of ‘soft laws’, ‘quasi-legislation’, and so on, on the part of the latter, is something more than a mere structural change. On the one hand, it implies that official (state) law is increasingly losing its traditional hegemonic and pivotal role as an instrument of social engineering and dispute treatment (Olgiati 1991; Sousa Santos 1992). On the other hand, it indicates that processes occurring in the whole legal domain are ‘de plus en plus susceptibles de s’inscrire’ not only ‘dans le cadre de l’analyse de la crise de la regulation juridique’, but also, and decisively, ‘dans le cadre des regulations macro-sociales…et des mecanismes de constitution et de gestion de l’ordre politique’ (Commaille 1991). These, in short, are the reasons why the structural and functional position of European legal professions as ‘go-between’ or ‘boundary roles’ between law and society is not at all in balance. Paradoxically, a number of scholars have noticed a shift in legal roles ‘du notable a l’expert’ (Dezalay 1989) and of legal practice from ‘indetermination to technicality’ (Flood 1991). In reality, the evolutionary trends sketched above made apparent that what is occurring at present in the European legal domain puts into serious question, far above the asset of the traditional ‘gentleman lawyer’s moral authority’, its general political commitment towards the broader socio-institutional realm.

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The emergence of new powerful law-makers is compromising the traditional strategic alliance of legal professions with the so-called ‘sovereign power, the public’. In turn, the crisis of the glorious jus publicum aeuropeum has reached such a degree that the traditional balance of professional powers has also been largely destabilized. This has led the professions to recognize that the traditional vertical centre-periphery legal model—that is, the gradualistic legal pluralism à la Weber—and the law itself are simply ‘une carte de la lecture deformée’ (Sousa Santos 1988). But what they are increasingly experiencing seems to be even more traumatic than that: the ‘bouleversment de la regulation juridique au sein de l’ensemble du système social’, that is, the rise of a ‘nouvelle économie des relations entre normes sociales et normes juridiques’ (Commaille 1991). All the above has initially affected certain areas of legal work and expertise, such as legal aid, legal ethics and legal education. But there are now clear indicators that the legal and political core of the profession, as traditionally defined by state laws—the (formal) defence guarantees, on the one hand, and the (substantial) social control of the work—have been already seriously questioned (Dingwall and Fenn 1987). Thus it is possible to affirm that ‘restructuration du champ juridique’ at present goes along with a general crisis of traditional political loyalty of the legal professions towards official state law (principle of legality), towards civil society (principle of disinterestedness) and towards (national) political institutions (principle of professional independence). Needless to say, this is also true for those minority groups of European legal professions which seem to have gained from current socio-institutional changes. Indeed, not all segments and factions within the profession have followed a common linear stream. Processes of change are not merely deconstructing traditional systems of action. They are also producing new, unexpected and conspicuous professional opportunities. These new openings have been largely emphasized in the last decade by the so-called ‘new legal press’ (Powell 1988). It is now commonly understood that trends as different as the expansion of legal services in areas such as counselling and arbitration, the creation of new technical legal schemes, the escape from (state) ‘ordinary justice’, the revival of a lex mercatorum universalis and the rise of models of ‘automatized justice’— to quote just a few well-known examples—are not situational variables: they might be of importance for the definition of some new patterns of professional practice (Kahn 1982). Yet it is self-evident that even these segments and factions within the profession do not practise either in an ivory tower or in a socio-institutional vacuum. Even among them, therefore, what really matters at present is not so much the (situational) change in the structure of legal work or in the amount of legal services, but the acknowledgement of ‘la mise en question’ of the socio-legal Grundnorm of European legal professionalism; that is, the strategic ‘principle of reciprocity’ between the power of legal discourse (the professional knowledge-power nexus), the power of social dynamics (the institutionalized hierarchy of class structure) and the power of political bodies (organized hegemony of ruling elites) (Olgiati 1992b). The time has come, therefore, to question whether and to what extent the above problematic issues are the prelude to an overturning of traditional professional models and an advancement of qualitatively new professional projects. THE PROCESS OF PROFESSIONALIZATION: CHANGE, RESISTANCE AND TRANSFORMISM In order to address in a plausible and socially adequate manner the question of whether and to what extent a new professional model is germinating in Europe in the area of legal professionalism, it seems useful to consider, first, the actual ‘behaviour of law’—as Donald Black would put it—or, if one prefers, the empirical factors that are shaping certain legal jurisdictions and are sustained by certain legal structures.

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This makes it easier to elucidate, in due course, the variables that in a manifest or latent way permit them to operate according to certain prescriptive guidelines. As a matter of fact, the above-mentioned trends are directly reflected and reshaped—by virtue of specific discourses and cultural codes—at any level and in any part of the European legal systems. A veritable process of ‘contestualization’ therefore takes place. And this is precisely the key that not only marks the variety, but also explains the degree of variation, between each professional model within each professional group. In order to appreciate the effectiveness of this type of reflexive adaptation, it is important to note that although European legal professions are at present facing a situation of generalized normative indeterminancy, they can still take full advantage of a number of historically determined social, legal and institutional devices that strongly resist, reduce or counterbalance the pressure of change. By rule, these devices have a double dimension: while at a superficial level their conceptual patterns are highly concrete, at the core level, by contrast, they are highly abstract (that is, Typenbegriffe, Ventilbegriffe, etc.)—Being able to gain at the same time a high flexibility and an equally high consistency, they are therefore particularly suited to preserve, by a mere revisionist evolution, traditional professional standards. A well-known case in point is the system of professional action based on relational trust dynamics: a system that does not necessarily tend to maximize the expected utility of the performances, but rather creates and preserves the best conditions for their (potential) self-reproduction (Olgiati, 1992b). On the other hand, how can one ignore the capacity for resistance and transformism of those structures of ‘long durée’ (Siegrist 1990)—academic institutions, professional guilds, etc.—that for centuries have embodied the professional power-knowledge nexus? With reference to such powerful professional groups as French, Spanish and Italian Latin-type notaries, for example, not even (national) political systems ruled by party coalitions are at present able—or willing—to implement programmes aimed at transforming either their technical and cultural standards or their professional constituencies. As has been documented, they deal with current socio-legal change by reinforcing their social and institutional organization sets in connection with powerful interest groups (in particular, state bureaucracy) (Suleiman 1987). They have also set up their own professional schools and created their own semi-autonomous system of law—the so-called notarial law. Through a strict formal control on individual performance and by virtue of highly individualistic work commitments, they are now the top and the strongest professional elite of the whole professional jurisdiction (Olgiati and Ioppa 1992a, 1992b). The case of Latin-type notaries is worth mentioning here, not so much because they play a pivotal role in continental European legal professionalism, nor because they deal with the most influential clients and lucrative legal matters. The fact is that they are also linked to such an extent to the over-all structure of the States of Civil Law that to challenge their actual status role raises institutional questions about the (official) process of European unification that can hardly be put on the agenda. As can easily be understood, the institutional issue of coupling civil law/common law legal systems—as well as the institutional issue of coupling monarchical/republican political systems—is a matter of historical conditions that are not yet given. Besides the ‘thickness’ of certain professional standards related to the power-knowledge nexus, the ‘thickness’ of local legal practice and the symbolism related to the historical process of the division of legal work cannot be underestimated. Factors such as relational communications and socialization are of extreme relevance in evaluating current psychological and cultural attitudes towards socio-institutional change. With reference to this point, a recent survey commissioned by the Conseil supérieur du notariat français deserves attention, as it is one of the few attempts made from inside the profession to explore practitioners’ orien

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Table 7.1 Questionnaires and interviews: allocation and responses Country

Questionnaires allocated

England 350 Spain 400 France 400 Italy 400 Question: Direction of the profession in the next five years. Much change Little or no change England 356 60 Spain 96 209 France 244 190 Italy 129 322 Question: I will continue to carry out my work as I do now. Yes No England 122 248 Spain 238 55 France 217 179 Italy 329 92 Question: Competition is… Local Regional National International England 2 25 336 50 Spain 218 10 53 28 France 35 54 350 12 Italy 274 19 144 20 Question: Activity is . . . Local Regional National International England 102 120 117 74 Spain 195 48 23 45 France 159 190 71 30 Italy 298 70 54 39 Source: Skordaki (1990).

Interviews obtained 418 316 451 465 Don't know 2 12 16 13 Don't know 47 23 55 44 Don't know 5 7 1 8 Don't know – – – –

tation and expectations towards the EC process of market unification and legal harmonization. Although the survey has been carried out on a small scale and apparently with insufficient scientific assistance, its results are nevertheless emblematically interesting because they seem to contradict widespread media opinion. Let us consider, in particular, Table 7.1 concerning responses given by a sample of English, Spanish, French and Italian practitioners (responses concerning practitioners from Germany, Belgium/ Luxemburg, The Netherlands, Denmark, Scotland, Ireland and Portugal are omitted, due to the extreme dis-homogeneity in the number of both the questionnaires allocated and the obtained interviews). As can be seen from the responses concerning the first question, the impact of current socio-institutional change is perceived differently in each national context. The national context itself—as the responses of English lawyers after a decade of Thatcherism clearly demonstrates—is assumed as a reference point. The

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responses of the subsequent questions confirm that up to now there has not been, and there is not expected to be in the near future, any substantial Big Bang in practice. In fact, the majority of the practitioners interviewed foresee that they will continue to carry out their work as they do now mainly at local and regional level. The above considerations do not imply, of course, a denial that the impact of change at macro level does not produce significant mutations at micro level. For example, much routine work has been taken into corporate law departments of commercial enterprises (in-house lawyering). Computerized procedural or litigation support systems, such as legal know-how database services, are increasingly encoding many sorts of legal knowledge and skill. A wide range of activities in a number of innovative work areas have been created by new degrees of specialization. New forms of cognitive and ideological legal reasoning have also emerged. Yet the variation in the type and amount of legal services required—to the extent that has been perceived as a basic issue—has so far been handled quite simply by implementing a process of adjustment of conflicting professional structures and functions: as is well-known, in fact, legal professions deal, by definition, with social and technical variability, and handle it according to their everlasting (jurisprudential) casuistic experience. Even in well-localized professional niches, such as those related to international financial centres like London, Frankfurt and Paris, a process merely of continuity and development seems to have taken place. The emergence of a number of networks of (relatively small) law firms and a further diversification in their internal organization—rather than the creation of large interdisciplinary law firms devoted to their own exponential growth by means of aggressive mergers—is a clear indicator that European legal professions are sorting out a European-style professional model by means of a process of limited and controlled evolutionary adaptation. This evidence is particularly interesting because in recent decades pressure on the part of large, powerful American law firms to propagate their professional model has also influenced European legal practice. Attracted by the implications of the process of EC unification and experiencing increasing limits on expansion at home, large American law firms opened branches in a number European cities to offer services and acquire clients in competition with European offices. At first, they seemed to have several factors in their favour: knowledge of complex transactions, experience in pooling teams of lawyers, cash reserves, and, last but not least, clients willing to take over European business. In a few years, however, the initial euphoria for what has been called ‘the American challenge’ has given way to a more realistic attitude, due to the persistence of a number of formal and informal local, national and transnational constraints. Attempts at lobbying in Brussels for legal services, for example, proved quite difficult, due to the difference in national lobbying styles. Professional (national) monopoly and the lack of local long-established connections compelled American lawyers to set up different types of partnerships, associations or alliances with European colleagues rather than to compete directly with them. Loosely structured arrangements such as those required by the so-called clubs and networks of firms—flexibility, non-exclusivity, no real commonality, etc.—are thus still largely prevailing. And a compromise mixture of American work-structure and European expertise is now the dominant feature of the work area. The paradox is that, by working closely with foreign partners, European legal practitioners have acquired such a range of legal know-how, while maintaining and even reinforcing their professional socioinstitutional background, that their jurisdictions have become enlarged. The constitution of a European cooperative law office called ‘Interjura’ or the creation of a cross-professional joint venture like Ashurst & Sidley offering legal services for investors respectively in the People’s Republic of China and in extra-EC (Eastern) Europe, are indicators that may confirm such a trend.

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To sum up, if one looks at the structural, cultural and social dimensions of European legal professions’ behaviour at local, national and transnational level at present, one cannot but note that the impact of larger socio-institutional changes has been handled so far in such a way that a process of continuity and development is largely prevailing. Yet this does not lead us to conclude that the problematic variables previously discussed have been resolved or are less incumbent. In reality, the transformistic, moderate attitude of the European legal professions is basically a sort of role-play. The European legal professions are well aware of the seriousness of the socio-institutional changes occurring in Europe at present (Karpik 1985). Therefore, they are also aware that any adaptation occurring in their jurisdictions might even produce stronger pressure towards normative complexity. This, as we have seen, is the challenge that is putting their professional identity and loyalty to the test. As long as the outcomes remain unpredictable, however, they simply try to benefit either from the protective shelters of long-lasting internal arrangements or from the entrepreneurial stimulation of the external factors, while claiming to refuse to be heterodirected. Their basic professional attitude is thus quite simple and well tested: given the nature of the situation, they cope with it to the extent that it is congruent with their basic needs and interests. In the opposite case, as history shows (Karpik 1988; Olgiati 1990), a substantial political opposition might be formed to socio-institutional upheavals. TOWARDS A ‘CORPORATE LAWYERING’ PROFESSIONAL PROJECT? Given the above opportunistic attitude towards current socio-institutional change—an attitude that, as is well known, is typical and traditional of legal professions (Luhmann 1977)—what are the basic units of legal practice in contemporary Europe? In other words: is there a professional model or a professional project which might be able to emerge and prevail in future European normative scenarios? The question is far from rhetorical. As current attempts to systematically map the changing patterns of the structure of legal offices and the nature of legal work demonstrate—the so-called market for legal service, significant economic interests and expectations for greater competitive advantages are already involved. In reality, this type of approach does not seem to offer any substantial indication. On the one hand, because recurrent conjunctures in the economic circles of present-day society do not create per se any reference point for long-lasting normative projects in the field of legal professionalism; and on the other hand, and above all, by adopting merely an adversarial perspective with winners and loosers (Whelan and McBarnet 1992)—a singular variation of the well-known traditional ‘sporting theory of law’—one might confuse the part for the whole and the tactics for the strategy. In brief, one simply misses the basic issue: the achievement of a stable organizational dominance, not so much in the material, but in the symbolic political sphere. The above question is thus far from being rhetorical in another sense: it concerns a possible ‘solution’ of the actual disquieting state of legal ‘indeterminancy’: the assessment of a (relative) normalization of the professional power-knowledge nexus vis-à-vis the political economy of European unification. That is to say, nothing less than the coherent (non-contingent) definition of a new general normative order in Europe. As can easily be realized, such an issue is far from being at hand. As far as legal professionalism is concerned, it implies, in particular, a structurally rooted institutional framework that one could count on to be, in theory and in practice, either plausible (intersubjectively constructed through a rational discourse) or socially adequate (necessarily grounded on primary social needs) (Luhmann 1983). Taking the challenge seriously, a number of scholars emphasize and are increasingly assessing in Europe the importance of the well-known corporate lawyering model as a ‘new’ professional project for European legal professionalism. The reason for enhancing this project is found in a number of issues. The model has

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been largely applied in the United States and its use has already spread into a number of (westernized) countries. It seems to fit well within the management and decision-making mechanisms of the worldwide economic structure. Additionally, it matches with the asynchronic and asystematic law-making of large supernational companies. What really matters, however, is that it not only embodies but also symbolically reflects the historical fact that the most effective social actor and real primary source of law in contemporary (western) society is no longer the socially isolated individual—as our legal tradition still teaches—but the anonymous corporate organs of (semi-autonomous) socio-legal orders. Given such a technical and symbolic nature, however, the model of corporate lawyering radically contrasts to public (state) legal systems. As is well known, it implies legal functions and professional performance that are orientated towards or controlled by neither (politically responsible, territorial) official organs nor the citizens at large. Not by chance, its reference structure—the large law firm—‘is the agent of private corporate power…which clothes private interests with the mantle of legitimate authority’ (Nelson 1988). Being inherently related to a source of law which is (so far) basically orientated to computability, performativity and efficiency of economic transactions rather than to a balance of institutionalized powers or an ideal of justice, the corporate lawyering model is also subject to the direct influence of devices that are not necessarily related to fundamental social needs. For example, legal roles and functions are absorbed and subsumed into a larger mixed practice (consultancy, brokerage, financing, etc.) which is useful indeed but, by definition, is not normatively necessary. As has been stressed in a number of studies, this mixed practice leads, in turn, to the loss of the specific meaning of a ‘legal’ practice. In fact, law is treated as a mere technical instrument, as a medium regardless of its fundamental character as an ‘institution’ (Habermas 1986). By disregarding any type of professional ‘incompatibility’, corporate lawyering exacerbates competition among legal professionals and the exploitation of any potential legal supply. Last, but not least, the transposition of the model to the level of transnational activity does not simply create a type of practice which is (potentially) ‘unlimited in space, unlimited by the delineation of fields of activity and unlimited by a defining concept of the profession’ (Glenn 1990). It also creates interest groups, cartels that, by implementing the logic typical of corporate action, undermine and distort basic professional goals orientated towards other groups of society. In this respect, highly emblematic is the paradoxical fact that ‘Pour lutter contre le développement de la justice privée, certains voudraient que la justice d’Etat se privatize, en donnant aux plaideurs la possibilité de choisir leur judge, leur droit et d’éviter toute publicité malséante’ (Dezalay 1989a). To sum up, to the extent that the implementation of the corporate lawyering model implies a qualitative technical and cultural transformation of the identity of European legal professions, it also promotes the construction of a different relationship between legal expertise and society, that is, the definition of a new political and normative design of public order in Europe. The structural and functional implications of this project—based on (private) corporate, rather than (public) individual/collective interests—are indeed so incoherent with reference to the cautionary wisdom and equity of traditional European legal experience, that it is not by chance that attempts at enchancing corporate lawyering as a new dominant professional model have so far been (and still are) strictly limited and controlled in Europe by a number of legal (official) arrangements. To have a better understanding of this, let us briefly consider the following points. While it has been argued that the rise and growth of corporate lawyering in the USA rests largely upon an internal organizational dynamic (Galanter and Palay 1991), by contrast, in Europe, as in many Third World countries decades ago (Dias et al. 1981) or in Eastern European countries in the last few years, it clearly

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rests on broader exogenous factors related to the nature of the international division of labour, the explosion of legal pluralism and the crisis (of legitimation) of the state. The fact that corporate legal practice in Europe is related to these variables was already perfectly clear in the 1930s, as the Italian Law 23.11.1939 n. 1815 (prohibiting the constitution of societa’ di professionisti and creating the so-called professioni protette) clearly demonstrates (Vacca’ 1990). But this was even better realized, after the Second World War, by the Constituent of the European Community. As is well known, according to the Treaty of Rome the notion of ‘freedom to provide services’ in the legal field greatly differs from the common notion of ‘service’ as (productive) ‘activity’ (arts 59, 60). Article 51.1 of the Treaty states that those activities which are even occasionally related to a public power are excluded from ‘freedom of circulation’. If one then reads this article together with article 48 concerning the activity of a ‘public function’, it is quite obvious that the issue at stake is precisely the practice of legal professions. The fact that in the preliminary drafts of the Treaty the exclusion of lawyering was explicitly mentioned also underlines the relevance of the final statement. In other words, being aware of the implications described above, since 1957 EC member states agreed to enforce what has been called the legislative armistice (from art. 53 to art. 62, in relation to art. 48 and art. 51.1): a substantial limitation of the general principles of the Treaty when a ‘service’ is related to state’s political sovereignty. Thus, for political reasons of ‘public order’—and with the implicit approval of the professional bodies—the European legal professions have been, and still are, ‘protected’ from the imposition on a general scale of a model of legal practice that may undermine their basic ‘public’ functions (Martin Bernard 1990). As a direct result of this ‘legislative armistice’ a substantial legislative inertia on the part of both EC organs and member states about professional reforms characterized the situation up to the 1970s. In the last two decades a certain number of EC decisions as well as some national professional law reforms have been enforced, apparently to meet the legal needs set forward by particular sectors of the profession. As we shall see in detail in the next paragraph, however, these new provisions are not orientated to modify the strategy of the Treaty of Rome. Rather, they confirm that there is a sort of reciprocal convergence between them; so much so that article 16 of the very first EC Act contemplating a political European unification —the wellknown Single European Act—states that unanimity is necessary for EC directives whose execution implies a change in current national legislation concerning the professions’ asset. And it is not by chance that this particular article will be formally included in the Treaty of Rome as a second paragraph of article 57. In other words, it seems quite clear that even more recent policy-making on law is basically orientated towards the containment of the corporate lawyering model and that a strategy of continuity and development is the main guideline of the process of legal professionalization in Europe. This is hardly surprising. After all, as Crouch and Marquand (1990) put it: The fact remains that for the foreseeable future…the existing nation state remains the main focus of both the political loyalty and the political competence of the great majority of citizens…. There are paradoxes here for most political forces. International business is a set of interests that possesses a political competence that can most easily transcend national boundaries, yet the conservative political forces with which business interests are primarily associated are those most in need of national symbols to render themselves attractive.

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EC POLICY-MAKING ON LAW, CROSS-BORDER LEGAL PRACTICE AND THE PROTECTION OF (NATIONAL) LEGAL WORK The current process and policy of legal professionalization in Europe cannot be correctly understood by assuming American-style corporate lawyering as the prospective dominant model for Europe. If there is at present an institutionalized political strategy that, by reflecting basic structural trends, radically marks the difference between European and non-European processes of legal professionalization, this is precisely the programme of European unification. Therefore, EC law policy-making and EC cross-border legal practice are the stepping-stones that should be taken into account to decipher the evolutionary framing of the professional jurisdiction in Europe. For any European occupation or profession, EC law policy-making and cross-border practice mean, by official definition, either legal harmonization (of national socio-legal arrangements) or the integration through law (of national professional monopoly). In the case of the legal professions, however, the double process of legal harmonization and integration through law cannot be implemented unless their Janusheaded character is fully recognized: according to national (state) laws, in fact, the public-private nature of their services implies that they also perform a double, public-private status role. To recognize such a Janus-headed legal dimension is even more important if one considers that the process of European unification is geopolitical in character and the issue of forging a solid European governance cannot be correctly enhanced unless one realizes that ‘Europe does not have, and has had not a hegemonic centre. It has always been polycentrically divided into rival metropoles, each with its own specific political, economic and cultural attractiveness’ (Jacobi 1990). This general statement accounts for the fact that, to the extent that European unification remains a multistate political programme set up to cope with an increasingly unstable socio-institutional environment, it points to the pivotal mechanisms of traditional constituencies. However, to the extent that it also ostensibly aims at modifying socio-institutional relations on a larger scale, it directly undermines them. It is not by chance that what is going to be discussed hereafter is thus something more than a list of legal arrangements: it is the dislocation of power resources for the assessment of a (potential) future symbolic domain. In 1990 there was in the European Community more than 286,000 lawyers, distributed as in Table 7.2. If data about other professional groups working as professionals in the legal field in Europe (in particular, LatinTable 7.2 Number of lawyers in the European Community, 1990 Italy Spain United Kingdom Germany Greece France Belgium Portugal The Netherlands Ireland Denmark Luxemburg

63,000 62,000 55,000 52,000 20,000 17,000 8,000 7,000 6,400 4,000 3,000 300

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Source: Martin Bernard 1990.

type notaries, but also judges and public officers) are then added, it becomes evident how effective so far has been the policy jointly pursued by national states and EC organs to ‘protect’ the whole legal jurisdiction. Let us consider, first, the process of implantation of the above mentioned corporate lawyering model on the part of European practitioners. In England and Wales the ceiling of twenty partners per firm was removed in 1967. The number of lawyers in the fifteen largest firms was 1,102 in 1988; in the same year the number of assistant solicitors in the twenty largest firms was 2,581 (Thomas 1992a). This happened, however, mainly within the City of London and involved only practitioners who were members of an accredited professional body (Lee 1992). In Italy the professional Law 32.11.1939 n. 1815, prohibiting the constitution of societa di professionisti, is still in force. Corporate lawyering is, therefore, formally illegal. The constitutional legitimacy of this Law and the rationale of its content have been subsequently repeatedly assessed, either by the Constitutional Court (decision 22.1.1976, n. 17) or by the Supreme Court of Cassation (decisions 30.1.1985, n. 566; 6.12.1986, nn. 7263, 7265) (Vacca’ 1990). In Spain, where there are five different legal professions, it is difficult to find a large law firm (Harms 1991). In Germany ‘there existed in 1989 only one truly international corporate law firm…. The leading law firm Westerik und Eckoholz which consisted in 1981 of only 11 members counts in 1991 a total of 37 members’ (Rogowski 1991). In France, under law 29.11.1966 n. 66–867, it is possible to set up professional associations but, like other European colleagues, French practitioners cannot practice unless compulsorily enrolled—as individuals—in a (public) Law List. Finally, it is true that a European lawyer can now develop his or her own economic activity, by joining the Economic European Interest Groups EEIG (EC Council Reg. 25.7.1985 n. 2137/85). But it is also true that the rules governing this type of association are coupled with current national professional legislation. As has been said, American law firms tried to implement US-style corporate lawyering in Europe. During the period of the so-called American challenge a qualitatively significant number of US law firms opened branch offices or joined European corporate structures. In 1990 American law firms set up a record of fortysix overseas offices, of which there were fourteen in Brussels, six in London, and three in Frankfurt. However, in Luxemburg—a country notoriously well-disposed towards financial activities—the establishment of foreign law firms is not permitted: the only one that was there—a South African firm— was forced to close. In France, from 1 January 1992 all foreign lawyers are banned from practising unless they become members of the French Bar. Those foreign lawyers who are not enrolled are thus prohibited from practising even in foreign and European law. In Germany it is prohibited to perform a legal role in Court unless the practitioner is compulsorily enrolled in a (national) Bar. Foreign practitioners must be assisted by German colleagues. Belgium and Greece intend to pass laws mirroring the French laws. Given such a trend, it is clear why aspirations of extra-European practitioners about a liberalization of professional monopoly are now orientated not so much towards EC directives, but towards the international negotiations of the General Agreement on Trade and Services (GATS). All this does not imply that either national or foreign law firms in Europe are at the margin of the broader legal field. On the contrary, they deal with legal matters that are at the core of worldwide economic systems and employ a large fraction of the professional elite. Moreover, they have at their disposal so many resources that they could create a cultural and material legal environment (potentially) independent of official (public) institutions. Yet this is precisely why institutional—not market—barriers of positive (public) law are so strict in their respect. In general terms, one might say that these barriers enforce a veritable actio finium regundorum between public and corporate legal activity. They are clearly orientated to (a) protect a system of professional

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credentials that (at least, formally) stresses the importance of fiduciary personal relationships; and (b) maintain a system of public order that (at least, formally) recognizes the principle of the balance of powers. As a final result, corporate lawyering in Europe is impeded in dealing with cases that involve public powers and Court appearances. In other words—as is well known among the practitioners—it is confined to dealing with legal services in extra-judicial areas such as legal counselling and negotiation, that have never been— and are not—monopolized by means of public regulations. That being said, what about European cross-border activity involving cause-lawyering by legal practitioners of EC member states? With regard to this, both issues of freedom ‘of establishment’ and ‘to provide services’ have been of particular concern for the CCBE, the representative body of European (national) Bars. Given the nature and functions of this body— whose main achievement so far is the enforcement of the principle of so-called ‘double-deontology’—it is not surprising to note that, since its constitution about fifteen years ago, a large number of EC resolutions, directives and decisions have been based on compromise solutions that reflect nation-orientated professional models. Indeed, the problematic relationship between legal activity and law-and-order arrangements is constantly at the core of these solutions. Following the provisions of the above-mentioned ‘legislative armistice’ of the Treaty of Rome (and the subsequent legislative inertia), the most important EC decisions, in one way or another, confirming that political and institutional reasons (namely, a potential weakening of states’ control on internal public order) have prevailed so far, are: • decision 21.6.1974 n. 2/74 (case Reynes), that recognizes the freedom of establishment without citizenship, but excludes a host legal practitioner from performing public powers in Court for example, as ‘honorary’ judges); • decision 3.12.1974 n. 33/74 (Van Binsbergen case) that recognizes the freedom to act in a host Court without residence, but confirms the compatibility of national laws on compulsory residence with reference to arts. 59 and 60 or the Rome Treaty when the ‘good’ functioning of the justice system is involved; • decision 28.4.1977 n. 71/76 (Thieffry case) that allows practice only on the basis of a recognized equivalence among professional qualifications; • ordonance 7.4.1980 n. 136/79 (AM & S Europe case) that permits the CCBE to defend the interests and values of national Bars in the EC Court of Justice. • decision 12.7.1984 n. 107/83 (Klopp case) that allows inscription in a host Bar, thus confirming both its ‘opportunity’ and ‘necessity’; • decision 25.2.1988 n. 427/85 (RFD case) that rejects the so-called German model (principle of territorial exclusivity), but suggests a principle of proportionality between national regulations; • decision 19.1.1988 n. 292/86 (Gallung case) that confirms the general principles of the Treaty (i.e., the ‘legislative armistice’), permits a host country to impede the exercise of the profession for reasons related to deontological matters and enforces the principle of ‘double enrolment’; • decision 7.5.1991 n. 340/89 (Vlassopoulou case) that allows a host country to control the equivalence not only of the qualification system, but also of the degree of legal knowledge of the practitioner; • decision 10.7.1991 n. 294/89 (France case) that rejects once again the decision on the so-called German model, but enforces both the principle of double residence among practitioners and the principle of proportionality among national regulations.

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As can be seen, the above decisions of the European Community duplicate, rather than reduce, current (national) monopoly mechanisms. Altogether, the enactment of principles of ‘reciprocal acknowledgement’ in formal qualification, ‘proportional equivalence’ about legal culture, ‘double rule’ in deontological matters, ‘double residence’ to act in Court, ‘double enrolment’ in Bar associations, and so on, seems to refine, rather than liberalize the system of institutional controls at trans-European level. Additionally, it cannot be ignored that EC decisions establish or allow a number of discriminatory criteria, such as that of ‘limited duration and frequency’ of legal performances in host Courts (EC directive 22.3.1977 n. 77/249), or that of ‘national membership’ in elective professional governing bodies —even among European practitioners. In this general context, it is worth noting that recent national law reforms played (and play) a relevant role in sustaining and refining the same strategy. For example, a programme towards a political unification of the two main traditional segments of the profession (avvocati/procuratori, solicitors/barristers, avocats/ conseils juridiques) has already been enhanced in France in 1990, proposed in England in the Green Papers of 1989, and included in Italy in various legislative drafts. Notwithstanding the above-mentioned EC decision 25.2.1988 n. 427/85, the so-called duty of ‘interprofessional concertation’ in Court between resident and host practitioners, enforced in Germany by Law 16.7.1980, has become a generalized model of practice in other EC countries. If one then adds the impact of contestual reforms of the judiciary, as for example the recent case of the transformation of the Paris Court of Appeal in a (specialized) Court for financial matters (Bancaud and Boigeol 1991), one can easily imagine to what extent national interest groups are concerned with the restructuration of the legal field and the definition of a ‘plausible’ and ‘socially adequate’ professional model in Europe. Indeed, the above examples suggest that a qualitative leap ahead of a legal and political nature is taking place: not only the protection of national legal jurisdictions, but also the co-optation and calling of new generations of European legal practitioners around a more general nation-orientated professional model. The fact that, in a period of great professional turmoil at international level, the well-known EC directive 21.12.1988, n.89/48, on the ‘mutual recognition of higher education diploma’ defines as a legal profession ‘the one which requires a precise knowledge of national law and involves providing consulence and/or assistance on national law as a constant and essential aspect of professional activity’ is thus an indicator that deserves the highest consideration. First, it confirms that the national legal culture and national legal system (type of law, type of practice, type of behaviour) are—and will be in the future—at the core of professional credentials. Second, it confirms that these elements are—and will be in the future—the only and basic (precise, constant and essential) criteria to distinguish a legal from a non-legal profession in Europe. The above EC directive, in fact, defines as a ‘diploma’ not only a university degree, but also the certificate of professional training and the professional qualification (enrolment, title, etc.) given by the state. By enforcing mutual recognition of these diplomas, therefore, two birds have been killed with one stone. On the one hand, the legitimacy of all (existing and future) national official professional bodies, rites of passage, systems of education, and so on, that deal with or are linked to the production of those diplomas, has been formally recognized. On the other hand, the same official prerogative that they already had by virtue of state law has been formally ascribed to them: the right and duty to define the nature of the profession and the character of its jurisdiction. Last, but not least, by adding to national qualifications the requirement of a period of three years’ compulsory training or an official examination in the host country, the directive provides national jurisdictions with a further level of institutional control through selection on cross-border legal performance.

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In short, EC institutions are now directly involved in a sort of ‘production of distinctive producers’ in the field of legal professionalism in Europe. It is clear, in fact, that to the extent that EC directive 89/48 included the whole set of dispositions concerning access to and practice of a profession, it created a new, integrated official system whose aim is to protect the jurisdictions of those professions—like the legal profession— that were already protected by state laws at national level. Thus, the existence of nationally regulated professional models, far from collapsing by virtue of a global Big Bang, has been both formally and substantially confirmed, reinforced and extended at EC level. PROSPECTIVE TRENDS: A ‘GREAT DIVISION’ OR A ‘UNITAS MULTIPLEX’? As has been noted, the EC directive 89/48 recognizes the legitimacy of present and future national professional arrangements (compulsory enrolment, residence, training, etc.) and states that a legal profession in Europe is the one which requires a ‘precise knowledge’ of national law and involves providing consulence and/or assistance on national law as ‘essential and constant’ aspects of professional activity. The spirit and letter of the directive is so clear that there is no doubt about the fact that from now on any profession not provided with the required credentials could de jure et de facto be excluded from the jurisdiction of either national or trans-European official (public) legal systems. Indeed, a ‘coherent’ enforcement of the directive implies that foreign legal practitioners must apprehend the (official) local legal culture and fully become local legal practitioners if they wish to practice in any European country. It also implies that European practitioners trained in national law, but dealing with other sources of law (for example, lex mercatoria) as a ‘prevailing’ aspect of their activity, will not be considered as legal professionals and will be impeded from practice in national Courts. The prospective impact of a ‘coherent’ implementation of the above directive on current and future legal professionalism in Europe is even clearer: a great division between those who are and those who are not ‘national laws orientated’. In other words, in order to avoid a process of legal professionalization extra legem, EC institutions and national professional bodies will be forced to unify the profession around the issues of a broader concept of (national) technical diversity, cultural identity and political loyalty. The rationale of this prospective trend has already been made evident by the above-mentioned attempts towards the political programme of unification of the two main internal segments of the profession (solicitors/ barristers, avvocati/procuratori, etc.). Being otherwise absolutely socially, culturally and technically ‘irrational’—due to the growing differentiation, stratification and specialization of the whole professional group (Abel and Lewis 1988)—such a unification is basically a way to reassess formally the primacy of a specific power-knowledge nexus; that is compulsorily to enhance the well-known principle cuius lex, eius rex which is typical of the legal tradition of (western) legal pluralism. Paradoxically, only a small group of lawyers are aware of the fact that internal unification necessarily leads towards a larger and deeper external division. The profession’s ideologues and current media opinions suggest, in fact, that the policy involving the two segments of the legal profession —s well as the request for a formal codification of ethical rules—is a mere technical process to modernize the legal system and favours the so-called globalization of legal services. Powerful socio-legal orders, on the contrary, have actually perceived the political implication of this professional project and, as been said earlier, are now competing among themselves and with the states in order to have greater control of the symbolic realm of (western) culture, legal culture included. The policing character of the unification of barristers and solicitors, avvocati and procuratori, avocats and conseil juridiques, and so on, directly clashes with the already

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existing legal experience of ‘interlegality’, that is, with the mixed practice created by an increasing number of different legal systems. In other words, it directly interferes with well-established interests, structures and mentalities that, as we have also previously noted, have grown even within the domain of national legal systems. On the other hand, it also clashes with deep-rooted democratic arrangements and ideals because by definition, a unified profession based on compulsory enrolment cannot guarantee either the rights of defence or the defence of the law. In this respect, the contradictions contained in English Green and White Papers of 1989 and in the Courts and Legal Services Act 1990 are a perfect example of how governmental interventionism is in balance when dealing with national raisons d’état, transnational legal interests, the irresistible dynamics of social differentiation and current cultural attitudes. A general convergence of the European legal profession towards a national-laws-orientated professional model appears in any case a highly problematic project as soon as one enlarges the perspective and looks at the reality of the overall legal climate and at the general patterns of the behaviour of law at present, that is, if one realizes the difference between ‘paper law’ and ‘law-in-action’. On the one hand, one cannot ignore the growing qualitative and quantitative importance of those legal services that have never been, are not and never will be, a monopoly of the legal professions, such as counselling and negotiation. To exclude unified, national-laws-orientated legal practitioners from counselling and negotiations concerning other sources of law or other types of legal activity is not (legally) impossible, but it is at present politically questionable. It is likely to create serious resistance and, in the long run, a substantial loss in their credential system (social rewards, expertise, etc.). In any case, these extra-judicial legal services seem to imply such an overall compartmentalization of legal work and expertise —a structural trend that at present involves not blue-collar workers (as happened in the 1930s), but any kind of white-collar professional—learned practitioners included—that increasing socio-professional differences between (cosmopolitan) professional ‘elites’ and (local) ‘workaday’ professionals (Freidson 1986) should be expected. Nor can the declining role of state law with regards to the evolutionary changes occurring in the broader normative realm be ignored. Both its legitimacy and efficacy—as we have noted—are increasingly being questioned. This evidence could be compensated by making general use of the major resources of its legal maturity: the ‘symbolism’ of law and its byproduct, the so-called imaginaire juridique. However, such resources cannot, and could not, per se mask the fact that its inner fragmentation, decodification and materialization has already given rise, in practice, to a large number of professional sub-models. If these elements are combined it is clear to see that even a unitary national-laws-orientated professional project is not, and is not likely to be in the future, at all homogeneous. Let us briefly consider, for example, the case of the United Kingdom. As has been demonstrated (Thomas 1992b), not even a Thatcherite policy has been able to impose a common model. Lawyers in Northern Ireland and in Scotland, in rural Britain and in the City of London still have different characteristics. Let us now look at the Italian situation. Here, as has been said, corporate lawyering is formally prohibited. Yet, by virtue of legal juggling—the so-called principle of intermediation (Salandra doctrine)—one can count a number of law offices (collettivo, associato, imprenditoriale, esterno, etc., each with structural and functional distinctions) that are de facto ideologically and operatively orientated towards that model. At a transnational level, legal practices in action in Greece, Spain or Germany are also not comparable, either because of the specific conditions of the justice systems, or because of the political setting. Experiments concerning cross-border legal education have increased, but so far they are a sort of selective rite of initiation, rather than a common workable pattern. Given all the above, it is thus possible to affirm that, in any case, even the enforcement of a unitary, national-laws-orientated professional project will not only maintain local specificities, but it will also be

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discretionally conditioned by local variables. In other words, one might reasonably fore— see the emergence, not of a real common (trans-European) model, but rather a sort of flexible unitas multiplex within the same national (official) legal domain. CONCLUSION: EC GOVERNMENTALITY BY LEGAL EXPERTISE This study has sketched the complexity of the problems involved in the current process and policy of legal professionalism in Europe. The explosion of legal pluralism and the technical erosion of traditional formalrational (state) legal systems has led to a questioning of the cultural identity of legal expertise. The asymmetric and asystematic fragmentation and inter-twining of different sources of law and levels of legal authority has largely weakened their traditional political loyalty. Prospective professional models such as that of corporate lawyering could drive legal professionalism towards a multidimensional type of practice that is likely to dissolve the meaning of legal (public) performance; that is, its technical diversity. Classic legal arrangements produced by the legal culture of the Enlightenment are increasingly loosing their theoretical and practical efficacy. The enforcement of a mere defence policy of professional monopoly at national level is simply inconceivable. In turn, the implementation of a unitary national-laws-orientated professional project at EC level raises a number of problematic issues, as it is based more on a realpolitik strategy than on law-in-context evolutionary professional patterns. Thus, the definition of a coherent structuration of legal professionalism in Europe is oscillating between internal attempts at resistance and transformism and external pressures for innovation and change. Crises, differences, conflicts and evolution are thus the major elements that shape the European legal professions at present. This is not surprising. After all—as Edgar Mortin puts it: European culture does not only suffer its differences, conflicts, crises; it lives from them…European genius does not just lie in diversity and change, but in the dialogue within diversity which ultimately effects change…. Expressed in another way: that which is of greatest importance to the existence and evolution of European culture is the fruitful collision of differences, antagonisms and competing and complementary forces. Given the specific institutional context of legal professionalism, however, it seems that this ‘fruitful collision’ is producing a quid pluris: a generalized ‘transpositioning’ (Woodiwiss 1990) not only of jurisdictional structures but also, and above all, of the normative meaning of legal functions at each local, national and transnational level. The final vectorial result of this ‘transpositioning’ is still uncertain and highly unpredictable. None of the professional models that are currently enacted can claim a clear hegemonic position and it is possible that conjunctural interprofessional conflicts will be strategically resolved—as history often teaches—outside the jurisdiction, on a larger societal ground. Yet, to the extent that the ‘official’ prospective model is institutionally sponsored and monitored by EC general policy from above—and moulded by local cultures from below—it seems that it might lead towards a qualitatively new professional scenario of European dimensions. Notwith-standing all its limitations, problems and contradictions, a unitary, national-laws-orientated professional model seems to embody, in fact, an enormous opportunity that few can ignore. On the one hand, it might force the traditional dualism of state-profession to wither away, gradually eliminated by an effect of normalization that displaces legal professions within the grouping of institutions, arrangements, mechanisms, and so on, which together comprise—as Johnson (1992), following Foucault, has acutely perceived in theoretical terms— that particular form of governmentality that the European

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Community will require. On the other hand, and consequently, it might also force the European legal professions to dismiss their actual role of national ‘gardiens de l’hypocrisie collective’—as Bourdieu (1991) has it—that is, the role of representative of a system of institutional relations whose presumptions have to a great extent been eroded already, to become ‘gardiens et enterpreneurs’ (not of the nation-state—as suggested by Rudolf von Gneist a century ago) but of that part of national socio-legal heritage, environment, life and culture that is the vital patrimony of European civilization. In other words, and in conclusion, the emergence of an EC unitary national-laws-orientated professional model, by minimizing the duality of state-profession by a transpositioning effect, not only could compel European legal culture to reconstruct the technical diversity and cultural identity of the European legal professions as essential government devices of the historical process of European unification. It could also compel the European legal professions to reconstruct their political loyalty to the broader European sociolegal system as organic intellectuals and depository of a socio-political legal experience that, albeit in theory, includes both human rights and democracy. REFERENCES Abbott, A. (1986) ‘Jurisdictional conflicts: a new approach to the development of the legal professions’, ABA Research Journal, no. 2. Abel, R. and P.Lewis (eds) (1988) Lawyers in Society, 2 vols, Berkeley, Cal.: University of California Press. Alpa, G. (1989) ‘Dalle professioni liberali alle imprese di servizi. Le nuove professionalita’ tra liberta’ dei privati e interesse pubblico’, unpublished paper. Aubert, W. (1976) ‘Law as a way of resolving conflicts: the case of a small industrial country’, in L.Nader (ed.), Law in Culture and Society, Chicago, 111.: Aldine. —— (1989) Continuity and Development in Law and Society, Oslo: Norwegian University Press. Bancaud, A. and A.Boigeol (1991) ‘The emergence of the professional corporate justice in France’, paper presented at the meeting of the Working Group on Corporate Professions, Vaucresson (France), June. Belley, J.G. (1986) ‘L’Etat et la regulation juridique des sociétés globales. Pour une problematique du pluralisme juridique’, Sociologie et société, 18(1). Bourdieu, P. (1986) ‘La force du droit. Elements pour une sociologie du champ juridique’, Actes de la recherche en sciences sociales, no. 64. —— (1991) ‘Les juristes, gardiens de l’hypocrisie collective’, in F.Chazel and J. Commaille (eds), Normes juridiques et regulation sociale, Paris: LGDJ. Burrage, M., K.Jarausch and H.Siegrist (1990) ‘An actor-based framework for the study of the professions’, in M.Burrage and R.Torstendal (eds), Professions in Theory and History, London: Sage. Chouraqui, A. (1989) ‘Normes sociales et règles juridiques: quelques observations sur des regulations désarticulées’, Droit et société, no. 17. Church, T. (1985) ‘Examining local legal culture’, ABA Research Journal, no. 1. Clune, W.H. (1989) ‘Legal disintegration and a theory of the state’, in C.Joergers and D.M.Trubeck (eds), Critical legal Thought: An American-German Debate, Baden-Baden: Nomos. Cockfield, Francis, Arthur, Lord Cockfield of Dover (1990) ‘The real significance of 1992’, in C.Crouch and D.Marquand (eds), The Politics of 1992: Beyond the Single European Market, Oxford: Basil Blackwell. Cohen-Tannugi, L. (1985) Le Droit sans l’Etat, Paris: PUF. Commaille, J. (1991) ‘Normes juridiques et regulation sociale. Retour a la sociologie générale’, in F.Chazel and J.Commaille (eds), Normes juridiques et regulation sociale, Paris: LGDJ. Crouch, C. and Marquand, D. (1990) Foreword in C.Crouch and D.Marquand (eds) The Politics of 1992: Beyond the Single European Market, Oxford: Blackwell.

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Karpik, L. (1985) ‘La question du politique et le Barreau de Paris’, paper presented at the ISA-RCSL Congress, Aix-enProvence (France), 26–31 August. —— (1988) ‘Lawyers and politics in France, 1814–1950: the state, the market and the public’, in Law and Social Inquiry, 13 (4). —— (1989) ‘L’économie de la qualité’, in Revue française de sociologie, 30. Krause, E. (1988) ‘Les guildes, l’état et la progression du capitalisme: les professions savantes de 1930 a nous jours’, Sociologie et société, 20 (2). Larson, M. (1988) ‘A propos des professionnels et des experts, ou comme il est peu utile d’essayer de tout dire’, Sociologie et société, 20 (2). Lee R.G. (1992) ‘From profession to business: the rise and rise of the city law firm’, in P.Thomas (ed.), Tomorrow’s Lawyers, Oxford: Blackwell Publishers. Luhmann, N. (1977) Sociologia del diritto, Bari: Laterza. —— (1979) Potere e complessita’ sociale, Milan: II Saggiatore. —— (1983) Struttura della societa’ e semantica, Bari: Laterza. —— (1987) Soziologische Aufklarung, Opladen: Westdeutscher Verlag. —— (1988a) ‘Closure and openness: on reality in the world of law’, in G.Teubner (ed.), Autopoietic Law: A New Approach to Law and Society, Berlin: de Gruyter. —— (1988b) ‘The unity of the legal system’, in G.Teubner (ed.), Autopoietic Law: A New Approach to Law and Society, Berlin: de Gruyter. Martin Bernard, J.M. (1990) Abogados y Jueces ante la Comunidad Europea, Madrid: COLEX. Moore, S, (1973) ‘Law and social change: the semi-autonomous social field as an appropriate subject of study’, Law and Society Review, 7. Nelson, R. (1988) Partners with Power: The Social Transformation of the Large Law Firms, Berkeley, Cal.: University of California Press. Offe, C. (1977) Lo stato nel capitalismo maturo, Milan: Etas Libri. O’Hagan, T. (1984) The End of Law? Oxford: Basic Blackwell. Olgiati, V. (1987) ‘Avvocati e notai tra professionalismo e mutamento sociale’, in W.Tousijn (ed.), Le Libere professioni in Italia, Bologna: Il Mulino. —— (1990) ‘Diritto positivo e autoregolazione professionale nei “Discorsi sull ‘Avvocatura” di Giuseppe Zanardelli’, in V.Olgiati, Saggi sull ‘Avvocatura. L’avvocato italiano tra diritto, potere e societa’, Milan: Giuffre. —— (1991) ‘The paradox of interlegality and the “Political Reconversion” of the legal professions in Europe’, paper presented at the ISA-RCSL and Law & Society Association Joint Meeting, Amsterdam (The Netherlands), 26–29 June. —— (1992a) ‘La riconversione professionale degli operatori del diritto’, in Impresa & Stato, Rivista della Camera di Commercio di Milano, no. 18. —— (1992b) ‘Systems of law and legal professions: the restructuration of legal fieldworks in Europe’, paper presented at the ISA Conference ‘Professions in Transition’, Leicester (England), 21–23 April. —— (1993) ‘Positive law and socio-legal orders: an operational coupling for a European sociology of law’, in A.J.Arnaud and V.Olgiati (eds), On Complexity and Socio-legal Studies: Some European Examples, Onati Proceedings, No. 14, IISL-Onati. —— and P.Ioppa (1992a) ‘Le credenziali professionali del notariato italiano’, in Sociologia del diritto, 2. —— (1992b) ‘Le scuole di notariato: un modello di educazione giuridica e di formazione professionale’, in Diritto ed economia del Terziario. Olson, M. (1986) The Logic of Collective Action, Cambridge, Mass.: Harvard University Press. Pizzorno, A. (1990) ‘Note sul concetto di eguaglianza di riconoscimento’, paper presented at the Congress ‘Diseguaglianze sociali ed equita’ in Europa’, ComoVilla Olmo (Italy), 17–19 October. Powell, M. (1988) ‘The new legal press’, paper presented at the ISA-RCSL Congress, Bologna, June. Siegrist, H. (1990) ‘Professionalization as a process: patterns, progression and discontinuity’, in M.Burrage and R.Torstendhal (eds), Professions in Theory and History, London: Sage.

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Skordaki, E. (1990) ‘European lawyers and the Single Market: a study carried out by the Conseil Superieur du Notariat Français’, unpublished paper, London: Law Society Research Unit. Sousa Santos, B. (1988) ‘Droit. Une carte de la lecture deformée. Pour une conception post-moderne du droit’, in Droit et société, no. 10. (1990) ‘Stato e diritto nella transizione post-moderna. Per un nuovo senso comune giuridico’, in Sociologia del diritto, 3. —(1992) ‘State, law and community in the world system: an introduction’, Social and Legal Studies, 1. Steyger, E. (1992) ‘European Community law and the self regulatory capacity of society’, paper presented at the Law & Society Annual Meeting, Philadelphia (USA), 28–31 May. Streek, W. and P.Schmitter (eds) (1985) Private Interest Government: Beyond Market and State, Beverly Hills, Cal.: Sage. Suleiman, E.N. (1987) Les Notaries. Les pouvoirs d’une corporation, Paris: Ed. du Seuil. Teubner, G. (1986) Dilemmas of Law in the Welfare State, Berlin and New York: de Gruyter. (ed.) (1988) Autopoiesis in Law and Society, Berlin and New York: de Gruyter. —(1989) ‘And God laughed…: indeterminacy, self-reference and paradox in law’, in C.Joerges and D.M.Trubeck (eds), Critical Legal Thought: An American-German Debate, Baden-Baden: Nomos. Thomas, P.A. (1992a) ‘Thatcher’s will’, in P.A.Thomas (ed.), Tomorrow’s Lawyers, Oxford: Blackwell Publishers. (ed.) (1992b) Tomorrow’s Lawyers, Oxford: Blackwell Publishers. Vacca’, C. (1990) Professionisti e societa’ di servizi, Milan: EGEA ed. Whelan C. and D.McBarnet (1992) ‘Lawyers in the market: delivering legal services in Europe’, in P.A.Thomas (ed.), Tomorrow’s Lawyers, Oxford: Blackwell Publishers. Woodiwiss A. (1990) Social Theory after Postmodernism: Rethinking Production, Law and Class, London: Pluto Press.

Chapter 8 Bank lawyers A Professional Group Holding the Reins of Power Michael Hartmann

In the discussion of the legal profession, its power in society, its inner structure and its development, practically all authors (Abel 1985, 1986, 1988; Abel and Lewis 1988; Curran 1986; Halliday 1986, 1987; Powell 1985; Rothman 1984) concentrate on the Bar. With very few exceptions (Dezalay 1990; Hartmann 1988, 1989, 1990; Heinz and Laumann 1982; Spangler 1986), those lawyers occupied in the commercial sector or in public administration receive hardly any attention at all. This focus may (still) be appropriate for the Anglo-Saxon societies, considering the extensive dominance of law offices there, but as far as Germany is concerned, this is certainly not the case. In Germany, one speaks of the power of lawyers in society primarily with reference to those lawyers working in large commercial enterprises or in central state agencies and offices. In this regard, banking lawyers are especially important. They embody economic power like no other professional group. This exceptional position of the mere 2,000 banking lawyers is due to two facts. First, the German banks, particularly the large banks such as the Deutsche Bank or the Dresdner Bank, have enormous economic power as a result of their traditionally honoured principle of the universal bank. By means of their own shareholdings, or their right to vote customers’ deposited shares, they control the supervisory boards of many other commercial enterprises, or at least exercise considerable influence there. This means that they almost always play a central role in takeovers or mergers, as is demonstrated by the activities of the Deutsche Bank in connection with Daimler Benz’s development into the biggest German industrial concern. Furthermore, it is the lawyers who to a very great extent hold the reins of power within these enormously influential large banks. Traditionally, lawyers occupy half of all of the positions on the board of directors and a considerable part of the executive positions in management as a whole. The area of private banks is considered a domain of lawyers. For a long time, one even spoke of a ‘lawyers’ monopoly’ in the banking business. This choice of words becomes more comprehensible in view of the percentage of lawyers among the total number of graduates occupied in the banking branch, even as late as the 1960s. At that time, around 40 per cent of those graduates had finished law school. With the percentage of graduates at around 2.5 per cent, lawyers accounted for more than 1 per cent of the total work force in the field. These percentages, which are extremely high compared to the industrial sector, are due to the nature of the banking business. For in the final analysis everything here revolves around contracts—contracts between those lending money and those borrowing it. And contracts simply do contain a considerable legal component. Therefore, lawyers are in demand in many areas in banks; or at least the circumstances encourage the use of lawyers. Accordingly, their percentage of the total work force has remained stable to the present day, despite many changes. Thus, at the most, 500 lawyers are occupied in the leading big banks. The relationship between lawyers and other graduates has, however, changed substantially. Today, only approximately 20 per cent of graduates in the banking branch went to law school. Lawyers did not actually

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participate in the considerable expansion in the proportion of graduates in the 1960s, which rose from 2.5 per cent to the current 5.5 per cent. Hence, they have indisputably lost significance in terms of percentages. The questions are now: what is to be seen as the source of this decrease, and what will future development look like? In order to be able to answer plausibly and with empirical backing, it is necessary to analyse two matters. On the one hand, it is necessary to inquire which professional groups have been more successful than the lawyers, and what stage this process of displacement has reached. On the other hand, inquiries must be made regarding the influence which the fundamental restructuration and internationalization of the finance markets has already had on the competition between lawyers and other professional groups, and regarding the future expectations which these changes warrant. For the observable and impending changes in the finance business are the factors which doubtlessly affect the position of lawyers most seriously and will continue to do so in future.1 THE FIELDS OF WORK With regard to the fields and departments in which lawyers are placed in the banking branch, it is to be noted from the start that lawyers are to be found almost everywhere: in the private as well as the corporate client departments; in the foreign trade business as well as in real estate financing; in the new issues department as well as in the management of branch offices; and they are finally also to be found where they are most often employed in the industry, namely in the personnel and legal departments (see Table 8.1). Table 8.1 Lawyers in Bank A (%)

Branches Management Private clients Credit-/corp. clients Foreign Investment Legal department Personnel department Internal Trainees Sub-total Headquarters Private clients Credit-/corp. clients Foreign Investment/stock market Legal department Personnel department Organization

Salaried employees covered by collective wage agreement

Sal. empl. not covered by collective Directors Total wage agreement/ authorized signatories

0 2.0 8.5 2.0 1.5 4.5 0.5 1.5 8.5 29.0

0.5 4.0 11.0 0.5 0.5 8.0 2.0 1.5 0 28.0

24.5 1.5 4.5 0.5 0 8.5 1.5 2.0 0 43.0

25.0 7.5 24.0 3.0 2.0 21.0 4.0 5.0 8.5 100.0

1.0 0 0.5 5.5 0 0.5 0.5

1.0 4.5 1.0 5.5 6.0 2.0 0.5

1.0 4.5 4.0 6.5 12.5 3.5 0

3.0 9.0 5.5 17.5 18.5 6.0 1.0

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Trainees Other Sub-total Total

Salaried employees covered by collective wage agreement

Sal. empl. not covered by collective Directors Total wage agreement/ authorized signatories

25.0 1.5 34.5 31.0

3.0 6.0 29.5 29.0

0 4.0 36.0 40.0

28.0 11.5 100.0 100.0

A closer look nevertheless reveals clear areas of deployment concentration. When the junior executive trainees are omitted in view of their training situation, the majority of lawyers are distributed over six areas. Naturally, the legal department employs the largest group, which represents about one-fifth of the total. Next comes the field of credit transactions (not including private customers) with approximately 20 per cent, then management in branches etc., foreign transactions and syndicate business (including all new issue projects) with approximately 10 per cent, and personnel with about 5 per cent. In relation to the total number of employees in the individual departments, the proportion of lawyers is, besides those in the legal department, especially high in the areas of syndicate and foreign business located in headquarters. In one of the banks, lawyers make up 11 per cent of the office workers in the central foreign business department and 16 per cent in the central investment banking area. In another bank 22 per cent of all employees in the central secretariat, which is responsible for the syndicate business, as well as 5 per cent of the central foreign transactions department have the same qualification, represented by the law school degree. THE WORK OF THE LEGAL AND COMMERCIAL DEPARTMENTS The cause of the heavy concentration within these areas of activity is clearly to be seen in the fact that, in these fields, normal business is most frequently and intensively connected with legal questions. Here, as a rule, the proportion of lawyers is higher the more business procedures are marked by legal issues. At the same time, however, there is a clear division. The work in the legal departments is from start to finish of a legal nature, whereas in the other four fields the percentage of legal demands is higher than average but is, at 10–40 per cent of working time, very plainly overshadowed by the commercial elements, even in those positions occupied by lawyers. The legal department represents in each bank an area limited to service aspects; its duties consist mainly of legal advice to other departments and the board of directors. Not including advising members of the board who have accepted positions on supervisory boards of other corporations, most of the work of the legal departments stems from the three areas of credit, foreign and syndicate business. In other words, it comes from those areas where, as a result of intrinsic problems, the majority of those lawyers who are occupied primarily with commercial duties are located. This means that, as regards legal work, the focus is on the following legal fields. Banking law is understandably dominant, with all of its ramifications and cross-references to other fields of law. But the Civil Code is also very important, as are laws regulating competition, company law, insolvency law, and foreign and international law. Special areas within industrial law and social legislation, as well as public law and planning and building laws and regulations play a smaller role. Thus, the spectrum is pretty broad. The demands placed upon the lawyers working here with regard to legal subject matter are consequently higher than is usual.

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A relatively high degree of specialization, a large measure of independence and high hierarchical classification are characteristic determinants of the structure of legal departments. The specialization is due to the large number of areas of law which must be covered, and is, in legal departments as a result of their size which varies between twenty and fifty lawyers, more pronounced than in industry. But that has just as little effect on the relative independence of the individual lawyer as it does on the high professional demands. He or she usually covers a specific legal area largely independently. The hierarchical positions only make themselves felt in connection with important policy decisions, with financial commitments on an extraordinary scale or direct inquiries from the board of directors. In addition, the two-heads-are-better-thanone principle applies here, as it does everywhere in banking, where written statements are concerned; that is, two lawyers give their signature, one of whom must have achieved a certain rank in the hierarchy. Normally, though, information is given on the telephone, at least as a start. Then the individual lawyer decides, to a great extent independently, whether, say, loan security is good enough, or an export pre-financing deal is possible. Providing such information requires a certain amount of economic thought and knowledge in addition to solid legal knowledge. In contrast to industry, lawyers in the legal departments of banks are only to a comparatively limited extent occupied with the direct execution of business transactions. The fact that a large number of legally trained bankers are sitting in executive positions of the bank makes itself felt here. They don’t require legal advice during negotiations on the same scale as do technical experts or sales people in industry; or, at least in some cases, don’t want to have the scope of their competency reduced. In addition, bank lawyers are—in contrast to industry—well represented in the commercial departments. Here, the situation is particularly favourable in two spheres of business: namely, syndicate business and large-scale credit transactions (corporate customers/foreign operations), since legal problems arise here with particular frequency. In syndicate business, which is concerned with the financing of enterprises via the capital market in the form of bond issues (transactions with internal capital) or share issues (transactions with internal capital), the main questions involve company law (especially concerning stock corporation and cartel legislation), tax law, balance sheet laws and international law. For instance, in those cases where a company wants to be launched on the stock market, a decision first has to be made regarding the best form for this to take place. In legal terms, questions must be dealt with in connection with the transformation of a limited partnership, general partnership or private limited company into a public limited company as well as in connection with the problem of the optimal procedure with regard to taxes. Furthermore, a decision has to be made as to whether, in consideration of the stock transfer tax, a capital increase should take place before or after the issuing of shares. Companies must also receive advice on formal requirements, such as conducting shareholders’ meetings and deadlines for convening them, etc. In connection with larger share issues and especially with bond issues, the rights and responsibilities of the individual financial institutions involved in the transaction must be specified exactly in contracts. In particular the role of the syndicate leader has to be defined precisely in the underwriting agreement, since that figure is really the sole representative of the whole operation externally, so that the individual customer can contact one name rather than many different partners. Such agreements are usually especially complicated when the company seeking additional financing sources and/or a large number of the banks participating in the syndicate are based in foreign countries, since then foreign, particularly Anglo-Saxon, law becomes more important. But the different bond forms which come under consideration also give rise to a whole series of legal difficulties which have to be resolved. In credit business, legal questions present themselves essentially in those cases where large loans to domestic and especially foreign companies are at issue, or in cases of export pre-financing or project

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financing. Since granting loans is one of the two classic banking business fields, problems from practically all the important legal spheres with which the legal departments are involved arise here, such as civil law and laws concerning banking in general, competition, corporations, trade and insolvency, as well as international and foreign law. With regard to awarding loans, it is primarily, from the legal perspective, a matter of evaluating the risks which each contract contains, the security circumstances and, especially in connection with group companies, the determination of the liability regulations. These requirements normally increase with the size of the credit involvement, the susceptibility of each branch to crisis, and the lack of economic stability in a given country. The degree to which the legal requirements in the area of syndicate and credit business affect the use of lawyers in these departments depends, however, on how the responsibilities are divided between such departments and the legal department. The need for lawyers in the new issues department for example, is naturally going to be less where, as in one of the large banks, almost all legal problems are turned over to the legal department. The same thing goes for the foreign trade department, for example, when its legal questions are for the most part solved by the legal department. Regardless of the division of labour between the business departments and the legal department, however, the percentage of lawyers in the two areas is still much higher than average. That is because there are a number of reasons for employing lawyers in syndicate and more complex loan transactions. The most important are the higher speed with which decisions are made and their higher quality thanks to the integration of legal and commercial expert knowledge. Thus, it is naturally advantageous to have lawyers working directly in the new issues department, in case very quick decisions are needed; for example, in the course of a new issue project constantly changing interest rates, or because the enterprise going on to the stock market wants to issue its stock at the optimal point in time. They not only carry out negotiations themselves but also, and above all, take into consideration the suggestions, sent at very short notice and usually via fax, without having to check back with the legal department. At least in some sub-fields it is possible to reach better credit or syndicate agreements when the communication concerning important questions flows more smoothly on both sides, i.e. both the business department in question and the legal department speak the same, legal, language. Besides that, discussion within the business departments also becomes more effective, because legal questions can be debated immediately, and hesitation about contacting the legal department, which is often more pronounced when the significance of a problem is unclear, is thus eliminated. Despite the requirements concerning legal knowledge, the positions occupied by lawyers in commercial departments are nevertheless determined to a large degree by business problems. According to the lawyers questioned, commercial tasks account for between 60 and 95 per cent of the total work. The analysis of company financial statements is first on the list, for, regardless of whether an enterprise wants to enter the stock market or to increase its capital by issuing more stocks, whether a loan is applied for or export financing is being planned, even in financing larger projects an exact economic analysis of the company or companies involved is absolutely indispensable to every decision. Besides the balance analysis, there are still a whole series of further commercial tasks which must also be handled by the lawyers in the investment banking area or in the central credit department. Thus, for example, when private limited companies are to be changed into public limited companies, consideration must be given to the question of which company structure should be chosen in order to attract potential investors. In the same sense, in new issues projects it is a matter of advising the client as to the optimal time for issuing stock, fixing the issue price so that the company going on to the stock market can take the best advantage of the possibilities of the market, or pursuing active price support where share blocks are to be sold. In all these cases, the course of stock market transactions has to be monitored exactly, in order to make

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at least halfway precise forecasts. The issuing of stocks requires, in addition, presenting the company to interested large-scale investors such as insurance companies or other banks. Finally, there is also increasingly the task of identifying firms which are well-suited to launching on the stock market, and convincing them to take this step. Here, active persuasion is required, which would hardly be successful without solid commercial expertise. In addition to that, in syndicate business the clientèle from the branches of industry, trade and so on also have to be advised on questions of capital procurement. Depending on the company’s circumstances and the situation on the finance markets, issuing stocks or taking out a short- or long-term loan might represent the most sensible solution. Within the main categories there are then a series of variations which may be considered. If the client wants to take out a larger loan, it then becomes a matter of determining whether it is more advantageous to carry out the transaction through a foreign subsidiary or through the bank headquarters itself. Economic risk analyses have to be conducted, especially in connection with foreign firms or transactions, in order to evaluate the expediency of the loan and its economic security. For some project financing, forecasts also have to be made of interest rate fluctuations and future earnings prospects. The area of project financing. which requires very comprehensive economic consideration, among the areas of activity mentioned, is the one in which the share of demands relating to genuine legal knowledge, at 5–10 per cent, are the lowest in proportion to the overall requirements connected with the work. Similarly low values are also to be found among those positions occupied by lawyers in the stock market departments or in the loans departments in the branch offices. The highest percentages, 30–40 per cent, are, as may be expected, to be found among those lawyers who are occupied with checking large-scale loans in the headquarters or with issuing procedures. The other areas are somewhere in the middle at around 20 per cent. As a rule, those two-thirds of all lawyers occupied in banks who are located in commercial departments must rely on their specific legal knowledge or at least be able to use it sensibly for, at the most, 20 per cent of their-work. The vast majority of their working day is however taken up by tasks of a commercial nature, such as are normally handled by management experts or bank business people. THE LEGAL METHOD Confronted with such figures, it must be asked whether the legal expertise actually applied is the sole explanation of lawyers’ position in relation to the total number of graduates employed in banks as well as their share of the banks’ total work force, which has remained stable for decades. This is especially questionable when one considers that, on the one hand, disregarding parts of syndicate business and central credit consultation, many of the legal problems which arise don’t necessarily require the use of a lawyer. On the other hand, lawyers show three essential disadvantages (compared with their competitors with a business education): namely their normally far less extensive initial business knowledge; then the fact that they are on average (due to lengthy education, and above all as a result of the trainee period) three or four years older; and finally, related to age, their limited mobility because of family ties. There has to be another reason for the great number of lawyers in the banking branch. All the banking lawyers interviewed agreed that the specific working methods a lawyer employs represent the second important plus-point for lawyers as compared to the other graduates and non-graduate professional groups. They are said to be often just as much, or sometimes even more of, a decisive factor than the knowledge of legislation, court decisions or other legal rulings, in determining when and where to use lawyers. Lawyers’ ability to dissect an issue, isolating its components in rigorous analysis and disclosing their meaning and inherent system in order to reach a final decision, is what, in the eyes of lawyers and non-

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lawyers, constitutes their strength compared to other qualifications. They are able to familiarize themselves quickly with new subject matter, ‘get to the bottom of things quickly’ and demonstrate ‘orderly thinking’— this is the tenor of the statements. With these abilities, they have an advantage over business experts and banking businessmen in those cases where the work consists to a large degree in coping with legal problems, for example in syndicate business, and are, at least in some ways, their equal, where not fewer legal questions crop up, but instead systematizing abilities are required. For, in the former case, it becomes evident that a lawyer usually has less trouble acquiring a certain amount of business knowledge than the business expert or banking businessman has acquiring legal knowledge. In the latter case, the lawyer can compensate for the lack of legal demands and the handicap of weaker economic knowledge by superior working methods. Consequently, lawyers are in the majority where larger-scale complexes containing a certain amount of legal questions have to be structured and evaluated. They are primarily occupied in headquarters’ departments, many of which display the characteristics of staff departments according to the proverb ‘good things come in small packages’, and are less frequently located in the business area departments of branch offices where the direct business with masses of customers is done. Thus, all three strongholds of lawyers are set up within business departments at the headquarters: handling syndicate business; carrying out larger foreign projects; and evaluating larger-scale loans. The uneven distribution of lawyers in banks also becomes evident when the overall picture is examined. First, with a share of 2.5–3 per cent, the number of lawyers in proportion to the total number of employees in all three headquarters is much higher than in the branches, where the percentage lies between 0.4 and 0.6 per cent. And then, the largest group of lawyers from the business departments are also employed in the headquarters. CAREER PROSPECTS The career prospects of bank lawyers have, up to now, been favourable, especially in the central legal departments. Here approximately two-thirds of lawyers are classified as directors, and the rest are mostly classified as authorized signatories (see Table 8.1). Two facts are responsible for the good promotion prospects. First, the levels in the hierarchy are not connected to the performance of any management duties, but rather to qualifications regarding the subject matter. This means that there is no pyramid with a specific distribution of positions between those managing and those carrying out instructions. Thus, a promotion to director is not dependent on ‘how many chiefs and how many Indians there are in the departments as a whole’ (as a senior legal officer of a bank put it), but rather on personal performance and qualification. But whether the pace of the professional advancement will remain the same is questionable. For the second reason for the favourable career prospects is to be seen in the enormous expansion of the banks. It is hardly surprising that a legal department, as in the case of bank A where twenty to twenty-five years ago only a third of the number of lawyers currently employed were needed, offers good opportunities to advancement, in light of such expansion. In future it will hardly be possible, however, to maintain this rate of increase, which is too high compared to the increase in the total number of employees, which has only doubled. For the individual lawyer, this may be connected to a lengthier sojourn on the lower levels of the hierarchy. Lawyers still move up the ladder, but not as quickly as they once did. At the same time, this means that the proportion of lower positions in the hierarchy will probably, in the long run, grow a bit, since the longer duration of the stay will naturally strengthen these levels in relation to the higher echelons. The overall high level will nevertheless be preserved. This is due to the fact that top lawyers, who are necessary

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because of the high professional requirements, can only be recruited when high salaries and a correspondingly high hierarchical position can be offered. Although the situation in the commercial departments is not so favourable, it is basically comparable. Because the banks themselves emphasize that the lawyers they employ should, because of their comparatively high age upon entry, make a relatively steady climb up the professional ladder, at least to the level of authorized signatory, the typical career of bank lawyers in the first five to ten years in a commercial department looks approximately like this: they begin as trainees or (less frequently) as normal office workers. In this phase, if they have also completed a student apprenticeship in a bank, they are classified in pay grade 8, otherwise in pay grade 7, but advance within the first two years to the highest pay grade, grade 9. After another two to three years they then normally slide over to the category of employees working under conditions negotiated individually where, after another six- or seven-year stint, a large number are then promoted to authorized signatory. This, however, is where the first real bottleneck occurs, and many never make it through. The level of authorized signatory remains then the position which is virtually attainable by all lawyers. Classification as a normal office worker covered by collective agreement is rarely a lasting fate. This position is, even in the branches, only a transit station for the climb to the position of authorized signatory or transfer to the headquarters. For lawyers, the promotion to the position of authorized signatory, which is the last level in the hierarchy below the ‘real executive’ level, is at present the normal case. Recently, however, changes similar to those in the legal departments are becoming discernible in the commercial departments. Most of all, the pace of the climb up the ladder has become slower, as it has in the legal departments. The lawyers employed there suspect that the banks, faced among other things with the drop in returns due to the stock market crash, have decided to follow the advice of business consultancy firms and reduced the number of promotions per year. Hence, one can assume that the general advancement prospects for lawyers in the commercial departments will remain what they have been, but that the speed with which the professional career takes its course will decrease. INTERNATIONALIZATION OF COMMERCE, CHANGING DEMANDS AND PROFESSIONAL RESPONSIBILITIES In parallel with changes in commerce the work of bank lawyers is changing too. As far as the legal departments are concerned, the scope and complexity of legal demands are increasing, while those functions not belonging to the legal area of responsibilities in the strict sense are being turned over to other departments, and the workload is increasing. The increase in legal questions is primarily connected with changes in business, in the form of stiffer competition and growing internationalization, and with changes in the legal situation, above all in the form of improved consumer protection. With regard to the altered economic framework of conditions and the corresponding business policy of the banks, the points which are important for lawyers depend first and foremost on three developments. First, the banks’ willingness to take risks and to be accommodating towards the potential customer has increased noticeably, whereas the reliability and solvency of German borrowers, but especially of foreign borrowers, has simultaneously dropped. Loans which used to be covered solidly by real estate leins and collateral assignments are now-adays often not covered nearly as well against eventual risks. This has two legal consequences: for one thing, the increased necessity to construe contractual arrangements of growing complexity in order to be able to conclude business at all; furthermore, legal action must increasingly be taken against defaulting or dilatory payers. Second, automation in normal financial transactions are accompanied by an increased need for legal arrangements

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between financial institutions, regardless of whether POS-accounts or payment transaction networks are concerned. Finally, the third development is to be seen in the growing internationalization of the business, which adds to the demands placed on the legal departments, in the sense that more emphasis must be placed on international law in general, but also that international law is becoming more complicated in the area of financing. Hence, not only is it necessary to have someone who is relatively familiar with Japanese law, in order, say, to negotiate with the Japanese Ministry of Finance on questions of admission, but also the international legal material has in general become more difficult. Thus, in the area of international bill and cheque transactions, several international institutions are romping about at the same time, each with its own proposals as to legal determination which are insufficiently co-ordinated. The debt crisis in the Third World continually leads, in the scope of constant debt rescheduling, to new contract problems. The rising number of financial innovations, especially on the international finance markets, create additional legal consultation requirements. The list could be extended indefinitely. The changed business situation and policy is increasing the demands on the legal department of the banks at every turn. With regard to changes, some of which have already occurred and some of which have yet to occur, concerning the tasks lawyers in the commercial departments will be confronted with, it can be said with confidence that, on the one hand, all those developments which presented the legal departments with a growth of the workload will also have an impact here too, albeit more or less weakened. On the other hand, one must recognize that the growth in demands of a commercial nature is clearly surpassing this process. The increase in, and increasing complexity of, commercial tasks is essentially the result of three interconnected developments. Competition in the finance markets has become stiffer, the internationalization of commerce is constantly increasing, and the effects of these processes of change are, primarily, a flood of innovations in financing techniques, increased pressure on the bank from the customers to extend loans, and greater effort on the part of the banks to offer their services to the customers. The last factor is especially significant in connection with the issuing of shares. The banks are constantly on the lookout for healthy businesses, especially with a middle-sized structure, whose size might allow them to be launched on the stock market. Skill in negotiation, for one thing, and solid knowledge of business management, for another, are what is needed here, if the customer is to receive sound advice and thus be convinced. Increasingly, much the same is true of credit transactions with corporate customers. The bank customers here, who are more and more frequently from the commercial middle class, want considerably more consultation than the bigger companies which often used to dominate this branch of activity. Here, as transactions become increasingly difficult and international, entrepreneurs are dependent, at least as far as special issues are concerned, on the advice of the bank. Hence, the authorized signatory or branch manager to whom they turn must have economic tools such as balance analysis, market forecasts, etc. available in order to be in a position to advise sensibly and thus reach a conclusion acceptable to both parties. Since the attitude of banks has generally changed to the effect that they no longer wait for customers, but rather acquire them actively, because they ‘sell, in money, a service just like any other’, this trend towards customer acquisition and consultation will continue in future. If anything, it will become even more complicated, since not only a substantial expansion of investment banking but also a considerable expansion of the range of services offered is being pursued as part of this aggressive strategy on the part of the banks. The increase in services offered, in the last ten to fifteen years, has led, especially in the international sphere, to really far-reaching changes. In this area, the increasing competition among the big finance institutions and markets has led to a vast number of innovations in financing techniques. Today there are no longer only two or three investment or loan forms, but a large number of different types. This expansion and the increased complexity of the offer has, from its starting point in the USA, spread everywhere. Every big

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bank has to follow suit when another bank creates a new product, regardless of whether it establishes itself or, like so many innovations, sinks into obscurity after a short while. The multitude of possibilities to be considered is thus constantly rising and, along with this, the requirements for commercial knowledge. This development is reinforced by the fact that many companies have their funds transferred, on ever shorter notice, from one bank to another in order to take maximum advantage of interest and currency differences. At short notice, available funds in amounts of hundreds of millions are being transferred within a few days from Berlin to Paris, from there to New York, and from New York to Singapore. This trend is also increasing constantly since, in the face of such terrific amounts of so-called wandering capital, the finance markets are just as much in movement as are world currency relations. In addition to the two important changes mentioned above, the third is the growing pressure from clients urging the banks to be accommodating even in risky transactions. This is the case with regard to the extension of loans directly, as well as with regard to project financing or export prefinancing. Here, too, additional commercial knowledge is required of the responsible employees. As far as the demands of the job are concerned, the lawyer is falling noticeably behind the business manager or banking businessman. As a result of the developments described here, that is true in those cases where the legal requirements connected with international finance transactions are also on the increase due to complicated contracts. For one thing, the greater number of legal issues are, to a considerable degree, assumed by the legal departments, and for another, the growth in this field is substantially less than in the commercial field, since especially in international commercial trade or in eurolending business, quite a lot is done according to practices which require less legal knowledge than experience in commercial banking. As a whole, the ‘explosive development’ of banking activities favours the businessman more than the lawyer. Lawyers therefore are losing ground in the commercial departments in all those places where their status as experts has little or nothing at all to do with specific legal qualifications, but rather is due to their acquired familiarity with the field of banking and to their competency compared to the business management experts and graduates of banking academies. In the commercial departments, lawyers are only able to achieve a significant degree of professional jurisdiction in those areas where, as in the syndicate business, a greater number of legal problems have to be faced. Otherwise, such jurisdiction is completely absent. The employment of a lawyer then depends primarily either on coincidence or on the personal commitment of the individual. There are no ‘ancestral estates’ here which might be defended by lawyers. As a rule, more positions will be lost than new ones gained. The declining competitiveness of lawyers in specialized commercial departments is also reflected in planning in the personnel departments. The share of lawyers among the trainees, which in the 1960s still reached around 40 per cent, has in the meantime dropped in all three large banks, parallel to the general shrinkage in the number of graduates, to the 20 per cent mark; sometimes slightly above, sometimes slightly below. In personnel departments there has been a reaction to the increased demand for business qualifications and the, at best, stagnating demand for legal qualifications. GRADUATES AND LAWYERS IN THE HIERARCHY As the different trends in the commercial and legal departments already suggest, lawyers are, on the whole, losing ground in relation to other graduates, but they seem to be able to maintain their high hierarchical status none the less. Graduates have traditionally held a high hierarchical position in the field of banking. At the end of the 1960s, as 2.7 per cent of bank employees held a degree from an institution of higher education, only a total of 15 per cent of them were classified as salaried office workers covered by collective agreements. The rest

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consisted of office workers with individually negotiated salaries, authorized signatories and directors (see Table 8.2). According to the usual categorization, in the top management level, middle management and lower management level, at that time 39 per cent belonged to the upper categories, 46 per cent were located in the lower management levels, and 15 per cent were not included in this hierarchy at all. When these figures are then compared with the current and essentially representative figures supplied by Bank A, quite considerable changes are discernible, even at first glance (compare Table 8.3). Table 8.2 Hierarchical positions of graduates (excluding trainees) in banking Position

Percentage at 31.12.1968

Owner, member of board of directors, fully authorized representative Directors Assistant directors Department directors Authorized signatories Oberbeamte (senior clerks) Office workers covered by collective agreement Total Source: Survey of the private banking employers’ association

9 16 5 9 15 31 15 100

Table 8.3 Management structure in Bank A (percentage of total number of employees, 1987) Members of the board of directors (number) 12 Directors of headquarters and main branches 0.32 Assistant directors of headquarters and main branches 0.46 Highest executive level (Graduates 54%=0.42%) 0.78 Directors of smaller branches 0.53 Department directors of headquarters and main branches 1.09 Assistant directors and department directors of smaller branches 0.42 Middle management (Graduates 37%=0.75%) 2.04 Authorized signatories 3.77 Oberbeamte (senior clerks) 6.40 Other office workers with individually negotiated salaries (not covered by 0.57 collective agreement) Lower management level (Graduates 21%=2.26%) 10.74 (incl. partic. qualified experts) Total executive positions: 13.56%, thereof graduates: 3.42% Positions covered by collective agreement: 86.44%, thereof graduates: 1.92%.

The percentage of graduates who are placed in positions covered by collective agreements has risen from 15 per cent to 36 per cent, more than twice the previous figure. The percentage of lower management has decreased slightly, falling from 45 per cent to 42 per cent. The relative weight of both upper management levels has, in contrast, dropped substantially. Whereas in 1968 they accounted for 39 per cent, today it is only 22 per cent, a little more than half what it was. The average hierarchical position occupied by graduates in banks has thus dropped quite considerably. In the meantime, more than a third of graduates of an institution of higher education is only employed in a

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position covered by collective agreements. The expansion of employment of graduates in banks has led to a considerable erosion and the partial collapse of the former elite position, although the share of executive positions which graduates hold is still rising. The decisive fact is that the percentage of graduates as a whole is rising faster than their share of executive positions, as the developments in Bank A clearly indicate (see Table 8.4). As these figures clearly verify, the growth of graduates’ share on all executive levels remains more or less markedly behind the growth of the total proportion of graduates. Whereas the increase between 1976 and 1986 amounts to 53 per cent, at the levels beginning with employees with individually negotiated salaries it proves to be considerably lower, with 24 per cent (employees with individually negotiated salaries), 6 per cent (directors), and 38 per cent (upper executives). Two circumstances here seem to be especially remarkable. For one thing, the step up to the directing positions, the real executive positions in the middle-management area, proves to be a bottleneck which, first of all, eight out of ten graduates are never able to make, and where, secondly, the percentage of graduates has remained almost unchanged this decade. Thus, with the exception of the highest executive level, where stagnation is, however, also to be noted, graduates have not been able to expand quantitatively their share of the real executive positions. When these figures are compared with the frantic growth in the total number of graduates (in 1988 it was already 5 per cent), it shows a considerable drop in the hierarchical level. Table 8.4 Percentage of graduates in Bank A Total personnel Employees with individ. negotiated salaries Directors Upper executives

1976

1979

1985

1986

3.0 17.0

3.3 18.0

4.2 21.0

4.6 21.0

35.0 39.0

37.0 47.0

38.0 55.0

37.0 54.0

This is because the development is clearly taking a course which is increasingly disadvantageous for the graduate—and that is the second noteworthy point. Not only is stagnation or even slight decline registered on all executive levels in the recent past but even the increase in the percentage of graduates which took place before 1980 (from about 2.5 per cent at the end of the 1960s to 3.3 per cent in 1979) has not resulted in a noticeable increase in the proportion of graduates on the executive levels. There is thus no occasion to hope that the strongly rising percentage of graduates will, in a delayed reaction, be reflected in the higher echelons. The sharp increase in the importance of the areas covered by collective agreement systems does not mean, for the graduate, a mere way-station which has to be traversed at the beginning, but rather that the levels covered by collective agreements are becoming a permanent location for a continually increasing number. The average graduate of a higher education institution may very well be just able to penetrate the basic levels, surpassing those covered by collective agreement and even the level encompassing signing authority may well become increasingly unattainable for the majority. Instead of only every seventh graduate, as was the case twenty years ago, in the foreseeable future almost every second will be employed in an area covered by a collective agreement. In the light of the development described above, the question is the degree to which it affects lawyers. Thus far, the analysis seems to contradict the assumption that lawyers are also declining substantially with regard to their hierarchical classification. A closer look at the quantitative proportions confirms the bottom

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line of this assumption. For instance, in the banks (not including trainees) around 50 per cent of lawyers hold the position of director, the scale in the branches being about the same as in the headquarters (see Table 8.1). A further 30 per cent to 40 per cent are classified as authorized signatories or employees with individually negotiated salaries, the majority belonging to the former category. On the other hand, only a mere 20 per cent are in positions within the standard pay scale. For the most part, lawyers have been able to maintain their elite status. They have been more successful in doing so, the higher up the hierarchical scale they are. Thus, in banks every second board member is a lawyer, i.e. as many as in 1969, and a large number of the division managers, for example around 40 per cent in Bank B. Compared with other graduates, lawyers have even extended their role as an elite. Whereas today only every sixth graduate holds a position as director, this is true of every second lawyer. Lawyers are to be found in high concentrations on the highest hierarchical levels. They account for more than 10 per cent of branch directors, and are also in strong numbers in the commercial departments. Like the credit department at headquarters or syndicate business, those departments are characterized by clearly above average numbers of graduates and unusually high hierarchical classification. And finally, they constitute the legal department which has the highest hierarchical level of all, with over 50 per cent of directors and around 30 per cent of authorized signatories. And yet, despite these impressive figures, very important and in part decisive changes have occurred since the 1960s. The most significant change is the clear overall loss of influence which accompanied the preservation of the high hierarchical status. The loss of influence is unmistakably indicated by the fact that lawyers, although 50 per cent of them still hold the position of director, account for scarcely 16 per cent of all bank directors, whereas in the 1960s, with just about 30 per cent, their share was almost twice as high. That is a very substantial decrease. It reflects the fact that, although lawyers have been able to maintain their hierarchical level as well as their 1 per cent share of the total number of bank employees, they have not participated proportionally in the strong expansion of leading positions and the enormous increase in the employment of graduates. They have only participated in this expansion in the upper hierarchical levels— instead of less than 2 per cent, as in the 1960s, in the meantime almost 3 per cent of all bank employees are classified as directors: the extent of the general increase in the number of employees. The increased rate at the level of directors which reaches, in relation to the total number of employees, about 50 per cent, has practically passed them by completely. The additional positions have been occupied almost totally by other graduate professionals and banking businessmen trained within the bank or at banking academies. Here, the latter are becoming increasingly important, since the banks are adhering to the maxim of personnel policy, that at least 50 per cent of all executive positions are to be reserved for qualified ‘home-grown’, as the banking businessmen whom they educate are called. In this manner, a professional career prospect is kept open for the best-qualified applicants from this spectrum. This serves, on the one hand, to prevent the talent and knowledge available here from lying fallow, from the enterprise’s point of view. Furthermore, an incentive is thereby provided for particular efforts and performance, thus setting certain limits to the professional frustration of especially qualified personnel with practical experience rather than an academic title. The relative loss at the director level represents, however, only one of two aspects of the loss of influence on the part of lawyers. The other consists of the undermining of the general special status of graduates, caused by the rapid increase in the numbers of graduates (and of those employed in banks). For, although lawyers have thus far been able to a large extent to maintain their elitist position and even expand it in comparison to other groups of graduate professionals, they are also feeling the negative influence of the increase in graduates. It is simply becoming much more usual to possess a degree—it has lost the aura of the extraordinary. This has meant the end of the claim that a graduate has to be, at the very least, placed in a

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position with an individually negotiated salary, i.e. not covered by collective agreements. He doesn’t have to be placed there. It is only a possibility. It seems very doubtful that lawyers in general will in the long run be able to escape this change in the attitude towards them. CONCLUSION The facts and developments in the field of banking described add up to the following picture. Lawyers have not only been able to maintain their high hierarchical status in the legal departments, but also in other banking departments. Although the legal departments are still exceptional to the extent that the percentage of lawyers in positions covered by collective agreement is clearly below the average, which is low in any case, and in contrast with other departments authorized signatories are already considered executives, these are merely slight differences. Banking lawyers, of whom 50 per cent are classified as directors, are in general present at the upper executive levels in numbers far exceeding their proportion; this is increasingly so, the higher up in the hierarchy one goes. Despite the defence of their elitist status, however, lawyers have lost influence. They have not, in contrast to other groups of graduates, surpassed their traditional share of the total number of employees. In the commercial departments they have lost ground and professional jurisdiction compared to the business management experts, particularly because of the changes on the international finance markets. They thus represent a continually diminishing share of the graduates in the field of banking and are accordingly losing their monopolistic claims. Furthermore, they have not participated in the above-average growth in management positions, so that while their overall classification remains high, their influence has on the whole also decreased noticeably here as well. In spite of the losses with regard to their position, banking lawyers have nevertheless been successful in accomplishing what has been out of reach for other lawyers in the economy. They have been able to maintain their status as an elite and their considerable influence to a large extent. Neither the lawyers in industrial enterprises nor those in insurance companies have been successful in this regard. Although lawyers in industrial enterprises have been relatively successful with regard to their hierarchical position, in so far as they have been able to hold on to a status level comparable particularly to the legal departments in the banks, they have nevertheless lost considerable ground as far as their influence is concerned, since they have been for the most part forced to surrender the reins of power. Lawyers in insurance companies have had an even worse time. Even though, in the big companies, they still occupy many positions on boards of directors, they are nevertheless only present in relatively modest numbers on the executive levels immediately below that, and 80 per cent of their work consists of qualified office work not involving any management responsibilities or any expert status (Hartmann 1990). Lawyers in the economy have thus, as a whole, not only suffered decisive losses in power and influence, despite the still exceptional position of banking lawyers, but have in contrast to the past, been subjected as a professional group to a powerful internal division. There now exist two fractions which are as yet of approximately the same size; one consists of the greater percentage of lawyers in banking and business, whereas the other is made up of the mass of insurance lawyers as well as smaller numbers from the two other groups. The rift between the two is pronouncedly deep with regard to income, status and power. Professional elite and normal office workers—those are the names of the two groups. Hence, principally the same fate confronting German graduates as a whole awaits lawyers in the economy who represent a core group among lawyers. Shared qualities and conditions have eroded and are crumbling away even further. A constantly growing number are sinking down to the level of normal, even though qualified, office workers.

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A shrinking number remain more or less closely connected to the dominant classes in society, itself exercizing power and influence. NOTE 1 The following remarks are based on an empirical study of three leading big banks in Germany.

REFERENCES Abel, R.L. (1985) ‘Comparative sociology of legal professions: an exploratory essay’, American Bar Foundation Research Journal, 1. Abel, R.L. (1986) ‘The transformation of the American legal profession’, Law and Society Review, 20. Abel, R.L. (1988) The Legal Profession in England and Wales, Oxford: Basil Blackwell. Abel, R.L. and P.Lewis (eds) (1988) Lawyers in Society: A Comparative Perspective, vol. I: The Common Law World; vol. II: The Civil Law World; vol. III: Comparative Theories, Berkeley and Los Angeles, Cal., and London: University of California Press. Curran, B.A. (1986) ‘American lawyers in the 1980s: a profession in transition’, Law and Society Review 20:19. Dezalay, Y. (1990) ‘Big Bang’ sur le marché du droit. Le restructuration du champ des professionels des affaires, Vaucresson: Centre de Recherche Interdisciplinaire de Vaucresson. Halliday, T.C. (1986) ‘Six score years and ten: demographic transitions in the American legal profession, 1850–1980’, Law and Society Review, 20:53. Halliday, T.C. (1987) Beyond Monopoly, Chicago, 111.: University of Chicago Press. Hartmann, M. (1988) ‘Juristen in der Versicherung’, Kölner Zeitschrift für Soziologie und Sozialpsychologie 40:706. Hartmann, M. (1989) ‘Zwischen Stabilität und Abstieg—Juristen als akademische Elite in der Wirtschaft’, Soziale Welt, 40:437. Hartmann, M. (1990) Juristen in der Wirtschaft—Eine Elite im Wandel, Munich: C.H.Beck. Heinz, J.P. and E.O.Laumann (1982) Chicago Lawyers, New York and Chicago: Russel Sage. Powell, M.J. (1985) ‘Developments in the regulation of lawyers: competing segments and market client and government controls’, Social Forces 64:281. Rothmann, R.A. (1984) ‘Deprofessionalization: the case of law in America’, Work and Occupations, 11:131. Spangler, E. (1986) Laywers for Hire, New Haven, Conn., and London: Yale University Press.

Chapter 9 Who colonized whom? Historical Reflections on the Intersection between Law, Lawyers and Accountants in England David Sugarman

INTRODUCTION This chapter is concerned with the interface between lawyers, law and accountancy in England in the period from 1850 to 1950. In particular, it attempts to explain why the legal profession (principally, solicitors) seemingly yielded up to their great rivals, the accountancy profession, much work which they had hitherto undertaken and also much new work which they might reasonably have hoped to capture. Although the issues raised by the interface between law, lawyers and accountants are of great contemporary as well as historical interest they have received surprisingly little attention. Recent advances in the sociology of the professions have rightly stressed the importance of studying the professions comparatively, as a network of intricate relations, continually doing battle to defend and extend their respective jurisdictions (Abbott 1988). My goal in this paper is to begin to map out how this body of work might be complemented and recast so that it is more sensitive to the cultural and political dimensions of professional interaction and its larger economic, cultural and political significance. Thus, I have tried to avoid portraying the jurisdictional battles between law and accountancy in zero-sum terms: of clear-cut winners and losers, and with overdrawn differences between lawyers and accountants (while recognizing their undoubted distinctions). An examination of the intersections between lawyers and accountants requires a sensitivity to their mutual interdependence and co-operation as well as their on-going conflicts. In particular, my ultimate concern is to transcend the confines of traditional institutional accounts of the rise and fall of professions, and instead build a bridgehead between the new history and sociology of the professions and the new history and sociology of culture. In short, the goal of this chapter is to use the jurisdiction battles between solicitors and accountants as a case study for illuminating and refining our sense of the cultural and political significance of lawyers and accountants as distinct but interdependent interpretative communities. This, in turn, requires a greater sensitivity to the cultural, political, linguistic and visual components of professional struggles, to the battles between and within professions over ideas, ideologies, alternative conceptions of society, and the construction of social and professional identities and of the multiple ways in which they help to constitute each other as well as the state and civil society. COUPLING, CONFLICT AND THE CONSTRUCTION OF ‘FOLK DEVILS’ It would be easy, and to some extent accurate, to describe the history of the intersection between law, solicitors and accountancy during the last 250 years in terms of the rise of the accountancy profession and the corresponding decline of the solicitors’ profession. According to this story, the solicitors of the eighteenth and much of the nineteenth centuries had ensconced themselves as the principal advisers to the

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middle classes in their personal affairs. However, by the 1950s it was accountants rather than solicitors who occupied this paramount position. The basic elements of this metamorphosis are as follows. Until the late eighteenth century accountancy was a skill rather than an occupation as such. Accounting had long been regarded as an integral part of business and the competent merchant and artisan was expected to keep accounts. When persons who called themselves accountants appeared in the late eighteenth century they were often general agents who undertook bookkeeping among their many other tasks. Accountancy and law frequently went hand-in-hand. Solicitors were often entrusted with the keeping of accounts. Indeed, they were frequently employed as land agents, managing landed estates, the principal and most valuable form of wealth in eighteenth- and nineteenth-century England (Mingay 1990:127). As a leading business historian put it, ‘Inside the eighteenth-century attorney [solicitor], half a dozen later professional men— accountant, company secretary, and others—were struggling to get out’ (Reeder 1966:43). The 1830s and 1840s provided the crucial opportunities for a significant increase in the accountancy profession. The creation of large public utilities, notably the railways, the rise of the limited liability company and the high levels of insolvency that accompanied these developments forced the state to enact legislation requiring and policing the preparation of accounts. The Bankruptcy Act of 1831 enabled creditors to appoint ‘official assignees’ to liquidate the estates of bankrupts on their behalf. The Act prescribed that those eligible for these posts were accountants, merchants and brokers. Perhaps it was felt that these people would have the necessary business competence to persuade creditors to entrust them with the job of recovering their monies and possibly to run a business as a going concern. Perhaps, too, the anticipated remuneration was thought insufficient to attract established solicitors (Napier and Noke 1992:34). Whatever the reasons, lawyers were not expressly included. Further legislation, such as the Relief of Insolvent Debtors Act 1842 and the Bankruptcy Law Consolidation Act 1849 contained stipulations which further encouraged the use of accountants to ensure the accuracy of accounts. And legislation, first beginning with the regulation of railway companies (the Railway Companies Clauses Consolidation Act 1845, s.108), made provision for the appointment of auditors who could be and usually were accountants paid for at the expense of the company, a regime which was extended to joint stock companies in 1856. In short, by the late nineteenth century bankruptcy, insolvency and auditing constituted major fields of work for accountants. The accountants of this period were, however, often of doubtful reputation and limited professional competence. In a celebrated case in 1875, Mr Justice Quain said: ‘The whole affairs in bankruptcy have been handed over to an ignorant set of men called accountants, which is one of the greatest abuses ever introduced into the law’ (cited in Woolf 1912:177). The development of professional associations and the entrance and qualifying examinations that accompanied them gradually began to address the issue of accountants’ competence. Moreover, after the First World War a new and lucrative market developed in taxation and estate planning, and from at least the 1950s accountants became increasingly involved in management services. In these ways, accountants joined with and in some cases supplanted solicitors as the principal counsellors to the middle classes. Most historical summaries of the rise of the accountancy profession stop at this point. Yet this is to overlook certain important features of the interconnections between law, accountancy and solicitors. First, there is a definitional problem. The boundaries that today we take more or less for granted distinguishing the province of the solicitor from other agents and advisers was not clear in the minds of many contemporaries until as recently as the 1950s (and even today it is still a matter of controversy). Unqualified people continued to advertise their legal advice services until the late nineteenth century, while what today we would call estate agents, debt collectors, auctioneers, general agents, law stationers, barristers, arbitrators, accountants and a host of public officials competed with each other as well as with solicitors over certain fields of work. In their own minds and in the minds of many members of the public these

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vocations were in certain respects and specific situations blurred and interchangeable. Areas such as debt collection and the enforcement of debts in the courts was the sort of bread-and-butter work which was characterized both by intense competition and by mutual co-operation between several rival constituencies including solicitors and accountants. Despite the growth of accountancy, solicitors continued to undertake accounts and bookkeeping. Second, this blurring of roles is compounded because the relevant professions were far from like-minded monoliths. The professions of the accountant and the solicitor were riven with regional and social divisions, in terms of the work undertaken and professional affiliation (or lack thereof). Accountancy spawned many competing professional bodies which seemed unable to agree about many key issues concerning professional boundaries. With respect to solicitors, while there were fewer professional associations, the Law Society’s pre-eminence is a recent phenomenon: as late as 1870 only a quarter of the profession were members. The proportion rose to a third in the 1880s and to a half by the turn of the century (Abel 1988). London rather than country firms dominated the membership and the governance of the Society, which was a source of much intra-professional conflict. In these circumstances, understanding the territorial boundaries as contemporaries perceived them is more complex than most institutional accounts acknowledge. The popular professional literature for both solicitors and accountants reveals cycles of complaints and recriminations concerning the one invading the territory of the other. While these were particularly intense in the period 1855–80, they are a recurrent feature of their relationship. As regards solicitors, most of the criticism seems to come from non-elite firms, often provincial rather than London-based. The Law Society countered by proposing an expansion of the solicitors’ monopoly to embrace ‘the drafting of “instruments” for or in the expectation of fee, gain, or reward’ (Abel-Smith and Stevens 1967:59). But Parliament threw out the clause prepared by the Law Society. This seems to have had a chastening effect on the management of the Society, although not on its grass-roots members, who continued from time to time to press for legislation to curb accountants. When the Law Society could not silence its competitors with legislation, other tactics were utilized. Under legislation first enacted in 1729, anyone other than a solicitor was prohibited from undertaking legal advice or the drafting of legal documents for financial reward. The Society ensured that penalties for breach of these provisions were increased in 1860 and 1874. In a calculated attempt to secure maximum publicity, the Society regularly prosecuted offenders under this legislation. The average number of prosecutions was about ten per year; however, several of these were unsuccessful, and generally this activity represented but a small part of the work of the Professional Purposes Committee of the Law Society. For some solicitors ‘the accountant’ became a ‘folk devil’, the generic term for the outsider invading the profession, the ‘other’ against whom they must combine. It was this potent symbol and the anxieties that it represented that the Law Society was trying to address and appease in its limited prosecutions—especially given the profession’s tendency to blame its ills on almost anyone but itself. Yet people are notoriously contradictory and inconsistent. Alongside the bouts of belligerence towards accountants the Law Society (in collaboration with its accountancy counterparts) also successfully established market divisions between the two professions. More generally one is struck by their mutual dependency and their close collaboration. Solicitors and accountants channelled business to each other. In crucial respects, especially in the early days of the accountancy profession, accountants were dependent for business on the paid assistance of solicitors. For example, solicitors would oblige accountants to pay what were claimed to be exorbitant commissions for the introduction of business, and would dispose of certain business to accountants for a high consideration. It was also alleged that some solicitors would swear affidavits concerning the fitness of accountants to act as receivers in situations where these gentlemen had clearly ‘left their consciences in safety and solitude at home’ (Worthington 1895:74). Moreover,

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accountants lived in the shadows of the law. The law (and therefore the lawyers) provided the regulatory context within which they worked, some of the core categories, assumptions and languages of their professional lives. WHY SOLICITORS SEEMINGLY LOST OUT TO ACCOUNTANTS: AN ASCENDENCY OF ACCOUNTANTS AND SLIDING OF SOLICITORS? Despite these qualifications, it is clear that accountants have increasingly dominated jurisdictions which in the United States are the province of the lawyer. How might we explain this contrast? In the space available, this large, complex and fascinating question will receive a rather summary treatment. First, there was little incentive for solicitors to defend some of their long-standing markets and develop new ones, given their lucrative monopoly in conveyancing (the art and science of validly creating, transferring and extinguishing rights in land by written deeds). This monopoly, when allied to the strong political influence wielded by the Law Society, the major professional association for solicitors, may have encouraged a certain complacency within the profession. The sale, purchase and management of land gave rise to numerous legal problems and entrenched the ‘better’ solicitor as a key figure in the local community. For most solicitors, conveyancing generated the lion’s share of their income. It afforded them much inside information, local influence and, in the case of those solicitors who worked for landed gentry, a vicarious respectability and status higher than that of the doctor. The dynastic ambitions of the landed gentry were executed by their trusted solicitors, while these same solicitors sought to retain the business of the same family over several generations. Of course, not all solicitors had clients who were landed gentry and they had to make do with debt collection and such. None the less, some of the core notions that defined what it was to be a solicitor derived from the culture of the landed aristocracy, in part because this also defined what it was to be a barrister. Second, the education of solicitors and the structure of qualifying as a solicitor were probably ill-suited to adapting to rapid change in legal services and the need to increase output generated by the rise of the corporate economy and the regulatory state. Until the 1960s the vast majority of solicitors learnt their law not at university but in practice: that is, from private coaches and the profession’s own narrowly based educational system exclusively geared to passing the profession’s entry examinations. This differs markedly from both continental Europe and the United States where postgraduate university legal education became the major route into the profession by the first decade of this century. The narrow confines of legal education were reinforced by the structure and culture of the English law firm. For example, ‘the necessity of articled clerkship under a certificated solicitor tied the profession’s future size directly to its present one’ (Abbott 1988:251–2). The structure of training and organization inhibited a more flexible and adventurous response to changes in the demand for legal services, as did the poor training and pay that were a feature of much professional training in the law. This contrasts starkly with the so-called Cravath system of recruitment, training and work organization which became the norm in major American law firms by the 1920s (Abbott 1988:252). The third point is that even solicitors sometimes acknowledged that they themselves were at least partly responsible for their failure to develop lucrative fields of work that came to be largely dominated by accountants. Some solicitors attributed the ascendency of accountants in bankruptcy and liquidation proceedings to the profession’s apathy. Typical were the following observations published in the Law Times in January 1874. Under the heading, ‘Our Invaders—Bankruptcy Accountants’, one J.Seymour Salaman opined that before the Act of 1869 bankruptcy work was in very few hands:

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In London it was mostly in two or three offices, who also acted as agents for other solicitors, too important or too lazy to acquire the practice…. The remedy, if the Profession desire it, is in its own hands, let them co-operate in an effectual manner, throw off that apathy where their own interests are concerned, which distinguishes them above all professions. (Salaman 1874) Salaman went on to invite like-minded readers to join the newly formed Legal Practitioners’ Society, whose first meeting he chaired in January 1874. The meeting, specifically called to consider whether legislation was required to arrest ‘the encroachments of the Profession by unqualified persons’, recommended that further legislation be initiated without delay (Legal Practitioners’ Society 1874). Fourth, some solicitors even conceded what accountants had long asserted, namely, ‘that solicitors are notoriously bad book-keepers’ (Holmes 1874). For some lawyers, their ignorance of accountancy was a badge worn almost with pride. Thus Lord Chancellor Halsbury remarked that accounts were ‘the one subject on which lawyers are supposed to know nothing’ (Lord Halsbury, quoted in Napier and Nokes 1992:31). For some solicitors the remedy lay in their hands: that they should make it their business. Yet here too the Law Society’s efforts seem in retrospect to have been half-hearted. Having introduced an examination in accounts and bookkeeping, the Law Society withdrew the requirement in 1876, and only after a thirty-year lapse was it reinstated into the solicitors’ Intermediate Examination. Accountants mocked the low standard of the exams. As the Accountant wryly observed: [The] Committee have not erred upon the side of expecting too much from law students… [It] is difficult to see how any student possessed of the requisite amount of knowledge could fail to very completely answer the questions set in somewhat less than half the allotted time. Accountant 1906 And when it came to the books set by the Law Society for the purposes of the examination on Accounts and Bookkeeping, one encounters an air of disbelief not only from members of the accountancy profession. Like many provincial universities with law departments, Leeds University offered courses for the solicitors’ examinations. In 1911, at the unanimous insistence of the law staff concerned, the University wrote to the Council of the Law Society to inform them that the system of keeping accounts adopted in one of its prescribed texts on trust accounts for the Accounts examination was inadequate for all but small trusts, and antiquated when compared with the double-entry system adopted by the accountancy profession. In effect, the University was asking the Law Society to adopt and ratify the practices of the accountancy profession. The Law Society would have none of this. They said that the book concerned adopted the system prescribed by the Court for accounts ordered by the Chancery Division of the High Court and that in their opinion this system should be extended to all trust accounts even though it was contrary to contemporary accounting practice. The Accountant, which modestly described itself as ‘the recognised weekly organ of chartered accountants throughout the world’, could barely conceal its delight. It used the opportunity to reiterate the view expressed four years earlier in its critical view of the book concerned: ‘[That] lawyers as a body have little knowledge of, and little sympathy with…[the] modern requirements…[of business]’. By this was meant that the Law Society was seeking to perpetuate a system which was ‘as unintelligible to the ordinary business man as it is to the most ignorant person’. This unusually strong language, exceptional when discussing lawyers, is partly attributable to the fact that the Accountant resented that the whole episode had been carried on without reference to the expertise and assistance of the Council of the

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Chartered Accountants. For this organ at least it was the Council of the Institute of Chartered Accountants, and not its counterpart at the Law Society, that should have the final say (Accountant 1911). What was true of accounts and bookkeeping also applied in relation to taxation, tax avoidance and estate planning, company law, negotiable instruments, and other new areas of work that arose in the second half of the nineteenth century. Thus, in a series of papers to the Annual Provincial Meeting of the Law Society in the 1920s, a future government minister lamented that most solicitors were not adequately equipped with a knowledge of taxation and company law; and that valuable work was increasingly being monopolized by accountants (Burgin 1924, 1929). He pointed to the increasingly significant role played by the auditor as a general counsellor to business, and called for solicitors to play a more active role in business management so as to meet this challenge (Burgin, 1929). It was only in 1938 that commercial law, company law and taxation were added to the solicitors’ final examinations. While specialists and some of the larger city firms did work closely with business in these areas (Slinn 1987; Dennett 1989) many solicitors left company and tax work to accountants. Fifth, solicitors were subject to duties and taxes which did not apply to accountants (Law Times, 1853). Certainly it was frequently claimed that accountants were generally cheaper than solicitors, and this was manifested by the increasing flight by business from litigation to arbitration from the 1880s, if not earlier. Finally, solicitors’ commitment to the culture of the gentleman, in particular their use of the barrister as role model, encouraged both an ignorance of and a certain suspicion of ‘business’ within some of the discourses of the profession. Thus it might be regarded as ungentlemanly to be seen to be too closely involved in the management of business. In other words, solicitors were judged by the work and social standing of their clients. Professional culture mirrored and sustained this facet of Victorian ‘Englishness’, one which it has been claimed was hostile to industrialization and economic growth (Wiener 1981; Sugarman 1987). However, Englishness took many and varied forms. The converse of the gentleman was the image of the accountant as the hungry street-fighter, closer to the coal-face, who could and would be able to run a business. Accountants had access to and knowledge of the financial affairs of their clients, tending them on a regular basis. Thus when it came to advising on the conversion of a business from an unincorporated association to a limited company it was the accountant’s advice that was most frequently sought. THE POWER OF THE LAW It would be misleading, however, to conclude this chapter with the usual celebration of the victory of accountancy over law. This would be to underestimate the continuing force of the law, as a crucial environment, role model, language, intellectual influence and culture ‘civilizing’ (to use Elias’s notion; 1978, 1982) accountancy and perpetuating the necessary dependency of accountancy on law, lawyers and the culture of the law. First, the legal system and lawyers continue to play a crucial role in constituting the field of accountancy, its work, boundaries and many of its core categories (Miller and Power 1992). Self-regulation and the delegation of authority to the profession is ultimately sustained by the legal order. As accountancy has colonized ‘legal’ fields, so law has colonized the ‘life world’ of accountancy. Ideas and experiences are constituted by language, words and non-verbal representations, external to those ideas and experiences. The power of the law stems in part from its ability to do things with words (Bourdieu 1987) and to operate as a meta-language and the language of the state. The language of the law is central to accountancy and the formation of professional subjectivities.

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Second, intellectually and culturally, law, especially the solicitors’ profession and its governing body the Law Society, have had and continue to have a signal influence on accountancy. For example, the character and form of professional organization, the invention of ceremonial forms, the iconography of the headquarters (the ‘halls’) of its professional associations, the homosocial character of its culture of dining, drinking and speech-making (cf. Goodrich 1992), the nature and form of accountancy textbooks and professional periodicals, the nature and form of the profession’s examinations (Napier and Noke 1992) are just some of the areas which testify to the significant influence of the solicitors’ profession on accountancy. Important here was the shift, pioneered by the Law Society, from a coffee house to a professional pressure group attempting to construct a’professional’ body in a public sphere (Habermas 1989) that was itself rapidly changing (Sugarman 1995). Third, related to this is the significance of the languages of awe and deference with respect to law and lawyers within the everyday life and experience of accountants. This in part derives from the general power of law and legal ideology in England, whereby law and lawyers are perceived as the guardians of state and society. Thus to criticize or contradict the law and the judgements of the legal community came close to impugning the authority of the law, the Rule of Law, and therefore the very basis of English society. More specifically, accountancy developed out of and long after the establishment of the solicitors’ profession, and was the model which it eagerly embraced. To this must be added the arrogance and condescension of the legal community with respect to accountancy and accountants. We have already encountered some of the many instances where solicitors and the law confidently established practices of accountancy which contradicted the practices and understandings of business and the accountancy profession. One might also point to those speeches by legal notables at accountancy dinners and published in the professional press in which accountants are told to know their place. Like children, accountants should be seen but not heard. A comparison between the discursive practices of the popular professional press in law and in accountancy is revealing. In their treatment of law and lawyers, the dominant language of accountancy periodicals is that of deference and courtesy, occasionally coupled with irony and anger. In contrast, the popular legal press tends to speak of accountants and accountancy in language that is often disdainful and patronizing. Finally, hand-in-hand with the patronizing discourses and culture of the law is its coercive might everthreatening legislation here and prosecutions there to keep accountants in line. Nowhere is this more evident than in the Law Society’s success in thwarting the registration of accountants. It is evident that major legislative changes with respect to accountancy were often mediated by and required the active assistance of the Law Society. Hence the close and symbiotic relationship that developed between the Law Society and the major professional bodies in accountancy. This was cemented by their common ideological inclinations, their commitments to laissez faire and individualism and their mutual hostility to the state, their common enemy. CONCLUSION In this chapter I have tried to tell the story of the supposed ascendancy of accountancy over law in a way that begins to address the cultural features of their relationship and their larger cultural and political significance, and thereby supplement those accounts which focus exclusively on jurisdictional conflict. One might conclude that the fates of accountancy and law are so intrinsically bound together that accountancy cannot cut loose the lawyers without cutting off its own head.

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Yet the discourses of the law were not the only discourses central to the emergence of accountancy and the professional subjectivities of accountants. There are invariably conflicts among and within discursive systems, and multiple possible meanings for the concepts that they deploy. Like all individuals, professionals inhabit multiple worlds characterized by multiple discourses which offer counter-images and quite distinct identities. The challenge for those investigating the interface between law, lawyers and accountancy is to explore the ways in which competing discourses collided and were contested. To assert the power of the language and the culture of the law over accountancy is not the same as specifying the meanings that were attributed to such dominance at specific times and places by professional communities. REFERENCES Abbott, A. (1988) The Systems of Professions, Chicago, 111.: University of Chicago Press. Abel, R. (1988) The Legal Profession in England and Wales, Oxford: Basil Blackwell. Abel-Smith, B. and Stevens, R. (1967) Lawyers and the Courts, London: Heinemann. Accountant, The (1906) ‘Solicitors and bookkeeping’, The Accountant, 3 February: 129–31. Accountant, The (1911) ‘The Law Society and trust accounts’, The Accountant, 29 July: 133–6. Bourdieu, P. (1987) ‘The force of law’, Hastings Law Journal, 38:814. Burgin, E.L. (1924) ‘The problem of double taxation’, The Law Society, Annual Provincial Meeting, 1–10. Burgin, E.L. (1929), ‘The solicitors’ profession and the new Companies Act 1929’, The Law Society, Annual Provincial Meeting, 1–11. Dennett, L. (1989) Slaughter and May, Cambridge: Granta. Elias, N. (1978) The Civilizing Process, vol. I, Oxford: Basil Blackwell. Elias, N. (1982) The Civilizing Process, vol. II, Oxford: Basil Blackwell. Goodrich, P. (1992) ‘Eating law’, Journal of Legal History, 12:246–67. Habermas, J. (1989) The Structural Transformation of the Public Sphere, Cambridge: Polity Press. Holmes, R. (1874) ‘Our invaders’, The Law Times. 2 May: 14–15. Law Times (1853) ‘Accountants and attorneys’, 1 January: 149. Legal Practitioners’ Society (1874) Law Times, 24 January: 240. Miller, P. and Power, M. (1992) ‘Accounting, law and economic calculation’, in M. Bromwich and A.Hopwood (eds), Accounting and the Law, Hemel Hempstead, Herts.: Prentice-Hall. Mingay, G.E. (1990) Rural Life in Victorian England, Stroud: Alan Sutton. Napier, C. and Noke, C. (1992) ‘Accounting and law: an historical overview of an uneasy field’, in M.Bromwich and A.Hopwood (eds), Accounting and the Law, Hemel Hempstead, Herts.: Prentice-Hall. Reeder, W.J. (1966) Professional Men, London: Methuen. Salaman, J.S. (1874) ‘Our invaders and bankruptcy accountants’, The Law Times, 24 January: 24. Slinn, J. (1987) Linklaters and Paines, London: Longman. Sugarman, D. (1987) In the Spirit of Weber: Law, Modernity and ‘The Peculiarities of the English’, University of Wisconsin Institute of Legal Studies Working Paper 2:9. Sugarman, D. (1995) ‘“The best organised and most intelligent trade union in the country”: the private and public life of The Law Society, 1825–1914’, in E. Skordaki (ed.), Social Change and the Solicitors’ Profession, London: Oxford University Press. Wiener, M.J. (1981) English Culture and the Decline of the Industrial Spirit, Cambridge: Cambridge University Press. Woolf, A.H. (1912) A Short History of Accountants and Accountancy, London: Gee. Worthington, B. (1895) Professional Accountants: An Historical Sketch, London: Gee.

Chapter 10 Creative lawyering and the dynamics of business regulation Joseph McCahery and Sol Picciotto

LAWYERS AND LAWYERING, FROM STRUCTURE TO PROCESS The recent spate of work on the practice of business lawyering has begun belatedly to make up for the surprising neglect of the topic by sociologists of law, or social theorists generally. An important reason for the neglect of the consideration of lawyering as a process has been the predominance of structuralist perspectives in the sociological study of the legal profession. Furthermore, both theoretical perspectives and practical factors have led those sociologists who have attempted to analyse lawyer-client relations to concentrate on encounters with individual clients rather than the work of lawyers for business. The image of the lawyer as dealing essentially with the private problems of individual clients has become harder to maintain with the increased prominence, first in the US and then in many other countries, of the large, bureaucratized law firm specializing in commercial and business law (Galanter 1983; Galanter and Palay 1991), and the sharpening of the division between lawyers who serve corporate clients and those with a practice predominantly of individuals (Heinz and Laumann 1982). Theories of the professions The predominance of structuralism is noticeable, despite the continual flux of theoretical perspectives in this field over the past twenty years. The focus of sociologists, stemming from the study of the social role of professions and professionalism generally, has been on the control of specialized expertise. Initially the dominant viewpoint was functionalist, assuming the utility of specialized knowledge and of the ‘bargain’ by which society was said to grant professional groups self-regulatory autonomy. From the 1970s this came to be criticized as ignoring questions of power and the role of the state (Larson 1977; P.Lewis, in Abel and Lewis 1989; Rueschemeyer 1983). Professionals such as lawyers were seen as trying to achieve status, prestige or power, on the basis of claims to specialized knowledge resulting from the mobilization of resources. A more complex picture was then further developed, which included the importance of other factors such as access to state power, and the need to consider the historically specific conditions of development of particular societies (Luckham 1981). However, studies in the field became dominated by discussion of the thesis originated by Magali Larson and most forcefully put forward by Richard Abel which, in brief, argued that the legal profession has generally aimed to secure monopolistic markets for its specialized services by controlling the production both of and by the producers, or by seeking to create demand for these services (Abel, in Abel and Lewis 1989: vol. 3, ch. 3). This argument was in turn criticized by studies showing that professionals often have little control over their markets or their clients (e.g. Paterson, in Abel 1989: vol. 1). While undoubtedly the profession tries to establish and maintain

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market control, such measures are often reactive, and it is not clear that market control is the source of the power or privilege of lawyers. What is clear is that most of these discussions have tended to leave out any examination of the nature and process of lawyering itself.1 This lack was stressed in relation to the study of professions more generally by an important new work by Andrew Abbott, who pointed out that existing studies had talked ‘less about what professions do than about how they are organized to do it’ (Abbott 1988:1). For Abbott, the main difficulty with the prior concept of professionalization was its ‘focus on structure rather than work’ (ibid.: 19). He defines professions loosely as ‘exclusive occupational groups applying somewhat abstract knowledge to particular cases’ (ibid.: 8), and emphasizes that it is the control of the abstractions which generate the practical techniques that distinguishes professions from other occupational groups such as crafts, since ‘only a knowledge system governed by abstractions can redefine its problems and tasks, defend them from interlopers, and seize new problems’ (ibid.: 9). Abbott provides an interesting analysis of professional work, organized around ‘the sequence of diagnosis, inference, and treatment [which] embodies the essential cultural logic of professional practice’ (ibid.: 40); and he explores the relationship between professional practice and the academic knowledge which formalizes these skills and gives professionals cultural legitimacy by the essentially symbolic power with which it links those professional skills to major cultural values, usually of rationality, logic and science (ibid.: 52–4). By starting from the characteristics of professional work, Abbott’s approach redirects attention from the structural concerns of organization to the interaction between the competitive system of professions and their environment. However, he himself perhaps over-emphasizes the structural character of the ‘system of professions’, which he sees as essentially reacting to external forces which cause a competitive struggle over the reshaping of professional tasks (ibid.: 33), leaving little space for the dynamic role of professionals in helping to construct the social world. Studies of lawyering Despite the limitations of the general theories of professionalization, a handful of pioneering sociological studies have been made of the actual process of lawyering. In addition, others have put forward various analyses of the process, calling upon diverse types of evidence,2 including contemporary accounts both of the major exploits of big business lawyers and direct experience of its more routine aspects, as well as historians’ reports of the role of lawyers in the creation of corporate capitalism based on studies of the archives of major law firms and memoirs of leading practitioners. The issue that is posed by shifting the concern from structure to process is the nature of the ‘transformation’ that takes place in lawyer-client interaction (Felstiner et al. 1980–1). Studies of lawyering generally agree that the lawyer’s task is to convert the requirements of the client into legal solutions, and emphasize that this is by no means limited to litigation or dispute-settlement. But once the lawyer is recognized as ‘gatekeeper to legal institutions and facilitator of a wide range of personal and economic transactions’ (ibid.: 645), many issues arise as to the nature of the conversion or transformation that takes place between the client’s concerns and the lawyer’s solutions. Some studies still see the lawyer-client relationship simply as a structured power relation, in which the extent to which the client can obtain the lawyer’s specialized knowledge or skills depends on the client’s wealth and other related factors, such as the likelihood of repeat business or other connections through this client, perhaps weighed against the lawyer’s loyalties and ties to other actors (other clients, the opposing lawyer, and so on). In this perspective, the lawyer as ‘gatekeeper’ to the legal realm is motivated mainly by financial reasons, but also social and cultural ties such as loyalty, in deciding whether and with what degree of assiduity to venture on behalf of the client into that realm to bring back the desired legal outcomes. Thus,

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Abraham Blumberg argued that important procedural rules laid down by courts as a protection for criminal defendants are in practice rendered nugatory because defence lawyers do not act as adversarial representatives on behalf of (mainly indigent) clients, but are ‘bound in an organized system of complicity in which covert, informal breaches and evasions of due process are institutionalized, but denied to exist’ (Blumberg 1966–7:22); the strong ties of criminal defence lawyers to court personnel and their involvement in the unwritten rules and routines of the system mean that what they do is not really private practice but bureaucratic practice (ibid.: 31). Similarly, Stewart Macaulay argued that consumer protection legislation was ineffective, because he found that lawyers were generally reluctant to utilize legal provisions and procedures in a serious way, preferring conciliatory negotiation, since they regard consumer cases as unimportant as well as unlikely to generate lucrative repeat business (Macaulay 1979). Although these studies focused on the characteristics of lawyering in practice, they adopted a rather simple model of lawyer-client interaction, and reinforced the view of the lawyer as possessor of privileged knowledge. A radically new approach was put forward by Maureen Cain, who rejected the perspective of social control by the lawyer of the client based on their positions in the social structure, emphasizing instead the need to study lawyering as a specific practice, centring on lawyers’ role as ‘conceptive ideologists, who think, and therefore constitute the form of, the emergent relations of capitalist society’ (Cain 1979:335). This was based on two central points. First, that lawyers act typically as agents for the bourgeoisie (in its various forms), and far from controlling their clients, they are often highly dependent on them, or at least must compete to offer services for which clients are willing to pay. Second, Cain focused on the specific practice of lawyering as translation: Clients bring many issues to the solicitor, expressed and constituted in terms of a variety of everyday discourses. The lawyer translates these, and reconstitutes the issues in terms of a legal discourse which has transsituational applicability. In this sense law is a meta-language. Its material significance, however, derives from the fact that it is also the workaday language for certain state authorized adjudicators. The combination of these two points provided an important new perspective, supported by the detailed accounts resulting from her pilot observational study.3 Cain’s argument integrates some elements emphasized in previous studies to help explain the relative dependencies in the lawyer-client relation, such as whether a client represents an important source of repeat business. However, an important new dimension was introduced by refocusing on the specific practice of lawyering as an ideological mediation and translation between the needs of the client, expressed in everyday discourse, and the specialized discourse of the law, which the lawyer also helps to create. This perspective introduces a more differentiated approach to the analysis of lawyer-client interaction. First, it recognizes that the conversion of the client’s problem into legal terminology and the search for a legal solution which can be reconverted into an acceptable one in the client’s world, is a common concern of both parties. Although the lawyer’s professional expertise may entail some socio-psychological advantages in the immediate relationship (some lawyers may be able to browbeat some clients), this is not structurally determinative, for the lawyer must compete with others in the provision of this service. The question is, rather, the nature of the interaction between the realm of the law and that of ‘everyday’ social relations in which it is primarily the client who initially defines the problem. Certainly, this entails a ‘legal construction of the client’, and the lawyer may take the lead in ‘educating’ the client as to the law’s requirements. Sarat and Felstiner have provided a detailed micro-study illustrating how a client conference involves the ‘construction of a legal picture of the client, a picture through which a

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self acceptable to the legal process is negotiated and validated’ (Sarat and Felstiner 1986:116). They provide a valuable account of the way legal professionals behave as if it were natural to separate out those aspects of human behaviour with which the law is willing to deal, thus implicitly legitimating parts of human experience and contributing to the ‘reification’ characteristic of law (Gabel 1978). However, this begs the question of legitimation of the law itself.4 If the client has a readymade, practical, socially functioning self, whence comes the need for its legal reconstruction? If this need is considered to be externally imposed, as part of a social power-structure involving the state, how is it validated or legitimated, if it involves distortion of a previously whole ‘self’? It seems necessary to accept that the client’s social self is constructed by intersecting social processes, of which legal discourse is one. After all, if a person has become a client it is by some sort of prior recognition that there is a legal dimension to the social circumstances in which the problem arises to which a solution is sought. Further, and this involves the second important aspect of Cain’s argument, the lawyer carries out not only the translation of the client’s problem into legal terms, but also (once a legal solution has been found) a retranslation back into the client’s everyday discourse. Hence, the solution found in the legal realm must in turn be validated by successful interaction with the other social processes contributing to the social construction or reproduction of the client’s self. Business lawyering This point is more clearly brought out through consideration of business lawyering, for several reasons. First, it focuses on the client as an organization rather than an individual, thus de-emphasizing the sociopsychological aspects of lawyer-client interaction. This brings more sharply into focus the point that both the skill of the lawyer, and the legitimation of the legal process generally, depend on the extent to which they make an effective contribution to the ensemble of processes interacting on the business enterprise. This has been very effectively analysed from an economic perspective, in particular by Ronald Gilson (1984). From this point of view, it is clear that business enterprises will not resort to lawyers, nor request them to seek legal solutions, unless lawyering ‘adds value’ to the business trans-action in question. Gilson shows in detail, through an analysis of the drafting of the complex acquisition agreements common in (US) corporate mergers and acquisitions (M&A) practice, that the lawyer acts as a ‘trans-action cost engineer’, assisting the parties in pricing the transaction at the lowest cost. In other words, from the internal perspective of economics, the lawyer adds value to the transaction as a whole if transaction costs can be reduced or eliminated, for example by maximizing the availability of relevant information to parties and guaranteeing its veracity, to assist the establishment of homogeneous expectations and thus a successful economic exchange. However, other professions (notably accountants and investment bankers) also perform broadly similar functions, so an economic analysis cannot explain the existence of a specifically legal function, although it may provide criteria for testing its efficiency. Interestingly, Gilson is driven to accept that the existence of such a specifically legal function in economic transacting cannot be shown by economic analysis, but depends on the existence and character of state regulation of such transactions (ibid.: 296–8). Gilson characterizes the role of ‘transaction cost engineer’ as not a specifically or traditionally legal one, even when it entails the drafting of immensely lengthy and complex contracts, since ‘when lawyers play this role well, the courts and formal law generally, shrink dramatically in importance’ (ibid.: 294). However, one of the important points which results from the study of lawyering is that lawyers in practice engage in a wide variety of activities broadly concerned with the facilitation of transactions, and are not exclusively or even primarily concerned with litigation. In the UK for example, the bedrock of the market

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for solicitors’ services, even for individual clients, has long been, and despite many changes still remains, house conveyancing and wills-and-probate; even the Bar, which defends its monopoly of rights of audience in the higher courts, relies for most of its work on drafting documents and opinions. Disputes and litigation are in any case better understood as the pathology of a regulatory system. This makes it all the more important to try to develop an analysis to help us understand whether there is any specifically or inherently legal function in facilitating economic and social transactions. Hence, it is necessary to consider the characteristics of the private ordering which lawyers carry out for clients, and its relationship both to formal law and to the economic or social aspects of the client’s transactions. Returning to Gilson’s analysis of a corporate acquisition agreement, it seems clear that the need for a lengthy contract embodying a very detailed specification of the business being acquired results from low-trust factors in the relationship of the transacting parties: a corporate acquisition is usually a oneshot operation, and the potential gains from opportunism or cheating outweigh any long-term disadvantages, hence the need to juridify the relationships.5 Of course, in a different social setting there might be far less need for detailed contracting. Indeed, the increased research into business lawyering in the US results partly from concern about the loss of competitiveness of US business, especially in relation to Japan, and the accusation that the US system over-invests in non-productive professional activity (particularly lawyering) while Japan concentrates on professions such as engineering, which make a positive contribution to production.6 Hence, it is said, not only does Japan have many fewer lawyers, but a typical business contract will not be thick and detailed, but rely essentially on a general good faith provision leaving any disagreements which may subsequently arise to be worked out by the parties.7 This comparison raises manifold considerations: perhaps Japan is a more homogeneous society where even business relations are less prone to opportunism; or perhaps the opportunism is constrained by other factors, notably a more stable (or even rigid) managerial system together with other factors (such as the role of the zaibatsu and keiretsu) which cement longer-term relationships between firms and the senior managers representing them, but which may also carry their own costs such as loss of entrepreneurial spirit (Gilson 1984:307–12). However, our concern in this chapter is rather with the relationship of business lawyering to the forms and institutions of formal law. In particular, we want to explore the interaction between lawyering and the development of the regulatory forms in and through which corporate capitalism develops. This entails consideration of the extent to and ways in which lawyers themselves contribute to the creation and development of the legal forms regulating business. THE INDETERMINACY OF LEGAL RULES AND LAWYERING AS A SOCIAL PRACTICE The lawyer’s specialized knowledge is of the more or less abstract and formalized rules which are the object and product of legal discourse; and it is the practising lawyer who acts as the mediator between this field of formal rules and the arena of economic and social relations inhabited by the client. The characterization of the legal sphere or field and of its relation to economic relations and social life more generally is a central concern of social theories of law. In this section we consider in what ways the study of lawyering as a social process can illuminate this central question. We focus on the characterization of legal rules as unclear or indeterminate, and the role of lawyering in relation to that indeterminacy. One result of the increasing global competition in the field of professional legal services is a concern that lawyers may excessively exploit the loopholes and abiguities of the law on behalf of clients, and that as a result ‘creative compliance’ with regulatory requirements may undermine the efficacity of regulation. This has been the subject of academic analysis (e.g. McBarnet 1988; McBarnet and

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Whelan 1991; Power 1993), as well as broader political concern. Thus, in 1992 the Legal Risk Review Committee set up by the Bank of England proposed a number of measures to deal with difficulties that may be caused for London’s financial markets by legal uncertainty. This was due to concern caused by the losses to financial institutions following appeal court decisions holding that local authorities were acting outside their powers in engaging in ‘swap’ transactions; although the Committee identified other problems of uncertainty in the regulation of dynamic and constantly changing markets (Bank of England 1992a; 1992b). More broadly, however, there is concern that the globalization of financial markets means that traditional practices based on understandings among closed City networks are inevitably being replaced by a more juridified approach, and City of London regulators have shown themselves to be, at the least, unaccustomed to dealing with this environment, as evidenced by a string of ‘regulatory failures’, such as the Guinness, BCCI, and Maxwell affairs. However, the question of ‘compliance’ with rules and ‘creativity’ in relation to them involves some fundamental philosophical concerns. Thus, we must first consider the various ways in which this indeterminacy has been characterized in jurisprudence and in social theories of law. The indeterminacy critique While there is considerable debate and controversy regarding the indeterminacy thesis, even some positivist theories accept that rules are not altogether certain. Indeed, it is central in the work of H.L.A. Hart that rules have a core and a penumbra.8 However, for Hart this indeterminacy is merely linguistic: his theory is based on a distinction between the core and penumbra meaning of words. There is a settled area, the core, in which the meaning of words (and therefore of rules) is uncontroversial, and a realm of uncertainty which is characterized as penumbra where there can be disagreement due to the vagueness of terms and the opentextured quality of language. In Hart’s view, these disagreements can be resolved by reference to the settled core of meaning which limits the boundaries of all disputes over the meaning of a word or term. The issue of the indeterminacy of law has been put most strongly by critical (CLS) and post-modernist legal scholars, although the origins of this perspective lie in Realist legal theory.9 These theorists argue that legal doctrine is internally contradictory, and as a result the legitimacy of legal decisions is suspect and the rule of law undermined. The antinomies, inconsistencies or contradictions of legal doctrine and legal reasoning mean, for some, that judges, by engaging in legislative decision-making, impermissibly usurp the role of the legislature and the efficacy of consent.10 For the most part, critical legal theorists, in their analysis of the indeterminacy of legal doctrine, attempt to demonstrate that the law is incoherent and contradictory and that there is no meta-principle or norm which is capable of reconstructing the unstable and highly contingent ‘patchwork quilt’ that comprises legal doctrine (Altman 1986; for a critique of Altman, see Balkin 1991:1145–53). As a result, liberal law is contradictory and there are no foundations for legal determinacy. Thus, for CLS scholars, the indeterminacy critique is central to their attack on liberal legalism and formalism. Formalism is based on the idea that law is a closed system which contains all the resources necessary to justify its actions.11 It is predicated on the claim that there is an internal principle of unity that structures and controls the legal system; thus, Kelsen (1967:299) considers that the law regulates its own creation. Formalism has tended to support law’s claims to objectivity, neutrality and consistency, because it implies that the mechanical application of legal rules provides a basis for constraining interpreters and justifying the values purportedly embodied in the rules. The radical critique aimed, by exposing the indeterminacy of rules, to show that the process of adjudication reflects and embodies deeper differences at the level of society. Thus, Duncan Kennedy, in his celebrated analysis of the difference between rules and

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standards in the context of contract and tort law, aimed to deconstruct the form of law and to show that rules tend to serve individualism while standards are consistent with altruist viewpoints (Kennedy 1976). By showing the struggle between two competing and opposed conceptions of doctrine, Kennedy attempted to show that there are both individualist and altruist arguments that might be employed by a judge in every legal decision. Thus, for him, adjudication involves a choice between two competing political visions: self-reliance, as reflected in rule-like forms, and altruism, reflected in the resort to standard-like forms.12 The implication of Kennedy’s analysis is that deep structures of cultural meaning ensure that individualist or altruist arguments will support their respective positions. Hence, his argument appears to depend on the view that there is a deep system of structures, in which the elements are defined in terms of difference, and that each vision is dependent upon the other and, at the same time, denies its existence. The thrust of the indeterminancy critique is that it is impossible to generate principled, coherent doctrine. From a different perspective, Unger (1987) offers a sociologically informed critique of liberal legalism which stresses the importance of the indeterminacy of both legal doctrine and social context. Unlike the indeterminacy critique advanced by Duncan Kennedy, which posits an irreducible conflict between worldviews, expressed in the divergence between rules and standards, Unger’s theory rejects structuralism; he opens up the possibility of social-structural change, accepting that there is no constant human nature. For Unger the law is contradictory and indetermin ate because the liberal forms cannot be maintained as a result of the transformation of the state into a modern regulatory state. Unger argues that the breakdown of the nineteenth-century liberal legal order, and the transition to the regulatory law of the welfare state, leaves the law caught in a contradictory logic: on the one hand, the political requirements of the welfare state have been absorbed into the law in terms of goals and purposes which are realized through administrative discretion; and, on the other hand, the classical private rights complex functions with different techniques to penetrate the community to accommodate the institutional framework of society. The introduction of social welfare law subverts the formal qualities of classical law (symmetry, certainty, generality, and so on). This combination produces an inability to balance the political demands for results with the classical formalist requirements of the rule of law model. For Unger, paradoxically, the private rights complex originally represented one side of an earlier institutional compromise, one which involved the state granting the elite more control over land, labour and wealth in exchange for allowing the state to develop an administrative system based on taxation and war. Unger’s hypothesis is that the origin of the private rights complex is based on a different vision of society from the principles and aspirations embodied in the present system. The indeterminacy thesis advanced by Unger suggests that an alternative vision of society can be worked out from the implications of indeterminacy, which he defines in terms of conventions and context being indeterminate and the dislocation of objectivity from representation in language. Locating the transformative potential in the notion of ‘negative capability’, Unger maintains that it is our capacity to break through a specific context of action which presents the possibility for us to reappropriate the alienated political and economic spheres and, at the same time, guarantees the possibility of personal transformation and freedom. Unger insists that the formative institutional context can be transformed through an exercise in deviationist doctrine which involves drawing out the alternative legal vision of the private rights complex in order to demonstrate that certain elements were embedded in deviant forms in past legal arrangements and that these counter-forms avoided instability and, as a result, form the basis of a transformed social institution. However, Unger’s deviationist doctrine, and the subversive potential in exploiting contradictions that might shatter the liberal legal order, is limited by the fact that it relies upon the existing norms and ideals in society as the basis for social-structural change.13 The concern of all these theorists focuses on how indeterminacy affects the authoritative decision-maker, usually the judge. There is little or no consideration of the way in which the characteristics of legal rules

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affect the social behaviour of legal subjects, nor for how this is mediated by lawyers, whose prime role it is to adapt and develop the forms of legal rules and concepts to the social transactions of their clients. We argue that it is important to integrate some of these considerations regarding the indeterminacy of rules with the recent sociological perspectives which emphasize the social structures and function of competitive professions in exploiting paradoxes and inconsistencies in law. The reality paradox and systems theory Indeed, this point has been advanced, albeit from a different perspective, by Teubner, who argues that the problem with the radical critique offered by critical legal studies scholars is that it ‘is not radical enough’ (Teubner 1990:404). The general doctrine of indeterminism, as developed by critical legal studies scholars, focuses only on superstructural phenomena, such as legal norms, doctrine, institutions and decision-making and, as a result, fails to expose the deeper point that law itself is based on a fundamental paradox.14 The paradox of legality is that, in order for law to be determinate, it must be grounded in some super-norm.15 The problem for the rule of law is not to locate a ground (or foundation) of law, since there is no grounding, but rather to suppress the fact that we can generate paradoxical situations, and can accept contradictory opinions as being both right and wrong, which unmasks the disturbing reality that we must invent excuses in order to give authoritative answers. For Teubner, the work of law is to accept paradox, and that reality is paradoxical. The intuition here is that we are always already embedded in a paradoxical world and it would be itself deeply paradoxical to attempt to locate or construct a de-paradoxical reality. Thus, the best way to avoid the perversion of paradox is to suppress the fact that law is founded on originary violence or power. For Teubner, legal decisions are not based on any super-norm of justice; the system merely sorts claims on the basis of a simple binary code, legal-illegal. The simple process of differentiating legal from illegal acts necessarily involves the suppression of the paradox of self-reference. That is, the judge must suppress the truth that there is no right or wrong, in order to follow the dictate of the binary code that a wrong be constructed. The proper role for the interpreter is to avoid the problem of locating a transcendental ground for law. The fact that the legal system is able to process these demands routinely, and without creating legitimation problems in every instance, is what makes it function. Teubner argues that the function of contemporary theory is not to offer a general account of legal contradiction or paradox. No such theory is possible since there are no practical solutions to the fundamental indeterminacy of law. For Teubner, the proper task for the radical indeterminacy critique is to extend it to understand that there are classes of legal indeterminacy which arise from other sources than the paradox of the legal system. Teubner understands the emergence of the new indeterminacy as being instantiated in balancing tests, the increased propensity to employ general clauses in contracts, and the emergence of sociological and economic-based jurisprudence (Teubner 1990:410). For Teubner, the relevant theoretical perspective for extending the indeterminacy critique is autopoietic theory, since the problem of indeterminacy is important at the level of the system’s own communicative contexts. In this regard, Teubner, unlike critical legal studies theorists, attempts to ground the indeterminacy analysis at the level of real operations within society. For Teubner, indeterminacy is created when a communication sub-system adapts to another system’s self-description. Indeterminacy is a function of the interaction of autonomous but overlapping communicative contexts; while the internal codes which ensure self-reproduction remain intact, the interference that results creates conflict between the system and operation of its environment, and the influence of the environment within the system. Teubner views the legal system not as a coherent whole, but a series of self-enclosed sub-systems reflecting the functional differentiation of society; thus, conceptual and normative conflicts between the sub-

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systems are unavoidable. It is the very indeterminacy of legal principles, such as general clauses in contracts, that provides the mechanism for reconciling the conflictual logics of sub-systems. The high degree of flexibility mani-fested in these clauses, for example ‘good faith’ clauses, provides an efficient mechanism for reconciling the legal disputes between the various sub-systems (Teubner 1990). Diverse social demands and conflicts, resulting also in state intervention, produce the materialization in private law of general clauses, which provide the legal means for co-ordinating contradictory social demands. Unlike critical legal scholars, Teubner concludes that legal indeterminacy is a functional mechanism which ameliorates the disabling effects of the paradox that there is no foundation for law. That is, the legal system is capable of creating internal mechanisms which stabilize the intersystemic conflicts, through the recursive self-generation of ‘eigenvalues’ which creates the potential of social regulation through law (Teubner 1990: 408–9, 420–5; see also Teubner 1992). However, the systems theory approach concerning indeterminacy is problematic in several respects. While indeterminacy is clearly a prominent feature of regulatory systems, this does not mean that reality itself is inherently paradoxical. Zolo argues that ‘[a]ttributing to “reality” a circular structure not dependent on (the circularity of) knowledge amounts to violating the premise of the circular and “closed” nature of the cognitive process’ (Zolo 1991:77). As regards the claim that law is a closed system —closed off from external sources and capable of reproducing its own operations through its own structures—the basic question is whether autopoietic systems are indeed self-regulating.16 To suppose that reflexive autopoietic structuring can obtain stability suggests, as Frankenberg has argued, the emergence of an invisible hand which operates to produce stability and order from chaos (Frankenberg 1989:382). According to Frankenberg, systems theory, by employing the concepts of structural coupling and interference, creates the possibility of reforming self-contained systems. The problem is that Luhmann and Teubner, on the one hand, wish to enclose the legal system, but on the other hand, insist that it be sufficiently open to different operating principles in order to create the conditions for internal reconstruction. Nevertheless, despite the limitations of systems theory, the attempt to locate indeterminacy within the material realm constitutes in some ways an advance over critical legal studies’ formulations. Bourdieu: the generation of normativity through social practices A sophisticated post-structuralist sociological approach is provided by the work of Pierre Bourdieu. For Bourdieu the autonomy of law results from the competitive struggle of lawyers to assert their influence in the social system by asserting the right to declare or state the law. Thus, lawyers generate the abstract and formal principles characteristic of legal norms and doctrines, and their special knowledge of these principles, and skill in operating the distinctive linguistic processes of the law, guarantee both the autonomy of the legal field and the monopoly of lawyers’ access to it. The body of legal doctrine is, for Bourdieu, a symbolic order which at any particular moment delimits what is possible; although legal doctrine appears, due to its autonomy and its abstract and formal nature, to be a closed and coherent system which generates outcomes from its own internal logic, it does not, according to him, possess the principles of its own dynamic. Both this dynamic, and the conditions of existence of legal reasoning, derive from the operation of the objective relations between agents and of the institutions of the legal field. Thus, the legal test is the focus of straggles because its interpretation is a means of appropriating and influencing the symbolic power which it contains; however, this is not a closed hermeneutics, since the interpretation of legal texts must have a practical effect. Although jurists can put forward competing interpretations, they must operate within the hierarchy both of institutions and normsources which defines the authority of legal decisions.17 At the same time, the competition between

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interpreters in putting forward their versions and developments of legal doctrine is limited by the necessity of presenting them as rational interpretations of recognized texts. Bourdieu describes the ways in which the two major effects of neutralization and universalization are produced by the characteristic linguistic procedure of law, such as the use of passive constructions and impersonal phrases; far from being a simple ideological mask, this rhetoric is the result of the continual process of rationalization which has over centuries constituted the universalizing posture which is the spirit of law. While Bourdieu provides a very strong explanation of how the legal sphere is constructed, he is much less clear on why abstract formal rules play such an important part in the reproduction of social relations. He presents a very Weberian view that legal rationality offers predictability and calculability (Bourdieu 1987:833). Yet Bourdieu himself accepts the Legal Realist critique that rules can never be merely applied to new cases, and that texts ‘can go so far as complete indeterminacy or ambiguity’ (ibid.: 827). For him, it is this indeterminacy which gives not only judges, but more importantly the various groups of competing legal professionals, the power to explore and exploit it by using their resources and techniques to generate alternative rules which they can wield as symbolic weapons. If the promise of consistency and predictability offered by the formal-rational nature of the legal universe is illusory, whence comes its legitimacy? For Bourdieu the power of law seems to derive from the effectiveness of legal symbols in giving the ‘seal of universality’ to social practices (ibid.: 845). Legitimacy is imposed in the social order through symbolic domination. In explaining how the promise of predictability is fulfilled, Bourdieu again emphasizes the social practices of professionals. Here he introduces his key concept of the ‘habitus’: the juridical field tends to operate like an ‘apparatus’ to the extent that the cohesion of the freely orchestrated habitus of legal interpreters is strengthened by the discipline of a hierarchized body of professionals who employ a set of established procedures. (Bourdieu 1987:818–19) The habitus is defined as ‘the system of dispositions to a certain practice… an objective basis for the regulation of behaviour, and thus for the regularity of modes of practice, and if practices can be predicted… this is because the effect of the habitus is that agents who are equipped with it will behave in a certain way in certain circumstances’ (Bourdieu 1990:77). Note that the habitus, which is constituted by second-order objective structures, is the repository for the strategies of distinction which various actors employ in their struggles with and against other actors within the autonomous field.18 Serving as the mediation between external structures and action, the habitus ‘est createur, inventif, mais dans les limites de ses structures’ (Wacquant, in Bourdieu and Wacquant 1992:26). Thus, the repertoire of behaviour is structured and limited by the habitus, although it permits a range of creative invention which obeys a practical logic. Bourdieu argues that the notions of the field and of habitus must be understood as interactive concepts in order to avoid the twin charges of determinism and functionalism (e.g. Bourdieu 1992:102–15). Thus, he states that the habitus becomes active only in relation to the field and that the habitus may generate a different trajectory of strategies depending on the state of the field (Bourdieu 1990:116–19). However, it has been argued that Bourdieu presents an ‘unrealistically unified and totalized con cept of habitus, which he conceptualizes as a vast series of strictly homologous structures encompassing all of social experience’ (Sewell 1992:16). The habitus, which is responsible for the social dispositions of agents and for framing the range of possible actions has a strong conservative bias. This rather static concept is unable to explain how change occurs internally to itself. Thus, Sewell argues, ‘Bourdieu’s habitus retains precisely the agent-proof quality that the concept of the duality of structure is supposed to overcome’ (ibid.: 15). Bourdieu’s requirement that these structures are all homologous is far

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too demanding, because society is not so cohesive and there is a range of competing and overlapping structures. Hence, a more dynamic account of change would loosen the strict requirement for homology between the symbolic struggles within the juridical field and the political and economic transformations occurring outside it.19 Within the juridical field, Bourdieu argues that it is the legal scholars and theorists who generate the formal abstractions whose universalizing tendency is the source of the symbolic power of law. Judicial interpretation adapts these general rules to particular cases.20 But above all, Bourdieu emphasizes the role of competing groups of practising lawyers and other professionals, who mediate the application and development of formal rules to social practices and reality, by marshalling varying degrees of technical skill and social influence. For Bourdieu the indeterminate nature of legal rules is central, since it is the source of the power of professionals as mediators between the realm of formal law and the economic and social practices of their clients. Bourdieu’s focus on the practices of competing professional groups, with varying degrees of skill and symbolic capital, provides a very different perspective from that of critical legal scholars. As Coombe has argued, Bourdieu’s position avoids the problem of essentialism which besets the structuralist theory offered by Kennedy, and by interpreting the legal field in terms of conflicting straggles among competing legal actors, Bourdieu achieves a dynamic notion of legal practice; one that is defined in terms of the social dispositions and norms of the competitors which are shaped and structured by struggle (Coombe 1989:103–11). Bourdieu’s theory of the juridical field constitutes an advance on the views advanced by critical legal studies because he examines the practices and dispositions of habitus and explains them in terms of the objective elements of social life. Bourdieu clearly understands that the juridical field shapes and structures the dispositions of legal actors and that legal rules are predictable largely as a result of the homogeneity of the habitus. Thus, the law is determinate to the extent that diverse groups within the juridical field accept the legal conventions. In this respect, Bourdieu offers a theory of legal constraint based on the cultural practices that shape the legal habitus (cf. Balkin 1991:1149–53). Bourdieu acknowledges that Luhmann’s notion of self-reproduction of a sub-system is superficially similar to his own concept of the autonomy of fields (Bourdieu and Wacquant 1992:79), in that differentiation and autonomization are central to the respective approaches. However, he parts company with systems theory by rejecting its functionalism and organicism.21 Bourdieu considers that Luhmann makes a simple category mistake by confusing the symbolic domain with the social field in which it is reproduced. Bourdieu’s claim is that the juridical field is only potentially autonomous since, on the one hand, it is structured and shaped by its own norms and practices, but on the other hand, it is influenced by social, cultural and economic forces outside it. In this regard, Bourdieu’s account, unlike systems theory, is capable of explaining how legal actors are affected by extra-legal forces and how struggles outside the juridical field are refracted into the field. While we have seen that Luhmann and Teubner see law as a closed system which is in contact with the external environments, but only learns and re-structures from perturbations produced within the system, Bourdieu’s notion of the autonomous field requires a social process of intermediation in the confrontation of texts and procedures with the social realities that they are supposed to express or regulate (Bourdieu 1987). Bourdieu’s theory of the legal field offers an important approach for understanding indeterminacy since it accounts for regularity and predictability in legal doctrine largely in relation to the social structures which constrain and structure legal rules and their application. Bourdieu’s approach avoids the structuralism of certain critical legal studies approaches while at the same time it does not reify the legal system or suppress the importance of possible external sources of critique.

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Beyond Bourdieu Bourdieu provides a powerful account both of the characteristics of legal reasoning and of the conditions and processes of its production, which goes a long way towards an explanation avoiding the dilemma between idealism and economism. However, we would like to indicate what we consider to be weak points in the argument, and develop the analysis in the context of the study of business lawyering. The central problem is with Bourdieu’s account of juridification and of the relation of the lay person and of social ‘reality’ to the legal field. His claim is that this relationship is structural, in that the process which he identifies as the main dynamic of autonomization of the legal sphere is the ‘spontaneous logic of competition’ between agents asserting specific competences. We argue that Bourdieu over-stresses the role of the professional in the autonomization of the legal field, and under-emphasizes the social need for law and the contribution that law makes in the reproduction of social reality. In Bourdieu’s account, the world-view of order offered by law is powerful yet illusory. The social power of legal professionals derives from their ability to create a demand for their services by offering a worldview of an order based on universal norms and the neutralization of particularisms, and in transforming irreconcilable conflicts of interest into an appearance of exchanges between equal subjects regulated by rational argument between independent professionals before a neutral arbiter. But the offer is a spurious one. First, the capacity to perceive an incident as an injustice, which is the source of the demand for law, is not ‘natural’, but the result of a construction of social reality mainly by professionals generating the feeling of entitlement, the revelation of rights (Bourdieu 1987:833). Second, the elasticity and ambiguity of legal texts means that judicial decisions involve an element of choice which is either arbitrary or derives its content externally, from the social or economic preferences of the judge. The conformity of decisions with the system of abstract rules is essentially an ideological matter, reinforcing the symbolic power of the legal sphere, which is exerted by the social acceptance of the decision as legitimate despite its arbitrariness. The practical efficacy of a legal decision, for Bourdieu, rests in its applicability in the everyday realm where the matter originated. This double function of law produces two poles around which the types of lawyer coalesce: on the one hand, the theoreticians, whose role is the elaboration of pure doctrine, and on the other, the practitioners, who take care of the necessary adjustment of pure principles to social reality and for whom the interpretation of law must be evaluated by its applicability to the particular case. To begin with, an empirical objection can be made, that this distinction in roles appears based on the continental European tradition, in which judges or magistrates tend to decide on the basis of the practicalities of the situation, while academic lawyers are the guardians of the purity of doctrine. In contrast, in the common-law tradition, particularly in English law, it is the judiciary which tends to emphasize legal autonomy, especially from politics, and the importance of basing decisions on doctrinal exegesis, whereas academics often criticize their judgements for failing to take into account social ‘reality’ or practical implications.22 However, the existence of two ‘poles’, of pure and practical law, is a structural requirement according to this theory, hence it is not of major concern which particular group carries out either function. A more fundamental difficulty is that, in identifying power with the control of access to legal resources, Bourdieu treats control as concerned exclusively with the ability of certain social agents to appropriate conflict. In contrast, an examination of situations in which social actors actually do invest resources to improve their access to the legal sphere shows that by doing so they do not challenge the autonomy of law, although they may increase their control over lawyers. Though members of the dominated classes generally have low access to law, they can in some circumstances become specialized in aspects of concern to them: for example, in the case of ‘jailhouse lawyers’ who develop specific skills in the filing of appeal petitions and other procedures (Milovanovic 1988). More central to our concern with business lawyering is the

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growth of in-house corporate law departments, which permit a large firm to internalize routine legal aspects of its transactions and create a better basis for it to evaluate and control its external legal contracts (Chayes and Chayes 1985). To be sure, it can be said from a Bourdieuian perspective that this ‘competition’ from the periphery of the legal field merely pressurizes independent lawyers to invest further in legal autonomy and rationality. Our point, however, is that such investment must show an economic return and cannot be based on a merely ideological power. Large corporations, especially when they have their own in-house counsel and are dealing with others similarly situated, do not resort to outside lawyers only due to acceptance of the ideology of professional autonomy. The in-house counsel movement has certainly had a strong disciplinary effect on the legal profession in the US, and probably does so also in other countries, such as Germany where bank lawyers play an important part in business lawyering (Hartmann 1991). In the US the evidence is that internalization of legal services was part of the general trend of pressures on corporate management from capital markets to reduce costs, with the end of the era of uninterrupted corporate growth. Internalization reduced the costs of much routine work and capped expenditure on some outside work, notably litigation, but stimulated new areas of work for the independent firm, in specialized transactions, regulatory work and the breakdown of business relationships (Chayes and Chayes 1984). This has led to the emergence of new ‘boutique’ firms and undermined the old general-purpose commercial law practice, creating new tensions between the professional ideal and the increasingly bureaucratic organization of the elite law firm (Nelson 1988). Both the example of the jailhouse lawyer and the corporate in-house counsel show that the client is not structurally excluded from the legal field, but can develop independent legal expertise, either where it is economic to do so, or where there may be another gain, for example in social prestige (e.g. in the jail). Bourdieu’s account offers a distorted characterization of the power of the juridical field to exclude lay persons. In our view it is necessary to accept that, since social relations are reproduced partly through law, social actors are always already (partly) within the juridical field; but they possess varying degrees of skills, time, resources and inclination to monitor the legal professional. For Bourdieu, the main effect and purpose of creation of the legal space is to secure a monopoly for lawyers, who have invested in the acquisition and the generation of the specialized knowledge and techniques, and to exclude the lay person, whose everyday, common-sense understanding is confronted by a sharply different mental universe. Largely a by-product of this alchemy is the neutralization effect, in which irreconcilable con flicts of interest are transformed into regulated and rational arguments between equal subjects or parties. This embodies a vision of social order, backed by state powers and sanctions, which by its symbolic force consecrates and helps to create the social world. Its force is symbolic, in that it can only be effective if it is accepted even by those whom it dispossesses. In Bourdieu’s account there is a dual basis for this effectiveness. On the one hand, it is essentially ideological, in that the vision of order projected by law, which is a universalist one transcending particularisms, is merely a deception since its pure principles must be adjusted to reality by arbitrary or political judgements. On the other hand, he accepts that there is a social reality to the symbolic efficacity of ‘formal rational’ law, and that it does provide predictability and calculability, as argued by Weber. However, these features of the formal rigour of law are only available to those who can gain access to the specialized realm of pure law. Hence, the powerful reinforce their positions through law in two ways. First, because the judges and others with legal competence come from the same social stratum and share their ethical and political dispositions, their interests are more likely to be reflected in the process of adjustment of pure law to social reality. But second, to the extent that pure law can offer a realm of formal rationality, access to these advantages is the privilege of those who can purchase legal advice. Although a shift in the balance of social forces in favour of dominated groups can produce a differentiation in the legal sphere, by the introduction

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of consumer law, labour law and social law more generally (with an emphasis on public as against private law and the creation of special tribunals as against the general civil courts), this is essentially integrative. For Bourdieu, law is essentially conservative; although he says law creates the social world, it does so on the basis of existing structures, since its effectiveness depends mainly on its being adjusted to those existing structures. A creative or prophetic vision is possible, especially in periods of revolutionary crisis, but generally even a creative vision of law can only consecrate a process which is under way. Hence a critique of law, and the generation of a basis for social change, must be sought outside it. So for Bourdieu, as for many other sociologists of law, law is internally coherent and in its own terms rational; the problem lies with restricted access. His position is on the radical wing, in that the implications of his position are not that access should be improved but that law should be abolished. We argue that Bourdieu’s picture of the realm of law can be brought into a different focus, with different implications, by accepting that the legal sphere plays its part in the reproduction of social reality by interactions with other equally fetishized spheres, notably the economic realm, which is mediated by money. To the extent that the legal sphere contributes to the reproduction of social relations it has a functional and not merely illusory role; however, there are deep structural contradictions in this role, a distorted reflection of the broader social contradictions. The process of abstraction by which legal reasoning produces and elaborates formal legal rules results in norms which purport to regulate social conduct; as Bourdieu correctly points out, their abstract nature entails indeterminacy, since they can only receive substantive content by interaction with other social spheres. Nevertheless, this indeterminacy is functional, in that it provides the flexibility and adaptability which permits law to contribute to the dynamic of social change. We do not say that this is necessarily a positive or ameliorative dynamic; simply that social change is generated partly through law, and hence that lawyers can play a creative or contributory role in such change. THE REGULATORY PROCESS AND THE DYNAMIC OF BUSINESS LAWYERING In this section we pull together some of the points made until now, and sketch out a framework for the analysis of business regulation and lawyering, which will be applied in the final section to the specific example of the regulation of financial market transactions and the prohibition of insider trading. Markets cannot exist without rules, and the regulation of market transactions takes place through layers of rules, formal and informal. Rules emerge through the need to mediate economic transactions by reference to a framework of generally understood and articulated expectations about behaviour and conduct. Regulation is essential to the operation of any system of social organization; but the generalization of social relations mediated by commodity circulation resulted in the autonomization of the state, which legitimizes the definition and allocation of property rights, and ultimately guarantees the enforcement of those rights and their circulation. It is the combination of economic relations mediated by markets, and political processes dominated by the state, through which social relations are reproduced. That combination is mediated primarily by money and by law. This is not an automatic process, nor one that flows logically from the development of economic and social relations. Hence, it is important to understand the ways in which the forms taken by social and economic activities have developed historically, and the role that regulation has played in that development. There is no space here to give more than a brief indication of the main phases of development of the regulatory frameworks which have helped mould the institutional and transactional patterns of corporate capitalism. The key formative period of 1865–1914, between the American Civil War and the First World

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War, was marked by the great depression of the late 1870s and early 1880s, which stimulated the concentration of capital and the establishment of the first large-scale major com panies. During this period, the leading capitalist countries established the basic legal framework for the institutionalization of corporate capital, through the liberalization of the right to incorporation and of the main institutions of property ownership and transfer, including industrial and intellectual property rights. Although there was significant international discussion and debate, and cross-jurisdictional transplantation and emulation, there were significant national divergences. Notably, while the US, during the ‘progressive era’ evolved a liberal ‘regulated corporatism’ (see, e.g., Sklar 1988), elsewhere the state played a more direct role: in Germany, within a formalized framework, which included state-supervised cartels, whereas in the UK the longer history of the centralized state and greater homogeneity of its ruling groups permitted much more informal supervision of business and industry. These patterns were generally further consolidated during the 1930s, following the crash of 1929, notably with a significant revamping of the US regulatory arrangements during successive Roosevelt administrations, especially the establishment of the Securities and Exchange Commission in 1933–4, and the revitalization of antitrust law enforcement after 1937. After 1945, American influence led to some regulatory transplantation, especially of antitrust laws (for example, to Japan and Germany), but as the post-war boom gathered momentum after the end of the Korean War, the regulation of the institutions, structures, practices and transactions of business was of relatively small concern. The period since the mid–1960s has seen a trend towards formalization or juridification of business regulation in many fields. It has also been marked by international conflicts of regulation, resulting from the application of national regulation to increasingly internationalized business (Picciotto 1983). Finally, during the 1980s, although there has been a significant process of national deregulation, it has been accompanied by equally important patterns of and attempts at re-regulation, to establish internationally coordinated controls over global business. From this brief outline it should be clear that the development of regulation takes place in response to both political and economic processes. While major events, such as war or depression, have broad political repercussions and often lead to radical changes in regulatory forms, the continual operation of economic and political processes also produces changes, generally at the micro level. A key failure of legal regulation within capitalist market economies generally is that they aim to produce and maintain equalization of the conditions of competition: hence their basic ideal or feature is equal treatment or rule-fairness in relation to similarly situated economic actors. However, competition is not a static state but a process. Furthermore, economic actors are quite different in their factor endowments, market power and sunk investments, so rules affect them differently. Moreover, the very operation of a regulatory system produces inequalities resulting from competitive advantage. Hence, an important function of the process of interpretation, application and enforcement of rules is to resolve the persistent antinomies resulting from rule-structured market transactions. For that reason, a regulatory system by nature is not a static but a continually evolving and dynamic process. The interpretation involved in the application of rules to specific transactions generates modification, supplementation and amendment. A key role in this process is played by the private lawyer whose job is to structure a client’s business strategies and transactions to optimal advantage in relation to the regulatory framework. This often involves routine ‘compliance’ work, ensuring that transactions conform to the bureaucratic formalities of the regulatory arrangements, or are kept within the accepted understandings of the regular players. Not infrequently, however, often in small and sometimes in major ways, the lawyer may play a ‘creative’ role. This may entail, for example, achieving an economic objective desired by the client, which is impeded by a regulatory obstacle, by devising a new legal means; or the lawyer may find significant cost-savings for a client by new ways of structuring a transaction, by creating new legal forms or adapting existing ones to

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new ends. Such creativity can lead to the development of major new legal and institutional forms (such as the holding company), as devices become generalized through competitive legal practice. However, legal ‘creativity’ raises constant ethical, political and economic (as well as legal) issues, as it probes the limits of the existing regulatory patterns. The problem of regulatory compliance is the chief concern for state officials. As we have seen, legal theorists and economists have addressed the problem of rule avoidance and compliance in terms of the conflict between rules and their interpretation. Until recently, regulatory theorists assumed that legal rules were common knowledge and that there were static incentives for compliance. The static rule framework was based on the view that legal rules were fixed and assertable and that parties self-select, given their preferences, to follow the rule. As we have noted above, modern legal theory has pointed out that legal rules are moderately indeterminate, and that the uncertainty in legal rules results from the competitive struggle to define the rule and the fact that interpreters can, within certain boundaries, select an interpretation. In this perspective, legal rules are the result of interpretations of regulators and judges who justify their decisions with the aid of rhetorical practices (Fish 1993). This contingency of law leads some CLS theorists to infer that law must therefore be politics and hence illegitimate; whereas it delights pragmatists, like Fish, who argue that it reflects the inherently contingent and historical quality of interpretation generally. The implication for regulatory theory is that indeterminacy permeates the regulatory domain and there is always movement in the juridical field to assert new interpretations in order to modify the impact of legal rules.23 THE REGULATION OF INSIDER TRADING Against this background, we now turn to discuss the role played by business lawyers in mediating some of the changes in the financial services sector, focusing especially on the major scandals in the US during the 1980s and the debates about the interpretation and enforcement of the ‘insider trading’ rules. Risk, trust and property in information As in any area of economic regulation, the role of legal rules in mediating financial transactions is expected to be to ensure a ‘level playing-field’. The demands for fairness, in this context, result from expectations underpinning the functioning of financial markets (Giddens 1990:24–7) and their accompanying regulatory institutions. Financial market transactions, like all exchanges, require a basis of trust between the parties; this is especially important since such trading is particularly impersonal, taking place between parties who may not even know each other’s identities, and particularly abstract, since it concerns subject-matter with little content other than price. In such circumstances, trust is only possible if risk is kept within acceptable limits (Luhmann 1988a:36–46). Perhaps the most important force driving financial markets is information. It is not surprising, therefore, that rules governing the disclosure of information should be central to the stabilization of expectations about risk, and thus to the maintenance of the basis of trust necessary for the functioning of such markets. However, the issue of information disclosure involves a central contradiction. Profitable trading results from capturing the value of private information, which would be negated by disclosure; hence, an obligation to disclose removes the economic incentive to acquire information, and would impede the flow of active trading (Fischel and Ross 1991:509) by participants who believe they have advantageous knowledge or superior analysis. On the other hand, many investors would be repelled from markets if they perceive them to be ‘rigged’ by privileged knowledgeable insiders.

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Hence, it is in the characteristics of financial market transactions themselves that can be found both the need for rules, as a means of reconciling expectations and creating trust, as well as the reasons for their instability. The market requires a regulatory framework, inter alia to define the legitimate limits of property in knowledge. The abstract and formal nature of the rules helps to legitimize the terms of trading, while their relative indeterminacy provides the flexibility which can accommodate divergent expectations between the parties. The particular skills of legal professionals lies in acting as intermediaries between the realm of abstract-formal legal rules, where the general interests of market participants is debated and reconciled, and the practical realm of specific transactions, where the professional can and must exercise the creativity permitted by the ambiguities and indeterminacy of the rules to facilitate a deal or resolve a conflict caused by a failed transaction. As this creativity is also used on behalf of clients in the competition between market participants for competitive advantages, it can contribute to the destabilization of the regulatory system which results from the dynamic of the markets. The origins and basis of the prohibition of insider trading Historically, trading in financial securities was regulated only under the general law of contract and fraud. The emergence of a more specific regulatory regime took place in the US, following the general loss of confidence due to the collapse of the stock market in 1929, and the resultant widespread lack of trust and generalized belief that dishonesty permeated the financial markets. The need for regulation to restore confidence was argued by eminent lawyers who were also public figures, notably Brandeis, who published a critique of Wall Street (Other People’s Money) in 1933. Congress enacted legislation in 1933 and 1934 which regulates the issuing and registration of securities (Securities Act of 1933), and the purchase and sale of securities (Securities Exchange Act of 1934). The 1934 Act also established the Securities and Exchange Commission, a regulatory body of a fairly classical corporatist type: the Commissioners are eminent professionals who direct the policy, while the official staff are charged with its implementation. The main target of the legislation was market ‘manipulation’. However, this is a far from precise concept, and defining its scope involves significant economic and political issues, as well as affecting numerous vested interests. The legislation of 1933–4 included several specific provisions outlawing particular practices. Thus, s.16(a) of the 1934 Act required corporate executives to register their holdings of the company’s stock, while s.16(b) introduced the ‘insider’s short-swing profit rule’ requiring such insiders to disgorge to the company any profits from trading in its securities within a period of six months. The 16(b) rule was very narrow and easily avoided, since it did not cover trading in the shares of related companies, nor tipping, nor ‘stringing out’ trades beyond the six-month limit. In addition to such relatively specific rules, the 1934 Act also included a sweeping provision (s.10(b)) making it unlawful in connection with any sale or purchase of securities to ‘use any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe’. Whether and to what extent trading with privileged or inside information might amount to or should be treated as fraud was unclear, and had been the subject of some academic and judicial debate. Common law fraud generally required a deliberate and explicit misrepresentation. Hence, mere silence or the failure to disclose was not actionable, unless there was a basis for an obligation to speak, such as a confidential or a fiduciary relationship. Although the Supreme Court in Strong v. Repide (1909) had found that the concealment of his identity by a manager purchasing from a minority shareholder did amount to fraud, this seemed based on the special circumstances of a close relationship rather than the mere manager-shareholder link, which made the concealment fraudulent. Some argued that company executives were in a fiduciary position by virtue of which any trading by them in the firm’s securities should be regarded as tainted;

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however, it seemed too extreme to prohibit all trading by executives, and other theorists preferred to point to the need for disclosure by any person (not only managers or employees) trading on privileged information, which could also make avoidance more difficult by limiting the passing on of the information (Manne 1966: ch. 1). In the face of the inadequacies of narrow anti-fraud rules such as 16(b) and 17(a), the SEC in 1942 approved regulations under the broad powers of s.10(b), including Rule 10(b)–5, which much later became a key and hotly contested provision. Within the framework of a still very general rule against fraud, Rule 5 made it unlawful: To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.24 Initially, this provision was very little used. Overall, the rules and their enforcement merely routinized and normalized the disclosure of holdings by executives, as well as others purchasing large blocks of shares; this favoured larger issues of securities (Easterbrook and Fischel 1991:277–9). The 1930s New Deal reforms, which involved the delegation of regulation to self-regulatory bodies, including the stock exchanges and dealer organizations, served to eliminate competition and restore political legitimacy to the markets (Moran 1991:30–1). It was only in the 1960s, and based on private actions by shareholders and purchasers, that the issue of concealment of privileged information was brought to the fore. By 1965 there had been an appreciable increase in the number of private actions citing s.10(b)–5: in 1962–4 the number of cases citing 10b–5 were over 50 per cent more than those for the two prior decades, 1942–62 (Manne 1966). From the 1950s to the early 1970s the SEC contributed very little in the way of control of insider trading, even though it was clear from the empirical studies that there was significant non-disclosed trading on insider information; particularly in the context of unannounced merger plans.25 The uncertainty of the disclosure rule and the conflict over the misappropriation theory The activation of the obligation to disclose by means of civil actions brought by the SEC, as well as major criminal prosecutions by the Department of Justice, began in the late 1970s,26 resulting from major changes in financial markets. In particular, the opening up of trading in share futures substantially increased the potential value of privileged information, since very little capital outlay was needed to take a position on the possibility of a price movement. At the same time, the financial boom, creating much greater market competition, led to major institutional changes and the arrival of large numbers of newcomers both as employees and major traders. These changes destabilized the previous regulatory regime based on understandings among the WASP leaders of the major financial institutions and professional firms. While the vast bulk of cases initiated were resolved by out-of-court settlement (as is usual in white-collar infringement actions),27 some key actions were litigated to conclusion, exploring the ambiguities and limits of the legal rules. The basis for more active enforcement had been laid in the early 1960s, when William Cary, as Chairman of the SEC, supported the deployment of the fiduciary duty concept to establish an obligation on corporate insiders to ‘disclose or abstain’ from trading.28 The SEC’s reasoning was that there was a duty to disclose material information obtained by company executives, employees and others, since such information is obtained in the course of their work which should be to the benefit of shareholders. This

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still left very open the extent of the prohibition on the exploitation of such an informational advantage. While the more specific rules governing disclosure of share ownership and trading by executives might be too narrow and easily avoidable, a broader rule dealing with privileged information could strike to the heart of the quest for informational advantages which provides an important dynamic for the markets. Despite considerable doctrinal debate and some major litigation during the 1980s, including several landmark Supreme Court cases, there remains a lack of clarity both in the formulation of and in the rationale behind the insider dealing rule. In Chiarella v. United States (1980), the Supreme Court accepted that parity of information between trading parties could not be the aim, stating that ‘not every instance of financial unfairness constitutes fraudulent activity under s10(b).’29 The Court noted that the legislative intent of s10 (b) did not support the parity of information rule and that ‘the problems caused by misuse of market information had been addressed by detailed and sophisticated regulation that recognizes when use of market information may not harm operation of the securities market’ (ibid.: 233). The SEC had secured convictions against Chiarella, a ‘markup man’ employed by a well-known Wall Street financial printer, who by virtue of handling confidential documents for a takeover bid, was able to discern the names of the target companies from information contained in the documents. Acting on these deductions, and without disclosing his knowledge, Chiarella immediately purchased shares in the target companies and thereafter sold them after the takeover attempts were made public. The Supreme Court overturned the lower courts’ decision, stating that since he was not in a relationship of trust to the shareholders he was under no duty to disclose. The Chiarella decision sparked a heated theoretical debate, and obliged the authorities to shift to a broader-based theory that the duty to disclose was based on ‘misappropriation’ of information. Chief Justice Burger, in a strong dissenting judgment in Chiarella, had argued that, in the context of Rule 10(b)–5, what matters is whether a party obtains information through fair means or simply misappropriates it unlawfully for personal gain, since such a party should not profit from ‘his ill-gotten informational advantage by purchasing securities in the market’ (1980 445 US at 245). This appeared to provide a better grounding for a duty to disclose than the existence of a fiduciary relation, which covered only a limited circle of direct employees. The major test of the misappropriation theory occurred in the litigation following the admission by a Wall Street Journal reporter, R.Foster Winans, that he had shared pre-publication information of the details of his column ‘Heard on the Street’, with a broker in a major Wall Street firm, in exchange for payments to himself and his room-mate, David Carpenter. Winans argued that although he knew that his actions were a violation of journalistic ethics, they were not illegal (Winans 1987:260). The information essentially concerned the contents of forthcoming columns, hence the decisive moment in the pre-trial tactical manoeuvres was the production by the Journal’s officers of a 3½–page document stating the paper’s policy relating to confidential information; despite Winan’s denial that this policy had never been made known to him, this was the basis on which he and all those who benefited from the information he disclosed were convicted. Although the convictions were upheld by the Supreme Court, on the grounds that the Journal had been defrauded of confidential use of its business information, the Court was divided 4–4 on whether the misappropriation theory was a valid approach (Carpenter v. United States, 484 U.S. 19 (1987)). The enforcement process and restabilizing of the regulatory regime Within the framework of the loose and developing doctrinal rules, the regulators conducted a process combining guerrilla war and strategic bargaining with the major Wall Street houses, mediated by the various groups of lawyers involved. By the mid–1980s Wall Street was in the middle of an unprecedented

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merger wave and a raging bull market. The premium fees that investment banking houses were charging for their services in control contests created further competition and much public debate. There existed considerable public pressure on SEC Commissioners to step up their enforcement against insider trading, especially after the well-publicized Winans case and the persistent rumours circulating in the financial press that insiders were trading on confidential information in most of the hostile takeovers, which were occurring in greater frequency (Grunfest et al. 1988:311–32). Increasingly, critics of Wall Street’s freewheeling approach had begun to link insider trading with hostile takeovers. Congressional democrats were making soundings to step up regulation against takeovers. A new consensus gradually emerged that financial institutions, in order to promote further competitive gains, required an environment which was free from scandal and based on investor trust. This change in attitude resulted from the recomposition of the investment banking sector which occurred in the 1970s and early 1980s. Stimulated by the competition which resulted after the 1975 SEC decision to deregulate the fixed-rate commissions on stock transactions, investment bankers, affected by the loss of secure profits, struggled to create new markets (Moran 1991:35–63). As a result, the established investment bankers joined in with the newer investment bankers, like Drexel Burnham, to compete for other firms’ clients and to move into the financing of hostile takeovers. These changes upset many of the traditional social and professional relations on Wall Street; but at the same time, the changed commercial environment was threatened by allegations of unfairness which the practice of insider trading promoted in the minds of the public and legislators. The story of the chain of investigations leading from Dennis Levine through Ivan Boesky to Michael Milken and others, involving a series of major prosecutions, has been widely recounted (see notably Frantz 1988; Stewart 1991; as well as Oliver Stone’s film Wall Street). Although the underlying issue in these cases concerned inside information, many of the prosecutions were on other charges, such as stock parking or even registration failures. Virtually all the cases were settled out of court on the basis of plea bargains, the negotiation of which is the speciality of the white-collar defence attorneys, who are generally former prosecutors.30 The outcome of these, and many other less-publicized cases, has generally been to punish prominent scapegoats, mostly Wall Street newcomers. Nevertheless, this was clearly a traumatic process, not only for the individuals who fell from positions of great financial power and immense wealth to imprisonment and obloquy, but also for their firms, which included some of the leading names of Wall Street. That said, it is clear that the outcome has been the restabilization of a new regulatory regime based on greater bureaucratization and juridification: the ‘increasing codification of rules, a more prominent role for formally constituted organizations, both public and private; and growing penetration of law into the regulatory system’ (Moran 1991:13). Thus, into the gaps left by the indeterminacy of the general legal rules have been inserted detailed codes of practice, patrolled by corporate compliance officers, who cultivate a close relationship with the official regulators.31 Naturally, their prime task is to ensure that no harm comes to the institutions, and to minimize the number of individuals who may have to be sacrificed. The major financial institutions and market professionals in general terms have an interest in safeguarding their investments in more regularized processes of access to unique information, and in discrediting the more unorthodox and informal channels used by the likes of Levine and Milken. It is important to stress, however, both that the transition has not been smooth or predictable, and also that the new regulatory regime is far from being a model of formal rationality. In both these respects, therefore, we consider that it is necessary to go beyond a neo-corporatist theory such as that of Michael Moran, who locates the cause of juridification in the institutional structures of meso-corporations and argues that the regulatory struggles of the 1970s and 1980s reflect the response to the ascendancy of

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multinational financial services firms, which operate increasingly in all major world markets. In Moran’s view, the regulatory changes, orchestrated by decisive state interventions, are shaped by the alliance with large market players (Moran 1991:124–35). While it is no doubt the case that the shifting alliance of private actors and the state is responsible for the changes in regulatory form, we find that Moran’s thesis places undue emphasis on almost deterministic changes in state structures, which fails to capture the dynamic and contingent nature of the processes of change. We argue that a key focus must be the interactions of government and private-sector lawyers. Hence, juridification is the result of the strategic competition amongst different players within the juridical field. On this account, the shape of the formal legal rules and the constitution of the juridical field depends, in part, on the specific power of the legal professionals to manipulate power for their interests. It is, however, the competitive interaction between the state and the professionals around the definition of the legal regime which creates juridification. The power of these professionals lies in the specific skills which they control, of mediating the processes of legitimization entailed in relating the realm of abstract rules of law to the specific practices of economic actors. It is the indeterminacy of the abstract rules that leaves the space for creativity, which enables the reshaping of the regulatory regime. NOTES 1 This was belatedly recognized by the inclusion in the massive three-volume comparative study edited by Abel and Lewis of a final chapter called ‘Bringing the Law Back In,’ which sketched some considerations for the study of lawyers’ work. However, this project did not include any actual studies or analyses of lawyering. 2 The confidentiality of lawyer-client relations has been a serious barrier to access for a researcher, since an observation study requires initial cooperation from the lawyer and then permission from each client, entailing practical problems which may prevent a study taking place (Danet et al. 1979–80) as well as meaning that the interviews observed are likely to be a highly selective sample. Nevertheless, some observation studies have been carried out (Cain 1979; Sarat and Felstiner 1986). Research based on participant-observation has focused less on the process of lawyer-client interactions and more generally on lawyers’ strategies (Mann, 1985; Flood 1991). An interesting study by K.Mann concerned a relatively small group of white-collar criminal defence attorneys in the Southern District of New York, and began with in-depth, open-ended interviews, but was supplemented by participant observation, the researcher taking employment as an associate with one of the lawyers being studied (Mann 1985). Others have used their personal experience of law practice, focusing on a specific type of transaction for which documentation is available, e.g. Gilson’s (1984) analysis of the role of lawyers in mergers and acquisitions focusing on the drafting of a corporate acquisition agreement. 3 Regrettably, the importance of this study was not recognized, and funding for a full-length study was not forthcoming. 4 Robert Gordon, in his important essay on the effects of the turn to corporate law practice on New York lawyers after 1870 argues that law itself entails a legitimizing ideology, by offering ‘an artificial utopia of social harmony’ (Gordon 1984:53); he argues that this universal vision was embodied in an ideal of law practice, rooted in liberal individualism, which was undermined by the fragmentation of that order, a process to which lawyers contributed considerably, especially through their service of corporate power. This created a disjuncture between the old ideal of the law and the practical tasks lawyers were called upon to perform on behalf of clients, which was only partly remedied by the attempt to reconstitute a new progressive vision of the corporate lawyer, since the new synthesis was too liberal-reformist to be acceptable to clients and the courts. 5 Gilson additionally points out that the major law and accountancy firms involved also act as reputational intermediaries since, unlike the primary parties, they will expect future mutual dealings. 6 This was forcefully expressed in the Report of Derek Bok (himself formerly a business law teacher) as President to the Board of Harvard University, cited both in Gilson (1984) and by several of the contributors to the symposium on corporate law firms published in Stanford Law Review, 34 (1984).

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7 Gilson 1984:308, citing Akio Morita, former chairman of Sony. 8 In his exchange with Fuller, Hart argued that words have a settled core meaning, but that in cases where there is no core meaning the law is ‘incurably incomplete’ and interpreters by discretion decide penumbral cases. Thus, he states, ‘If a penumbra of uncertainty must surround all legal rules, then their application to specific cases in the penumbra cannot be a matter of logical deduction, and so deductive reasoning, which for generations has been cherished as the perfection of human reasoning, cannot serve as a model for what judges, or indeed anyone, should do’ (Hart 1958:607–8). Thus, Hart’s argument was that borderlines must be drawn, whereas Fuller argued that meaning is always tightly connected to the aim of the legal rule. Recently, Dennis Patterson has tried to reconcile the Hart-Fuller divide, arguing that while Hart is correct to draw hard lines in the law, Fuller is also correct in claiming that the line should be drawn based on the ‘settled context of use.’ Hence, for Patterson, what counts is the formal element of the rule which makes the rule intelligible to an interpreter (Patterson 1990:961–3). However, Patterson’s perspective remains within linguistic philosophy, although emphasizing a Wittgensteinian view of context. 9 The Realists attempted to show that formalism is an impossible project. For the most part, the Realists claimed that law is deeply subjective and contradictory and therefore a purely formal system is implausible to justify since it is rooted in the values and assumptions which it purports to exclude, viz., politics, morality, etc. Several authors have pointed to the continuities between the Realists and CLS: see e.g. Brigham and Harrington 1989. 10 Ken Kress (1989) examines the work of Altman, Singer and Kennedy, to show that, like liberals, CLS theorists think that legal determinacy is necessary to ground consent: Kress argues there are other grounds to uphold just institutions. 11 Recently, Richard Posner has stated that formalism has three features: (1) a scientistic element which defines law in terms of a set of principles and a form of legal reasoning which produces certain outcomes; (2) a formalist element which is static and treats legal principles as if they were timeless and have no chronological ordering; and (3) a conceptual vision which separates life from law. While there are both natural law and positivist versions of formalism, Posner argues that the common thead is the view that one’s conclusions follow from one’s premises (Posner 1990:15–16). For a critique, see Fish 1990:1458–9. 12 Kelman (1987) offers a powerful critique of Kennedy’s distinction; for a sustained analysis of Kelman’s own version of the indeterminacy thesis, see Kress 1989:310–20. 13 For the most part, Unger’s deviationist doctrine is perceived as the least threatening, and hence most attractive, version of indeterminacy critique, since it provides a foundation for the legitimacy of law within certain aspects of the present normative order (Collins 1987). For a view that Unger is actually a deconstructionist, see Jack Balkin (1990:1688 n. 55, 1689 & n. 57). 14 Teubner, following Luhmann, argues that the legal system has no foundation and that paradox, self-reference, indeterminacy, etc., are part and parcel of the operation of the legal system (Teubner 1990:408–9). Hence, paradox can be grasped by a theory which contends that reality has a circular structure and there is no insight gained from attempting to seek solutions by avoiding paradox. 15 Interestingly, Luhmann and Derrida both refer to Walter Benjamin’s classic essay, ‘Zur Kritik der Gewalt’ to support their claim that ‘there is no such right above right and wrong, no such superright’ (Luhmann 1988b; 154; Derrida 1990). 16 Teubner acknowledges that the recursivity of the legal system creates a problem for societal regulation. Briefly, the problem is that external intervention within the legal system creates a regulatory trilemma: i.e., regulation creates disintegration (institutional death); is irrelevant; or corrodes the social sphere (see Teubner 1987:21). 17 Also, the juridical field has its own rules and conventions which must be accepted by all participants. Its fundamental principle is that all conflicts must be resolved juridically; beyond this, the three main requirements, Bourdieu says, are (1) that decisions are binary (e.g. guilty/not guilty), (2) claims must be couched in the procedural terms which have become historically accepted, and (3) precedents are authoritative (Bourdieu 1987:832). 18 Bourdieu states: ‘Between the system of objective regularities and the system of directly observable conducts a mediation always intervenes which is nothing else but the habitus, geometrical locus of determinisms and of individual determinations, of calculable probabilities and of lived-through hopes, of objective future and

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subjective plans. Thus, the habitus of class as a system of organic and mental dispositions, of unconscious schemes of thought, perception and action is what allows the generations, with the well-founded illusion of the creation of unforeseeable novelty or of free improvization, of all thoughts, all perceptions and actions in conformity with objective realities, because it has itself been generated within and by conditions objectively defined by these regularities’ (Bourdieu 1968:706). To take a comtemporary example, Dezalay argues that the internationalization of capital and the deregulation of financial markets in the 1980s have stimulated a response by the most powerful players in the legal field (Dezalay 1992). The new technological developments, and the movement of firms across jurisdictions, is linked to the relative position of each group of lawyers in the juridical field, and their ability to obtain sufficient resources to create new devices for exploitation by their clients. This appears to function as a structural explanation, without sufficient regard either for the improvizational activities of lawyers, which help to mediate the social conflicts, or for the structurally complex role of states. In certain respects, Bourdieu is influenced by Wittgenstein’s work on rules, although he often says that the reality of practices is a richer source for understanding the social fields (e.g. Bourdieu 1990:59–75). We believe that Bourdieu’s notion of indeterminacy is broadly consistent with the community consensus reading of Wittgenstein since it looks to the social-cultural features of rule-following over the internal, grammatical aspects (Bourdieu 1986:826). Elster has argued that Bourdieu’s symbolic theory also has functional explanation at its core (Elster 1983:105–6); but see Bourdieu (1990:106–19). These differences caused similar difficulties for Weber’s theory of legal formalism, the famous ‘England problem’. Bourdieu himself argues that the French and German Professorenrecht is based on the primacy of doctrine over procedure, whereas the Anglo-Saxon case-law system emphasizes procedural fairness and aims for a solution to the particular case without much concern for its basis in a moral or scientific rationality; this distinction he sees as rooted in the greater importance of practice both in legal training and in the recruitment of judges (Bourdieu 1987:822). The argument is further developed by Dezalay, (1986) who argues that the theoreticians of pure law have a stranglehold over the reproduction of law, which they codify and rationalize on the pretext of drawing out general and abstract rules by purifying them of ordinary language, dispossessing and downgrading practitioners, a picture which does not easily fit the common-law world. Even law-and-economics scholars have tried to integrate some of the insights of the post-realist jurisprudence; thus, Jason Scott Johnston has examined the problem of legal uncertainty, and argues that legal form oscillates ‘from precision to generality, between rules and balancing’ (Johnston 1991:365). SEC Securities Exchange Act Release No. 3230 (21 May 1942), 7 Fed Reg. 3804 (1942) (17 CFR S240.10b–5). Early studies showed a strong relationship between insider trading and large price movements (see e.g. Lorie and Niederhofer 1968:50–2; Pratt and De Vere 1972; Jaffe 1974a). For recent discussions of the statistical evidence see, e.g., King and Roell (1988:173–7); Suter (1989:912). Susan Shapiro’s study of the SEC analysed data on securities violation prosecuted by the agency from the late 1940s to the early 1970s, and showed that the vast majority were apparently technical misrepresentation and registration violations; however, while most of the common types of violation were remarkably stable, some offences, such as professional technical violations and self-dealing, increased. Shapiro concluded that ‘[t]hese trends reflect some mixture of the effect of changing economic conditions, growing sophistication among wayward capitalists, shifting SEC priorities, and the ubiquity of certain generic modi operandi of securities fraud and cover-up’ (Shapiro 1984:27 & n. 4). The Commission brought fewer than fifty actions in the two decades 1949–1977, but seventy-seven cases between 1982 and 1985, equivalent to all the cases brought in the previous forty-seven years (information from the SEC: see also testimony of its Chair, John Shad, to the Subcommittee on Telecommunications, Consumer Protection, and Finance, of the Committee on Energy and Commerce of the House of Representatives, Hearings on Insider Trading, June-July 1986; Naylor 1989). The first criminal prosecution was brought in 1980, after which about 40 per cent of cases were criminal in nature (Naylor 1989:88).

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27 Of the twenty-two Department of Justice prosecutions between 1981 and 1984, twenty-one were guilty pleas; however, of the fifty-five cases brought in the Southern District of New York up to 1987, sixteen defendants pleaded guilty (Naylor 1989:88; see also Flynn 1992:109 & n. 8. 28 The disclose or abstain rule developed in Cady, Roberts & Co. 40 S.E.C. 907 (1961) was later upheld by the Second Circuit Court of Appeals in SEC v. Texas Gulf Sulphur Co. 401 F.2d 833 (2d Cir. 1968), cert. denied, 404 U.S. 1005 (1971). 29 Chiarella v. United States, 63 L.Ed. 348, 359 (1980) (citing Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 474–477 (1977)). 30 Mann (1985). In these cases a key part was played by Harvey Pitt, a former SEC attorney, who defended Bank Leu in the Levine investigation (in the process helping to identify Levine as the scapegoat), and negotiated the pleabargain for Ivan Boesky which was denounced as a ‘sweetheart deal’ (Stewart 1991:296). 31 Prior to the massive publicity given to the high-profile insider trading prosecutions, Congress had been satisfied with an enforcement consisting of obey-the-law injunctions and administrative remedies imposed by the SEC. How-ever, the 1984 Insider Trading Sanctions Act provided for fines up to three times the profit gained or loss avoided. Even more significantly, the 1988 Insider Trading and Fraud Enforcement Act provided for civil penalties for organizations which fail to take affirmative measures to prevent insider trading by their employees. These powers have produced record sums in terms of disgorgements obtained from defendants (see McLucas et al. 1992:88–9).

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Index

ABA see American Bar Association Abbott, A. 6, 7, 56, 57, 58, 64, 65, 66, 68–9, 72, 129, 140, 171, 226, 231, 239 Abel, R.L. 17, 146, 205, 229, 239; and Lewis, P.S.C. 6, 8, 197, 205, 238, 239, 270 Abel-Smith, B. and Stevens, R. 15, 17, 229 accountancy 9–10, 16, 72, 140–1; calculative technologies 52, 54, 56–7, 69–70; and corporate failure 66–7; fragmentation of 70; in France 68–9; globalization of 25; internationalization of 156–8; and intra-professional competition 67–8; rise of 65–6, 71; in USA 68 accountants, ambitions of 13; and lawyers 8; multidisciplinary services 26; see also lawyers/accountants intersection acquisitions see mergers and acquisitions Airs, G.J. 26 Albert, M. 4, 10, 99 Albrow, M. 147 Allen & Overy 149 Alpha, G. 173 Altman, A. 246 Alworth, J.S. 47 American Bar Association (ABA) 43 American Challenge 145, 184, 192 American corporate law model 14 American Express 147 anti-monopoly board 107, 108 anti-trust, legislation 9, 85, 86, 90, 93, 129–30; ‘missionaries’ 90–4 ‘Arm’s length principle 38–9, 42, 61 Armstrong, P. 66

Arnold, B.J. 47 Arthur Andersen 157–8 Ashton, R.K. 29 Ashurst & Sidley 186 Ashurst Morris Crisp 149 Aubert, W. 173, 180 Auerbach, J. 6, 8 Australia 140 autopoietic systems theory, and corporate law 128–32, 176 ‘back-to-back’ financing 36 Bahamas-Curaçao (Netherlands Antilles) 35, 47 Balkin, J. 252, 272 Bancaud, A. and Boigeol, A. 195 Bank of England 63, 95, 98, 245 Bank for International Settlements (BIS) 63 bank lawyers 205–6; career prospects 213–15; changing demands and responsibilities 215–18; fields of work 206–8; graduates in 218–21; lawyers in 207–8, 221–3; in legal and commercial departments 208–12; legal method 212–13; losses and successes of 223–4 bankruptcy 7, 9, 16, 80, 81 Bankruptcy Acts 66, 227–8 banks 75; changes and developments in 215–18; credit business 210, 211, 221; crisis in 63; in Germany 60; globalization of 26; project financing 212; syndicate business 209–10, 211–12, 221 Barker, E. 141 198

INDEX

Basle Committee 63 ‘beauty parades’ 141 Beaver, W.H. et al. 60 Benjamin, W. 272 Bernard, M. 190 Bezzenberger 124 Big Bang 143, 173, 185 Big Six 3, 9, 13, 56, 142 Bihr, A. 4 BIS see Bank for Internaitonal Settlements Bishop, W. 148 BK see Bundeskartelamt Black, D. 182 ‘Black Wednesday’ 142 Blandin, C. 99 Blankenburg, E. 124 Bliss, J.H. 59 Blumberg, A. 240 Boden, D. 146 Boesky, Ivan 265 Boigeol, A. 153 Bok, Derek 271 Boltanski, L. and Thévenot, L. 53, 88 Bolze, C. 108 Bourdieu, P. 1, 5, 6, 15, 44, 59, 88, 128–9, 171, 200, 234, 250–7, 272–3; and de St Martin, M. 15; and Wacquant, L. 7 boutique firms 255 Boyer, R. 2, 6 Bracewell-Milnes, B. 45 Braudel, F. 18 Brent Walker plc 54–6, 62 Breton, A. 110 bridge loans 83 Brigham, J. and Harrington, C. 271 ‘bright line’ rules 36 Brill, S. 147–8, 157 Brown, R. 66 Brownlee, W.E. 46 Bruck, C. 18, 81 Bruckhaus, Westrick & Stegemann 124 Bundeskartelamt (BK) 92–3 Burchell, G. 52 Burgin, E.L. 233 Burnside, A. 150, 151 Burough, B. and Helyar, J. 18 Burrage, M. et al. 171 business lawyers 12–13, 14, 100;

199

see also corporate lawyers business/state, mediation between 43–5 Cain, M. 241–2, 270 calculative technologies, use of in corporate failure 51–72 Calvet, H. 107 Canada 158, 159 Cancaud, A., and Dezalay, Y. 15 capital, adequacy 63; flight 39; symbolic 79 capitalism 10; casino 18; monopoly 85; state 98 Carr-Saunders, A. 140 Carrington, P. and Murphy, B. 143 Carroll, Mitchell 38, 41–3 Carrone, L. 99 Cary, William 263 Castel, R. 53 Castells, M. 6 Cayman Islands 45 Cazenove 96 CCAB see Consultative Committee of Accountancy Bodies CFCs see controlled foreign corporations Chamber of Attorneys (Rechtsanwaltskammer) 117, 118, 127 Channel Islands 33 Charle, C. 17 Chartered Association of Certified Accountants 67 Chayes, A. and Chayes, A.H. 255 Chernow, R. 18 Chiarella 263–4 China 140, 161 Chirot, François 88 Chouraqui, A. 177 Church, T. 145, 178 City Code 96–101 City of London 11, 14, 147, 192; and takeovers 94–9, 100–101 civil law 13–18, 146–7, 183 Clarke, C. 141 Clarke, M. 6, 52 Cleary Gottlieb 142, 152 COB (Securities Exchange Commission, France) 105–7, 108 ‘Coca-Cola world’ 139

200

INDEX

Cockfield, F. 175 Cohen-Tanugi, L. 15, 177 Collins, H. 272 Commaille, J. 180, 181 common law 146, 183, 254 Companies Acts 66 Company Directors Disqualification Act (1986) 76 Company Pathology (County NatWest) 57 company residence 28–30, 29 competition 10, 36, 83, 188, 255; and corporate lawyers 124–8; expansion 172; in finance markets 216; inter-professional 67–8 competition law 90–4; in Germany 92–3 compliance work 259 Conseil des Barreaux de la Communauté Européenne (CCBE) 141 Conseil d’Etat (Supreme Court for administrative justice) 106, 107, 110 Consolidated Gold Fields 160 Consultative Committee of Accountancy Bodies (CCAB) 68 controlled foreign corporations (CFCs) 30, 37–8 Coombe, R. 252 Cooper, D. and Hopper, T. 62 Cork Committee 76 corporate failure 51, 71–2; calculation of 51–2, 54, 57–65; calculative expertise and government of 65–71; negotiability of 54–7; pragmatic dimension of 53; as problem for government 52–3; transformation of practice 69 corporate law firms (organization), flexible, international, multidisciplinary 119–20; monopolization and specialization 118–19; work ethic and image 120–2 corporate lawyers 255; American 192; autopoietic perspective on 128–32; competition or co-evolution? 124–8, 130–1; development 114–15; dilemma of professional regulations 117–18; in Europe 192–3; and European legal professionalization 187–90; in Germany 114–32; growth of 122–4;

organization of 118–22; social closure of 115–28 corporate rescue 56 corporatism 98 Council of Chartered Accountants 233 Council of the Institute of Chartered Accountants 233 Courts and Legal Services Act (1990) 197 Credit Lyonnais 89 Crook, C. 142, 144 cross-border legal relations 154, 180, 190–6 Crouch and Marquand 190 Crozier, M. 179 cultural identity 175, 179–80 culture, concept of 145 Curran, B.A. 205 Dahrendorf, R. 16 Daimler Benz 205 Danet, B. 270 De Beers 28 Delaunay, J.-C. 146 Delors, Jacques 1, 150 Dennett, L. 147, 233 Department of Trade and Industry (DTI) 92, 95 Derrida, J. 272 Deutsche Bank 88, 205 Dev, S. 59, 60, 62 Dewhurst 29 Dezalay, Y. 1, 2, 6, 13, 17, 18, 26, 56, 58, 69, 70, 105, 172, 174, 181, 188, 205, 272, 273; and Garth, B. 4 Dias, C.J. et al. 189 Dicken, P. 145 DiMaggio, P.J. and Powell, W.W. 145 Dingwall, R. and Fenn, P. 181 disclosure rule 263–4 Domhoff, G. 17 double-deontology 193, 194 double-dip leasing 43 Drago, R. 106 Drai, P. 104 Dresdner Bank 205 Drexel Burnham 84, 265 DTI see Department of Trade and Industry du Pont Company 59 Dumez, H. and Jeunemaître, A. 78 duty of ‘interprofessional concertation’ 195 Easterbrook, F. and Fischel, D.R. 262

INDEX

Eburne, A. 26, 140, 157 economic regulation 104; judge’s role 108–12; recomposing the system 104–8 Economides, K. 175 Edwards, J.R. 66 Ehrlich, J. and Rehfeld, B. 18, 82 Einaudi, L. 39, 40, 45 Elias, N. 234 Elster, J. 273 Ernst & Young 157 Ernst & Young Juridique et Fiscal 161 Espeland, W.N. and Hirsch, P.M. 65 Europe, diversity, identity, loyalty 179–81; and legal professionalization see legal professionalization; process of unification 175–8 European Community (EC) 140; directives 95, 190, 193–6 European Court of Justice 107 European Monetary System (EMS) 142 European Single Act (1987) 178 expertise, concept of 72 external growth 78, 79 Fairburn, J. and Kay, J. 78 Farmers Group 158 Federal Income Tax Code 61–2 Federal Reserve 60, 62 Felstiner, W.L. et al. 240 finance, competition in 216; internationalization of 14 financial markets 142–3 Financial Services Act 101 Finkelnburg 124 Fischel, D.R. and Ross, D.J. 260 Fish, S. 259, 272 Flom, Joseph 152 Flood, J. 140, 149, 150, 181, 270; and Skordaki, E. 143 Foreign Sales Corporation (FSC) 47 formalism 272 forum shopping 3 Foucault, M. 52, 170, 172, 180, 200 fragmentation 70 France 41, 68–9, 139, 140, 184, 192; economic justice system in 104–12; law in 153–4 Frankenberg, G. 249

201

Frantz, D. 265 Freedman, J. and Power, M. 70 freedom, notion of 189 Freidson, E. 171, 198 Friedman, L.M. 179, 180 Frost, David 46 FSC see Foreign Sales Corporation Gabel, P. 242 Galanter, M. 140, 152, 238; and Palay, T. 1, 189, 238 Gallaher 96 GATS see General Agreement on Trade and Services GATT see General Agreement on Trade and Tariffs Gaudemet, Y. 107–8 Geertz, C. 140, 173 General Agreement on Trade and Services (GATS) 193 General Agreement on Trade and Tariffs (GATT) 1 German Association of Lawyers (Deutscher Anwaltsverein) 117, 127 Germany 60, 76, 92–3, 99, 139, 140, 192; corporate lawyers in 114–32; law in 154–5 Gessner, V. and Schade, A. 180 Giddens, A. 260 Gide Loyrette Nouel 149 Gillman, S. 59 Gilson, R.J. 242–4, 271 Glass-Steagall Act 143 Glendon, M.A. et al. 146 Glenn, H.P. 188 global market 2 global village 5 globalization 4–5, 8, 14; of accountancy 25; of banks 26; constraint on 144; and culture 142–6; development of 139–42; and the law 146–61; limits of 158–60; of ‘productive’ activity 172; professional restructuring of 145; struggle for 146; synonymous with Americanization 160 Gneist, Rudolf von 200 golden parachutes 83 Goldenberg, S. 146 Goodrich, P. 234

202

INDEX

Gordon, R. 9, 87, 93, 271 Gouldens 150 government see the state graduates, in banking 218–21 Granovetter, M. and Swedberg, R. 6 Griffiths, J. 10 Greenhouse, S. 162 Grieves, John 160 Griffiths, J. 10 Griggs, J. 162 Group of Seven 144 Grunfest, J. et al. 265 Habermas, J. 178, 188, 234 habitus 251–2, 272 Hague Academy of International Law 40 Halliday, T.C. 205; and Carruthers, B.G. 58 Hancher, L. and Moran, M. 6 Hanson, Lord 150 Harms, H. 192 Hart, H.L.A. 245, 271 Hartmann, M. 127, 205, 224 Hebdige, D. 140 Heinz, J.P. and Laumann, E.O. 15, 205, 238 Hermann, A.H. 92, 100 Hobson, D. 18, 96, 143 Holland 140 Holmes, R. 232 Holzapfel, H.J. 92 Hong Kong 140, 142, 150 Hopwood, A.G. 63 Horrigan, J.O. 59, 61 hostile takeovers 10, 81, 82–3, 91, 99; see also mergers and acquisitions Huyse, L. 178 Icahn, Carl 81 ICC (International Chamber of Commerce) 31, 32, 38, 40 IFA 42, 43 IFA see International Fiscal Association indeterminacy critique 18, 245–8, 249, 252 Industrial Reorganization Corporation 88, 96 Ingham, G. 10, 94, 98 Inland Revenue 33–4, 46 insider trading 18, 274; and conflict over misappropriation theory 264; enforcement process 264–5; origins and basis of prohibition of 261–3;

restabilizing regulatory regime 265–6; risk, trust and property in information 260–1; uncertainty of disclosure rule 263–4 insolvency 56–7, 62–3, 67–8, 71, 76; institutional regulation of 58; legal definition 57–8 Insolvency Act (1986) 57, 67, 68 insolvency practitioners committee (IPC) 67, 68 Institute of Chartered Accountants in England and Wales (ICAEW) 67, 68 Institute of Chartered Accountants in Scotland 67 Institute of Professional Accountants (IPA) 67, 68 Interjura 140, 184, 186 International Chamber of Commerce (ICC) 43 International Fiscal Association (IFA) 42, 43 internationalization, and accountancy 156–8; of commerce 215–18; growth of 142–4; and law 146–56, 158–61; strategy 14–15 IPA see Institute of Professional Accountants IPC see insolvency practitioners committee Ireland 35 Irti, N. 172 Italy 14, 140, 184, 198; law in 155–6 ITT 43 Jacobi, O. 191 Jaffe, J.F. 273 ‘jailhouse lawyers’ 254, 255 Japan 139, 146, 154, 158, 159 Johnson, C. 142 Johnson, T. 141, 172, 200 Johnston, J.S. 273 Johnston, M. 82 Joint Insolvency Examination Board 76 judges, position of 104–5; power of 107; redefining role 108–12 junk bonds 81, 83, 84 Kahn, P. 182 Karpik, L. 104, 186 Kelman, M. 272 Kelsen, H. 246 Kennedy, D. 246, 252 King, M. and Roell, A. 273 Krause, E. 180

INDEX

Kress, K. 271 Lacoumes, Pierre 104 Landwehrmann, F. 31 Larson, M.S. 6, 8, 17, 238, 239 Latour, B. 64 law, Americanization 3–4; autonomy of 250, 252–3; behaviour of 182–7; commercialization 4; competition in 5–6; descriptors of 140; diplomas in 153, 195–6; in French economy 104–12; internationalization of 7–8, 9, 146–56, 158–61; local 172, 174, 177, 185, 196, 198, 199–200; national 173, 177, 186, 195, 196, 199–200; notarial 183; paper 178, 197; power of 251; reform of 148–50, 161–2; submission in 110, 111; transformation of 6; transnational 199–200 law firms, and accountants 25; growth of corporate business 26; as multidisciplinary/multinational 171–2 Law Society 229, 230, 232–3, 234–5 ‘law-in-action’ 197 lawyer-client relationship 240–2, 259, 270 lawyering, business 242–4; and insider trading 260–6; regulatory process and dynamic of 257–9; as social practice 244–57; structure to process 238–44; studies of 240–2; as translation 241 lawyers, and accountants 8, 25; in banks see bank lawyers; corporate 44; as ‘gate-keeper’ 240; increasingly marginalized 13; influence 15–16; and international market 3–4; and international taxation 26–7; as lobbyists in Brussels 150–2; status 2–3, 8, 15–16, 17 lawyers/accountants intersection 8, 226–7, 235–6; ascendancy of latter over former 230–3;

blurring of role 228–9; history of 227–30; and power of the law 234–5 Lazard 88, 89 League of Nations 38, 40, 41–3, 45, 48 Lederman, L. 18 Lee, R.G. 149, 192 Legal Practitioners’ Society 231 legal professionalization, change, resistance and transformism 182–7; and corporate lawyering 187–90; and EC governmentality 199–200; and EC policy-making 190–6; and European unification 175–8; ‘one- dimensional’ framework 171–3; process of 170–1; prospective trends 196–9; redefinition of European framework 178–82; theoretical guidelines 173–5 legal rules, Bourdieu’s approach 250–3; creative compliance 244–5; uncertainty of 271 legislative armistice 189–90, 193 level playing fields, philosophy of 51–2 leveraged buy-out (LBO) 79, 84 Levine, Dennis 265, 266 Lewis, M.K. 18, 143–4; and Davies, J.T. 142 Lewis, P. 238 Lipton, Marty 83, 84 Lisagor, N. and Lipsius, F. 152 ‘local discretionary legal system’ 172, 178 Lorie, J.H. and Niederhofer, V. 273 Luckham, R. 239 Luel, Simon 89 Luhmann, N. 129, 179, 180, 187, 252–3, 260, 272 M&A see mergers and acquisitions Maastricht Treaty 1, 178 Macaulay, S. 83, 240–1 McBarnet, D. 245; and Whelan, C. 2, 245 McCullough, V. 142, 143, 150 MacFarlanes 149 McLucas, W.J. et al. 274 management buy-out (MBO) 83 Mann, K. 270, 271, 274 Mann, M. 139 Manne, H.G. 262

203

204

INDEX

Martines, L. 6 Maxwell publishing 143 MDPs see multidisciplinary practices mega-law 152, 155 Merger Task Force 92 mergers and acquisitions (M&A) 8, 10–11, 11, 185; advising on 94; American style 78, 80, 90, 100, 101; Continental and Anglo-Saxon models 98–100; cyclical 81, 88; decisions concerning 79; emergence of European market 85–90; in Germany 99; ‘one-stop shopping’ 79, 91; regulation of 78, 80, 88, 90–2, 95–101 mezzanine financing 83 Milgrass, P.R. et al. 2 Milken, Michael 83, 84, 265, 266 Miller, P. 61; and O’Leary 63; and Power, M. 69, 234; and Rose, N. 52, 61, 71 Milovanovic, D. 255 Mimin, P. 110 Mingay, G.E. 227 Minorco 160 Mintz, B. and Schwartz, M. 6 Miranti, P. 68 misappropriation theory 264 Mittelstand 93 MMC see Monopolies and Mergers Commission MNCs see multinational corporations MNPs see multinational practices Monopolies and Mergers Commission (MMC) 92, 94 Montagna, P. 13, 53, 65, 156, 157 Moore, S. 176 Moran, M. 262, 265–6 Morgan Grenfell 88, 96 Morgan Guaranty Trust 43 Morita, Akio 271 Mortin, E. 199 ‘multi-door-courthouse’ system 176 multidisciplinary practices (MDPs) 148, 150, 157 multinational consultancies 79 multinational corporations (MNCs) 141, 142, 157 multinational practices (MNPs) 148, 150 NAFTA see North American Free Trade Area Napier, C. and Noke, C. 227, 232, 234

nation-state 143, 176, 177 National Credit Office 59 national ‘sovereignty’ 44 Naylor, J.M. 274 Neate, F.W. 143 Nelson, R.L. 188, 255 Netherlands 35 Netherlands Antilles (Bahamas- Curaçao) 35, 47 New Deal 262 ‘new legal press’ 181 Nora, D. 81, 83 North American Free Trade Area (NAFTA) 1, 140 North, D.C. 2, 6 OECD countries 37–8, 46 ‘off-the-shelf’ companies 29 Office of Fair Trading (OFT) 92 OFT see Office of Fair Trading Ohmae, K. 145 Olgiati, V. 176, 180, 182, 183; and Ioppa, P. 183 Olympia & York 143 O’Melveny & Myers 149 ‘one-stop shopping’ 79, 91 Own Funds Directive 64 ‘pacman’ method 83 Page, N. 26, 146 Paris Court of Appeals 105, 107, 111, 195 Parkin, F. 126 Parsons, T. 129, 140 Pashigian, P. 140 passive income 37 Patterson, D. 271 pension funds 81 Perkin, H. 6, 17 Perks, R.W. 140, 141 Piccioto, S. 142 Pickens, T. Boone 81 Piniot, M.C. 105, 111 Pitt, Harvey 274 Pizzorno, A. 179 poison pills 79, 83 Polanyi, K. 170 political loyalty 175, 179, 181 Posner, R. 272 Powell, M.J. 17, 181, 205 ‘power to enjoy’ income 34 Pratt, S.P. and de Vere, C.W. 273

INDEX

Price Waterhouse 158 principle of mediation (Salandra doctrine) 198 ‘principle of reciprocity’ 182 private economy, and calculative expertise 53 professionalism 187 professions 1–2; class rivalries and power 17; competition between 140; development of 141; regulation of 141; reshaping of 13–18; theories of 238–40 Prot, B. and de Rosen, M. 78, 81, 82 Prussian Income Tax Law 46–7 quick assets 60 raid psychosis 83 ratio analysis 56, 58–65, 71–2; accounting ratios 9; calculative technologies of 61–3; criticisms of 62, 75–6; in Germany 76; history of 59–60; industry-wide ratios 61; performance ratios 60–1; solvency ratios 64; in USA 63–4 reality paradox, and systems theory 248–50 reconversion, strategy of 4 Reeder, W.J. 16, 227 regulation 6; of corporate lawyers 117–18; development in lawyering 257–9; European 11–12; of M&A 78, 80, 88, 90–2, 95–101; of the professions 141; social 180; and tax 36; technologies of 9–13; theories of 18; see also rules and regulations regulatory shopping 3 Rice, R. 149, 151 ‘robber barons’ 86 Rockefeller Foundation 38 Rogowski, R. 192 Rohatyn, Felix 84 Roosevelt, F.D. 33

205

Rose, N. and Miller, P. 53, 56 Rothman, R.A. 205 Rousselet, M. 109 Rozen, M. 150 Rueschemeyer, D. 16, 58, 147, 238 rules and regulations 77; juridical- political basis 78; in M&A 78–80; see also regulation Saatchi & Saatchi 149 Salais, R., and Thévenot, L. 6 Salaman, J.S. 231 Salandra doctrine 198 Salomon Brothers 143–4 Sampson, A. 18, 82, 95, 96 Sander, R.H. and Williams, E.D. 140 Sarat, A. and Felstiner, W.L. 242, 270 Sassen, S. 14, 142, 145 Schlesinger, R. et al. 146 Schrage, M. 144 Scotland 65, 146, 178 SEC see Securities and Exchange Commission Securities Exchange Acts 261 Securities and Exchange Commission (SEC) 59, 60, 61, 84, 95, 98, 141, 263, 265, 273, 274 Seligman, E.R.A. 39, 40 service, notion of 189 Sewell, W.H. 252 Shad, John 273 Shapiro, S. 273 Shearson Lehmann 147 Sherman Act 86 Sidley & Austin 141 Siegrist, H. 183 Silbey, S.S. 145 Singapore 35 Single European Act (1986) 122 Singleton-Green, B. 68 Skadden Arps 152, 157, 158 Sklar, M.J. 86, 258 Slaughter & May 152, 161 Slinn, J. 152, 233 Smigel, E. 85 Smith, R.J. 140, 144, 145 social closure 12; and corporate law 115–28, 130 Society of Practitioners of Insolvency (SPI) 67 socio-legal systems 173–4, 176

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INDEX

Soeters, J. and Schrueder, H. 145 Solvency Ratio Directive 64 Sontag, S. 150 Sousa Santos, B. 179, 180, 181 South Africa 146 Spain 140, 184, 192 Spangler, E. 205 specialist lawyer (Fachanwalt) 118 SPI see Society of Practitioners of Insolvency ‘sporting theory of law’ 187 Sri Lanka 146 Stacey, N.A.H. 66 the state, intervention and obligation of 52–3 Stewart, J.B. 18, 265, 274 Steyger, E. 178 stock exchanges 84, 105, 142–3 Stone, Oliver 265 Strange, S. 6, 18 Streek, E. and Schmitter, P. 176 structuralism 238–9, 252 Sugarman, D. 147, 149, 233, 234 Suleiman, E.N. 183 Sullivan & Cromwell 147 Sumption, A. 34 Suter, J. 273 Sutherland, Peter 90, 91 Sweden 140 systems theory, and reality paradox 248–50 Tait, N. 97 Takeover Panel (TOP) 11, 94, 95, 96–8, 100 takeovers see hostile takeovers; mergers and acquisitions tax, avoidance 25, 33–5, 36–7, 45; and corporate law 125–6; evasion 39; havens 35–8 Tax Institute 35 Tax Reform Act (1986) 47 tax-driven deals 43 taxation 9; double 28, 31–2, 39–40, 48; in France and USA 31; in Germany 30–1, 46; global approach 38; in Great Britain 28–30 taxation (international) 46–8; background 25–7; company residence or citizenship 28–31;

development of 27–39; dynamics and ideology of 39–5; havens and transfer pricing 35–9; mediation between business and state 43–5; tax treaty system and planning 31–5 technical diversity 175, 179, 181 Teubner, G. 14, 70, 179, 180, 248–9, 253, 272 ‘thickness’, legal 173, 183 Thomas, P.A. 173, 192, 198 Thompson, E.P. 78 TNCs see transnational corporations Tomasic, R. 90 TOP see Takeover Panel Trachtman, J.P. 4 trade 1 transfer price evaluation 38–9 transnational corporations (TNCs) 25, 27, 29, 30, 31, 39, 42, 45 Treaty of Rome 91, 122, 172, 189–90, 193 Trubek, D. et al. 3 Turton, R. 67 Unger, R. 246–7, 272 Unilever 43 USA 60, 63–4, 68 Vacca, C. 189, 192 Vann, R.J. 39 Vestey Brothers 33–5 Viandier, A. 105 ‘vitamin pill’ defence 160 Wacquant, L. 251 Wade, R. 2 Walker, D. 142 Wall, A. 61 Wall Street, and invention of new expertise 80–4, 87, 88 Waller, D. 158 Wallerstein, I. 139 Waters, R. 156 Watts, R.L. and Zimmerman, J.L. 63 Weber, Max 2, 115, 126, 145, 147, 256, 273 Weber-Fas, R. 47 Weir, M. et al. 17 Westerik und Eckoholz 192 Whelan, C. and McBarnet, D. 187 Whincup, M. 146 ‘white knight’ 83 ‘white-shoe’ law firms 83, 85

INDEX

Wiener, M.J. 233 William Hill 54–5 Williams, R. 140 Willmott, H. 68 Winans, R.F. 264 Wittgenstein, L. 273 Wolfe, T. 152 Woodiwiss, A. 199 Woolcock, S. 78 Woolf, A.H. 228 Worthington, B. 230 Yerbury, P.D. 30 yuppies 1 Zolo, D. 249

207