Professionals at the Crossroads

This article highlights current developments and discussions in the first three of these non-law professions mentioned below and hopefully provides food for thought for those law firms contemplating practice in collaboration with such professionals.¹ Many aspects of these non-legal professions will have an impact upon the way collaborations operate or are managed. These professionals have somewhat more experience in working in multi-disciplinary environments than the legal profession has and their experiences would thus be invaluable in contributing to a successful collaboration.²

The title of this article is borrowed from Dr Linda Low's book, titled 'Professionals at the Crossroads in Singapore',³ first published in 1996. In the book, Dr Low identifies the challenges that professionals in Singapore face with the increased demand and diversity of the complex environment in which they operate. These trends pose fundamental questions on conduct of professional practices, and the book explores how professionals in Singapore will have to meet these challenges and, at the same time, deliver their services in a manner worthy of their professional training, status and prestige.

The legal fraternity, likewise, faces new challenges. When developments in the business world move rapidly, lawyers have to be responsive and adaptable to keep pace, otherwise they would lag behind in servicing the new business sectors. Apart from lawyers specialising in practice areas to serve these new business needs, it is also critical how they organise themselves and manage their resources to develop, expand or maintain their practices. In recent years, alternative organisational forms have surfaced in Singapore. Group Law Practices, which comprise separate legal entities coming together, have emerged in Singapore with flexibility for the group to brand and name themselves and combine their resources more efficiently. More and more law firms are now corporatising themselves to form limited liability law companies. Joint Law Venture alliances between foreign law firms and local law firms have also arrived on the legal landscape. Today, lawyers can choose to organise themselves in these ways as alternatives to the traditional sole-proprietorship or partnership framework.

More recently, the Multi-disciplinary Practices Committee ('the Committee') of the Law Society has explored various structures where lawyers could work in arrangements with other non-legal professionals. One possibility may be to model a structure based on the Group Law Practice concept (hereinafter referred to as the 'Multi-disciplinary Group Practice' ('MDGP')).

It is envisaged that future combinations of law firms with other non-law professionals may exist in the MDGP or other collaborative structure, such as with accountants, architects, engineers or patent agents, to facilitate mutual co-operation and to carry out services for the same client. In following the Group Law Practice concept, the law firm(s) and the non-legal professional organisation(s) in the MDPG will remain as separate legal entities.

If and when the law is in place to allow MDGPs or other collaborative structures to operate in Singapore, law firms will have the choice of considering whether to enter into such formal arrangements as part of their business strategy and preferred mode of carrying on their practices. As standards of duty, core values and ethics differ among the various professions, (for example, the client-solicitor privilege unique to the legal profession), these aspects will have to be managed carefully in a MDGP.

Accountants
From a profession that had been stable and predictable, changes occurred dramatically during the 1970s and 1980s. Mergers of the large accounting firms, which we referred to as the Big Six (later on the Big Five) in the 1990s, created the multinational accounting firms with operations in almost every part of the world. In the wake of liberalisation, accountants sought ways of cutting down internal costs and providing new client services in addition to mainstreaming high price and labour-intensive audit. It also promoted further diversification into management consulting, tax consulting, information system design and other services that previously were not practised.⁴ One such Big Six firm was Arthur Andersen, but today, the firm is in notoriety and the accountants are in the limelight for the wrong reasons in the wake of the Enron, WorldCom⁵ and Vivendi⁶ debacles. Arthur Andersen was the auditor in each of these global corporations and the fact that other similar scandals could well exist, but have not yet been exposed, cannot be ruled out.

In Singapore the Public Accountants Board ('PABoard') is the body that regulates the practice of the profession of accountancy by public accountants and accounting corporations. The PABoard is also empowered to make rules for the discipline of public accountants. The Institute of Certified Public Accountants of Singapore ('ICPAS') is the national organisation of the accounting profession in Singapore. Public accountants registered with the PABoard are also practising members of ICPAS. Both non-practising and practising members of ICPAS are known as CPAs. However, only practising members may hold themselves out as public accountants.

The PABoard has, as one of its main functions, the responsibility to determine and develop standards of professional conduct and ethics for the accountancy profession. In this regard, the PABoard has promulgated a code of conduct and a set of ethics for the profession that is embodied in the Third Schedule of the Public Accountants Board Rules. For instance, some of these rules require accountants to maintain a high standard of integrity, objectivity and independence.⁷

At present, a public accountant or an accounting corporation is prohibited from providing public accountancy services⁸ in 'partnership or in association with any person who is not registered as a public accountant or is not an accounting corporation'.⁹ Nor should a public accountant or accounting corporation provide such services 'under the management and control of any person who is not registered as a public accountant or is not an accounting corporation'.¹⁰ While the existing regulations appear to rule out a fully integrated MDP¹¹ providing 'public accountancy services', the participation of a public accountant in a MDGP is a possibility where the accountant firm continues to be a separate legal entity and its management and control remain with the registered public accountant.

Recent initiatives
Following the recommendations made by the Disclosure and Accounting Standards Committee ('DASC'),¹² the PABoard set up¹³ an Auditor Independence Committee on 30 October 2001 to translate the recommendations¹⁴ into rules. The Auditors Independence Committee proposes the general principle that an auditor doing an audit must not be affected by 'self-interest, self-review, advocacy, familiarity, and intimidation threats'.¹⁵ Drawing upon the said principle and the maintenance of auditor's independence, the current contention is that non-audit services, such as bookkeeping services, specialist valuation services, IT systems and internal audit services, management recruitment services and corporate finance, should be prohibited or carried out only subject to certain conditions.

Enron and its impact
In the wake of the Enron, WorldCom and Vivendi scandals, the accounting profession came under greater scrutiny than ever before. After Enron, there had been some discussion, even in Singapore, whether the relevant authorities should introduce stricter guidelines on auditor independence. The Ministry of Finance was reported as saying that it 'was willing' to do so 'if there was public support for such a move'.¹⁶ The report also discussed prohibition in relation to 'bookkeeping activities' (as recommended by the DASC) and 'a wider array of consultancy services'.¹⁷  In response, some audit firms naturally expressed their concern over 'the move to clamp down on the non-audit services an audit firm can provide'.¹⁸ It was suggested that while 'certain non-audit services like asset valuation and appraisals, risk management, consulting and planning, should be limited in scope, they felt other services like tax planning, tax compliance, management training or even IT systems, design and implementation should not impair independence'.¹⁹

In the US, there are attempts to introduce legislation to ban accounting firms from providing management consulting services to companies they audit,²⁰ primarily because of potential conflicts. There may be serious conflict of interests or issues that may hinder impartiality in the accountant's audit responsibilities if he also provides non-audit services to the same company. When consultancy fees paid by the client to the accounting firm are likely to generate greater revenue than from annual audit fees, there is perhaps an inclination to compromise in the audit function lest the wrath of the client is incurred.

The proposal of the Committee to allow professionals, like accountants, in a MDGP is facilitative only. Ultimately, it will be left to the PABoard to decide whether the professions, whom they regulate, can participate in such collaborations. It is believed that if such participation is allowed, the accountants will continue to be bound and regulated under their professional rules and ethics. Lawyers and others in the collaboration will likewise be similarly bound.

Architects
Architects in Singapore are regulated by the Architects Act (Cap 12) ('AA'). In Singapore, an architect can practise alone as a sole-proprietor, a partner of a firm or an employee in an architectural practice. A corporation can be licensed to supply architectural services in Singapore, provided a number of conditions relating to its memorandum and articles of association and its paid up capital are satisfied (s 20(1)(a) to (c)). The term 'architectural services' is defined in the AA to include 'selling or supplying for gain or reward any architectural plan, drawings, tracing or the like for the use in construction, enlargement or alteration of any building or part thereof' (s 2).²¹

The Board of Architects is the statutory authority established in Singapore to administer the AA. The Board is also responsible for the issuance of the practising certificates (s 18) and exercises overall control of the profession and has the power to conduct disciplinary proceedings in relation to its members. Most architects are also members of professional bodies. In Singapore, the main body is the Singapore Institute of Architects ('SIA').²² The professional conduct of architects is governed by the Architects (Professional Conduct and Ethics) Rules (S377/1991).

Multi-disciplinary developments
The AA has a segment dealing with 'Multi-discipline and Corporate Practice' (ss 20 to 26). Under the current regime, non-architects may operate in a corporation or partnership that can be granted a licence to supply architectural services, subject to the conditions specified. For a corporation, the primary object must be to supply architectural services (s 20(1)(a)). In the case of a corporation that is not 'unlimited', the chairman of the corporation and at least two-thirds of the directors must be registered architects or 'allied professionals', and 'at least S$1m of the authorised capital of the corporation is paid up' (s 20(1)). The term 'allied professionals' is defined in s 2 as: (a) a professional engineer who is registered under the Professional Engineers Act (Cap 253); or (b) a land surveyor who is registered under the Land Surveyors Act (Cap 156). Under s 20(3), the Board may grant to a partnership, not consisting wholly of registered architects, a licence to supply architectural services if (s 20(2) and (4) AA):

• the partnership is one in which only registered architects and allied professionals have a beneficial interest in the capital assets and profits of the partnership;
  o the business of the partnership, so far as it relates to the supply of architectural services in Singapore, will be under the control and management of a partner who is a registered architect; and
• there are provisions that also permit unlimited corporations and any corporation (whether unlimited or not), or a partnership 'not consisting wholly of registered architects', a licence to supply architectural services if the corporation or partnership has in force a licence granted under s 17 of the Land Surveyors Act (Cap 156) or s 20 of the Professional Engineers Act (Cap 253).

Architects have, therefore, been at liberty to operate in an integrated MDP environment for some time, albeit in a limited way. The impetus for MDPs was to permit registered architects to team up with allied professionals to form multi-discipline partnerships and limited liability companies to take on development projects that by far were bigger in scale and far more complex. These projects require integrated design inputs from a team of architects, engineers and allied professionals.

The AA that was enacted in 1991 to replace the previous Architects Act of 1976, permitted a multi-disciplinary practice with allied professionals, but with the following broad limitations:²³

• Firstly, not less than two-thirds of the shareholding of the consultancy company must be beneficially owned by allied professionals. Allied professionals here refer to architects, professional engineers and land surveyors registered under their respective Acts. The purpose of the two-third professional-shareholding requirement is to ensure that the licensed consultancy companies are majority owned by allied professionals. This was incorporated in the Act to address the concern among some allied professionals of the possible erosion of professional standards, if these consultancy companies were under the control of persons other than allied professionals.
• Secondly, only allied professionals can be appointed to the board of directors of the consultancy company.
• Thirdly, the professional services supplied must be under the control and management of the appropriate allied professionals.
• Fourthly, the consultancy company, which is incorporated as a limited liability company, must have at least S$1m in paid-up capital and is required to take out professional indemnity insurance.

By 1995, the architectural profession was considered to be 'ready for further liberalisation of the conditions governing consultancy companies'.²⁴ The main amendment introduced in 1995 (A3/1995 vide S138/1995) to the AA removed the professional-shareholding requirement for architectural consultancy companies and allowed persons other than allied professionals to be appointed as directors of consultancy companies, subject to the Chairman and not less than two-thirds of the directors being allied professionals registered in Singapore.²⁵

Thus, the multi-disciplinary developments in the architectural profession, referred to above, result in the fact that a licensed corporation with limited liability may be wholly owned by non-professionals.

Engineers
The current regime for engineers is quite similar to that for architects. There are no restrictions in Singapore against anyone describing himself as an 'engineer'. However, he is not entitled to call himself a 'professional engineer', or use the word 'engineer' or the abbreviation 'Er' or 'Engr', as a title before his name or to use 'any word, name or designation that will lead to the belief that the person is a registered professional engineer' (s 10(3)), unless he is one properly registered under the Professional Engineers Act (Cap 253) ('PEA'). Whilst there is no definition of the term 'engineer' or 'professional engineer' provided by the PEA, the PEA does attempt to define what are 'professional engineering services' and 'professional engineering work' (s 2).

A Professional Engineers Board ('PEBoard') is established by the PEA. The PEBoard keeps and maintains a register of professional engineers, a register of practitioners and a register of licensees. The register of professional engineers contains the names and other particulars of all persons registered under the PEA, whereas the register of practitioners, kept and maintained annually, contains the particulars of those professional engineers who have obtained practising certificates. The register of licensees contains the names of all corporations and partnerships licenced under the PEA.

In order to qualify for registration as a professional engineer in Singapore, a person must hold a recognised engineering degree or appropriate qualifications. After acquiring the degree or formal qualifications, a person wishing to register as a professional engineer must next acquire practical experience of the kind and for the duration prescribed by the PEA. The PEBoard has power to cancel the practising certificate issued to any professional engineer or his registration as a professional engineer.

Similar to the conditions stipulated under the AA, a corporation can be licensed to supply engineering services in Singapore. Like the architects, there is an entire segment (Part VI) of the PEA that deals with 'Multi-discipline and Corporate Practice'. For a corporation, the primary objective should be to supply professional engineering services.²⁶ At least S$1m of its authorised capital must be paid up, and the chairman and at least two-thirds of the directors of the corporation shall be registered professional engineers or allied professionals. The business will be under the control and management of a director who is a registered practising professional ordinarily resident in Singapore (s 20).

Under the existing Codes of Professional Conduct governing architectural and professional engineering practices respectively, only a licensed corporation may render architectural or professional engineering services, together with building services, at the specific and express request of the client, provided that that client is not a housing developer having direct or indirect control of the licensed corporation. With the endorsement of design and build as one of the preferred project delivery methods, further amendments to both the AA, PEA and respective Rules made thereunder will be necessary.

With the possibility that architectural and engineering professional firms might well be wholly owned or substantially owned by non-professionals, the permissible 'alliances' between law practices and such architectural and professional engineering practices may perhaps be better restricted to those which comprise wholly of allied professionals.

Conclusion
Cross or multi-disciplinary services become increasingly widespread and widely practised when the services that may be demanded often encompass a spectrum of specialisations. Such practices obscure the need to match a particular professional with the services sought by the business client, eg an investment structure may involve inter-related accounting, financial, tax and legal considerations. Hence, the idea that the MDGP, by offering a one-stop service, could well be the preferred choice of a client over, say, a firm comprising solely of lawyers.

Internationally, the legal profession continues to debate whether MDPs should be allowed. Concerns that have arisen out of Enron, WorldCom and Vivendi about conflicts of interests might have, in the interim, tilted the balance in favour of those against MDPs. In a ruling by the European Court of Justice in February 2002, it was held that the Netherlands has the right to prevent lawyers from entering into MDPs with accountants, even though it accepts that this may restrict competition in legal services. This related to a decision by the Netherlands bar to refuse to allow two Dutch lawyers permission to enter into partnership with Big Five accountants Arthur Andersen and PricewaterhouseCoopers.²⁷

John Powell, QC, who believes that the main lasting change that will arise out of Enron is separation of the audit and non-audit work of accountancy firms, does not think that the collapse of Enron will put an end to MDPs. He argues that 'things like Enron happen quite often. It results in organisation changes, and tougher standards are put in. But after 10 years, they are all forgotten and people will have adapted to the changes.²⁸

Permitting lawyers to combine their services with that provided by other non-legal professionals will raise questions of independence, conflict of interest and other ethical issues. The public would demand for greater transparency, disclosure, honesty and less complacency towards risks of conflicts of interests. These tenets must surely be at the cornerstones of the MDGP or other collaborative structure for it to be meaningful.

Lee Chiwi
CW Lee.Peng.Chia.Philip

[The writer is grateful to the Chairman of the Multi-disciplinary Practices Committee, George Tan. The writer has included in this article: extracts of material and accompanying endnotes prepared in a draft report by the Chairman, particularly in the sections captioned 'Accountants', 'Architects' and 'Engineers'. All views expressed in this article are that of the personal views of the writer. They are not intended to express the stand of the Multi-disciplinary Practices Committee or the Council of the Law Society.]

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