California
Attorney Ethics Counsel

December 20, 2016

Worry About the Conflicts that Your Software Probably Won’t Detect

Any law firm’s goal should be to avoid conflicts.  That starts with detecting them, and today, most law firms have relatively robust conflicts-checking systems in place and in regular use.  It’s fairly straightforward to deploy software that will keep a record of clients and permit searches to detect conflicts, or potential conflicts, when a new matter arises.  But like all software, its output is only as good as the information you input.  Some supplements are fairly easy, and you may already be doing them.  Entering multiple variations, and spellings, even mis-spellings, of client names will increase the accuracy of your system.  But recent conflict cases suggest that law firms should also be considering more than just the parties when entering client conflict data.  A robust client conflicts system should give you a clear picture of your clients and their businesses, including subsidiaries, parents, affiliates, and potentially even other parties with whom they do business or compete.

Consider an example.  If your current conflicts system does not include names of client subsidiaries, when you check party names for a new matter where the client would be adverse to a client’s subsidiary, the system won’t alert you to anything.  And it’s true that conflicts are not always imputed from subsidiary to parent.  But sometimes they are: if a subsidiary uses the same internal counsel, or shares confidential information, or otherwise looks and acts the same as the parent for legal matters, this should set off alarms about the potential conflict for your firm.  So taking in a new matter for a client whose interests may be adverse to one of your current client’s subsidiaries is a potential problem.  If the current design of your current conflicts-checking system, or the current implementation of it, would not signal this issue, you need to make it more robust.

Fortunately, it’s not that difficult to examine your current system to determine potential weak spots, and to fix them.

First, become familiar with the growing body of latent conflicts, or other parties not your clients whose interests align with your client to such an extent that taking a matter adverse to them could create a conflict.  In other words, know your clients and their business.

Second, deploy this information in your conflicts checking systems.  Add subsidiaries, parents, affiliates, significant competitors, and similar entities to client profiles so your systems will at least raise the potential for conflicts as soon as a new matter comes in.  In most instances, this will be information that you already have, or should have, about your clients, since it’s a good idea from a client relationship perspective to know what your clients are doing, and what types of business problems they are facing.  So capturing this additional data in your conflicts database should not mean reinventing the wheel.

Third, update the conflicts database when circumstances change.  Many firms view conflicts analysis as a threshold issue: you review it when a new matter enters and, if clear, you don’t revisit the issue.  But things change continually in the business world–clients merge, take over other business, enter new markets and exit old ones–and these changes could create conflicts well after a matter starts.

Fourth, take a step back and view your conflicts system from a holistic perspective.  In your firm, are you relying too heavily on the database, without having actual human beings review relevant information on an ongoing basis?  Databases are excellent tools.  But your firm is also stocked with intelligent people, hopefully.  Use the humans to check the database on an ongoing basis.  Even in this digital era, you might be surprised to find that humans can see things that machines may not.

These types of inquiries should also be part of your firm’s regular ethics audits, which should start with the question of whether your firm’s protection systems are working, and working well, and in what ways they could be made to work better.