The first development is summed up in a question framed by an LPO Savvy blog post: what does LPO do for an encore? It’s not fair to say that the value of legal process outsourcing lies entirely in its vast price differential with traditional law firms; but it is fair to say that that’s where many LPO conversations start. Saving money, especially on the scale that LPO offers and in this economic environment, is not to be dismissed lightly; but as LPO Savvy notes, “cost competitiveness alone is not going to propel the industry’s longevity.” Asian upstarts in other industries like cars and electronics often began by offering basic services at low prices; but they didn’t stop there:

Japanese automakers have been able to achieve [success] largely due to their ability to innovate. They did more than just maintain their competitiveness when they set up their manufacturing processes onshore. They brought with them their processes and managerial tools … fresh ways of managing Lean Manufacturing operations such as Kanban. Kanban was an innovative means of managing inventories in the manufacturing process unseen in the industry. It took cost and unnecessary steps out of the supply chain processes that went into producing automobiles.

Putting this back to the LPO perspective, I struggled with what the Indian LPO’s Kanban could be? What is the innovative game changer that we possess and can bring to the table? … The creative minds behind Kanban developed the practice through many trials of error and rework. But the need and desire to change how their processes were carried out was apparent to them, thus driving their need to explore ways to change.

There is an acute need to bring innovation to how legal services are carried out — a need that LPOs helped to highlight, and an area where they’ve already made much progress, but one that they themselves must now tackle head-on. LPOs have contributed to a slowdown (if not a dead stop) in the previously unstoppable rise in law firm fees; but are they also leading the way in re-engineering the means by which legal work is done, finding and implementing the new “killer apps” for law? And if so, are they successfully advertising and selling that fact to clients? LPO companies are still ahead of many law firms in applying process improvements and reducing costs, but their lead is not insurmountable.

Consider this example: legal process outsourcers have had greater difficulty cracking the Australian market than the UK or the US, in large part because in-house counsel there are apparently more reluctant to try new approaches and more fearful of LPO quality and security failures. So LPO provider Pangea3 is trying a different tack: a partnership with Australian law firm Advent Legal that will see the two collaborate on a wide spectrum of “junior work.” Advent and fellow Australian firm Balance Legal have to some extent already filled the LPO role in their country by their widespread use of secondments to reduce client costs and increase client integration, and have reaped the reputational benefits. LPOs have had to adapt, and this partnership — reminiscent in some ways of the alliance system between Indian and western law firms — is an example.

If I were an LPO, I’d be nervous every time I read about a law firm that provided secondments, gave legal project management training, managed its workflow, unbundled its services, used decision trees, or even employed Lean Six Sigma, because it means they’re starting to adopt some of my stock in trade. The critical battleground in the legal services marketplace is not price, but innovation: inventing and implementing more efficient and effective ways to carry out legal work. That’s a tougher and far more important assignment than simply lowering the cost of associate work, and whoever figures it out first and best could, like Toyota and Sony, dominate this market. LPOs are in a strong position to compete in this race, but they’re not the only contestants.

The second development emerging from LPO’s appearance is that a surprising number of law firms are adopting — and adapting — the outsourcing model themselves. They’re figuring out that the important question isn’t which type of provider (law firm, LPO, whoever) gets to do what kinds of legal work; the question that matters is who will serve as the primary liaison to the client and direct the allocation and assignment of legal work.

The days when legal work flowed from a client exclusively to a law firm and back again are over; the reality now is that numerous providers are in play and numerous models are on offer. While a number of UK firms have embraced LPO providers as a means to get legal work done more cost-effectively, some firms remember the words of Rio Tinto’s one-time GC Leah Cooper, who said law firms should think of Rio’s LPO partner CPA Global as an extension of the company’s in-house department. Law firms don’t like anyone — offshore LPO, procurement department, accounting firm — coming between them and their client. So in future, what really matters is this: who sits next to the client, receives its instructions, and decides how its legal resources are to be allocated among myriad providers? Smart law firms are taking steps now to ensure that that answer is never in dispute.

Here are two examples of what I mean.

Mexican Waves. Despite its name, law firms involved in a Mexican wave system don’t send work back and forth across national or continental borders; instead, the work circulates between firms in bigger cities and those in smaller, less expensive locations. The system was pioneered by UK firm Lovells — now transatlantic giant Hogan Lovell, and interestingly, the term no longer appears on the new firm’s website.  Clients like the Royal Bank of Scotland prefer a Mexican Wave arrangement to a pure LPO because they can cut costs while still retaining a long-term relationship with their primary law firm. Eversheds has adopted a sort of internal Mexican Wave by outsourcing work to its own firms’ lower-cost locations worldwide. And Magic Circle firm Freshfields rejects suggestions that its recent discussions about “referral arrangements” with smaller law firms is a Mexican Wave arrangement, but it’s hard to tell the difference. Meanwhile, some UK firms are outsourcing directly to law firms in foreign jurisdictions: Lewis Silkin, for example, is sending litigation work to Minter Ellison’s New Zealand office.

Outsourced law departments. One of the most interesting developments of the past several months has been a pair of joint ventures between UK law firms and public-sector law departments. In February, Geldards LLP and the Kent County Council created a new entity called Law:Public that will handle not just all of KCC’s legal work, but will also seek out work from local governments and public sector agencies across England. Law:Public’s 100 lawyers (80 from KCC) will charge below-market rates to these increasingly cash-strapped clients and will boast unparalleled experience and expertise in this sector. Then in March, large UK utility Thames Water essentially transferred its legal function to London firm Berwin Leighton Paisner, leaving behind a core group of in-house lawyers to provide strategic legal advice to the company. Here’s the key quote from a BLP partner: “With this model, we’re able to say that BLP’s embedded in the business. Other models such as LPO take you a certain way, but [they] don’t necessarily do what clients want, which is complete alignment.” In both cases, a law firm has completely integrated its operations and interests with those of a key client, ensuring continuing control of the assignment of legal services.

What these developments share in common is the law firms’ recognition that when clients say legal work has to be carried out differently and more efficiently, they mean it. Clients are putting all their options on the table and studying them closely, and many of those options don’t involve law firms much if at all. Some firms have therefore come to realize that they need to (a) find different ways of getting clients’ work done that (b) still leave the firm as the conduit through which that work flows and as the primary provider of the highest-value services.

What we’re starting to see now is an industry-wide jostling for position by legal services providers, each competing not just for the client’s attention but also for the coveted “quarterback” or “foreman” role that directs work to the other players, supervises its production, and takes ultimate responsibility for the result. Law firms used to hold that conduit position by default; they can’t count on that anymore, and the threat of losing that position is as close to an existential one as the legal profession should care to come. Clients are going to have more and more options for their legal work in the next several years, and managing all those options is a difficult and demanding job; but whoever holds that job will have an extraordinary amount of influence with the client and over the other providers. That’s the new Holy Grail for law firms, and I think that’s why a few smart firms are now taking outsourcing seriously: because they need to get very good, very quickly, at managing the production of legal work by a multitude of different providers.

Two specific sets of players should be concerned by all of this. The first is LPOs and other upstart providers of legal services, because if law firms (a) figure out how to manage legal work more effectively and (b) become entrenched as clients’ primary legal services overseer in a multi-provider environment, these entities risk a serious clipping of their wings. And the second is North American law firms: all the examples in this post and almost all the examples I’ve seen of this trend are in the UK, Australia and New Zealand: if any US firms are working on this, they’re keeping an extremely low profile. That’s risky, because this trend won’t take long to metabolize and it won’t take long for some clear winners to emerge. Law firms that don’t recognize this trend might find that an important and decisive war ended before they even knew it had begun.

Two interesting posts about knowledge management by Mary Abraham and Greg Lambert got me thinking about this. Greg’s article described the futility of capturing all knowledge available to you –  you’ll end up with so much data that you’ll inevitably lose something important, or you won’t be able to find a key item as easily as you assumed you would. But because storage is so easy and so cheap — cheaper, in some cases, to store the data than to have it destroyed — we end up collecting far more knowledge than we’ll ever really need. “I’d wager that 90% of the emails, electronic documents, or paper documents we keep, we do because we are implementing the ‘CYA’ rule.” Mary expands upon Greg’s post by pointing out that “the first step to organizing stuff is — get rid of what you don’t need.”  She questions the longstanding lawyer habit of filing everything away in the event it’s needed down the road. Not even Google, she notes, indexes everything.

I think both Greg and Mary are right, and their points touch upon a larger issue within the law — that deadly combination of perfectionism and risk-aversion that has made lawyers afraid to overlook or throw away anything. I still recall, as an articling student, opening a client file deeper than it was long, rifling through copies of memos, faxes, pink phone-message sheets, document drafts, etc., and thinking: Is all this stuff really necessary? I spent a summer working as a library archivist and came away from it both with an appreciation of acid-free paper and plastic paper clips, but more importantly, with a sense of the needlessness of preserving the irrelevant. And that was in the antediluvian days before email. What percentage of emails archived the world over are simply replies with the one word “Thanks”?

So I think the rise of “good enough,” already well underway in the client realm, could and should be transposed to the law firm world as well.  We don’t need to search for, locate, bring back and keep everything, or even close to everything. Is it possible that an unturned stone or a discarded file could be the key to winning a case or defending a malpractice claim? Of course. It it even remotely probable? In most cases, no. There’s a cost-benefit analysis at play, and lawyers need to look seriously at the benefits of exhaustiveness before continung to incur its costs.

What concerns me, though, is that we’re actually headed in the opposite direction. And ironically, the source of the problem is in the very innovations that are introducing such efficiencies into the rest of the legal services industry. New developments like automated document assembly and offshore lawyers are lowering the costs of carrying out routine legal functions. And while that’s good for clients (and down the road, will be good for lawyers), one negative side effect is that these routine tasks are becoming more affordable by the day. And the cheaper something is, the easier it is to order up huge batches of it — just in case we need it.

Greg and Mary point out that the approaching-zero cost of storage means that there are almost no upfront cost penalties associated with filing something away. The same could start to apply to, say, due diligence and document review: in an increasingly frictionless cost environment, neither clients nor lawyers have much incentive to streamline, discern, or otherwise cut back on the types of things lawyers have traditionally done for clients. When costs are so low, benefits don’t have to be much higher to surpass them.

This is a significant issue for innovation in the law, because many existing innovations have come about in large part because the cost of doing things the old way was becoming prohibitive. If trials had remained concise and affordable, relative to what they are today, would the entire ADR system, which meets many more human needs than litigation, ever have developed?

We’re used to thinking that lower costs breed efficiencies, expand access, and generally serve as a force for good. And in many cases, they do. But they can also stall the natural process of reform by which all our legal institutions move forward. Near-infinite storage capacity has not made us wiser or happier — it’s only given us more stuff to keep track of. As the cost of routine legal work also continues to plummet, we could be in danger of a similar outcome for the law and lawyers: a legal system more cluttered, more complicated, and more weighed down by trivia than it needs to be.

Exhibit A, which you’ve surely read about by now, is the decision by international mining giant Rio Tinto to send $100 million worth of legal work annually to a team of lawyers in India. This is not back-office administrative work of the type that, say, Clifford Chance has been sending overseas. This is associate-level legal work like document review and contract drafting, and you can call it “commodity” work if you like, but there’s tons of it and it keeps many large firms profitable. It represents $100 million that Rio paid its outside law firms last year but won’t pay this year or, probably, ever again. With an offshoring project of this size and scale, Rio is obliterating the “legal work” distinction that many firms have long believed insulated them from the effects of outsourcing.  And it won’t stop there, as Richard Susskind notes in a commentary for the Times:

People often assume that outsourcing and the options are applicable only to high-volume, low-value legal work. The Rio Tinto deal confirms this is wrong. There is no legal job whose complexity and value elevates it entirely beyond market forces. The reality is that significant parts of even the biggest transactions and disputes are repetitive and routine; and in-house lawyers will be delighted that these can be packaged out to less costly providers.

Rio Tinto’s move is bad news for traditional law firms in two ways. First, the outsourced Indian lawyers are doing this work for one-seventh the cost of traditional outside counsel. Think about that: firms have lately been offering their clients rate discounts of up to 10% and feeling magnanimous about the sacrifice, and here comes CPA Global doing the same work for 85% less. That’s a stunning cost savings, and it doesn’t just change law firms’ playing field, it destroys it: it reduces any proffered “rate discount” to  irrelevance. Rio Tinto has served notice to its outside counsel that the price bar for this type of work  has been reset at a radically lower level, permanently. It should go without saying that traditional law firms can’t compete for that work at that price, not as they’re currently structured.

But maybe more importantly, Rio Tinto’s move feels like a momentum shifter. Its own sheer size as a client, and the mammoth scale of the outsourcing commitment it’s making, should have enough critical mass to really get things moving within a legal marketplace that, despite recent upheavals, has yet to make real, radical alterations to its business. Rio is not the first law department to send legal work offshore, far from it — but it’s a very visible example of what Seth Godin called Guy #3 , the participant whose entry breaks the ice and gives everyone else “permission” or cover to join.

Rio is sending a message to other law departments that legal work can be exported en masse to India without GCs having to automatically fear for their jobs. And it’s sending a message to law firms that the game has changed — a message some firms have received. Just a couple of days after Rio’s move, large UK firm Pinsent Masons announced it’s sending litigation work to lawyers in South Africa, while competitor Simmons & Simmons is preparing to send its own legal work to India, Australia or South Africa. This quote from Simmons managing partner Mark Dawkins is gold: “We’re not going to defend a business model that clients don’t want to have to pay for.” It’s really as simple as that — it always has been — and the reality on the ground is now starting to reflect that.

What’s really interesting, though, is that this momentum isn’t restricted to outsourcing — look around the legal marketplace and you can start to feel real momentum shifts in numerous places.

Consider firms’ treatment of new associates: after peaking  at $160,000, starting associate salaries have been in retreat for a few months now, to no one’s surprise. What was surprising was last month’s decision by Philadelphia-based firm Drinker Biddle to chop those salaries to $105,000 but add training and apprenticeship services for these new lawyers. “In some ways, we intend for your experience in your first six months to be a bit of a throwback to how lawyers ‘grew up’ in their firms literally only a few decades ago, before the rise of the billable hour,” the firm wrote to its incoming associates. Within a month, Cincinnati firm Frost Brown Todd followed suit. (Defenders of the articling year at Canadian law firms are probably feeling pretty good right now.)

And then, just a few days ago, large international firm Howrey LLP played the Rio role and announced it was cutting associates’ pay but increasing their training. Howrey has a track record of paying attention to how its lawyers learn (and, interestingly enough, in outsourcing to India too) — its Howrey Virtual University has been providing coordinated firm-wide web-based lawyer training since 2005. Howrey managing partner Robert Ruyak’s words are also noteworthy: “The old model is broken. You’re bringing on these extremely bright individuals and letting them waste their careers buried in documents where they aren’t really learning the practical skills it takes to be a lawyer.“ The comment board at Above The Law, which invariably trashes any law firm decision that doesn’t involve more pay and less work, reacted positively to Howrey’s move overall — nearly 70% of poll respondents said they’d take the deal if it was offered to them. My guess is that right now, many large law firms are watching Howrey closely and treating it as their advance scout — like Rio, Howrey is a substantial player whose participation can and should tip the balance toward change.

There are other examples. Look at the recent frenzy of reports of law firms pricing their work at “fixed fees” — we’ve heard about flat-fee or fixed-fee initiatives underway at traditional firms like Alston & Bird, Lightfoot Franklin & White, Kirkland & Ellis, Simmons & Simmons (there they are again) and Morrison & Foerster, to name a few. Law firms generally still don’t understand fixed fees — here are some excellent critiques of their mindset and methodology from Tim Corcoran, Patrick J. Lamb and Jay Shepherd — and “alternative fees” are by and large still that, alternative.

But now along comes respected midsize firm Saul Ewing, creating a “cost certainty commitment” that standardizes fixed-fee arrangements with clients. Again, what’s unique here isn’t so much the offering as the prominent, high-profile way in which it’s being rolled out — the key to building momentum is to be seen to build momentum. From the Legal Intelligencer article: “Altman Weil’s Pamela Woldow said Saul Ewing’s cost certainty commitment is certainly unique. She said she isn’t aware of any other firm that has created such a program and made such a public, formal commitment by putting it on its website.” All of these moves — Rio Tinto’s, Howrey’s, Saul Ewing’s — are significant largely because of the signal they’re sending, quite intentionally, to the other members of the marketplace that things have changed.

Going first, and doing so conspicuously, is incredibly important to change in the law. It’s conventional wisdom to blame lawyers’ reluctance to innovate on the fact that they hate being first movers, that they much prefer to stand back and let someone else make the initial move. And that’s true as far as it goes, maybe even more so  for in-house lawyers than for private practitioners.  But the corollary to that is that lawyers also don’t like being the last ones to join the club. Ron Friedmann explains this very well by using “a discontinuous step-shaped function” to describe lawyers’ willingness to change:

Consider adoption in the legal market of e-mail, document management, marketing, lateral moves, or mergers. For each, there seemed to be only a few firms doing it and then, quite suddenly, many or all were. The “step function” reflects lawyer decision making: the first few adopters change slowly, gingerly, and quietly. Everyone wants to follow so once you have a dozen adopters, “the coast is clear” and the rest rush in.

“Gradually and then suddenly,” as Hemingway once put it — lawyers hate being  the first to change, but equally they don’t want to be the last ones left out in the cold. Law firms constantly monitor each other and the legal marketplace to see what’s going on, who’s doing what, and whether there’s anything big happening they should be part of. They’re watching for the “prominent first movers” Rees Morrison talked about in the Rio Tinto context. Once they feel that enough people have jumped into the water and declared it safe — once the reputational and financial risks of change have been taken and minimized by others — then they’re ready to leap, and if they sense a rush of movement among their competitors, they’ll even push each other out of the way to be the next ones in line.

I think that’s where we are today. In all sorts of ways, in many different aspects of the legal profession, first movers are forging ahead and dictating a new energy and direction, while the great silent vastness behind them watches closely and prepares to shift and follow. Momentum — mass times velocity — is an incredibly powerful force; we’re about to see it channeled through the legal services marketplace.

But Clifford Chance was also making smaller headlines a long way from both London and New York. From New Delhi came word that the firm was in talks with Indian law firm AZB & Partners about an alliance that would involve client referrals, joint training, consultation and joint marketing. Since foreign law firms are prohibited from practising law in India (more on that shortly), these firms instead have been forming strategic partnerships with Indian firms that could, were the legislative environment to change, rapidly segue into full-bore mergers. Other Magic Circle operations and some US firms have made similar  advances, but Clifford Chance is also the only firm to set up its own wholly-owned back-office and document management company in India.

Clifford Chance also cropped up in the news in late December when the Mumbai High Court ruled in its favour in a taxation dispute, reducing by more than $2 million the amount it owes to the Commissioner of Income Tax on fees earned on four energy infrastructure projects undertaken in India in the late 1990s.  Add to that CC’s controversial September hire of a top capital markets partner away from a leading Indian firm to its Singapore office, and its near-miss merger with Australian giant Malleson Stephen Jacques late last year, and this is a firm that’s making some serious investments in the southeast corner of the world map.

And rightly so. According to the Times, there were nearly 600 cross-border mergers and acquisitions in 2007 that involved an Indian element; on top of that, India’s government has launched an infrastructure program that reportedly will require $500 billion in foreign investment. The word “salivating” appears frequently  in media reports to describe global law firms’ anticipation of entering India and claiming a piece of what most people agree — recession or no recession — is an economic powder keg. But legislation prevents foreign law firms from operating in India and caps the number of equity partners in an Indian law firm at 20.

For the moment, anyway. Last month also brought word that the Limited Liability Partnership Act 2008 has now passed both houses of the Indian Parliament, such that the first Indian LLPs could be set up as early as April 1. The introduction of LLPs to India had causes and will have effects far beyond the legal profession, of course; but one of the expected results of the new LLP law is to constitute the first irrevocable steps towards the entry of foreign law firms and the general liberalization of the Indian legal marketplace. Add to that the anticipated resolution of a long-running court challenge to India’s legal marketplace laws by foreign firms White & Case and Chadbourne Parke, and you can understand why firms like Clifford Chance, despite financial challenges to their Atlantic operations, are intensely focused on India.

Now, this will still take time: very little happens overnight in India, and powerful political interests in Indian law firms oppose change. On top of that, a general election will be held this spring, and frankly, the Indian government has a lot more important and serious things on its mind to deal with these days. But this flurry of activity does illustrate why legal process outsourcing, the subject most often associated with India’s legal profession, is not the long-term future there.

Don’t get me wrong: LPO is still going strong and likely will accelerate, given mounting cost pressures on in-house departments in the US and UK. This month’s edition of Corporate Counsel magazine explores the Indian LPO market in depth, with this telling quote from Microsoft’s worldwide IP operations chief about patent outsourcing to Indian lawyers: “We went there to save money,” he acknowledges. “We stayed and expanded because we liked the quality of the work.” It wasn’t just okay, it was better. And India’s legal community continues to ramp up LPO capacity. The latest evidence is a post-graduate diploma in legal process outsourcing now being offered by the the Indira Gandhi National Open University — the world’s largest university, by the way — and leading Indian legal talent management house Rainmaker T&R. Indian LPO isn’t going away anytime soon.

But LPO is the starting point for India’s legal community, not its final destination. Indian lawyers give nothing away to their western counterparts on acumen, and they seem to be considerably ahead of them on efficiency and work ethic. When clients keep looking at the hourly rates charged by most Indian lawyers — between $20 and $40, according to the Corporate Counsel article — eventually, they stop asking, “Why are they so cheap?” And they start asking, “Why are our western lawyers so expensive?” That paradigmatic perspective shift is coming faster than many law firms think.

It would be unwise to suppose that Indian lawyers will forever be content to take on low-level legal work from western clients. I suspect that India’s lawyers regard a lot of current LPO work as useful training exercises to learn about western legal work habits, preferences and processes — stepping stones on the way to bigger and better things. I’m not about to bet against them, and events of the past several weeks indicate that even in the teeth of a recession, some pretty smart global law firms feel the same way.

Howrey LLP, reports The American Lawyer, is opening a new office in Pune, India. Note, however, that Howrey is not contracting with an offshoring company like Pangea3 or SDD Global to have that company’s lawyers do work for them. Instead, Howrey is opening its own branded office, not to practise law (still illegal for foreign firms in India) but to handle document management, a labour-intensive task for this litigation/IP-heavy firm.

Howrey becomes the first US-based firm to go this route; previously, Clifford Chance set up a back-office operation in a New Delhi suburb. And as Ron Friedmann has noted, Seyfarth Shaw and Lovells have done more than just dip their toes in Indian waters too.

But here’s what’s really interesting. In the article, Howrey’s managing partner and CEO, Robert Ruyak, leads off by making very clear, “It’s not offshoring.” And the article goes on to include this quote:

Ruyak concedes that clients “don’t want to use outsourcing.” But this, he repeats, will be different. “We will have our own people working on this. It’s training, it’s control, maintaining the security, the quality of the results.” He adds that clients will have the choice of whether to use the Indian office to cut costs or to have their work done in the U.S.

Howrey evidently perceives that there is a reputational risk associated with offshoring — that some clients (and no doubt, more than a few partners) have reservations relating to quality, process or security. I haven’t heard of any Indian offshoring firm accused of any of these defects, but perception usually trumps reality, so Howrey seems to want a different approach.

That approach couldn’t be any clearer from Ruyak’s choice of words: “we’ll have our own people working on this.” Howrey wants to stamp its own brand on the work product it receives from India, reassuring nervous stakeholders inside and outside the office that only Howrey-trained and -approved lawyers will be working on their files. In the long term, then, Howrey and Clifford Chance might just be harbingers of a new strategy towards the Indian offshoring market: co-opt, re-brand, and profit.

Globalization is creating discontent. We live in an age when even the purchase of a port management company can bring about media panic and Congressional investigation if the perfectly ordinary business that made the purchase happens to be headquartered in the Middle East. In the midst of doubt and suspicion about foreign suppliers, businesses through the centuries have found success by sailing into the foreign territory, planting a flag, and letting their trusted brand be a guiding light to customers back home. I wouldn’t call it the most internationally mature or least xenophobic approach ever adopted, but it has proven to be effective.

Here’s what Clifford and Howrey might be thinking: on the plus side, there’s obvious economic and strategic value in having some tasks performed by low-cost, high-quality Indian legal talent. Offshoring really is a no-brainer in that regard. On the minus side, though, offshore firms are mostly new, largely untested quantities with which clients and firms haven’t yet built up solid relationships, so there are barriers of persuasion to be overcome. Even with the best Indian partners, that could take time, especially these days.

So why not take a more direct route? Why not affix the tested law firm brand with the solid history onto the less tested yet rich-in-potential offshore market? The persuasion barriers go down, the professionals in India can go about their business, and everyone benefits sooner. Why not do the law firm equivalent of opening a Burger King in Beijing, or buying the grand hotel of Ankara and rebranding it as a Hilton?

Nor need this be limited to the folks back home who sleep a little easier at night, knowing that the firm’s brand promise is insuring the work in Mumbai or Lahore. India, in the event you haven’t noticed, is an economic colossus in the making, especially in the knowledge industries. It faces challenges, absolutely; the infrastructure issues alone are daunting. But smart Western companies realize that the market potential within India’s borders is at least the equal of what lies outside it, and they’re more than willing to take some risk for a chance at great reward.

Foreign law firms can’t practise law in India. But they can plant their flags in a related industry (document management), build up relations and goodwill with the local Bar, let their brands seep into the marketplace, and prepare for the inevitable day when foreign law firms can open up full shops. Contracting with a Pangea3 is great for getting high-quality legal work for your Western clients, but it doesn’t give you market presence and first-hand experience and expertise in India itself. Maybe Howrey and Clifford have decided to buy, not rent, that expertise. If so, that could presage a whole new dimension in the relationship between the legal industries of India and the West.

I don’t want to wrap up this entry without pinpointing Howrey LLP as maybe one of the world’ s most innovative law firms. Outsourcing its legal work is nothing new; as the article indicates, the firm already operates a large document management operation in a Virginia suburb. But Howrey has also shown itself to be a trailblazer in training its lawyers and devising a new way to compensate its associates. If a willingness to innovate (and a knack for doing it well) is a harbinger of great success down the line — and I think it is — Howrey is a firm to watch.

“In these articles, there’s always a quote from a partner at a large law firm about the risk of sending work to India. Yes, there’s a risk — there’s a risk to law firm profits.”

Yeah, you got served!*

Obviously there are risks involved with offshoring work to India, but the risk is pretty much the same as it would be when beginning a new relationship with any legal service provider, whether in Mumbai or Montreal. Law firms are the ones with more at stake here — as a consultant in the article puts it, it’s not just about falling profits, it’s also about the law firms’ loss of control. And there’s more of that to come.

Read the comments made in the article by the in-house counsel. Even the most enthusiastic proponents of offshoring aren’t sending bet-the-company work overseas. But they’re not worried about the quality of offshore work per se; they’re concerned that they don’t have longstanding relationships of trust and confidence with these offshore firms, and that Indian firms don’t have the expertise to do higher-end work. Mona Sabet of Cadence, explaining why she doesn’t offshore IP work, says:

“As with any complex activity, it takes years before an organization can develop the depth of proficiency necessary to compete with others who have been in the industry for decades.”

The key element here is time, and the key word is “yet” — this is an industry still in its infancy. If you really believe that an Indian legal service provider won’t establish both excellent working relationships with clients and top-grade expertise in key areas for another 25 or 30 years, or ever, then I think you’ll be uncomfortably surprised, and soon. The North American legal marketplace is extremely vulnerable to hungry competitors, and in India, they’ve only just started the appetizers.

* I apologize for the sorry attempt at hipness. As the saying goes, I wouldn’t be street if you covered me in asphalt.

What’s particularly interesting about this article, however, is the unattractive picture of the Western legal profession that comes through — this is the image the profession has managed to develop for itself throughout the rest of the world. If your North American or European firm wants to be a global player in the law, you should be aware that your reputation is now preceding you.

Some highlights:

On training: “A recent study conducted by Harvard Law School and LexisNexis reveals that 75 per cent of US law graduates admit they do not have the necessary skills to practise law. … It is typical for Western law students to graduate from law school without ever having learned how to draft a contract. …[Y]oung lawyers receive no organised, on-the-job training. They learn as they go along, by trial and error, with their firms’ corporate clients footing the bill. … Our training program accomplishes what Western law schools and law firms have failed to achieve, namely, the systematic preparation of young lawyers to provide quality legal services.”

On language barriers: “[A]t least in the US, law graduates for the most part are notoriously incapable of writing effectively in English. The problem is so severe that some large US law firms now assign a writing coach to each incoming associate. However, most lawyers in the West never receive this kind of training. By contrast, reputable legal services offshoring companies in India train all their attorneys in English writing.”

On certification: “[I]n part because India has no bar exam, some commentators have suggested that Indian lawyers working for legal offshoring companies should be required to pass a certification test.… But who will develop a certification system for Western lawyers, many of whom lack skills needed to practise law properly? Regarding bar exams in the US, they are useless, except as a public relations device for the legal profession. As noted by New York University Law Professor Harold I. Subin, they test ‘nothing relevant to the practice of law…. The bar exam [serves] the same socializing purpose as hazing … drinking in useless legal data is the profession’s equivalent of swallowing goldfish or great quantities of beer, and leads on exam day to a similar regurgitative result.’”

On costs: “[E]xamine what a client pays for when it hires a typical large Western law firm (although there are exceptions): (a) staggering real estate costs … (b) having most of the work done by newly minted … associates who admittedly lack many of the skills needed to practise law, but yet are paid a starting salary of $160,000 per year, and who are learning as they go along, at the expense of clients … (c) padding of time sheets and/or an unnecessary stretching out of work assignments, encouraged by an hourly billing system that rewards fraud and inefficiency … and (d) generally a high-quality level of service, due to editing and supervision by talented senior lawyers, but at a cost that clients are no longer willing to tolerate.”

On ethics: “[V]irtually all major law firms in the US routinely use non-licensed attorneys to perform legal work, and they bill their clients for it. The hours of summer associates, who have neither graduated from law school nor passed a bar exam, are billed out to clients at rates as high as $260 per hour or more. Moreover, the work of first-year associates, who start work at law firms before their bar exam results are in (and who often fail on their first attempt), is billed out to clients for as much as $360 per hour or more. This is all permissible, because the work is supervised by licensed attorneys.”

On corporate counsel: “Corporations, not Western law firms, will drive the market in the years ahead. … For example, a major Detroit auto manufacturer approached SDD Global for offshore litigation support. When we asked what the reaction of their usual outside law firms would be to most of the legal work being done in India, the answer was unambiguous: ‘Our outside law firms will operate the way we tell them to.’”

On the future: “[T]he growth and development of the legal offshoring industry in India will help bring about a major change in the way legal services are delivered in the West. This will be a monumental, history-making development. It will help economies around the world as well as India’s. It will contribute to a better, more equitable world, in which artificial barriers across countries and continents do not hold back the most efficient and enthusiastic people from doing what they do best.

This post originally appeared at Slaw on October 1, 2007.