What mergers can’t achieve

by with 2 Comments

Posted in: Big Firms, Innovation, Outsourcing

Back in my university days, I remember walking past the Graduate Students Office and seeing a photocopied diagram taped to the door. It was called “The Doctoral Candidate Flowchart,” and it provided a series of turns and directions for graduates struggling to get their thesis finally completed. My favourite entry on the flowchart was in the “Delaying Tactics” stream, a box that sent the user back up to the top to start again. The box was labelled: “Read another book.”

I thought of the Doctoral Candidate Flowchart after seeing all the recent reports of real or suggested law firm mergers in the US and UK, because it occurred to me that just as grad students read another book when they don’t know what else to do, many law firms start talking merger when they’re not sure how else to facilitate growth. After a banner year for mergers in 2011, we can expect, as my Edge colleague Ed Wesemann points out, much more of the same in 2012. But Ed, who has facilitated many such mergers, will tell you that he’s proudest of the ones he helped discourage because they would have come to a sorry end. More firms should reflect seriously on that.

Interestingly, the latest round of breathless merger speculation in the legal press is starting to give way to more skepticism. Alex Novarese doubts that cultural fit and business case no longer matter as much sheer size in merger calculations. Ron Friedmann asks a pertinent question: in what ways do merged firms demonstrably deliver greater benefits to clients than their smaller antecedents? And most significantly, we should all ask: do mergers produce stronger firms? SNR Denton, to take one example, is a transatlantic giant born of a merger two years ago, yet its UK arm suffered a 40% profit drop last year; nonetheless, it’s on the merger trail again.

Don’t get me wrong: many law firms mergers make eminent sense and create real growth. But others do not and will not. And in any event, I think all the merger talk right now might be distracting us from the main event, which is taking place in other settings altogether. Let me suggest four developments in the global legal marketplace in the last couple of months that I think are more important than the latest elephant mating dance.

  • One merger that really matters: King & Wood Mallesons, the Sino-Australian giant whose emergence has caused barely a ripple among many legal market observers. But this colossal firm, Asia’s largest with almost 2,200 lawyers, looks better positioned than any global incumbent to generate real business opportunities in southeast Asia and Oceania, if not beyond. And Mallesons, before the merger, was the most innovative law firm in the world. Are they a threat to the AmLaw 100? Not today; but they’re looking much farther down the road than today, something that’s true of very few AmLaw 100 firms.
  • Another Australian invasion: the outright purchase by Slater & Gordon, the world’s first publicly traded law firm, of national British firm Russell Jones & Walker for an eye-opening £54 million. Not incidentally, RJW is the owner of Claims Direct, a slick and highly effective public portal for personal injury claims, and I’d not be surprised if Slater & Gordon considered that to be the jewel in the crown it just acquired. (See this acute analysis of the deal by Edge’s Sean Larkan and Chris Bull.)
  • Along with the RJW move, two other transactions under the finally-active Alternative Business Structures provisions of the UK’s Legal Services Act: technology and outsourcing company Quindell Portfolio bought personal injury law firm Silverbeck Rymer for £19.3 million, and private equity firm Duke Street shelled out as much as £50 million for majority ownership of Parabis Group, parent company of insurance litigation firms Plexus Law and Cogent Law. That’s almost £125 million in two weeks’ worth of law firm shopping, for those of you keeping score at home.
  • Finally, a move that’s not a merger but still matters: Nixon Peabody’s announcement that it’s retaining Thomson Reuters’ LPO division Pangea3 as its preferred provider of e-discovery services. You might remember a time when large US law firms wouldn’t even acknowledge the existence of LPOs, let alone suggest they might work with them. This is a tacit acknowledgement by a major American firm that much work previously performed by lawyers can no longer be done profitably by lawyers, which is absolutely correct. Nixon Peabody has broken the ice: expect similar announcements from other firms in future, and expect this relationship to evolve past e-discovery.

LPOs, private equity shops, publicly traded law firms and Sino-Australian giants are no longer theoretical participants in a future legal market. They’re here, they’re real, they’re sitting at the same table as (or partnering with) traditional law firms, and most importantly, they’re outsiders. They don’t carry all or most of the habits, assumptions and baggage of the traditional Anglo-American law firm, which leaves them free to be as aggressive, disruptive or innovative as they like. They think the future legal market belongs to those who approach and engage it differently. I think they’re right.

The fatal flaw of all market incumbents is a failure of imagination, the inability to perceive that what they currently do could be done differently and better by someone else. Many law firms eager to merge and expand seem to believe they’re still competing against other law firms in a market suffering a temporary downturn, and that size and reach are the cures for what ails them. I think they’re mistaken. They’re actually competing against new models, new approaches and new attitudes, in a market that has started to evolve beyond them. Size and reach alone simply aren’t going to be adequate responses to that.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

Legal outsourcing’s AFL moment

by with 2 Comments

Posted in: Innovation, Outsourcing

It’s July, we’re in the middle of a record-breaking summer of heat, and the major-league baseball trade deadline is just days away. So naturally, I’m going to talk about football.

This isn’t entirely a propos of nothing: the National Football League lockout recently ended with a 10-year collective bargaining agreement, and a frenzy of free-agent signings has followed. But I actually want to go back several decades and tell you about an upstart operation in the 1960s called the American Football League, because the AFL has something to say about a legal process outsourcing (LPO) industry at a crossroads.

Here’s a brief summary of the AFL’s short but extraordinary history, from Wikipedia:

The American Football League (AFL) was a major professional football league that operated from 1960 until 1969, when the established National Football League (NFL) merged with it. The upstart AFL operated in direct competition with the more established NFL throughout its existence. Though downplayed by the NFL as inferior, the AFL signed half of the NFL’s first-round draft choices in 1960, including All-American Billy Cannon, perennial All-Star Johnny Robinson, and Hall of Famer Ron Mix. Overall, AFL teams signed 75% of the league’s draft choices that first year. It continued to attract top talent from colleges and the NFL by the mid-1960s, well before the Common Draft which began in 1967.

A merger between the two leagues was sought by the senior league and announced in 1966, but was not finalized until 1970. During its final two years of existence, the AFL teams won upset victories over the NFL teams in Super Bowl III and IV, the former considered one of the biggest upsets in American sports history. When the merger took place, all ten AFL franchises became part of the merged league’s new American Football Conference (AFC), with three teams from the original 16-team NFL (the Pittsburgh Steelers, Cleveland Browns, and Baltimore Colts) joining them. The remaining 13 original NFL teams became the inaugural members of the National Football Conference (NFC). The AFL logo was incorporated into the newly minted AFC logo, although the color of the “A” was changed from blue and white to red. The NFL retained its old name and logo and claims the rights to all AFL products including the eagle logo.

This tells most of the story, but the key learnings lie in the details. The AFL originated with the NFL’s rejection, in 1959, of attempts by eager would-be owners to add expansion franchises and share in the growth of a prosperous league. Undaunted, these entrepreneurs started their own league, and despite shaky beginnings (and lower-quality offerings), persevered to the point where the NFL was forced to take the upstarts seriously. The AFL succeeded by entering markets overlooked by the NFL (such as Kansas City, Houston and Buffalo) and by raiding the NFL of talent: first by drafting and outbidding college players previously bound for the NFL, then (by mid-decade) poaching established players (especially quarterbacks) from NFL rosters. Striking a lucrative TV contract also gave the AFL access to outside capital it needed to compete with the incumbents. Eventually, in order to control runaway salaries and stem the talent bleed, the NFL agreed to a merger with a league barely six years old.

You can probably see where I’m going with this. The legal process outsourcing industry shares a remarkable number of characteristics with the 1960s’ American Football League: reacting against established providers who refused to allow new competitors, they start up their own business catering to under-served markets with lower-budget offerings. But then they start making talent inroads, first with raw recruits and eventually with respected veterans. The real break comes with access to outside equity that allows them to fully compete with the incumbents, and eventually, head-to-head competition proves the quality gap isn’t so great after all.

But there’s more. The AFL didn’t just force its way into an established league: it changed the way that league did business. The NFL was never glamorous or especially exciting, whereas the AFL went out of its way to market itself that way; today, excitement marketing is the foundation of the NFL brand. Even by the time the merger took place, many of the AFL’s innovations (arguably including the Super Bowl itself) had spread to the NFL:

  • Players’ names on the backs of their jerseys
  • Stadium scoreboard clocks to track the official time
  • A 14-game schedule (up from the NFL’s traditional 12)
  • More colourful uniforms
  • More passing attempts per game (though not as much as legend would have it)
  • And perhaps more importantly, more black players

Real agents of change don’t just disrupt the marketplace position of incumbents: they change the nature of what that market provides. This is the opportunity, and the challenge, that lies before outsourcing companies in the legal market right now. If all they intend to do is offer the same basic services in the same basic way as law firms, but at lower prices, these companies will have a very short lifespan. The key to LPO’s survival is not just to evolve upwards from the traditional law firm model, but to be so successful that law firms have no choice but to adopt their innovations.

We’ve seen very small degrees of innovation and adaptation from lawyers in private practice, and even smaller responses from lawyers in corporate law departments, and it’s not enough. Law firm and in-house lawyers are, for the most part, trapped in the same closed, cyclical eco-system, perpetuating an unsustainable business model out of short-term self-interest. Only an outsider can break that system, and only by coming at it with sufficient force and from the correct angle. The best opportunity for powering real change in the legal marketplace today lies with LPOs — and behind them, with the business and corporate entities awaiting the arrival of Alternative Business Structures in the UK — ready to do things differently and better.

But the critical questions are: will they decide to be pioneers, or merely opportunistic entrepreneurs? Will they come up with enough crowd-pleasing innovations to attract financial support within and outside the legal industry? Will they build a better model, one that law firms eventually will have to adopt simply to safeguard their own livelihoods?

Those are the three strategic challenges that outsourcers and other would-be change agents need to answer. How they respond could very well determine the nature of the legal marketplace for decades to come.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

The new capitals of law

by with 2 Comments

Posted in: Big Firms, Outsourcing, Talent

A minor parlour game for BigLaw cognoscenti is the question of which city will be the next world capital of law. New York has held the unofficial title for many years, although London made a powerful case throughout the 2000s. Down the road, who knows? Maybe Hong Kong or Shanghai, possibly New Delhi or Mumbai; real outliers might include Singapore or Rio De Janeiro. And of course, don’t count out London or NYC retaining the crown.

Allow me to suggest, however, that some of the future capitals of law have already been nominated. Here are seven worth considering, in alphabetical order:

  • Belfast, Northern Ireland
  • Carrollton, Texas
  • Dayton, Ohio
  • Fargo, North Dakota
  • Hamilton, Ontario
  • Overland Park, Kansas
  • Wheeling, West Virginia

These seven cities, of course, are home to low-cost law offices or legal outsourcing facilities, many of which have just opened or are in rapid growth stages. More specifically:

These law firms and companies are choosing these locations not just because of lower costs, but also because of good-quality legal talent in the area and proximity to transportation hubs. Skeptics who complain they’ve never heard of Carrollton or Overland Park should remember that no one used to know where Bentonville is, either. If our clients are in smaller regional locations, why shouldn’t we be there as well?

This is by no means an exhaustive list, of course — many Indian cities host legal outsourcing operations, and similar entities can be found in South Africa, New Zealand and Australia. But two factors in particular are marking many of these operations as a whole new animal. The first is closer physical proximity to law firms’ national headquarters — “onshoring,” if you like, as opposed to “offshoring.” This approach to outsourcing has long had political and public relations benefits — opening plants in Tennessee rather than Tianjin pays numerous dividends — but as wages in previous outsourcing hotspots start to rise, the cost gap is narrowing and other non-financial factors are coming into play.

The second element, though, is more interesting. Increasingly, these outsourcing centers aren’t just low-cost “drudge” work outposts — they’re growth engines. Orrick’s Wheeling office has increased from 75 people to 350 in the last two years alone, while Allen & Overy aims to have 50 fee earners join 250 support staff in Belfast by 2014. Pangea3, as this New York Times article points out, is busily hiring lawyers in the United States, which is more than a lot of U.S. law firms can say. These cities look like new magnets for legal talent in the 2010s and maybe beyond.

These legal jobs are for so-called “second-tier associates,” but the reality behind that insulting label is this: these jobs do work that isn’t extremely challenging and needn’t be performed in global financial centers. These jobs and their lower salaries are perfectly calibrated to the value of the work they produce. They aren’t based in New York or London because, as firms have been painfully learning the past few years, clients won’t pay the rates required to sustain mid-range jobs in high-priced locations. (And as the grim statistics make clear, new lawyers are paying the price for this change.) These jobs are in Dayton and Wheeling because that’s how much they’re worth, and there’s nothing the least bit wrong with that.

What we’re looking at here is the unbundling of law firms: the disassembly of the once-mighty law firm talent block into discrete groups of lawyers and para-professionals based in various locations to carry out several types of legal work in ways better aligned with its value. Law firms and legal enterprises are heading towards a hub-and-spoke model: small but focused strategic headquarters in a major financial center, revenue-producing satellites in a variety of lower-cost locations worldwide. Soon enough, we’ll look back and wonder why on earth a law firm ever kept all of its partners and all of its associates inside the walls of its major downtown office buildings.

It bears repeating: this is not a temporary, stop-gap response to tougher economic times and partner profitability demands. This is the beginning of a fundamental change in how law firms carry out the work their clients send them. Ron Friedmann, in a wide-ranging post that takes in both these developments and the emergence of a “Top 23” in the AmLaw 100 (related developments, Ron thinks, and I agree), puts it plainly: “As more work moves to an AFA basis, firms will have to examine how the work itself is done: they will need to minimize time spent on matters to protect and grow profits. Wasting time on repeatable, wheel-reinventing matters simply makes no economic sense.”

This isn’t really about outsourcing, although LPOs have played an invaluable catalytic role in this process. This isn’t about new lawyers getting stuck in low-paying jobs, although my heart goes out to law school graduates caught in the breakdown between the old system and the new one.  And this isn’t about partners being greedy — or at least, no more than it ever was and no less than should be expected and encouraged from equity shareholders in a business enterprise. This is about how legal work is priced and delivered in a newly competitive marketplace. That’s the prism through which you should examine almost everything currently happening in the law, including the emergence of some unlikely new capitals.

Jordan Furlong speaks to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

Will-writing and the redefinition of “legal services”

by with 3 Comments

Posted in: Clients, Competition, Governance, Outsourcing

Last month, a BBC investigative program called Panorama exposed a wide range of illegal and unethical practices by “will-writers,” advisors who help people prepare wills and who are not lawyers. One result of that broadcast could be a significant clawback of lawyer regulatory power over the legal services marketplace in the UK, with implications for the future of this marketplace globally.

Here are some detailed accounts of the Panorama broadcast and of the resulting controversy. Briefly: the program uncovered several instances of will-writers who exploited their clients through massive overcharging, shoddy workmanship, and even outright fraud. The abusive will-writers were neither lawyers nor (evidently) members in good standing of one of the professional will-writing associations that have evolved with the 2007 passage of the Legal Services Act. That statute divides legal services into “reserved legal activities,” which are exclusive to lawyers, and “legal activities,” which are not exclusive to lawyers and are not otherwise subject to specific regulation. Will-writing is not included in the former category and, therefore, is considered an unregulated activity.

In the wake of the broadcast and the public recriminations that accompanied it, the relevant authorities are now under pressure to take swift action. The Legal Services Board, the overarching regulator of all legal professionals in England & Wales, has promised to fast-track a debate and decision regarding whether will-writing should be added to the list of “reserved legal activities” and given exclusively to lawyers. (The Law Society of Scotland is already pushing such measures forward.) An interview with two officials from the Law Society of England & Wales sums up lawyers’ concerns with the current situation (which will be familiar to all advocates of lawyers’ role in legal services provision):

It is the presence of untrained and unregulated people working in the area that has led to a range of problems that can adversely affect consumers, Clarke and Roberts insist. “A lot of clients don’t understand making a will can be a complex process. They think it should be simple, but often it’s much more involved due to the presence of step-children, property and other assets in other countries and lots of other issues which are a part of modern life,” Roberts notes.

Unregulated will writers who lack legal training often fail to understand the legal complexities themselves. “One I know was going to make a will for a large estate which would have been involved, so he merely suggested everything be left to a trustee who could sort it all out as he saw fit. All solicitors are not infallible, but experienced solicitors will understand how to deal with complex estates and take account of all the eventualities so the testator’s wishes will be realised and the estate can be properly managed,” says Roberts.

You can see where all this is likely to lead: to the designation of will-writing as a reserved legal activity under the Legal Services Act. In one respect, it’s difficult to argue against this turn of events. The abuse of unsophisticated consumers, many of them elderly or impoverished, is repugnant and needs to be stopped in its tracks. Solicitors, as noted, aren’t perfect, but they come with a guarantee of education and training and they are backed by insurance funds that can reimburse clients who’ve been poorly served. Wills and estates, in many cases, are not cut-and-dried matters and they can require sophisticated advice, especially at a time of generational change when demand for estate law help will only rise.

Given all that, making will-writing a reserved legal activity seems like a no-brainer. And yet, there are good reasons for the Legal Services Board to proceed with caution here.

To begin with, it’s not entirely accurate to call will-writing an “unregulated activity.” Consumer protection laws are in force precisely to protect the buyers of commercial services that fall outside specific regulatory schemes; moreover, the last time I checked, fraud is still on the books in Britain as a criminal offence. Provisions already exist in Acts and regulations to protect people from the incompetent and unscrupulous and to prosecute such predators where necessary.

Secondly, the current absence of a specific regulatory system for will-writing doesn’t mean that the only alternatives are full lawyer control or unfettered market freedom. The Institute of Professional Willwriters, one of the recognized will-writing groups, will happily remind you that it is the only organization of its type whose Code of Practice has been approved by the Office of Fair Trading. Self-regulation by the will-writing industry down the road is not out of the question, nor is the creation of a specific will-writing regulatory scheme that doesn’t restrict this area of practice to lawyers.

Thirdly, access to justice issues arise whenever a decision is made to restrict an activity to the legal profession. Part of the reason for the huge upsurge in will-writing services in the UK is that less than half of Britons have a will; considering that lawyers have had every chance to exploit this latent market and have failed to do so, it’s hard to make the case that they should now have exclusive rights to this practice area (especially since lawyer regulation tends to drive up costs). The legal profession and the government jointly own responsibility for a failure to educate the public in this area, with the result that, for example, 67% of consumers wrongly believe all will-writers are solicitors.

Fourthly and most importantly, the whole question of what should constitute a “reserved legal activity” hasn’t received nearly enough scrutiny. That’s the conclusion of a just-released report sponsored by the Legal Services Board and written by Stephen Mayson, the widely respected director of the Legal Services Policy Institute. In his report,

Mayson said he had found the origins of the six activities currently reserved to be “remarkably obscure,” with “little basis for suggesting a common policy rationale that justifies their existence”. For example, he discovered that the conveyancing monopoly came about in 1804 when Prime Minister Pitt the Younger wanted to appease a profession unhappy with his plans to increase taxes on articles of clerkship and practising fees. Professor Mayson said it would be “unwise to consider any particular legal activity for inclusion or exclusion in the absence of a broader set of criteria that could be generally applied.”

So there are good reasons for England & Wales to think twice before reflexively placing the writing of wills under the exclusive authority of the legal profession. But if you’re a North American lawyer who practises something other than wills and estates, and you’ve made it this far into this post, you’re probably wondering what possible relevance this has to you. I’d argue it has great relevance, because this looks like the first major skirmish in what will be a decade-long war over a crucial question: what should be classified as “lawyer services” and what can be classified merely as “legal services”?

We’ve tended to use “legal services” and “lawyer services” more or less interchangeably over the years, such that “legal services” has become a virtual synonym for “the practice of law” (lawyers have not hesitated to encourage this blurring of lines). But the will-writing controversy forces us to think about law-related services that, for reasons of both marketplace efficiency and access to justice, could and perhaps should be kept outside the strict ambit of the legal profession. Granted that a Wild-West free-for-all wills market serves no one’s interests: is the opposite end of the spectrum, wills kept under lawyers’ lock and key, the best alternative? Isn’t the middle ground worth at least some exploration and settlement?

Consider another example, a growing force coming from the opposite direction: legal process outsourcing. Three recent articles explore the impact of LPOs on the traditional big-firm business model, and I recommend a thorough reading of all three:

If I can try to summarize the thrust of three lengthy and insightful pieces, it seems to be that:

  • LPOs and other non-traditional legal service providers are taking a growing amount of once-profitable associate-level work from law firms,
  • the unbundling model upon which these new providers are based is changing client expectations about where and how certain types of legal services are purchased, and
  • the result will be law firms with work of less quantity but higher quality, which will inter alia benefit the quality of a legal career generally.

LPOs, essentially, are forcing law firms (and their clients) to ask the critical question of our times: is a lawyer really the best choice to do X? The answer in many cases is yes, especially when the job calls for the kind of judgment, nuance, skill and wisdom that lawyers bring to the best of their work. These are “lawyer services.”

But in many other cases, the answer is no: all or parts of tasks such as document review, due diligence, electronic discovery, document drafting and production, small-claims court representation, and basic transactions like house purchases, straightforward divorces, and as the current situation in England & Wales suggests, wills and estates, don’t always need a lawyer’s attention. Should the providers of these services, whomever they are, be qualified and trustworthy? Of course. Must they always be lawyers? I think the answer is: of course not.

As time goes on, “legal services” will come to mean “commercial services related to the exercise of law-related rights and the fulfillment of law-related responsibilities,” without the necessary inclusion of lawyers. “Lawyer services” will be a sub-category defined as “legal services that, for reasons of required skill and/or public protection, are provided exclusively by lawyers.” “Legal services” will be offered by a wide variety of domestic and foreign providers, none of whom need to be lawyers; their regulation will be specific to the competence required, and access to these services will be available more widely than when lawyers offered them more or less exclusively. “Lawyer services” will be the cream of what we now consider to be the very deep crop of lawyer activities, only the most challenging and the most valuable to clients.

There’s nothing novel about this kind of distinction in professional services.

  • Richard Susskind quotes the statistic that 4% of health-care services are provided by doctors, while 50% of legal services are provided by lawyers. We accept a distinction between “health” services (delivered by nurses, physiotherapists, massage therapists, psychiatrists, and many other “health practitioners”) and “medical” services (delivered by medical doctors — the word “medical” itself is derived from the Latin for “physician”).
  • When we go to have our teeth checked, we usually spend most of our time with a “dental assistant” and only the last few minutes with the “dentist.”
  • We use “architects” and “engineers” to design our homes and buildings, but we hire “contractors” and “tradespeople” to implement designs and renovations through actual construction — the heavy lifting, literally.

We accept all these situations as normal because the markets for these professional services have evolved to allow the most skilled professionals to do the highest-end, highest-value work and an army of other professionals, para-professionals and skilled craftspeople (usually under specific regulatory or quasi-regulatory regimes) to carry out the rest of the work. Doing it any other way — requiring medical doctors to give flu shots, obliging dentists to deliver teeth-cleaning, requiring engineers to lay bricks — would result in massive system backlogs, huge price increases, and widespread dissatisfaction by both the professional and the client — in other words, pretty much the situation we have now in the legal marketplace.

The legal marketplace, whether some lawyers like it or not, is heading towards the same kind of stratification as other professional fields, to a massive “sorting out” of what lawyers need to do and what they don’t need to do. It’s immaterial whether this is brought about by regulation or the marketplace; in the end, these two forces will be working in virtual lockstep to effect change. There will be a period of disruption, maybe even chaos, as we figure out how certain legal services are best delivered by non-lawyers; it won’t be a tidy process, and there will be damage of the kind suffered by will consumers in the UK (and associates in large law firms). But every marketplace has had to go through this, and if doctors could see their way clear to allow non-doctors to take on the sacred duty of preserving life and promoting health, I think lawyers can bring themselves to make a similar commitment.

This is what the next decade will bring: a Great Sorting Out of demand for legal services, as the market reviews its choices and decides where and from whom it wants to acquire what it needs. As time goes by, the category of “legal services” will grow by volume, while “lawyer services” will shrink by volume; but both categories, paradoxically, will grow in quality. Lawyers in particular will benefit from a task list that requires more sophistication and higher-level skills. For that reason alone, but also because of the ultimate interests of clients, we should be working to narrow our focus on the highest-level work while simultaneously supporting the development of practices and regimes to oversee the more basic work we used to do. It’s anyone’s guess whether our profession will step up to that challenge.

The evolution of outsourcing

by with 7 Comments

Posted in: Clients, Innovation, Outsourcing

Still in its relative infancy, legal process outsourcing has already had a huge impact on the legal services marketplace: scoring major deals with the likes of Microsoft and Rio Tinto, garnering the attention of private-equity investors, and helping to expose the degree to which law firms have overcharged for the simplest legal work, among other accomplishments. But this impact has set off two important chains of events. The first affects LPOs themselves: they now need to move their value proposition beyond cost savings in a market they helped to make more sophisticated. The second affects everyone: the legal profession’s response to LPO is having an unexpected effect on how legal work is distributed and how legal resources are allocated.

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.

Just in case

by with 0 Comments

Posted in: Innovation, Outsourcing

“Stuff expands to fill the space available.” If you’ve ever owned a closet, basement or garage at some point in your life, you know how true that is. The corollary, of course, is that the less space you have, the less stuff you find you really need. I once moved six times in the space of 4 1/2 years, and by the last move the contents of my life could fit comfortably in the back of a small van. What it comes down to is that we’ll always make room for the essentials, and that we’ll cram any remaining room with as many non-essentials as we can get.

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.

Momentum

by with 9 Comments

Posted in: Billing, Innovation, New Lawyers, Outsourcing

Momentum is one of those things everyone talks about but nobody can ever precisely define or quantify. It’s that sense that things are turning around or gathering speed in a certain direction, usually for the better — with a corollary borrowed from physics that the larger the object and the greater its velocity, the more powerful the result. Skeptics dismiss it — baseball managers like to say that “momentum is tomorrow’s starting pitcher” — but I think there’s something to it, especially right now in the corporate legal marketplace. You can feel the pendulum swinging, the weight shifting — you can sense a gathering wind in the sails of change.

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.

India: Beyond legal process outsourcing

by with 1 Comment

Posted in: Globalization, Outsourcing

The symmetry was remarkable. Magic Circle icon Clifford Chance caused major waves in the mainstream legal media this week by announcing plans to cut up to 80 lawyers from its flagship London office, about 10% of the legal professionals there. The move, following layoff notices issued to 20 litigation associates in CC’s New York office in October, was generally taken as further evidence of the deepening recession and perhaps of Clifford Chance’s particular vulnerability thereto. So was its subsequent decision to ask its partners to contribute an average of £150,000 each to the firm’s partnership funds, similar to a move made by rival Eversheds late last year.

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.

A new offshoring strategy?

by with 1 Comment

Posted in: Innovation, Outsourcing

Another day, another article about a major international law firm getting involved in India’s legal market. Pretty soon, the question’s going to change from “Why is your firm in India?” to “Why isn’t your firm in India?” But today’s entry is notable for other reasons.

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. Continue Reading

The real risk of offshoring

by with 1 Comment

Posted in: Clients, Outsourcing

This article from The Recorder about in-house counsel who send legal work offshore includes a line that goes straight on to my list of favourite quotes. Scott Rickman, associate general counsel at Del Monte Foods, has this to say regarding law firms’ standard warnings about offshoring:

“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.