Outsourcing

Are Biglaw firms outsourcing legal work, or not? We don’t know, because apparently firms don’t want clients to know. The ABA Journal reports that most firms declined to even answer an outsourcing questionnaire:

About 83 percent of the 30 responding law firms declined to participate in the survey, according to Fronterion, the Chicago-based outsourcing consulting firm that conducted the study. Fronterion managing principal Michael Bell believes a majority of top law firms are using legal outsourcing providers, at least on an ad hoc basis, but they are reluctant to admit it because of the sensitivity of the issue.

Apparently all that criticism of the quality of international LPOs has made firms afraid to talk about outsourcing.

But since we’re dealing with top law firms, not talking =/= not doing…

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Is this a “terrible job” or “the inevitable future of the legal economy”? Note: those two answers aren’t mutually exclusive.

The University of Michigan Law Schoolthe 9th-best law school in America — is now posting job opportunities from India.

Has it really gotten bad enough that graduates from a top law school should consider international LPO opportunities? Yes, yes it has….

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It’s been a while since we checked in with the coming junior associate apocalypse that is legal outsourcing. Rest assured, LPOs around the globe are working hard to make sure that the Biglaw junior associate becomes extinct — at least as we know it.

There’s a fascinating article on Law21 that discusses the evolution of legal process outsourcing — and what LPOs need to do next:

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.

Some law firms still seem to be fighting the last war and are committed to fending off outsourcing until the bitter end. But other firms are preparing themselves for the next war: remaining the primary legal advisor to their clients in a world where the clients themselves can go to a number of providers to get the work done…

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I have always held a special place in my heart for Georgetown University. I was born on campus at Georgetown University Hospital. My father received his J.D. from the Law Center, and I am an alumnus of Georgetown Prep. I was also very lucky to attend Hoya basketball games as a child and watch Patrick Ewing dominate the college ranks.

Now I have another reason to love Georgetown: Jim Michalowitz. You see, Georgetown University Law Center is one of the few schools with an e-discovery blog. I have highlighted it before on Gabe’s Guide. So you can imagine how thrilled I was to discover that Jim had actually taken time out of his busy schedule to write a response to my ATL post that was highly critical of the legal outsourcing of e-discovery work to non-attorneys here and overseas.

With the title, “You Can’t Trust Them Foreigners – Outsourcing Document Review,” it’s of little surprise that Mr. Michalowitz — advisory board member of Georgetown University’s CLE e-Discovery Institute, Six Sigma enthusiast, and proponent of foreign legal outsourcing — took a different take on the issue.

And, you know what? He was so right. I just don’t trust them foreigners. I didn’t know it until I read his post, but it all makes perfect sense now.

Here are some of Mr. Michalowitz’s conclusions about my original arguments against outsourcing legal work to non lawyers:

  • My position on legal outsourcing was extreme
  • Using foreign or non-attorneys would equal a poor or lower quality work product
  • Foreign lawyers might as well be considered non- or “not-real” lawyers

Mr. Michalowitz brings up some good points; however, he either has some fundamental misunderstandings of — or is falsely characterizing — my views on legal outsourcing. So, I thought that I would take the time to nicely clarify any misconceptions he might have. Oh, and by nicely, I mean, I am coming like the Clash of the Titans, because I am about to release the Kraken, after the jump.

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outsourcing biglaw aba tsunami.gifEd. note: Gabe Acevedo, who covered LegalTech for Above the Law earlier this month, will be writing for these pages about legal technology.

Recently, Steven C. Bennett, the chair of Jones Day’s E-Discovery Committee, published an article [PDF] in the Northern Kentucky Law Review entitled “The Ethics of Legal Outsourcing.” In his article, Bennett relied heavily on a six page ethics opinion [PDF] issued by the ABA in August of 2008. When the ABA Formal Opinion 08-451 was released, many legal process outsourcing companies (LPOs) — the companies that hire overseas attorneys to do the work of American attorneys at a fraction of the cost — lauded it as an “endorsement” of their work. As Bennett noted in his article, the opinion even referred to outsourcing as something that was “salutary,” in that it would reduce costs for clients.

Those LPOs had a right to be celebratory about ABA 08-451. After all, never in the history of the United States was there ever an ethics opinion of any Bar Association that had done more to undermine the standing of both American attorneys and our practice of law.

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outsourcing biglaw aba tsunami.gifI’ve been trying to be optimistic about the future of Biglaw in 2010. There’s no harm in hoping for the best.
But I’m positive that 2010 will see more outsourcing of American and British legal jobs to India. And from the perspective of junior Biglaw associates or current law students, that trend does not lead them to a good place.
The Times of London (gavel bang: Am Law Daily) has an excellent expose on Pangea3, an Indian company doing work that used to be done by junior attorneys in the U.K. Once again, we see that law firm managers — and their clients — have compelling cost reasons to ship legal work overseas:

Much of the work that Pangea3 and similar firms deal with, such as drafting derivatives contracts or conducting due diligence for mergers and acquisitions, was once the preserve of trainees and associates at big City law firms. Some of those firms racked up annual revenues of more than £1 billion during the boom years, in part by billing out teams of junior lawyers for up to £300 an hour for even the most routine tasks. …
Whereas a new recruit at a “magic circle” firm in London can expect a starting salary of about £60,000 — rising to more than £90,000 at the best paid firms — Pangea3 can pay a good Indian law graduate as little as £350,000 rupees (£4,700) a year.

Those are powerful numbers. And apparently it’s not even all that hard to start one of these companies.
Details after the jump.

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outsourcing biglaw aba tsunami.gifIt appears that Magic Circle firms have fallen in love with outsourcing. Most American associates will hope that like Mad Cow disease, the outsourcing craze stays on English side of the ocean. The Lawyer reports:

Allen & Overy (A&O) has become the first magic circle firm to outsource legal work as an increasing number of UK firms embrace legal process outsourcing (LPO) in a bid to reduce their overheads.
The firm has partnered with LPO provider Integreon to outsource basic litigation document review to teams in New York and Mumbai, in what could generate a 30-50 per cent cost saving.

Anybody think we’ll see some geographic hypocrisy in the comment thread? Outsourcing to New York = good, outsourcing to Mumbai = bad? Or will everybody simply agree that outsourcing = apocalyptic?
After the jump, The Lawyer has an excellent chart that shows us where British firms stand with regards to outsourcing.

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outsourcing biglaw aba tsunami.gifIt wasn’t that long ago — just back in August 2008 — that the ABA changed its rules to allow the outsourcing of American legal work. In the midst of the recession, a lot of people are still trying to figure out if outsourcing will cause a more fundamental change to the nature of the Biglaw business model than anything we’ve seen during the credit crunch.
Now, the ABA is asking its lawyers to share their opinion on outsourcing. This week’s ABA Intellectual Property Law section e-letter contains a link to a very interesting survey. Here’s the description from the e-letter:

Outsourcing Task Force Seeks Survey Input From You
The American Bar Association’s Outsourcing Task Force is conducting a survey on outsourcing. The objective of the Task Force, at the Request of ABA President-Elect Steve Zack, is a Report with Recommendations to the House of Delegates on the subject at next year’s Annual Meeting.
An important means of collecting input from a broader cross section of the
ABA is an online survey which can be accessed at: http://www.zoomerang.com/Survey/?p=WEB229LAVJNGRM.
As input from the broadest possible range of American lawyers is critical, the Task Force would greatly appreciate if every member could take a moment to complete this survey.
Immediate Past Section Chair Gordon Arnold is a member of the Task Force and serves as its Liaison to the Section of Intellectual Property Law. He strongly encourages all to complete this survey.

IP lawyers, here is one chance to voice your opinion.
After the jump, some we post a couple of the questions the task force is asking.

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baker-logo.gifBaker & McKenzie, which held the #2 spot in terms of revenue for 2008, has taken a dip in 2009. The firm’s fiscal year ended on June 30, and AmLaw Daily reports that global revenue fell by 3% for the firm.
As noted in Morning Docket, profits per partner took a bigger hit, plummeting 17%, thanks to the recession:

Baker & McKenzie reported Friday that global revenue declined 3 percent to $2.11 billion and profits per partner fell a more significant 17 percent to $992,000 in fiscal year 2009, bringing an end to a four-year period over which the firm experienced consecutive double-digit revenue growth and an 85 percent increase in profits.
While Chicago-based Baker & McKenzie, which generated 66 percent of its fees outside the United States, highlighted the role currency exchange rates played in the falling benchmarks for fiscal year 2009, management admitted the economic downturn negatively impacted the firm’s financial performance.

As we’ve previously reported, Baker has been a leader in terms of outsourcing legal work. The new profit numbers should mean that the trend continues. More details after the jump.

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outsourcing biglaw aba tsunami.gifToday we sat down with Gururaj Potnis, director of Manthan Legal, who was in New York to attend a legal conference. Manthan is an Indian company that describes itself as a “leader of offshore Legal Process Outsourcing.” According to Potnis, Manthan has roughly 280 lawyers — 140 senior attorneys, and 140 more junior colleagues who do paralegal-type work — and they stand ready to help law firms cut costs (and increase profits).
Potnis thinks a “tectonic shift” is taking place in the legal industry, and he believes his company is well-positioned to take advantage of the new market. According to him, he’s got law firm clients on his side: “For the first time, the large law firms are being asked by their customers: ‘Are you efficient?’” The market change that we are now seeing “is 99% being driven by customers.”
Manthan Legal is positioned differently from its Indian competitors in legal outsourcing. It works primarily for law firms rather than in-house counsel:

Right now, 90% of the [outsourcing] industry is being driven by corporate counsel [i.e., in-house lawyers]. At some point in time, they’ve been exposed to the concept of having to get the maximum amount of work from the minimum budget….

[I]n the short term, the corporate counsel will drive [the outsourcing trend]. But in the long term, the law firms will have to develop an alternate billing model.

And under these alternative billing models, outsourcing may have an important role to play.
What can outsourcing firms offer? Junior associates might not like it, but managing partners will have to start paying attention. More after the jump.

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