LPO ~ Identifying and Mitigating Gaps: The General Counsel Perspective

FACT: SCENARIO 2008
A survey of 115 General Counsel conducted by management consultancy Altman Weil in November 2008 – found that three-quarters of respondents were facing budget cuts. When they were asked to identify how they would deliver savings, the most frequently mentioned strategies were to bring more work in-house, reduce training and use lower-priced counsel. LPO came 13th – out of 13. December 2008 saw the publication of a survey of 143 general counsel members of networking site Legal OnRamp. This study found equal percentages of respondents – 16 per cent – predicting that 1–6 per cent, 6–10 per cent and more than 10 per cent extra of their spend would be offshored in five years’ time. Almost half predicted no change.

FACT: SCENARIO 2010
The newly released Altman Weil Flash Survey, Law Firms in Transition 2010 found that while over 75% of firms surveyed indicate that they believe that more price competition, more non-hourly billing and the use of project management to improve efficiency of service delivery will be permanent changes in the legal landscape; Very few firms will look to outsourcing or offshoring as a means by which to change the service delivery model. Despite the recession and despite the opportunities for cost savings, most law firms remain reluctant to consider outsourcing and offshoring options. Less than 10% of firms outsourced or offshored legal work in 2009 or plan to do so in 2010. Only 28% of law firms expect outsourcing of legal work to be permanently adopted in the future, and 22% expect the same for offshoring.

Fronterion LLC’s Top Ten Trends for Legal Outsourcing in 2010 report predicts “2010 will be the proving year for legal outsourcing. Law firms and corporate legal teams will learn from their peers, resulting in make‐or‐break peer referrals, which will be strong indicators of the success and maturity of the outsourced legal services segment.Supporting – not supplanting – firm operations with an outside legal services vendor has emerged as a successful strategy and will gain momentum in 2010.”

The various studies point to continued resistance among a large section of general counsel to outsourcing legal work. While there is no denying the fact that the LPO landscape has changed considerably over the past few years, the pace at which this industry was/is expected to grow has not met expectations. Despite the potential for cost savings, law firms and corporate legal departments remain sceptical of outsourcing and offshoring, tentative in their efforts with many of them revealing that they were likely to adopt this model of service delivery only when pushed by clients to do so. Thus, the LPO industry will grow, just not at the pace that might have been expected in such a severe downturn.

The obvious conclusion that one comes to, then, is that there are obvious gaps that exist in this industry between demand and supply; between service providers and clients; between services provided and expectations; to name a few. Lets revisit some of the obvious pros and cons of LPO:

Advantages of Outsourcing Offshore:
• Cost effectiveness
• Time zone difference
• Common law legal system
• Availability of talent
• Attorneys can focus on higher priority work such as engaging with business units and focusing on prevention

Why Do General Counsels and Law Firms Not Trust the Outsourcing Industry?

1. The Nature of Work
• For corporates, legal departments, for long, have been viewed as cost centres and while the mandate for all General Counsels is to lower costs, few GCs are ready to take the risk, rock the boat and jump onto the LPO bandwagon; fewer would like to explain at their AGM about jobs that were outsourced (so we put a few people out of work here to save some money) and not performed satisfactorily. GCs have come up with objections ranging FROM the likelihood of sending across the wrong message to their outside counsel as well as their in house teams (hey, we are taking your jobs and sending them over to a place where it’s cheaper to get this stuff done) TO their distrust in the quality of talent and work in countries that are prominent LPO destinations.

• Traditionally, law firms and attorneys have been less susceptible to change (and less likely to) than their counterparts in other industries, especially considering the nature of their profession and their training. Outsourcing requires a slightly different mindset. It is a change in the way law firms and corporate legal departments view the practice of law. It is not just about delegating work to someone else in a remote corner of the world to save cost and it certainly is’nt something you do just once. Leveraging the benefits of outsourcing requires continuous dedication.

2. The Ethical Risks of Outsourcing
• Client confidentiality is a major concern. Identity theft raises another prominent issue. Clients concerned over privacy may choose a firm with in-office paralegals over a firm with paralegals in India.

• Cultural differences regarding sharing of information remain a challenge.

• Supervision and monitoring of work is understandably a serious concern as well, especially due to the difficulty in monitoring the work of someone in another country. It is unnecessary for a law firm to disclose such an arrangement to its client if the offshore assistant/paralegal is under the direct supervision of an attorney. ABA rules, however, clearly indicate that an attorney must obtain the consent of clients if a temporary lawyer will handle a portion of their case without direct supervision. This complicates the supervision problem further.

• Lastly, attorneys must be careful to screen the projects performed in the past and future by individual overseas to avoid any conflicts of interest.

3. Not All Clients Support Outsourcing
• Over the past decade with increasing volumes of work being outsourced offshore, the outsourcing decision is a controversial one and some law firms may wish to avoid alienating clients who disapprove of outsourcing. Especially in lieu of the economic recession, and an increasing "Buy Native” sentiment across developed countries, a firm that openly sends legal work offshore may be less likely to earn clients who have been negatively affected by outsourcing or simply disfavour the practice.

4. Quality of Work ~ A Sceptical View
• Quality concerns, as mentioned earlier is a factor as well. American lawyers spending more time to carefully review work produced offshore for errors, mitigate to an extent the cost savings from outsourcing. This is particularly critical in the highly technical field of patent law, in which firms often outsource patent drafting to India despite the fact that the value of the entire patent can hinge on a single word.

5. Insufficient Planning And/Or Resources by Buyers and Vendors
• For many of those who tried legal outsourcing but burnt their fingers, some of the main reasons for their failure were insufficient planning and budgeting. Not understanding the vendor landscape; less knowledge of vendor capability, skill, and infrastructure; no checks on talent profiling, acquisition, and retention; were only some of the results of inadequate planning before outsourcing work. Any outsourced project must be run with the same discipline and planning as any other important function of the Company for example Marketing or HR. Adequate transition periods and/or effective cross-training between the client and the supplier are essential to ensure maximum benefit from an outsourcing relationship.

6. Legislation Across Developed Countries Has Targeted and May Continue to Target Outsourcers
• A crucial risk in legal outsourcing is the spectre of protectionist legislation. The political backlash against outsourcing has created a firestorm in the US Congress and US state legislative halls. Much anti-outsourcing legislation has failed, and the protectionist legislative movement is less active than in its heyday of early 2004. With the economic incentives for law firms to engage in out-sourcing outweighing the risks, hopefully more legal jobs will continue to be transferred to low cost nations.

In my next few entries I will try to analyze the cases of those who dared (including the latest one on Denis Field, former chairman and CEO of the US-based accounting major BDO Seidman, LLP, has hired the Mysore-based SDD Global Solutions, a legal process outsourcing arm of New York-based Smith-Dehn LLP, to assist him and his US legal team in his legal battle with the US government. BDO is the world’s fifth largest accounting firm), those who succeeded (Including Dell, Microsoft, to name a few) what did they do differently, lessons learnt, law firms of the future, growth and expansion for LPO vendors and more........

Sources and Further Reading:
• http://www.fronterion.com/FronterionTenFor2010.pdf
• http://www.altmanweil.com/dir_images/upload/docs/2010LFiTSurvey.pdf
• http://www.hgexperts.com/article.asp?id=5857
• http://papers.ssrn.com/sol3/papers.cfm?abstract_id=907343
• http://www.gcmidatlantic.com/article.php?id=42
• Protiviti: Managing The Risks Of Outsourcing: Survey Of Current Practices And Their Effectiveness