In the last quarter of 2008, the United States faces economic challenges never imagined even a few months ago. How will companies manage and survive constraints on credit, demand, and growth? How is the economic downturn affecting attorneys and law firms serving the business community?
It is an obvious fact that companies can only consider modifying two streams of income, income and expenses, to increase profitability. If incomes are low and not expected to increase dramatically anytime soon, law firm clients will pick up the hatchet to survive. Legal fees will be under extreme scrutiny. Legal outsourcing, while still a nascent industry, is gaining momentum and is being considered in more corporate boardrooms. As pressures to outsource mount, lawyers wonder whether they should embrace outsourcing legal work abroad or resist. In the face of global economic challenges, coupled with the increasing loss of American jobs, why would an American law firm even want to consider outsourcing? Are There Valid Reasons Every American Law Firm Should Consider Specific Legal Outsourcing?
Several weeks ago I received an email from an attorney who was considering outsourcing some of his law firm’s legal work. In the face of resistance and challenges from many at his law firm who wanted to maintain the status quo, he asked me for advice on what he should say to his partners. Why should the firm outsource legal work abroad, a practice considered by some to be adventurous and risky, rather than stay the course, doing it “like we always have”? I responded with the top ten reasons every law firm should consider selective legal outsourcing:
1. A PRUDENT AND SPECIFIC OUTSOURCING WILL RESULT IN A REDUCTION OF THE EXPENSES OF THE LAW FIRM
Outsourcing some legal work to qualified providers in India will result in significantly lower overhead costs for the outsourcing law firm. When evaluating comparative costs, the law firm will do well to carefully calculate the true costs of hiring an attorney or paralegal. Those costs include salary and bonus, health insurance, vacation and holiday pay, sick time expenses, FICA, office space and equipment for the attorney, legal assistant staff and secretary assigned to that attorney, pension, and profit sharing. , car and parking expenses, seminar CLE costs, and other employment benefits, such as disability and life insurance. The actual annual cost of an attorney earning an annual base salary of $ 150,000 to $ 175,000 is most likely in the range of $ 250,000 to $ 300,000 per year. NONE of these customary expenses increased to a law firm using supplemental offshore legal providers.
2. OUTCOMING WILL IMPROVE THE EFFICIENCY OF LAW FIRMS
Selective outsourcing will improve the efficiency of your law firm. Because Indian attorneys work while American attorneys sleep, it will be as if your law firm has a full-time, fully-staffed night shift. A colleague can assign some work at 6pm in the afternoon and the completed homework on his desk when he gets to the office the next morning. Litigation cases will move more quickly through the court system with less need for time extensions.
3. THIRD PARTY WILL RESULT IN AN IMPROVEMENT OF THE LAWYER’S MORALITY
As a child, not many of the sermons I heard from my pastor stuck with me. But one, when I was fourteen still rings a bell. He said, “Ninety percent of any worthwhile effort is backpacking, connecting, day after day. Only ten percent of our work tasks are necessarily fun and enjoyable.” I have always remembered that statement. In more than two decades as a trial attorney, I have enjoyed strategizing and trying cases before juries. But I didn’t necessarily enjoy all the trial and deposition preparation, investigation and briefing, document review, and other mundane essentials of the practice of law. A law firm that incorporates outsourcing into its practice will inevitably nurture more satisfied attorneys who dedicate their time and energy to the most challenging, fun, and rewarding parts of the practice of law. Only legal “housework” work is outsourced and “basic” work remains on the ground. This allows more time for client interaction and development by the firm’s attorneys.
4. THIRD PARTY WILL RESULT IN GLOBAL SAVINGS IN LEGAL FEES FOR CUSTOMERS
Law firm clients, particularly business clients, are everywhere looking for ways to reduce their legal expenses. Many ask why they should pay, for example, $ 200 to $ 300 per hour for document review. Gone are the days when legal bills were simply paid without scrutiny. Also, annual increases in hourly rates will not be well received by customers looking to cut costs. Wise law firms put the interests of their clients before their own. What is good for the client will ultimately be good for the law firm itself.
5. THE RULES OF PROFESSIONAL CONDUCT REQUIRE CONSIDERATION OF THE OUTSIDE
The Rules of Professional Conduct require that: a. “An attorney must seek to achieve a client’s legal goals through reasonable and permissible means.” (Rule 1.2) b. “An attorney will explain a matter to the extent reasonably necessary to allow the client to make informed decisions about representation.” (Rule 1.4 b) c. “An attorney will use reasonable efforts to expedite litigation in the best interests of the client.” (Rule 3.2)
An attorney is required to explore and discuss with his client all reasonable means to achieve the client’s objectives. An attorney cannot charge excessive or unreasonable fees. It would seem that one could say that an attorney is required to discuss selective outsourcing as a way of reducing the client’s ultimate fee obligation and promoting the client’s interests.
6. THE OUTCOMING OF THE LEGAL WORK “CORE” PROMOTES THE RETENTION AND DEVELOPMENT OF THE CLIENT
Clients have long questioned the escalating legal fees for basic, “routine” legal work. However, they felt as if they had no alternative. They needed legal representation and they wanted good quality work. As there was no significant degree of variation in fees from one law firm to another, clients tended to “stay put.” This trend is beginning to change as customers learn that they have options. Lawyers who selectively outsource are reporting a more satisfied and loyal client base. Clients who perceive that their attorneys are looking out for their entire interests, including fee costs, tend to remain committed to their existing law firms and even refer other clients (whose attorneys refuse to outsource).
7. THE COMPETITION IS OUTSOURCING
If your law firm is not outsourcing, make sure your competition is. August 21, 2007 Bloomberg. com reported that even long-established AMLAW 100 law firms like Jones Day and Kirkland & Ellis are outsourcing under pressure from clients.
8. US LAW FIRMS MAY CHARGE A REASONABLE SUPERVISORY FEE
It is reasonable and acceptable for US law firms that outsource legal work abroad to charge a reasonable supervisory fee in conjunction with outsourced legal work. It is axiomatic that an attorney who outsources legal work, whether to an associate, contracted attorney, or offshore provider, ultimately remains accountable to their client for the quality and timeliness of the delivery of the legal product. If an attorney assigns the investigation and writing of a report to a junior associate, the assigned attorney will not routinely present the final work product to the court without review and supervision. The same goes for legal outsourcing abroad. The published ethical opinions of the San Diego, New York, and United States Bar Associations indicate that a lawyer who subcontracts abroad may charge a reasonable supervisory fee.
9. CUSTOMERS ARE INSISTING ON SELECTIVE OUTSOURCING TO ACHIEVE COST SAVINGS
Clients communicate with each other. Executives from major companies play golf and have lunch with each other. The Corporate General Counsel attends CLE meetings and seminars, sharing information and ways to increase efficiency and reduce costs. They know about offshore outsourcing and the dramatic cost savings that can be achieved. Therefore, it is unacceptable to ignore legal outsourcing and, as a managing partner at a law firm told me, “I don’t feel like” doing it.
10. THIRD PARTY WILL BE CARRIED OUT.
Doing nothing is not an option. Some are outsourcing. Many more are considering it, be it out of keen business sense or financial realities. Outsourcing is like a big, sinister wave just a few miles offshore. It is preferable to surf the wave than to wait to be swallowed, overwhelmed by its power and left wondering what happened.
British economist Herbert Spencer is credited with originating the term “survival of the fittest” in the mid-19th century. Although it also applies to biology, Spencer applied the concept of survival of the fittest to the free market economy. In a free market, companies and businesses will do whatever it takes to survive. If that means outsourcing some American legal work for the sake of the survival of the entity itself, then so be it. The model of ever-increasing salaries and expenses in law followed by even higher legal fees charged to clients can no longer sustain itself. Legal outsourcing is here to stay. The wise will find out, survive, and prosper.