Friday, April 27, 2007

Making Up Your Partners and Outsourcing Your Legal Services

Three things passed my gaze today. One was some sympathy for being woken up at 3am by the other side in my wife's deal. Thank you. The second was the survey that found it now takes longer, close to 9 years to make partner in a London City law firm. And we know from American research that numbers of equity partners are declining relative to salaried partners and associates. The third was a comment by Legal Eagle about outsourcing legal services to Indian lawyers.

These are not necessarily disconnected. The outsourcing of back-office, standardized work has been happening for some time. It involves document production, handling routine calls from the public, etc. As long as there is a facility for dealing in English, competence is considered sufficient. For example, Lexis outsourced the inputting of its law reports to India as long ago as the 1980s. Now outsourcing or offshoring is more sophisticated, especially in regard to software production. This works in a complex way: the education system in India for this is good and Bangalore became the centre of this. Furthermore, many Indian software specialists and computer scientists moved to the US for graduate education, then gravitating to the American sofware companies, notably around Silicon Valley. The result of this migration is not a net loss to India, instead it creates a series of networks between Silicon Valley and Bangalore that mutually support and reinforce each other. The only block is visa restrictions countries impose. (See The Economist 27 April 2007)

Law is different. Surely it can't be deconstructed into tiny parts that can be dealt with individually then reassembled at a later stage? The immediate temptation is to say no. But the entire edifice of the corporate law firm was built on the Cravath system which did exactly this. It was his way of training young lawyers to become accomplished corporate lawyers. Over time they would gain experience and assume more responsibility and start to supervise junior lawyers.

Much of what occurs in corporate work, especially transactions, lends itself to this kind of commodification and standardization. Daniel Brook tells how legal outsourcing began in 1995 when an American law firm started using Indian lawyers for document handling and paralegal work. Other US and UK law firms have collaborated in setting up companies in India to handle more complex varieties of work as well as the mundane. (Note that Indian bar rules forbid foreign law firms from setting up their own offices, as Ashursts found to its cost in 1994.) Even large corporations are outsourcing their inhouse legal work to India.

This is not surprising. Indian lawyers have a comparable legal training to the UK and US. There is increased confidence in it since India created its national law school, which is coincidentally in Bangalore. However, the real kicker is that Indian lawyers cost a lot less than English and American attorneys. Some say anywhere between 10% and 30%.

Legal Eagle raises a slightly different point in her blog, that clients in the UK now can phone direct to Indian lawyers in New Delhi for legal advice. Although it means there is a direct interface between lawyer and client which is usually missing in outsourcing, the range of advice topics offered is limited and I imagine if anything contained the seeds of become contentious it would be cut off. Again it's all predicated on handling commodified, standardized work. A bit like the way claims handling companies deal with injury claims--settle, don't litigate.

Jerry Van Hoy's research on franchised law firms in the US showed they depended on non-contentious work, that was easily reproducible. And the organization of the franchise firm tended to alienate the lawyers since they weren't really part of the practice. Indian legal outsourcing is magnifying this trend exponentially.

It elides smoothly with the extension of the partnership track as reported today. As the prize of partnership becomes more tentative in the getting and keeping, it contains an implicit threat of being outsourced if one doesn't measure up. It probably won't happen but perceptions are powerful, as is fear. Associates now must wait nine years, after a prior two years apprenticeship, before they are made up to a salaried partner for a minimum of another three years. That's a 14 year stretch before a lawyer becomes a full equity partner, assuming he or she isn't sidetracked before then. Or decides to go inhouse instead.

And so, of course, partners must expect to be on call at all hours, be ready to pull those all-nighters, and justify those fees. Now it's global warfare. A more playful way of getting the message is for British and American lawyer to watch "300".
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