Saturday, April 28, 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".

Friday, April 20, 2007

Lawyer-Client and Lawyer-Partner Relationships

I'm back after finishing some papers. One of which was to do with lawyer-client relationships and the interaction between them. What is crucial is the creation and maintenance of trust that has to occur. Most of the research that has been done on the interaction between lawyers and clients has centred on small firm lawyers and individual clients. This gives a distorted picture of what takes place because this type of client is usually a one-shot client, so there's no need to consider the long term effects of the relationship because there aren't any. Whereas in the corporate sector with repeat player clients long term relationships are important.

Two recent forays into this area are of interest. One comes from a blog; the other is an article in the most recent issue of the International Journal of the Legal Profession.

A recent blog, "What the Thunder Said" took a different slant on this by commenting on how clients compliment their lawyers for the success of the job. She sees this as a tactic by clients to obtain discounts on future work. Perhaps what is less clear for those of us in the west is whether the tactics of Chinese clients are typically oriental. I suspect not. As I showed in my paper, there is considerable negotiation over the final fee with lawyers often taking a substantial hit.

In the IJLP article, "Social Capital and Knowledge Acquisition in Professional-Client Relationships" by Suseno, Pinnington, Gardner & Shulman, the role of networks established through constant interplay is demonstrated by the use of social capital which the authors define as "the professional's privileged access to resources that is established through networks and social trust with clients". This enables lawyers to obtain business-specific knowledge about their clients that ties them together. It almost creates a kind of interdependence that becomes difficult to shake off. And so the barriers to entry are made steeper and steeper for others.

Both statements are talking about similar things. The Chinese call it guanxi and western social scientists refer to social capital, but it's all about forming and keeping relationships alive and meaningful.

But let me wrap this up with a different relationship. I'm not a client, but I am an academic and I'm married to a partner in a big law firm. What then is the status of my relationship versus those with clients? The answer ought to be obvious but it's not.

I was fast asleep the other night when I was woken up at 3am by a furious argument. My wife was on the phone to a lawyer on the other side of the deal and they were engaged in "hard bargaining". It was also depriving me of sleep. It went on for almost an hour. I dozed fitfully, then thankfully relapsed into sleep again. I think there could be a role for further discounts in legal work. Only they won't be for the clients. No, they should be negotiated by partners of partners for sleep foregone. It would be a literal way of converting sleep debt into a cash profit.