Offshoring your lawyer
Corporate law
Dec 16th 2010 | NEW YORK | from PRINT EDITION
HOW many lawyers does it take to change a light bulb? The answer is 53: eight
to argue, four to object, three to research precedents, one to ask a secretary
to change the bulb and 37 to bill their time at an exorbitant hourly rate. When
every joke about your business mentions featherbedding, you should be worried
about outsourcing. At last, lawyers are.
Thomson Reuters, a media and information-services company, bought Pangea3, a
legal-process outsourcing firm with most of its lawyers in Mumbai, in November.
At about the same time, Thomson Reuters said it was looking to sell BarBri, a
company that prepares young American law graduates for the bar examination.
Thomson Reuters says the two deals have nothing to do with each other. But Elie
Mystal of Above The Law, a muckraking blog, sees a straightforward swap: more
cheap Indian lawyers, fewer expensive American ones.
Legal outsourcing is still small. Of the $180 billion that Americans spend on
lawyers each year, only about $1 billion goes to outsourcers. But this is
growing at perhaps 20-30% a year, for the simple reason that legal costs are
out of control. Between 1998 and 2009, big law firms hourly rates shot up by
more than 65%, according to the Corporate Executive Board, a consultancy.
Some legal tasks cannot be done cheaply. If the fate of your company hinges on
the verdict, you will want a brilliant lawyer to argue your case. But plenty of
legal jobs are routine. American law firms typically get fresh law graduates to
do such grunt work and then bill clients for it at steep rates. But the
recession has prompted clients to rebel. A recent survey by the American Lawyer
found that 47% of large firms had seen clients refuse to have hours billed to
beginner lawyers.
American Express, GE, Sony, Yahoo! and Netflix have all started using Pangea3
for basic legal tasks. The firm reviews documents, drafts contracts and does
other jobs with repetitive elements. Many clients hire outsourcers such as
Pangea3 directly. They often then approach their expensive American law firm
and demand that it start working with the outsourcer.
Law firms are responding in different ways. Some hire outsourcers themselves: a
quarter of Pangea3 s business, for example, comes from law-firm clients. DLA
Piper, a big American law firm, plans to set up its own outsourcing operation
next year. Taking advantage of the tough legal jobs market, the firm will build
a network of thousands of non-staff lawyers, says Peter Pantaleo, the managing
partner of the New York office. These lawyers will be American but cheaper,
perhaps because they are looking for a work-family balance. They will do for
perhaps $100 an hour work that might otherwise cost the client $500, says Mr
Pantaleo.
Ray Bayley, the founder of Novus Law, another outsourcing firm, says that his
industry is not just about paying lawyers less. It is also about doing the job
more efficiently, for example when looking for needles of evidence in a
haystack of documents: rather than relying on a single brilliant mind, Novus
Law deploys teams of lawyers using technology and a process involving hundreds
of small steps. Mr Bayley is not a lawyer he spent much of his career at PWC,
an accountancy and consulting firm, figuring out how to make companies leaner.
He brings the same approach to the legal business. His firm s revenues are
doubling yearly.
William Henderson of Indiana University praises Novus Law s ability to find
patterns in mountains of material. He believes it allows clients to build novel
factual theories to win cases. It s great lawyering, he says.
Outsourcing will affect American legal firms the most, because they cost the
most. The laws that govern lawyering in America are typically written by
lawyers-turned-politicians, which perhaps explains why they make so much work
for the profession. Many lawsuits require extensive discovery , which can mean
sifting through nearly every e-mail your opponent has ever sent in search of
one that sounds incriminating. That can take a while. As the workload has
grown, so too have law firms. The biggest 250 have increased their headcount
fivefold in 30 years.
Some lawyers think outsourcing will be a blessing, taking away the drudgery and
leaving them free to hone their higher skills. Others are nervous. Machines
will never replace the brightest American legal minds, but there is no reason
why Indians cannot do some of their work. The sharpest firms will survive. So
will mass-market law firms, which will make use of outsourcing. But the
profession as a whole could be in for a squeeze.
from PRINT EDITION | Business