Friday, September 05, 2008

ABA Ethics opinion on Legal Outsourcing: Vendor Speak

As previously mentioned, this blog conducted interviews of some of the major Legal Outsourcing providers, here are some of the responses:

1. How do you perceive the opinion?
Says Sanjay Kamlani, Co-CEO of Pangea3, "The recent ABA ethics opinion blesses and endorses the off-shoring of legal services. Following in the footsteps of four local bar associations, the ABA has officially issued an ethics opinion that not only approves but endorses the use of legal outsourcing providers as a method to extend in-house capacity and to reduce law-firm costs."

" one seriously expected the ABA to come out against legal outsourcing. After all, the ABA historically has been a finger-in-the wind organization, and today the wind blows against exorbitant legal fees and law firm inefficiencies that for too long have been a burden on the economies and even ordinary citizens of the West. It blows in the direction of globalization." "In short, the ABA panel, far from standing in the way of legal off-shoring, has embraced it, with mostly common sense caveats that are no impediment to this growing trend." says Russell Smith, Chairman of SDD Global.

Ram Vasudevan, CEO of Quislex opines "I do think this will help the industry grow."

Mark Ross, Vice President of LawScribe is a bit more cautionary about the apparent carnival among those who are pro-outsourcing: "Facially, the Opinion offers little that we have not read before in the earlier Opinions by the NYC, LA County, San Diego and Florida Bar Associations." "While it is certainly welcome, make no mistake about it, this Opinion has been viewed through ever-so-slightly rose-tinted spectacles. Yes, the tone is welcome, however substantively the ABA are simply re-affirming the position as it has been for the last few years. There is a danger that the plethora of articles, blogs commenting on the Opinion may come across to the trained eye as something of an overkill."

2. The opinion is being touted as the tipping point that the LPO space has been waiting for - your comments?

Mark continues his cautionary note: "I don't necessarily agree that this Opinion is the tipping point the industry has been waiting for. As I mentioned previously, substantively, there is nothing new. The Opinion is simply another newsworthy item relating to the LPO industry, nothing more and nothing less." "My personal belief is that the tipping point is client driven and that clients' perception and attitude to LPO will be influenced by numerous factors, including the current state of the economy, the rising costs of junior US qualified junior associates and litigation generally, the commoditization of certain elements of the legal function, and yes admittedly, increased press exposure to the concept of LPO."

Says Ram, "[The ABA opinion is] one of several factors. The quality and reputation, which take time to build, of the legal work done in India are essential to grow the industry and are the true tipping points. Those firms that have established processes for and a culture of quality, will see the tipping point sooner i.e., the tide is not going to turn for all the companies at the same time."

According to Smith "... the Opinion's favorable take on what we do, combined with the publicity this is generating, could help bring about a positive sea change in terms of awareness among in-house counsel and law firms."

Sanjay Kamlani sees the work not only increasing in volume but also complexity "The nature of the legal services [Pangea3's existing Fortune 500 and Am Law 200] clients are outsourcing to us continues to mature in terms of scope and sophistication. For example, in-house counsel departments have outsourced real time transaction sensitive M&A due diligence work over the past year; quite a step forward from legacy contract review and abstraction. And in electronic discovery, our senior litigation attorneys have increasingly played the role of document review strategists, guiding counsel on everything from responsive codes, to search methodology and case specific strategy related platform functionality and suitability. "
"To the extent that there were any Doubting Thomases in those organizations, the recent ABA opinion certainly vindicates the GCs and partners who chose to outsource legal work to India despite those skeptics. This ABA opinion gives them the additional support they may have needed to exponentially expand the strategy and the effort. For organizations that succumbed to the doubts of conservatives who warned against legal outsourcing because of legal ethics concerns, the ABA opinion should certainly serve as a catalyst for the GCs and partners in those companies and law firms to begin their effort to catch up with their counter parts who have been outsourcing legal work now for years. So for both these reasons, the ABA opinion could very well trigger a tipping point for the LPO industry."

3. Have you received more than usual number of queries from prospects since the opinion? Any highlights?
"We have seen a significant increase in inquiries in the last several months precipitated by the US recession both from the standpoint of the cost pressures and related head count reductions associated with the recession as well as from the standpoint of increased legal work directly related to the subprime debacle that triggered the recession. The ABA opinion is likely to accelerate the momentum by eliminating any legal ethics related barrier that may have been holding up some decision makers who are faced with one or both of these problems." says Kamlani.

According to Smith, the spike in inquiries came not from anything new in the Opinion itself, but rather from the favorable publicity it is generating. Quislex received several congratulatory messages and notes that the opinion is good for the industry as a whole. And Mark, rightfully, points that we need to allow a little more time before being in a position to effectively assess any impact the Opinion may or many not have.

4. Is your company prepared to take on the wave of work expected from clients of offshored legal services in the next 6-12 months? Can you cite examples of such preparation?

"We will be working closely with leading Indian Universities and technical colleges to ensure that as a market leader we always have access to the best possible talent. We will also be opening up a second India facility either later this year or early 2009." says Mark.

Says Ram Vasudevan of Quislex, "Our preparation for work is based on executed contractual commitments, existing work, repeat work from existing clients and a strong pipeline of new work."

Similar to Mark's comments on training to enable Indian lawyers to support legal outscouring work, Russell Smith says, "For one thing, for over a year we've put a big emphasis on advanced legal training, especially in the areas of U.S. legal research and drafting, so most of our people are already functioning at the level of a U.S. law firm associate or higher." He continues, "... taking advantage of the fact that we get hundreds of job applications a day, we have been very carefully preparing a large database of qualified candidates who can join our ranks on short notice. Lastly, we have floor space and infrastructure all set for an additional 200 or more employees, so we're ready to ramp up, if and when the time comes."

As with Mark and Russell, Sanjay shares his plans of getting the infrastructure ready, "We have more than doubled our work force since the same period last year and we increased our seat capacity to over 400. From a talent capacity standpoint, we have evolved several strategies to handle bursty growth spurts and demand for service. So, in all respects, including physical infrastructure, technology, and talent, we are well poised to handle anywhere from twice to three times our current volume at any given point in time."

5. How do you see the demand for offshored legal services evolving over the next 2-3 years?
Sanjay is quite upbeat about the evolution of the industry from this point, "With this likely tipping point, we should see the demand for legal services growing exponentially over the next twelve months. Over the next 2 to 3 years, we would expect every large in-house counsel department and a much larger number of law firms to view offshore outsourcing strategies as essential to their legal practice. In many respects, outsourced legal services from India’s LPO industry represents the best legal work for the best price--the best value for money. To go back to the example of an M&A transaction with a budget on the due diligence, an attorney operating within a US or European cost structure, be it a law firm or an in-house counsel, realizes how much more of a thorough due diligence review they can accomplish with highly qualified attorneys and at an India based LPO with a substantially lower cost structure. As a result, attorney’s in the US and Europe are coming to realize that the LPO value proposition enables the greatest fulfillment of their professional responsibility to their clients. To state it the other way, without legal outsourcing, these attorneys realize that the level of service they can otherwise provide to their clients is less."

Russell Smith of SDD offers some predictions,
"1. Corporations, not Western law firms, will drive the market. Law firms currently provide 45% of the business for the industry, and more and more of them will hire offshore providers, but this will be driven mainly by the dictates of corporate clients. Another way that corporations will drive the market, indirectly, is by obtaining flat (or fixed) rate billing from their outside counsel, instead of hourly billing. This kind of billing can radically alter the dynamics of Western law practice, as law firms working for flat rates will have a compelling incentive to reduce hours and costs, instead of increasing them as before. Flat rate billing will cause many law firms to realize that offshore providers can be important allies in improving their bottom line, rather than competitive enemies.
2. Every sector of the legal offshoring industry will grow dramatically, including so-called "lower end" services, such as document coding, form filling, transcript digesting, and legal transcription. Ultimately, however, the biggest impact, the long-term mother lode, will be higher-value services such as legal research and drafting – services that constitute the bulk of the legal work now done in the West.
3. The continued boom in the industry will lead to continued and increased competition among offshoring providers for legal talent in India. At the same time, as the public profile of the industry grows and improves, an increasing number of law graduates and young lawyers will gravitate to the industry, and more of the best and brightest among 12th-graders will decide on law as a career. However, during the lag between the current pool of talent and the increase in that pool in the future, the competition for the best law graduates and lawyers will be won mostly by high-end providers. This is because higher-value work tends to be more interesting and challenging, and because the higher profit margins allow for higher salaries.
4. Training will be central to the industry’s success. Training will be especially critical as providers move up the value chain in relation to their services, and as they recruit more deeply into the pool of available talent, most of whom will be fresh law graduates with no experience in working for Western clients. "

Ram predicts "More acceptance in the US legal market and perhaps consolidation on the Indian front. We will also likely see several players exiting, voluntarily or involuntarily from the space due to execution issues."

Mark comments on the evolution including countries like UK to follow the US adoption of legal offshpring. Interestingly, he also predicts a dip in partner profitability (growth in percentage terms):
"... forward thinking law firms, wishing to stay ahead of the curve during difficult economic times, will start exploring with a much greater intensity, partnerships with the leading LPOs in the marketplace. 2008 and 2009, by all accounts will witness profits per equity partner dipping for the first time in my living memory. Perhaps this will be the wake up call, that pushes LPO into the mainstream for law firms, as a viable strategic offering to their clients.
I also believe the UK will follow the US lead and explore the specific areas of the UK legal profession that are most suitable to the LPO model. At present we are yet to witness large scale outsourcing of pre-issue of court proceedings, personal injury work for example. Pre-issue cases account for well over 95% of the entire UK personal injury work flow, and this is an area ripe for outsourcing. "

Legal Outsourcing as an industry seems to have arrived at a juncture where the serious players have evolved in their thinking, strategy and execution. The ground is set for some serious growth. Watch this space for further interviews with other large providers.