Legal Outsourcing: A Two Way Street

A recent article in the New York Times points to a legal trend that only stands to grow in tough economic times: outsourcing. As the grunt work of the legal world, such as document review and due diligence, is exported to India, leading process-outsourcing companies like CPA Global and Pangea3 are looking back to the US for experienced lawyers to fill managerial positions.

According to Valuenotes, an India-based market research firm, between 2005 and 2009, the number of legal outsourcing companies more than tripled, rising from 40 to 140. The New York Times cites Valuenotes as estimating that "revenue at India's legal outsourcing firms is expected to grow to $440 million this year, up 38 percent from 2008, and should surpass $1 billion by 2014." In India and the Philippines, where most of the employees of legal outsourcing firms work, companies demanding legal services pay between one-third and one-tenth of what Western firms bill. The Times quotes David B. Wilkins, director of Harvard Law School's program on the legal profession as saying "[t]his is not a blip, this is a big historical movement" and explaining that since large companies have already outsourced work for many of their services, exporting legal work is the next logical step.

Though many companies moved to legal outsourcing as the result of severe cost-cutting measures, few are likely to switch back as the economy rebounds. General Electric's general counsel Janine Dascenzo spoke for her peers when she said "we will continue to go to big firms for . . . experts in subject matter, world-class thought leaders and the best litigators and regulatory lawyers around the world - and we will pay a lot of money for those lawyers . . . [but] you don't need a $500-an-hour associate to do things like document review and basic due diligence."  

One can imagine a brief round of cheer as first-year associates swamped by mindless document review tasks cast off the shackles of their post-it notes and electronic "flags." What's not to like about moving on to more meaningful work? The American and European managers of these legal-outsourcing firms are satisfied in their new supervisory positions. It seems as the lawyers in the US and Europe have traded their grunt work for new jet-setting managerial positions, preserving their Eloi status and developing new job opportunities in the process.

But setting aside the hints of a new economic colonialism, this business model is problematic. Where will the billable hours come from? Who will pay for the years of training that it takes for a first-year associate to become "the best litigators and regulatory lawyers around the world"? Clients have long pushed for partners and senior associates, dragging their feet about paying for less experienced junior associates to work on their matters. Now, with legal outsourcing cutting into the work available to junior associates, clients have further separated experienced lawyers from beginning associates, literally putting a world of difference between the two. This distinction is artificial and may be difficult to maintain. In the meantime, however, training is becoming a hot commodity for young attorneys.

Building a Better Legal Profession (BBLP) is an organization based at Stanford Law School.   BBLP is a national grassroots movement that seeks market-based workplace reforms in large private law firms. For more information, visit BBLP's Web site at www.betterlegalprofession.org.