By David Galbenski

Two years ago, I wrote a piece for The Detroit Legal News about the impact of the flattening world on the legal profession.  I posited that the world would be changing dramatically for the legal industry—as law becomes more of a business and less of a profession—for the same reasons that Thomas Friedman laid out in his popular and comprehensive book, The World Is Flat. 

Technological innovations have brought international interaction to the forefront.  Friedman puts it like this, “…we are now connecting all the knowledge centers on the planet together into a single global network….”  This leveling of the playing field caused me to predict that the legal industry would meet with both obstacles and opportunities: Fungible work (or work that could be easily digitized and transferred to lower-wage locations) would increasingly be outsourced or offshored in order to reduce overall legal spending. 

As Laura Lewis Owens says in her 2007 article, “With Legal Services, World Is Flat,” which appeared in The National Law Journal, “Consistent with the highest ethical and professional standards of practice, most law firms can do more to improve the services they provide and lower the cost.”  

The unbundling of tasks, so lower-level work can be performed by lower-wage countries, is a viable way to close the perceived “price/value gap” in legal services.  One trend I foresaw in 2005 was that law firms would look at reducing cost structures for fungible services that support the practice of law, and consolidation of larger firms would occur to achieve cost efficiencies.

Since then, we’ve continued to see law firms grow in size and look for efficiencies on the expense side.  Global law firms like Clifford Chance have substantially ramped up support functions to be done off-shore to decrease operating expenses and increase profitability per partner, in order to continue to attract world-class talent.

Another option that law firms use is “near-shoring,” or consolidating support functions in lower-cost U.S. regions, like Orrick Herrington and Sutcliffe, which consolidated its finance and technology services into a global operations center in Wheeling, West Virginia.  As Ralph H. Baxter, Jr., Orrick’s Chairman and CEO, has written, “West Virginia’s low cost of business, its reliable work force and the outstanding cooperation from economic development officials at all levels convinced us to locate this vital part of our operation in the state.”

Fungible vs. non-fungible

Substitutable services that could be performed at a lower rate in countries like India include e-discovery, contract review, patent drafting, and legal research and writing. 

Some people express initial concern about sending work like legal research and writing overseas, but the platform on which attorneys conduct research is all electronic: The same access is available worldwide.  And, any research and writing is always done under the supervision of a lawyer licensed to practice in the U.S.  In the vast majority of circumstances, only the initial research and drafting gets offshored.  U.S. attorneys elevate and polish the writing.  To really take advantage of outsourcing fungible work, it’s necessary to break down tasks to see which lower-level components can be performed by lower-cost individuals.

Highly complex, detailed work that requires understanding of the culture can’t be replicated and should be considered non-fungible.  Right-brained, or creative, tasks are more likely to remain in the U.S.

How Lawyers Can Stand Out

Most lawyers don’t necessarily love doing rudimentary tasks.  By outsourcing fungible tasks, lawyers are allowed more creativity.  For example, if an outsourced attorney provides preliminary research and writing, the lawyer in the U.S. can look at the case law and facts and consider how to paint a story that’s compelling to either the reader or the listener. 

New lawyers need to take a critical look at practice areas to understand which may be less likely to be outsourced.  One key question: Is the physical presence of a lawyer necessary? 

For example, trial lawyers need to appear in court in person—until presence by webcam is considered acceptable.  Divorce law also requires face-to-face interaction.  Certain practice areas may be more attractive as this trend progresses. 

However, making decisions about practice areas shouldn’t be solely based on ease of outsourcing.  New lawyers should ask themselves:

1.  What practice areas they’re passionate about.
2.  What practice areas there’s a high demand for.
3.  How they can structure the way they practice in this area to leverage global resources.  

Tech-savvy individuals will continue to be appreciated: Lawyers need to be cognizant of technology as it relates to the practice of law. 

Opportunities for In-house Counsel

Depending on the staff’s bandwidth to manage projects, outsourcing gives in-house counsel more options—beyond using the services of a law firm—in terms of procuring legal service.

In-house counsel can trust law firms with the result of the outsourced work; whereas, when they choose to outsource fungible tasks overseas, they will be directly responsible for the outcome of the project.

The vast majority of in-house counsel are not looking to take on more accountability.  Instead, they can look to providers to manage the relationships.  In this case, they may not capture all the savings from outsourcing directly, but they will have people to handle the outcome. Law firms or legal staffing firms can act as “legal architects,” the term Lewis Owens writes is used “informally by members of Working Group I of the Sedona Conference to describe the role of the legal strategist[s] who must have command of the facts, the law and the processes implemented to support the litigation, including the process of document collection, processing, review and production.”  These legal architects can act as a trusted advisor for in-house counsel to help them integrate labor outputs into their strategy.

What Flattening Means for Law Firms

Law firms need to combat the price/value gap.  To do so and remain profitable, it’s necessary to become more efficient.  Consolidation is the natural next step to create a global footprint in which law firms can remain competitive.

Efficiencies that drive partner profitability often drive consolidation.  As firms become more profitable, other law firms look to them.  They say, we have to do what they do, or we have to merge with them to benefit from the efficiencies they’ve created. And, more profitable law firms also draw superstar lawyers with large books of business to leverage what they’ve built.  When those rainmakers leave a less efficient, less profitable law firm for a more efficient, more profitable one, it further weakens the less profitable firm, which may in turn force them to merge.     

The downside for law firms is one word: change.  There will not be the opportunity to practice law in the same way since competition with legal outsourcers may take work that used to be very profitable.  Law firms will need to evolve how they deliver service to their clients.  They’ll need to discover how they can do it faster, better, and how to make it less expensive.  They’ll need to think like entrepreneurs.  It will constitute a dramatic cultural shift.  And, law firms will need to change with the times—or wait until the market forces them to change.

David Galbenski, Esq., is President and CEO of Lumen Legal. He can be reached at dgalbenski@lumenlegal.com.