The need to cut costs has led many law firms to outsource back office and administrative tasks. Legal work could follow

Ten of England’s top 30 law firms have outsourced back office functions or legal work to India, according to new research from RSG Consulting.

The RSG India Report 2008 is a definitive 200-page analysis of the current legal market in India. Beyond the subject of outsourcing, it also shows that this market is evolving at break-neck speed.

India now has its own “magic circle” of leading law firms with senior corporate lawyers earning incomes comparable with those of partners in medium to large-sized London firms. But, as the study notes, there is a dearth of experience and attrition rates are high.

RSG also emphasises the increasing purchasing power of general counsel in Indian companies, most of whom favour liberalisation of the legal market — unlike the Bar Council of India and many of the top law firms. Only 40 per cent of the latter actively support liberalisation.

While the politics of the Indian legal profession are interesting, the growth of the Indian legal process outsourcing (LPO) industry raises more fundamental long-term issues.

The report notes that, since the start of this year, there has been a dramatic shift in attitude towards outsourcing among top English firms, with initial resistance weakening considerably.

What has brought about this change of heart? In my new book, The End of Lawyers?, I argue that the pressure here is coming from clients. Boards are urging general counsel to cut their internal headcounts and to reduce substantially the amount they spend on external law firms. Legal and compliance departments also are being expected to take on an increasing and often riskier workload.

In short, many leading corporations and financial institutions have in-house legal functions that are being compelled to provide more for less. This was emerging as a trend even before the credit crunch; now it is an overriding imperative.

One obvious way of delivering more for less is to cut the costs of legal services. Historically, this would have meant firing support staff and slashing expenses on infrastructure.

However, law firms have recognised that this can prejudice the quality and reliability of service and so some have been exploring other ways of reducing expenditure on back office and administration, such as IT, finance and document production.

One approach has been to invest in outsourcing. In October 2006, for example, Clifford Chance announced its intention to outsource much of its back office to India, in the hope that it would make annual savings of almost £10 million.

More fundamental still, though, is outsourcing legal work itself. Examples here include legal research, document review in litigation or due diligence for corporate work.

LPO companies, strictly, are not law firms, even though they may employ legally qualified and paralegal staff. Generally, they keep their overheads low by operating in places where incomes are modest and property inexpensive. They rely on well-developed standards and systems that may be worked out with the firms outsourcing to them. Most provide their services simultaneously to a variety of firms.

The business case, as RSG points out, is compelling. Its report notes that LPO companies employ Indian legal graduates with starting salaries of about $7,000 (£4,700) — while top Wall Street firms pay their newly qualified associates about $160,000 (£108,000) a year.

In summary, LPO businesses incur radically reduced labour costs in delivering routine and repetitive legal work. In turn, the result can be a radically cheaper legal service — which clients welcome. Some are going farther than applauding. As RSG shows, clients too are outsourcing legal work. Deutsche Bank, BT, Sun Microsystems, among others, are presented as case studies.

In The End of Lawyers?, I suggest that outsourcing is but one of a growing number of different ways of handling legal tasks of a sort that do not require genuine legal experts. Others include off-shoring, co-sourcing, sub-contracting, leasing, computerising and open sourcing.

The details are not important. The principle is that the market will find ever more efficient ways of sourcing routine and repetitive legal work.

In boom times, leading law firms did not give serious thought to outsourcing or to other novel techniques for delivering legal services.

The work flowed in, profitability rose, and there was no obvious incentive to buck what seemed like an unstoppable trend. It was hard to convince millionaires that their business model was wrong.

But the world has changed and 2009 will be a tough year for most English law firms — fee income will decline and clients will demand yet further reductions in cost.

By contrast, for LPO providers in India and for other legal businesses who source legal work in new ways, it may be the dawn of a prosperous era.

The End of Lawyers? was published by Oxford University Press on November 20

To read the original article, see http://business.timesonline.co.uk/tol/business/law/article5320583.ece