Three myths about legal services offshoring

D. Murali and Goutam Ghosh

Chennai, Sept. 6: Working for clients such as Universal Pictures, HBO, 20th Century Fox, Sony Pictures, and the Clinton Foundation is SDD Global Solutions Pvt Ltd, a legal services KPO (knowledge process off-shoring) company, incorporated and headquartered in Mysore.

Formed and majority-owned, by Smith Dornan Dehn (www.sddlaw.com) – a Manhattan-based international media and intellectual property (IP) firm with most of its clients in New York, Los Angeles, and London – the KPO is headed by Mr Russell Smith.

“There are three myths about legal services offshoring,” he said, in a recent email interaction with Business Line. “These are myths that we have heard, regarding the alleged inability of Indian lawyers to match the quality of US lawyers,” he adds.

Excerpts from the interview.

Myths? But why?

Expert business research analysts have concluded that “law firms and corporates are fast moving toward offshoring more complex tasks to vendors, as their comfort levels improve.” Nevertheless, despite (or maybe because of) the amazing success stories in the field of high-end offshoring, there remain some naysayers. For example, Gregg Kirchhoefer, a partner at Kirkland & Ellis, one of the biggest and most profitable law firms in the US, estimates it could be 50 years before lawyers in India do more than “routine, prosaic” American legal work. The pessimists often rely on one or more of three myths about legal services offshoring.

What is the first myth?

Myth number one: ‘Indian lawyers lack the skills and aptitude to handle high-end legal work for the West.’
Attacks on the competence of Indian lawyers and law graduates are about as valid as saying that Indian software engineers are incapable of handling sophisticated IT (information technology) work. To the contrary, the Indian IT industry is a world leader, and the same will be the case with offshored legal services.

How so?

There are three facts that debunk that myth: The quality of Indian legal training, communication, and exams.

Is Indian legal training better than what is available in the West?

Legal education in both India and the English-speaking West serves essentially the same purpose – to train its graduates to “think like lawyers” and to teach them how to conduct research in the British-based, common law system. Western law schools, however, do not train students to practise law. A recent study conducted by Harvard Law School and LexisNexis reveals that 75 per cent of US law graduates admit they do not have the necessary skills to practise law. Interestingly, when young lawyers were asked what is the one thing that they wish they had learned, the most frequent answer was “how to draft a motion.” Yet, motion practice is at the heart of litigation services provided to clients by law firms.

Since Western law schools are mostly litigation-oriented, their failure to train students in the most basic of litigation skills is disappointing. However, clients who pay high hourly fees for corporate and transactional work by US law graduates are short-changed even further. It is typical for Western law students to graduate from law school without ever having learned how to draft a contract.

So you would expect that these deficiencies would be met by rigorous training programs undertaken by Western law firms. Guess again! The Harvard-LexisNexis study reveals that 64 per cent of young lawyers receive no organised, on-the-job training. They learn as they go along, by trial and error, with their firms’ corporate clients footing the bill.
By contrast, reputable legal services offshoring companies in India provide rigorous training to their lawyers, and the hours spent on training do not appear on invoices to clients. At SDD Global Solutions, for example, all of our Indian attorneys are trained by veteran Western practitioners who are at the top of their fields. Our training program accomplishes what Western law schools and law firms have failed to achieve, namely, the systematic preparation of young lawyers to provide quality legal services.

Your views on English communication skills in India and the West.

George Bernard Shaw, and later, Winston Churchill, famously referred to Britain and the US as two countries “separated by a common language.” Because Indian legal education is conducted in English, and because India generates 80,000 English-speaking law graduates per year, similar statements have been made about the difference between English communication skills in India and the West. What these accusations miss is the fact that, at least in the US, law graduates for the most part are notoriously incapable of writing effectively in English. The problem is so severe that some large US law firms now assign a writing coach to each incoming associate. However, most lawyers in the West never receive this kind of training. By contrast, reputable legal services offshoring companies in India train all their attorneys in English writing.

What are the differences in the examination system?

In India there are no bar exams. Instead, Indian law students, unlike US law students, must pass a comprehensive final exam in order to graduate. But in part because India has no bar exam, some commentators have suggested that Indian lawyers working for legal offshoring companies should be required to pass a certification test, to demonstrate their ability to provide Western legal services. This is an admirable effort. But who will develop a certification system for Western lawyers, many of whom lack skills needed to practise law properly? Regarding bar exams in the US, they are useless, except as a public relations device for the legal profession. As noted by New York University Law Professor Harold I. Subin, they test “nothing relevant to the practice of law”, as in the following quote:
‘The bar exam…. is good public relations for the legal profession. Most people are unaware that the exam tests nothing relevant to the practice of law and therefore feel that the organised bar is protecting clients against unqualified lawyers.

The bar exam is the final degradation ceremony through which one must pass to join what is sometimes called the legal fraternity…. The term is apt, with the bar exam serving the same socialising purpose as hazing [known in India as “ragging”]: drinking in useless legal data is the profession’s equivalent of swallowing goldfish or great quantities of beer, and leads on exam day to a similar regurgitative result.’

What is the second myth?

Myth number two: “You get what you pay for,” or in other words, ‘low cost equals low quality.’
The tremendous cost savings available from legal services offshoring are sometimes met with disbelief. Partners at large law firms in particular are prone to making comments such as “you get what you pay for.” First, let’s examine what a client pays for when it hires a typical large Western law firm (although there are exceptions):

(a) staggering real estate costs, due to the location of office space in some of the most expensive locations in the world, most of which are at least 43 times more expensive per square foot than SDD Global’s office building in Mysore, India;

(b) having most of the work done by newly minted (and sometimes even unlicensed) associates who admittedly lack many of the skills needed to practise law, but yet are paid a starting salary of $1,60,000 per year, and who are learning as they go along, at the expense of clients, who in turn are charged as much as $360 or more per hour for the privilege;

(c) padding of time sheets and/or an unnecessary stretching out of work assignments, encouraged by an hourly billing system that rewards fraud and inefficiency, as young associates struggle to meet ever-increasing demands to increase their billable hours, with yearly quotas that have risen from 1600 hours in the 1960’s, to 2100-3200 hours at many large firms today; and

(d) generally a high-quality level of service, due to editing and supervision by talented senior lawyers, but at a cost that clients are no longer willing to tolerate, especially when offshore providers offer flat rates and hourly rates that average from $25 to $90 per hour for high-end work, and $10-25 per hour for lower-end work, as compared to $300-2000 per hour for Western lawyers.

When a client hires a reputable legal offshoring company in India, whether directly or through a forward-thinking law firm that passes along the savings, the client pays for high-quality, efficient, and timely legal services, performed by enthusiastic and qualified lawyers at locations that serve the best interests of the client. So yes, “you get what you pay for!”

And the last myth?

Myth number three: ‘The higher the level of work, the more risk of ethical violations or breaches of confidentiality.’
An issue sometimes has arisen whether high-end legal research and drafting services provided to Western clients from India amounts to an unauthorised practice of law. Fortunately, this is becoming a non-issue. Ethics panels in New York, Los Angeles, San Diego, and Florida have all concluded that offshoring of legal work to unlicensed attorneys is permissible, so long as the work is supervised by a licensed attorney. The New York Times has quoted Stephen Gillers, a professor at NYU School of Law and legal ethics expert, as stating that “‘[t]here is no problem with off-shoring…because even though the lawyer in India is not authorised by an American State to practise law, the review by American lawyers sanitises the process.’ “

In fact, virtually all major law firms in the US routinely use non-licensed attorneys to perform legal work, and they bill their clients for it. The hours of summer associates, who have neither graduated from law school nor passed a bar exam, are billed out to clients at rates as high as $260 per hour or more. Moreover, the work of first-year associates, who start work at law firms before their bar exam results are in (and who often fail on their first attempt), is billed out to clients for as much as $360 per hour or more. This is all permissible, because the work is supervised by licensed attorneys.

The same is permitted in the case of legal offshoring firms in India?

Yes. At SDD Global Solutions, for example, we are an India offshoring company managed by a US law firm, such that all the work by Indian attorneys is supervised, reviewed, and edited (if needed) by licensed US attorneys. Several other high-end legal offshoring companies also have licensed US attorneys on their payroll, or at least affiliated with the offshoring unit. Even where the offshoring companies themselves do not employ licensed attorneys, the work can be supervised by in-house counsel for corporate clients, or by Western law firms who act as intermediaries, hiring the offshore unit on behalf of their clients.

How is confidentiality maintained?

This is a legitimate concern of clients, regardless of whether the legal service provider is a Western law firm or an offshoring company in India. Based on my experience both with US law firms and the provision of legal services in India, I believe that quality offshore providers generally are doing a better job than US law firms in addressing this issue.

For example, at SDD Global, we use secure, hack-proof IBM servers, and the latest Cisco ASA firewall to protect data and systems from Internet vulnerabilities. Even more protection is provided by a Linux environment throughout our offices. Electronic access control is provided for all areas of the building, such that no one is able to enter any floor or project area without being specifically authorised to do so, and without using a custom-made electronic access card. Our offices are virtually paperless, and passwords are required for all data access. Most importantly, we take great care in selecting employees. We hire only one out of every 900 applicants, and only after a lengthy battery of evaluations and tests, as well as a thorough background check. SDD Global is not alone in this attention to security. As research analysts such as ValueNotes have reported regarding our industry, “vendors have invested significantly in systems and processes to ensure data security – often to a greater degree than their overseas clients.”
Compare this with many US law firms, where Microsoft-based networks are vulnerable to hacking, where paper trails abound, where employees are able to roam the offices at will, and where in one famous case, a person posing as an attorney was entrusted with the management of important client files, even though this felon had never attended law school or passed the bar exam.

Your views on the future of the legal services offshoring industry.

The future of the legal services offshoring industry in India appears very bright. Below are a few predictions:
§ Corporations, not Western law firms, will drive the market in the years ahead. Law firms currently provide 45 per cent 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. For example, a major Detroit auto manufacturer approached SDD Global for offshore litigation support. When we asked what the reaction of their usual outside law firms would be to most of the legal work being done in India, the answer was unambiguous: “Our outside law firms will operate the way we tell them to.”

§ 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. For example, the mega law firm, Morgan Lewis & Bockius, now handles all of the litigation for Cisco Systems for a fixed annual fee. 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 realise that offshore providers can be important allies in improving their bottom line, rather than competitive enemies.

§ Every sector of the legal offshoring industry will grow dramatically, including lower end services, such as document coding 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.

§ One of the keys to the growth in higher-value services will be the ability of providers in India to affiliate with, or hire, licensed attorneys in the West, to supervise the work, train the Indian lawyers, and market the services. Offshoring companies that can do this will have an edge.

§ Legal outsourcing companies who locate or re-locate in so-called “Tier 2” cities like Mysore, where the quality of life is high, and the costs of living and operating are low, will also have an edge.

§ 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 the 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.

§ Training will be central to the industry’s success. Training will be crucial as providers move up the value chain, 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. Outside companies, such as Rainmaker Training & Recruitment, which help offshore providers by locating and training excellent job candidates, will thrive as they address this increased demand.

§ Long-term, India’s enormous, mostly untapped population of over one billion citizens will continue to make India competitive in relation to other offshore destinations. The shift from unsustainable agricultural jobs to employment in the knowledge industry will be slow and circuitous, as young people from farms move into low-level service sector positions, and as lower-level service workers upgrade their education and move into knowledge-oriented work. But it will happen, and ultimately it will not only decrease poverty, but increase the number of law graduates.

§ On the most positive note, the growth and development of the legal offshoring industry in India will help bring about a major change in the way legal services are delivered in the West. This will be a monumental, history-making development. It will help economies around the world as well as India’s. It will contribute to a better, more equitable world, in which artificial barriers across countries and continents do not hold back the most efficient and enthusiastic people from doing what they do best.