The news that Herbert Smith and Allen & Overy have opened offices in Belfast followed by further news that Addleshaw Goddard is opening a depot in Manchester to do due diligence and less complex legal tasks has resulted in a tumult of comments across the twitter- and blog- sphere. Everyone is entitled to their opinion on this subject but I take issue with those whose opinion is that the only reason that these law firms (or indeed any law firm) undertakes a form of outsourcing is to cut costs and line the partners' pockets as if that was a heinous crime. All businesses must manage their cost bases in a sensible way in order to remain competitive.
Let's be a bit more analytical about this. The UK does not lack law firms and, whilst this might surprise some, competition between firms is pretty fierce. Whilst repeatedly in surveys of buyers of legal services pricing is not at the top of the list of reasons for choosing a law firm personal experience tells me that in reality price is often the factor (it's just that price knocks you out before the race can even start!). Therefore firms must be competitive and that means cutting costs so that fees can be maintained at a level the market will bear.
Because it is a market, lawyers will charge what they believe their services are worth. Where a law firm has a recognised niche it is normal market forces which allow them to charge more. This is no different to Apple setting the price of its iPad - set it too high and only the die-hards will buy it. Therefore, the so-called Magic Circle can charge more for services which the market perceives only they can provide. Proving that the perception is wrong is a completely different point but simply charging less is unlikely to win over those clients.
The second point is that law firms are not only competing against each other for work but also to hire and retain talent. A firm which fails to maintain its PEP is going to start losing its higher billing partners and seem less attractive to associates and even prospective trainees. Again this is no different to any other business seeking to attract the highest quality staff. The argument regarding banks and bonuses is not a million miles away.
Therefore to attack Legal Process Outsourcing on the basis that the sole purpose is to line the pockets of partners with no benefits to clients shows a complete lack of understanding of the competitive legal market of today. Part of the end result and indeed the aim may be to increase profitability but to achieve this a firm has to remain attractive to its clients and be competitive.
There are issues with LPO as a concept especially in terms of quality of the product being provided and potential negative effects on training. In terms of quality the main concern is how do you ensure that the output is good enough. This is a serious reputational issue but I find it hard to believe that the likes of A&O have just said "Who gives a damn about quality just show me the money". Reputation is everything.
The training issue is more difficult. Addleshaw's PR blurb highlighted that their new project would mean "No more drudge work for associates". This was followed quickly by a remark that whilst associates do need to undertake due diligence exercises to understand the processes they do not need to do 500 of them. The problem is that once you have a system in place which means associates do not need to do any of them you automatically go from 500 to zero with the result that associates have no experience. This would seem to suggest that there must be a level of sacrificing associate experience to cut costs. Full experience of the process and work is a necessary step to managing the process.
In my area, Real Estate, this is a real issue. A significant proportion of Real Estate work could be considered relatively straight forward - basic leases, licences to assign, licences for alterations and even simple sale and purchases of pieces of land. Pricing competition in these areas is intense and it is difficult to compete against regional firms on price. The obvious answer would be for us to open a regional office and send all the low value work to that office. However, unless we forced every trainee and associate to spend a proportion of time in that office (thus losing a major cost save in terms of lower salaries in the regions) our office in London would be populated with Real Estate lawyers who do not have proper hands-on experience of the nuts and bolts of the assets they are dealing with. That would be failing our associates and failing our clients and putting at risk our status as the go to firm for Real Estate. Whilst it might be possible to reach a happy medium by sending out some of this work and retaining some the temptation will always be there to send it all out to improve the bottom line.
In summary:
- Competition amongst law firms has never been greater
- All firms are looking to create competitive advantage and LPOs are just one way of creating that advantage
- Successfully creating such an advantage over competitors should result in increased profitability afterall that is the primary function of any business (as opposed to a charity).
