Last spring, the Royal Bank of Canada came under fire for outsourcing some of its technology services. The concerns mostly focused on the loss of Canadian jobs to another jurisdiction. They did not focus on whether technology was an appropriate service to outsource. Outsourcing technology is seemingly an accepted practice, but what about legal services? Despite warnings from numerous industry watchers that some legal services must and will be outsourced to jurisdictions with a cheaper labour pool, Canadian firms have been slower to take up this option than their counterparts in the United Kingdom or America.
Several reasons help to explain our reluctance to embrace legal process outsourcing. To begin with, when compared to rates charged by large London or New York firms Canadian legal fees seem low, allowing us to avoid the client scrutiny that has pushed U.S. and U.K. firms to outsource work. In addition, the Canadian economy was not affected to the same degree as Europe and the U.S. by the 2008 downturn and therefore our firms have not been under the same pressure to realize efficiencies.
A second reason Canadian firms may have been slow to outsource is the role in-house counsel play in Canadian companies. According to a 2010 Deloitte survey, “An Expanding Role: Changes for Corporate Counsel — Comparing Canadian and Global Trends,” Canadian companies rely on their in-house teams to look after more routine transactions and legal matters — some of the work typically outsourced — leaving the high risk or very specialized work as well as work requiring a capacity they don’t have to law firms. In other words, the work has already been outsourced to some degree to in-house counsel.
Then, there is the question of model. Should law firms set up their own LPO entities somewhere with a cheaper labour pool, thereby ensuring the work that is outsourced meets their branded standard, or should law firms outsource to locally owned LPO providers? Regardless of the model, one thing is certain: as LPO catches on, two clear losers emerge: recent law graduates who want to work in firms or in a corporation’s legal department (corporations are also turning to outsourcing) and law firms that, unless they wake up, will lose market share.
While some point to the opportunities LPO creates for innovative law graduates — instead of working in firms why not found your own LPO company? — few have discussed the opportunity, or rather the missed opportunity, LPO creates for Canadian law firms.
The idea of outsourcing anything other than very routine work to a foreign jurisdiction is illusory and a race against time. Law is jurisdiction specific. Regardless of the LPO model a firm chooses in a foreign jurisdiction there will always be obstacles linked to cultural, time, and linguistic differences. Moreover, the idea of getting legal or any service more cheaply in a developing nation is nothing more than a race against the development clock. As the nation in question develops, its lawyers will demand wages comparable to those we pay our lawyers for comparable services. To keep ahead of the game financially, firms will be required to move their LPO demands to the “developing country of the month” thus incurring a degree of uncertainty with respect to quality of service that is unpleasant to explain to clients.
A better option, and this is where large Canadian law firms appear to be missing the boat, is to establish LPO entities outside large Canadian urban centres where presumably overhead and salaries are cheaper and consequently legal fees are lower. There is no reason that the same technology that is used to link Canadian law firms to LPO providers in developing countries cannot be harnessed to link these same firms to their own LPO providers in other regions of Canada. Moreover, who better than a law firm to recruit the talent required to develop the technology and processes necessary to efficiently conduct due diligence and discovery, assemble closing binders, and maintain corporate books?
In addition to protecting market share for commodity-type legal services, a firm-owned and operated LPO provides its owners with some comfort as to quality of service. Outsourcing work on Canadian files to Canadian accredited lawyers who understand the particularities of a given province’s legal system is preferable to outsourcing it to lawyers unfamiliar with the jurisdiction. From a partner’s perspective, it is much more reassuring to sign a due diligence memo if you know, because your firm has established them in its LPO entity, the standards to which the lawyers performing the due diligence are held.
On a more delicate topic, firm-owned and operated LPO entities could also provide tremendous cost savings with respect to recruitment and training. As LPO catches on, law firms will no longer staff for pyramid-type leverage since the routine work for which herds of junior associates are required will be sent elsewhere. Law firms will recruit to maintain and develop the expertise and high-risk work that is required of them. LPO entities, however, will require a critical mass of employees and can prove an excellent training ground from which a firm can recruit potential partners. These entities could serve as a legal farm team enabling their owners, the firms, to determine which associates can move up and which cannot without having to make the financial commitment firms presently do (presuming, of course, that salaries in an LPO are lower than in a law firm). It also enables associates who are content with routine work to develop this expertise without the pressure of having to build books of business or take on more complicated files, work longer hours, or perform the other tasks required of partnership in a law firm.
Legal process outsourcing is clearly one of the greatest challenges facing the traditional practice of law. It is also one of the greatest growth opportunities for firms not afraid to tackle some of the more delicate questions it raises.
Danielle Olofsson is a knowledge management lawyer at Dentons Canada LLP in charge of civil law. She has practised law in Montreal, Paris, and Stockholm and is a member of the Quebec and Paris bar associations. She can be reached at [email protected].
