LegalBusinessWorld Posts

The Sorcery of Outsourcing

June 5, 2019

A conundrum of the modern legal world is that lawyers want to work less and be paid the same amount, and clients want to pay less, and receive the same service.  So what has to give? The simple answer is, bricks and mortar. 

 

When I left Big Law, five years ago to achieve a more balance life, I was dismayed at the prospect of having to throw away, not only the long hours (a blessing) , but also my career. I was throwing away the baby with the bath water.  I was perplexed by how I was going to finance my new and shiny balanced life.  Afterall, I had invested hard earned cash and thousands of hours in the library, on achieving a stellar academic record from Oxford University and the London School of Economics. I had toiled in the office many a long nights at Freshfields Bruckhaus Deringer and at Morgan Stanley and was finally at a stage in my career where my advice was worth something. My advice was worth GBP 250 an hour, to be exact. I co-founded LawFlex, four years ago, on the premise of there being thousands of people like me – experienced, with hours available to sell, but who didn’t want to work at law firms.  When I did the math, and realized that I could charge out my very same hours that were worth GBP 250 for a mere GBP 70 an hour, work 30% less hours, and earn the same salary I did before, I realized I was on to something big. Today, four years later, we have 350 lawyers at LawFlex, and there are thousands around the world, at other alternative legal service providers (ALSP’s) - doing just this.

 

Undoubtably, one of the trends effecting legal today is legal outsourcing, in all its colorful shapes and forms.  Today in the US, at least 51% of law firms and 60% of corporate legal departments are currently using ALSPs for at least one type of service.  If global revenues for legal are $700 billion, ALSPs represent $8.4 billion and growing. (Thomas Reuters Legal, “Alternative Legal Service Providers” 16 February 2019 (p 3)). These numbers tell us the significant effect of the legal outsourcing trend on the modern legal world, which I would argue, is not merely a trend any more, but rather has become a core feature of a law firm’s business model. Law firms that want to remain competitive are forced to integrate some form of outsourcing into their business model. 

 

In 1990, the year I began high school, a small US firm in Texas opened an office in India.  This was the first time legal outsourcing was being experimented with. Legal was adopting an age-old trade principal:  production in a country where it is cheaper to produce and sale in a country where the price is higher.  This was common practice with products and services, and one of the foundations of cross border trade, and the legal market was starting to catch on to the vast financial advantages of labor arbitrage for legal work. 

 

The legal outsourcing market has since grown exponentially and can broadly be categorized into the Legal Process Outsourcing (LPO) Market and the Alternative Staffing Market.  LPO is the process of sending routine, time consuming tasks to providers outside of the law firm – whether across the ocean or in the periphery. This industry began dealing with bulk, low level, repetitive tasks and has developed over the last few years to encompass research, contract negotiation and intellectual property services.  The Alternative Staffing Model, the second leg, provides law firms and corporates with legal talent in any format that is not the regular full-time nine to five (or in the case of Big Law – midnight) employment model. An example of alternative staffing would be a boutique law firm that requires access to an expert in employment law for 30 hours a month, or a corporate that requires a lawyer to come in for a three-month project and make sure the company is GDPR compliant.  Unique to the Alternative Staffing model is the ability to in-source, something a traditional law firm would be reluctant or unable to do. For a law firm, it would not make financial sense to send a partner in-house for a three-month period. For an Alternative Staffing company on the other hand, such a project would be common place. 

 

The legal outsourcing market was established.  Two factors then catapulted the practice of legal outsourcing to the forefront – the financial crisis of 2007 coupled with enabling techno-logy. 

 

The financial crisis left many law firms limping, with their main profit centers – finance, banking and corporate injured. Clients began demanding transparency, fixed pricing and reduced fees and law firms needed to find ways to lower their fees. One way to do this was to outsource. Outsourcing for law firms not only allowed them to carry out the bulk work more price effectively, but it also allowed them to reduce two of their most substantial costs – salaries and office space. With access to highly talented lawyers, on an ad-hoc basis, law firms could increase their staff temporarily without having the overheads of ongoing annual salaries and an office to put them in. This factor led to the success of other ALSPs in our space, such as Lawyers on Demand.

 

At the same time, advances in technology such as reliable, fast and secure internet access (no, I am not referring to artificial intelligence here!), as well as on the lawyer side, a growth of platforms that connect between lawyers and job opportunities allowed this dramatic change to take place. 

 

The next ten years, following the crisis saw a mushrooming of Alternative Legal Service Providers around the world. The activity in this space is dizzying, from giants like Thomas Reuters and Axiom, to law firms opening their own ALSPs like Allen & Overy’s Peer Point and Freshfields’ legal services center, to legal tech start-ups like Hire an Esquire and K-Lawyers.  Also an indication of the significance of the practice, the last few years have seen a very active M&A market in the ALSP space. With Axiom about to list and Lawyers on Demand recently purchased by Bowmark Capital and Elevate purchasing Halebury, the market is certianly hot. 

 

While the financial crisis jumpstarted the outsourcing boom, and technology allowed it to happen, the economic environment of a shared economy and the mentality of the new work force nourished this blossoming further.  

 

Today you will notice that the pavement is peppered with electric scooters for rent.  There is no longer a need to invest time in researching which scooter to purchase, in putting up a lump sum for that scooter, worrying that it will be stolen and making space in your city apartment for it.  You can just hop on a scooter when you need to. Make way for the shared economy!  The same is true of legal.  There is no need to put time into searching for the right candidate, investing in a salary and benefits, making space in your office and worrying the associate will be hired by another firm. Now, a firm can tap into talent as and when needed. 

 

Make way too for the millennial work force, where a value shift has meant that reaching the tip of the pyramid is not necessarily the aim of every associate. When I interviewed at Freshfields, I was told by my friends to answer that my sole career goal was to make partnership. Today if someone gave that answer in an interview, I fear they may not be hired for lack of honesty!  In 2025, 75% of the global workforce will be millennials.  Personal development and work-life balance, along with portfolio careers and work satisfaction are now at center stage.  Which explains why over 40% of the work force in the United States today are freelancers.  People are placing value on the ability to control their own time and to accept assignments they choose to accept.  In the coming decade, woe to the employer who does not offer flexibility to its work force. 

 

A recent interviewee at LawFlex was a former partner at a prestigious boutique firm. She came to us looking for in-house work as she didn’t want to do law firm hours. To her dismay, the general counsel roles were also demanding long and gruelling hours in the office.

 

After going home that day, she worked out that if she worked for $85 an hour via LawFlex (as opposed to her previous charge out rate of $250 - $300 as a partner at a law firm) she could work 120 hours a month (70% role), and she would earn $10,200 a month – the same salary that she was making as a partner. Only now, the client paid less and she worked less. There, my friends, is the magic. 

 

So, in order for the conundrum to be solved, where lawyers want to work less and clients want to get more,  the bricks and mortar have to go. The cost of renting an office, the coffee machine, electricity bills, municipal taxes, feeding the pyramid structure, secretaries salaries are all a colossal cost for law firms. Take that cost out of the equation and it works. 

About the Author 

Jackie Donner was born in Durban, South Africa and she moved to live in Israel where she completed her schooling.  Jackie moved to England at the age of 21 and she studied history at the London School of Economics and completed her MSt degree at Oxford University.  Following a conversion to law at BPP, Jackie became a solicitor in the corporate department of Freshfields Bruckhaus Deringer.  Upon her return to Israel, Jackie continued to work as a lawyer at Epstein Rosenblum Maoz (ERM) , after which she launched LawFlex, a large legal outsourcing company based in Tel Aviv, with her co-founder Zohar Fisher.

 

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