A shore thing? What in-house lawyers think about law firm near-shoring
As the near-shoring trend continues to gather momentum in the legal market, some lawyers remain unconvinced that low-cost centres can compete with the traditional law firm model. But what do their clients think?
October 01, 2014 at 03:39 AM
10 minute read
As the near-shoring trend continues to gather momentum in the legal market, some lawyers remain unconvinced that low-cost centres can compete with the traditional law firm model. But what do their clients think? Gavriel Hollander finds out
"It's hard to find that many people who are bullish about the future of the traditional law firm." That's the assessment of Nick West, UK managing director of a firm that is anything but traditional, Axiom Law.
Being the head of perhaps the most prominent alternative legal services provider in the market, West's position is hardly surprising. But there is an increasing body of evidence that suggests he may be right.
For a notoriously slow-moving profession, the rapid rise in the number and size of out-of-London legal support centres set up by some of the biggest City law firms in recent years represents something approaching a revolution.
While the idea of getting legal work done more cheaply away from the high-cost maelstrom of London is nothing new, the fact that some of the largest City-headquartered firms have launched major service centres away from the capital suggests that the concept has reached a new level of acceptance.
Allen & Overy, Ashurst, Herbert Smith Freehills (HSF) and Hogan Lovells are among the clutch of major firms to have set up new centres in cities such as Belfast, Birmingham and Glasgow, all with varying levels and types of staffing and providing different services. Alongside these captive service centres, other firms have launched more traditional offices in locations with cheaper cost bases, while the legal process outsourcers (LPOs) and hybrid models like Axiom, which is at pains never to describe itself as either an outsourcer or a law firm, are also continuing to thrive.
From a client's perspective, the increasing choice seems like it could only be a good thing. The most rudimentary understanding of supply and demand economics dictates that the kind of competition now around must be driving down prices. The question is whether that is enough in itself to satisfy clients.
A Legal Week 'Big Question' survey suggests that there is a far from uniform reaction among clients to the new types of model on offer. Notably, not a single respondent to the survey of general counsel and other senior in-house lawyers said that pricing was the only important element when selecting a law firm to carry out a piece of work. And, indeed, it is hard to find any law firms or other providers that would say that it is price alone that has driven the growth in alternative models.
"There's price, but there's also process efficiency," says Libby Jackson (pictured, right), director of HSF's Belfast office, which was set up in 2011 to handle document review work. "Clients want the right price but they want a quality product as well. That sounds trite, but it's the truth. That's where integrated products like ours stand out."
Jackson also points to the dramatic growth in headcount in HSF's Belfast base over the past three years – "driven by client demand" – from 26 staff when the centre was launched to 143 now.
But while clients may say that pricing alone is not the driver, it's hard to imagine these low-cost centres existing if it were not a major factor.
Mike Polson, the head of Ashurst's legal and business support office established last year in Glasgow, says that some clients are more granular than others when deciding on how to dish out their legal work. "We have some very sophisticated buyers that are using a wide range of services and know a lot about the different models," he explains. "Others have never used different [non-traditional] models. There's not yet a universal awareness of all of the options available."
Yet Polson believes the pressure clients face will force their hand when it comes to using lower-cost options. "They are being challenged in their own teams over how they can do more for less," he says. "Two, three or maybe five years down the line there will be more awareness."
New thinking
Legal Week's survey of in-house lawyers suggests there has already been a sea change in how they are thinking. More than a quarter of respondents say they ask firms to provide details of their near-shoring or low-cost operations when asking them to pitch for work or panel places. While that is still the minority, another 33% say they do so 'more often than in the past' even if it still not common practice.
For some, it is a case of when rather than if the day of the traditional, London-based model will be over. "Firms such as Axiom are seizing the initiative from the seismic shift that has occurred in the legal market since the financial crisis," comments Asda general counsel Alexander Simpson, who has used Axiom and its like. "The business model for law firms needs to evolve, and it will be fascinating to see this develop."
And Asda is far from the only high-end client starting to eschew the City stalwarts. Last year Axiom signed a groundbreaking deal to take on large swathes of BT's in-house commercial work in another sign that the relationship between clients and their legal services providers has evolved. Again, according to those on the provider side, price is apparently not the crucial differentiator.
"There's an expectation from BT that we will actually improve things," says West. "They will at least expect volume to go up and costs to stay the same."
While emphasising that "price is often not the key factor" for his customers, West claims that rates at Axiom are typically 30%-50% lower than its traditional-model competitors. He also agrees with Ashurst's Polson in attributing the rise of companies like his – as well as the 'captive' centres at established law firms – to the changing nature of in-house legal functions.
"I think the role of the general counsel has evolved," he explains. "They are more than just reactive firefighters now. They have gone from asking 'have we got the matter done?' to 'have we got the matter done cheaper?' to 'how can we add value to our business?'"
Shaking off the stigma
While for some clients the issue of quality remains, for others – rightly or wrongly – the stigma of using a non-premium service is hard to shake.
Perhaps the most telling result from the in-house survey showed that, when asked whether GCs ever had questions about the quality of work carried out by their firm's low-cost centres or outsourcers, more than a quarter (26%) replied: 'Yes – to the point I've refused to use them'. Only 31% replied 'rarely' or 'never' to the same question.
One respondent argues that the question of where – or by whom – work is done is an irrelevance: "I don't mind where the work is carried out, as long as it is done professionally and the quality is of the expected standard. I have received advice that is 'near shored' that has been good and not so good, but then I've encountered the same thing from experienced partners in magic circle firms. It is the good quality advice at a good price that matters."
And not all firms operating without low-cost models are convinced that they are about to go the way of the dinosaurs. "We've been looking at this for the last 10 years," says one global firm's managing partner, who does not want to be named. "We still haven't reached the conclusion that the cost savings stack up against the drop in quality and speed."
The managing partner claims to have spoken to "a lot of lawyers" at one of the City firms operating a near-shoring centre who are unsure of the benefits. "They privately acknowledge that it's a compromise and that work often needs repeating. It certainly doesn't give you a competitive edge.
"Cost savings are of course a laudable, important goal for any business, but the work these centres focus on is about 10% of the bill, so law firms that have gone into these jurisdictions are addressing very small margins. We want to focus on the areas where the real cost savings can be made – the 90% of the work, which is the fee part – and a lot of that is down to technology."
The alternatives
There are an increasing number of ways to skin the legal services cat of course, and while some clients want to see firms offer better value for money, others have taken matters into their own hands.
Just under two years ago, construction group Carillion launched its own low-cost legal centre in Newcastle and demanded that all of its panel firms make use of it. While only 8% of survey respondents say that setting up a similar centre was something they were already investigating, a further 28% see it as a genuine possibility in the future.
Some firms may not specifically be offering the use of a low-cost centre but have instead invested in their traditional offices outside the M25. "The UK market is seeing growth but a lot of that growth is coming away from London where the demand is increasing," says Clyde & Co senior partner James Burns, whose firm is coupling international expansion with investment in its Oxford, Guildford and Manchester offices.
"Given conversations with our clients, that is a trend we see continuing as they look to use law firms with that capability. If firms have not got that sort of capability they will likely look to acquire it and those that have it, as we do, will be looking to grow it."
Meanwhile, the next chapter of the near-shoring story for those with established centres is to sell the model to their overseas network of clients – both internally and externally. Ashurst's Polson went on a tour of his firm's Asia-Pacific offices earlier this summer to promote the use of the Glasgow centre, while HSF has also piloted the use of its Belfast base for disputes work across Asia.
"It's about how you make the business work globally, recognising that markets around the world are at different stages," explains Jackson. "We have done work for clients in Asia and the Middle East. In Australia we're going to reflect and analyse clients' needs and build on the success of the pilot.
"Agility as the market evolves and a willingness to innovate will be the key to ongoing success."
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllTo Thrive in Central and Eastern Europe, Law Firms Need to 'Know the Rules of the Game'
7 minute readGOP's Washington Trifecta Could Put Litigation Finance Industry Under Pressure
Trending Stories
- 1Gibson Dunn Sued By Crypto Client After Lateral Hire Causes Conflict of Interest
- 2Trump's Solicitor General Expected to 'Flip' Prelogar's Positions at Supreme Court
- 3Pharmacy Lawyers See Promise in NY Regulator's Curbs on PBM Industry
- 4Outgoing USPTO Director Kathi Vidal: ‘We All Want the Country to Be in a Better Place’
- 5Supreme Court Will Review Constitutionality Of FCC's Universal Service Fund
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250