Globalization has brought tremendous changes in the global business arena and the BPOs and later LPOs are the direct offshoot of it. LPOs have come into being in India and elsewhere in the world primarily to cater to the clients of US and other developed nations as far as the legal processes are concerned to not only provide quality service but also to reduce the legal costs. In the past decade or so, a good number of LPOs have opened their businesses in India and in the light of rising legal costs and in order to find a workable solution to it we need to examine the issue in detail.
1.1 A Few Illustrations
Cisco’s Systems Inc., is a company that sells networking products, routing and switching systems. The company has a total legal spending that amounts to a little over one-third of 1% of company revenue, with non-litigation expenses running at about 0.16%. Measured in terms of dollars, Cisco’s 170-member lawyer department spends $38 million internally and $80 million a year on outside counsel. The $32.8 billion company has 51,000 employees spanning across 80 countries. (Leslie A. Gordon in GC California Magazine Published in their website http://www.law.com.) Microsoft managed to reduce its legal costs for the last fiscal year but still the company is involved in lot more litigation matters in Europe (Todd Bishop in P-I reporter). It would be an interesting scenario to collect the info pertaining to each US Company’s annual spending on the legal costs. It will certainly not please those who manage the companies, not in the least the shareholders.
2.0 Existing Arrangements
There are certain existing arrangements in place to deal with the issue of legal costs. The arrangements include in-house counsel department for every company. The in-house counsel takes care of all the legal matters pertaining to the company he works for and he also depends on outside counsels for the same. It would be appropriate if we understand the roles played by the in-house counsels and outside counsels vis-à-vis the legal costs.
2.1 In-house Counsels
The American Bar Association developed a model rule on foreign legal consultants (FLCs) in 1993. FLCs offer legal advice on international law and the law of the countries in which they are qualified to practice if they meet certain requirements. American Bar Association recently endorsed recommendations of its Commission based on Multijurisdictional Practice (“MJP Commission”) including revisions to the ABA Model Rules of Professional Conduct (“Model Rules”) regarding unauthorized practice, jurisdiction to discipline out-of-state lawyers, and choice of law rules governing multistate representation. These revisions are currently being examined and awaiting for the implementation. U.S.lawyers, seeking to increase their opportunities to offer their services overseas for liberalization of admission requirements under the General Agreement on Trade in Services (GATS) including both inbound and outbound of trade of U.S In August 2006, the Committee on Professional and Judicial Ethics of the Association of the Bar of the City of New York (“the Committee”) which published a Formal Opinion stating attorneys could ethically contract out legal support services abroad.
American Conference Institute (ACI) announced to hold an LPO Summit at the Grand Hyatt Hotel in New York on January 16 and17, 2008 to develop global legal support strategies, identify negotiating outsourcing contracts, and to optimize ongoing relationship
2.2 Problems and Challenges
Both the risks and exposures an in-house counsel faces are pronouncedly greater in comparison with the other lawyers as the in-house counsels are concurrently encumbered with the task of providing valuable legal advice while ensuring compliance to the law. In-house counsels face this daunting task in a scenario where the activities of the company are inherently interconnected with the legal tasks at hand. To top it all, in-house attorneys were confronted with a myriad of potential exposures. These legal tangles include $307 of SOX; backdating stock options; new Rules of Federal Civil Procedures regarding electronically stored information; the McNulty Memorandum; Federal Rules of Evidence 502; liability to outside third parties; investigating boardroom leaks; and multi-jurisdictional practice and licensing.
2.3 Outside Counsels
Similarly, in-house lawyers are increasingly asking the law firms on hire to submit estimated budgets so they can trim down the costs of legal work especially when defending themselves against lawsuits. Companies have long asked for budgets from their lawyers for business transactions and for more conventional types of legal work. But with pressure mounting on them to report higher earnings, the in-house lawyers must now monitor their legal expenditures and they want their outside counsel to follow the suit as well.
The “2007 ACC/Serengeti managing outside counsel survey report” (www.serengetilaw.com) shows an average increase of 5.3% in the billing rates by outside counsel during the period from 2002 to 2007.
Billing issues have always been a war zone between the in-house and outside counsels. The popular “hourly billing” method comes with its own disadvantages. It often impacts legal costs negatively as it lays more emphasis on the delivery of the work rather than on the qualitative aspect which can eventually have an adverse effect on client relationship.
2.4 Some Key Challenges
The Legal Service Act 2007 of UK, permits legal out sourcing, is a boon t. Indian law graduates who can easily cope with England Legal work. The WTO in July 1998 noted a combined net trade balance for the U.S. and the U.K., the two largest exporters of legal services.
With associate lawyers in the US carrying a price tag of $225 per hour in their first year and $450 an hour in their eighth year. It was only a matter of time before law firms sought to outsource some of their countries like India, where the lawyers need to pay a price of 10 to 15% of that of US lawyers and a turnaround time of 24 hours for outsourced work. Legal Services Off shoring (LSO) which is an in-house legal departments or organizations offshore legal work from areas where it is costly to perform in United States or Europe is decreasing rapidly and on the other end in Indian services on high demand.
Criminal defense specialist and former Assistant United States Attorney Jay Ethington assure that “There is no difference between Indian and American advocates. The quality of work is the same”.
Outsourcing legal work to India is beneficial to western countries due to
3.0 What ails legal costs?
Despite taking all kinds of measures the ailment of over-expenditure continues in a company. Corporate entities, in-house counsels
and outside counsels, all seem to be caught in an escalating web of legal budget.
Budgets are the chief pointers to know whether in-house and outside counsels are thrashing out strategic issues and activity levels in a fruitful manner before litigation starts. They also act as parameters against which progress of the team and the expenses while handling complex legal questions and issues faced by it can be gauzed.
In a study conducted by Inside Counsel in its 17th Annual Survey of General Counsel (Published in the July 2006 issue of InsideCounsel), some 407 in-house counsels and 131 law firms felt that most of the friction between law firms and their in-house counsels can be attributed to the costs. Undeniably, when it comes to fiscal matters, the perceptions of the two groups could hardly be more divergent. 52% of in-house counsels identified ‘reduction of costs’ as the most significant thing law firms could do to develop their rapport with in-house counsel.
3.1 An interesting study
A study carried out by ACCA (now renamed ACC) has shown that despite taking measures, cost controls are failing to cut overall legal spending. The ACC survey shows that in-house counsel relies heavily on outside counsel in key areas such as litigation (69%), intellectual property (45%) and employment (45%). And as salaries for junior law firm associates continue to spiral upward, along with hourly billing rates for associates and partners alike, general counsel must manage with increasing legal fees.
The Way Out!
The only viable and durable solution on the horizon appears to be legal outsourcing which is more beneficial to the US and other western companies not only in the short run but also over a period of time.
4.0 A Few Issues!
Certain issues came up after the legal process outsourcing has begun in India and elsewhere in the world. Certain myths are also doing the rounds and it would be a mistake to attribute them to unbiased minds alone. In the light of newer issues let’s examine them as objectively as we can.
4.1 Outsourcing to India affects US employment
here is no valid data to prove that legal outsourcing to India will affect the employment in the US. According to a study by Forrester Research, the current annual value of legal outsourcing to India is at about US$80 million, but this can rise to US$4 billion, and would provide 79,000 jobs by 2015. This makes the present job absorption in this sphere-which is a mere 12,000-appear minuscule (http://www.blogsource.org/2005/11/india_could_abs.html). A study conducted earlier this year by Robert Half Legal (www.roberthalflegal.com) points that more stress is put on legal expertise in areas of compliance, regulatory issues, litigation, intellectual property and real estate. This increased demand will considerably outpace the rate of the entire legal outsourcing market.
These are mere forecasts. Even if such forecasts are completely believed, the amount of legal work that is off-shored will still remain 2% of that projected total and that too a major chunk of that constitute low-end work. Moreover it is widely reported that the population of the US is aging. At current productivity levels, it will need 5 percent or to put it simply, 15.6 million more workers by 2015 to maintain both its current ratio of workers to the total population and to sustain its present living standards. By 2015, despite current fears about job losses as a result of off-shoring, the US economy will certainly need more workers. Off-shoring is surely one way to meet that need. So all those doubting Johns who hold a pessimistic view on outsourcing legal services will be better off remembering that even after a substantial amount of work is outsourced from the US there is no threat to its economy.
4.2 Competence of Indian lawyers
The competence of the Indian lawyers can be judged not from the fact that quite a number of advocates are being produced annually but from the fact that they are the pillars, strong pillars at that, for the gigantic judicial system prevailing in India matched only by the US in its magnitude and dimensions. There is not a single legislation in the US that is not made in India barring a few that is not subject to intricate and in-depth interpretations by the lawyers and the judges. Many landmark judgments in India were and are possible due to the presence of the highly agile and competent lawyer force. The ease with which they can tackle any legal issue pertaining to any country where common law is prevailing is predictable and natural. The fact that the BPOs in India which are a runaway success are gradually paving way for the LPOs or at least LPOs are increasingly occupying the centre-stage in the outsourcing business in India with growing number of clients from the US and other countries speaks volumes about the ability and competence of the Indian lawyers.
4.3 Quality output
Apart from economical costs another important factor for the US or other western country to outsource their legal work is the quality output they are assured of in India. It is an admitted fact that in most cases quality takes precedence over many other factors like cost-effective services, abundant workforce etc.
4.4 Safety and Confidentiality
Nowhere else does the issue of safety and confidentiality come up so constantly as in the field of law. And, when it comes to the LPOs the task of providing quality services to their global clientele should be matched by stringent safety and confidentially measures in order to earn their confidence and goodwill. There are of course competent and professionally run LPOs in India that adhere to the safety and confidentiality norms.
5.0 Separating the wheat from the chaff!
There are a good number of LPOs in India now and a report says 1800 lawyers are presently engaged in various LPOs catering to the global clientele providing quality services. It becomes quite a task to choose the best from among them. However, with stringent objective criteria the task becomes easier and then it will not be a Herculean task to select the best LPO to whom any legal service can be entrusted in confidence. The parameters can be-
Security and confidentiality
Hassle-free and client-friendly billing
Its website (www.acumenlpo.com) can be scanned for further details.