Offshoring - outside the box?

Law firms are aiming to save money through offshoring and flexi-working. Alex Aldridge tests client reaction

During the past few months, many law firms have announced a raft of cost-saving measures, with hardly a day going by without news of job cuts, pay freezes or trainee deferrals. But increasingly the focus is turning to the long term - and with it the challenge of adapting to a harsher new economic reality. Last month, Simmons & Simmons announced a proposal to use external lawyers in jurisdictions such as India and South Africa for certain litigation-related and corporate due diligence tasks - following similar moves by Clifford Chance, Lovells and Eversheds. It is a trend that some expect to continue.

However, in-house lawyers remain split on whether off-shoring is a good thing. "To be honest, I am yet to be convinced. If a firm I used was sending work offshore I would be concerned," says one general counsel of a leading FTSE 100 company.

A poster on legalweek.com (writing in response to Eversheds' December announcement that it had struck a deal to outsource low-end legal work to India) was even more forthright: "Incredulous. It will not work and will collapse with dire consequences. Clients should be bold and give Eversheds an ultimatum - do it at a reasonable cost or they will get a cheaper firm that is just as good to do the work."

At the other end of the spectrum are those who think it is laughable that law firms are so far behind other sectors in bringing in offshoring arrangements.

As HSBC UK head of legal Richard Hennity puts it: "Let's be blunt here, the legal profession is pretty backward about this sort of thing. Just look at HSBC: it has tens of thousands of people in offshore roles - including a small legal team in Malaysia doing English law work for HSBC UK. It is becoming standard in financial institutions, so why not law firms?"

Others, such as Omega Fund Management GC Claire Wilkinson, express more cautious support: "The first thing that occurs is the confidentiality aspect. I would rather work with a closely managed team than a disparate one. Having said that, I found out after closing on a recent US deal that the senior associate lived 3,000 miles away from the firm's office on the west coast - a situation which caused no problems at all."

Boston Consulting GC Jeremy Barton (pictured) is similarly open-minded about offshoring - provided that proper quality control mechanisms were in place between firms and offshore service providers and that he had a full understanding of the content of the work being outsourced. "That would require real, open communication with the law firm, but as long as you had that, offshoring would not be an issue for me," he says.

Having chewed over the various potential problems, the majority of the GCs Legal Week spoke with ended up citing cost as the bottom line in determining whether or not they would accept offshoring.

"I wouldn't mind if a firm I instructed was offshoring some work, provided it was reflected in the fee," says Wilkinson.

Offshoring comes with high start-up costs - meaning that any savings would take a significant amount of time to filter through to firms and clients.

"Offshoring involves more thought and effort than meets the eye," says Paul Graham, legal director of the National Outsourcing Association and a partner with Dundas & Wilson. "Obviously there are the start-up costs, but there are also things like having to document policies such as your approach to risk and other key contractual terms. It is not a quick fix."

The concern is that planned savings would be eroded by rising offshore staff costs as standards of living in fast-growing economies improve - something which occurred in the IT industry during 2007 and 2008 when salaries among Indian IT staff rocketed. And with the Indian economy forecast to grow at between 5% and 6% this year - and the European Commission predicting that the UK economy will contract by 3.8% in 2009 - some are suggesting that 'onshoring' work to cheaper areas of the UK might actually be a shrewder move than sending it overseas.

Whatever happens, it looks like economic realities, rather than GCs' preferences on how they want work done, will ultimately dictate the future of this emotive subject.

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Do four-day weeks deliver for clients?

Legal Week spoke to several senior in-house counsel to gauge their opinion on the four-day week initiative introduced by Norton Rose - and found them broadly in favour of such working options, provided a few caveats were adhered to.

BUPA GC Paul Newton highlighted maintaining client support levels as the central factor to the success of a four-day week and similar flexi-time initiatives: "The key expectation of clients paying premium rates for work is that their lawyers are always accessible. As long as that remains, I don't see a problem."

He adds that he would like to see any savings made passed on to clients, rather than partners - although he is not holding his breath on this happening. "There is plenty of headroom for firms to deliver quality service for less to clients and still make reasonable profits. Unfortunately the obsession with profit per equity partner makes that unlikely to happen," he says.

HSBC's Richard Hennity says flexible working arrangements do not worry him at all: "Flexible working is hardly new - it is a tested model that works."

Omega Fund Management GC Claire Wilkinson (pictured) herself worked four days a week for a spell during her time at Slaughter and May, doing a half-day on both Monday and Friday - and unsurprisingly is in favour of lawyers being afforded a degree of flexibility. "I do not actually think it's necessary for law firms to justify such practices. What matters is they get their work done smoothly and without fuss," she says.

Boston Consulting GC Jeremy Barton likes the concept of the Norton Rose four-day week because it "keeps the fundamental pyramid structure of the firm in place" - something which he believes is "desirable for the client." He continues: "From an in-house point of view it is important to have the right seniority of associates on a piece of work, and job cuts can interrupt that when the economy gets going again."

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