Mark Ross: How LPO providers will form ABSs with global law firms

Legal process outsourcing (LPO) providers will acquire the captive centres and high-volume practice areas of the world’s largest law firms in the next three to five years. That’s the view of Mark Ross, vice president of LPO at Integreon, which provides outsourcing services to 32 of the top-50 US law firms, 18 of the top-30 UK law firms and 17 of the top-50 global brands.

“If you look at any particular legal function existing within a practice area, neither a law firm nor an LPO provider ?is able to provide a holistic end-to-end ?solution to the entire problem,” he says.

“It is inevitable that the end result is a much closer integration of the key constituent stakeholders who are requisite ?in providing that end-to-end solution, and they are law firms and LPO providers.”

With alternative business structures (ABSs) now allowing external investment ?in UK law firms, the path to joining forces is clear. So, which law firms can expect to be targeted by LPO providers in future for the divestiture of their captive operations?

Ross thinks international law firms like Clifford Chance, Orrick, Baker & McKenzie, Allen & Overy, Herbert Smith, Pillsbury, WilmerHale and White & Case – all of which have made substantial investments in developing captive centres in lower-cost locations – will be on the top of LPO providers’ lists for potential acquisitions ?or joint ventures.

“LPO providers are one of the most logical acquirers of these entities,” he says. “I would be astounded if, within three to five years, a major LPO provider like Integreon had not acquired either an existing captive operation or a high-volume practice area of a leading law firm.”

Firms that fall outside of the global 100 need not worry about being left out, however. Ross says that mid-sized and smaller law firms will be able to continue ?to benefit from the cost savings provided ?by LPO, just not as merger partners.

A co-dependent relationship

One of the difficulties facing the largest law firms and LPO providers is that neither is fully able to provide a complete end-to-end holistic service to clients.

Although several firms have set up their own centres for low-cost, process-drive work, they are still limited by the fact they cannot give clients the same level of international outsourcing services that ?global LPO providers offer as a matter of course. A law firm may have a captive centre in, say, Manila, Belfast or Delhi, but leading LPO providers can provide around-the-clock services from over a dozen offices.

“That is very difficult for anyone outside of the world’s largest law firms to compete with,” notes Ross.

And, of course, many law firms have lengthy decision-making processes which can inhibit rapid innovation and the adoption of new technologies.

“It is not the usual practice of leading law firms to continually stay abreast of process improvement and innovative technology to ensure they are continually innovating in the delivery of legal services ?to their clients,” says Ross.

Meanwhile, LPO providers are equally challenged in that, while they have the scale to provide flexible and global outsourcing services and the resources to deploy the latest innovations in technology in a speedy manner, they cannot, by law, offer legal advice. This is their single biggest limitation, for which the only viable solution is to enter into an ABS in the UK.

“We’re not authorised to practice law and we’re not able to undertake in the UK what are deemed to be reserved activities – those are the remit of law firms,” says Ross.

“So, until LPO providers either apply for ABS status or the rules of professional conduct are changed, they simply cannot and should not engage in the practice of law.”

Ross anticipates that the lines of ownership of alternative legal services providers and law firms will quickly become blurred as different constituent stakeholders in the legal sector enter into joint ventures with one another and take each other over, and as high-volume practice areas merge and invest in one another.

“I think we’re already seeing the first signs among several law firms that have existing captive operations or that have within them alternative legal services delivery functions. Some of these law firms are well known to be looking to spin off their captives, some into alternative legal services arms and divesting them,” says Ross.

Examples of firms that have ?innovated in this area include Berwin Leighton Paisner, with its Managed Legal Services arm (launched in 2010), and ?DLA Piper with LawVest (the holding company for Riverview Solicitors and Riverview Chambers), launched in 2011.

Berwin Leighton Paisner also ?launched the flexible freelance legal resource Lawyers on Demand in 2010, which has since been spun out as a separate legal entity. Other firms that ?have launched similar services are Eversheds with its Agile offering, which was piloted in 2011, and Pinsent ?Masons, which announced in 2013 its Vario service as the “next generation” offering in the flexible resources market.

Win-win-lose?

Of course, not everyone will think that it is a good idea for law firms and LPO providers to join forces.

Many corporate counsel, no doubt, will see myriad benefits from this arrangement to make their jobs easier: reduced risks, better costs management, increased efficiency through the usage of modern technological tools and improved project management, among others.

LPO providers, too, will be happy. ?No longer will their growth be held back by their inability to practise law. By forming an ABS with a law firm, they can move beyond providing volume-based discovery, legal, business, document and research outsourcing services and start looking at new ways of providing legal services to corporate clients.

For law firms, however, a partnership with an LPO provider may look more like a win-win-lose than a win-win-win. Why should law firms give up their autonomy and sacrifice already-shrinking margins?

Ross, however, believes that partnering with LPO providers can actually drive revenues and profits to law firms, rather than reduce them, by strengthening their client services.

“Partnering with an LPO provider facilitates law firms entering into areas of legal services provision that were previously closed off to them, such as end-to-end contract management support, and positions them as cognisant of their clients’ concerns,” he says.

“As alternative billing methods continue to grow and dominate the variety of pricing structures available for legal services delivery, it becomes increasingly incumbent on law firms to simply deliver the legal services that they have been asked to deliver in the most cost-effective manner possible.

“Utilising the LPO provider as the engine room clearly improves the law firm’s margin on a fixed fee basis when dealing with its clients. Partnering with an LPO provider truly can be win-win-win,” Ross concludes.

An integrated service model

Taking the example of a typical Fortune 500 company, Ross illustrates how a partnership between a law firm and LPO provider might work in practice.

“The organisation might routinely have 20,000 to 40,000 contracts flowing through it on an annual basis. I would posit that neither the law firm nor the LPO provider can support that corporate client in its entirety in the provision of end-to-end contract lifecycle management support.

“There will be a huge percentage of those contracts which are template driven and routine, which are inevitably better delivered by an LPO provider that embraces document assembly technology, contract lifecycle management technology and labour arbitrage benefits across a global delivery platform. However, there will ?also be a significant number of contracts that will require highly subjective ?legal interpretation.

“It is only under a truly integrated operating model between a law firm and an LPO provider that they can deliver to the corporation a holistic end-to-end solution to the contract management problem.”

Ross calls this a “truly bifurcated ownership model”, where end clients will be better able to manage their flow of contracts and IP, ensure compliance with regulations and burgeoning legislation, ?more effectively control litigation and other risks, and close M&A transactions quicker.

End of the pyramid structure

If and when law firms and LPO providers look to develop hybrid service models to provide more holistic one-stop-shop services to corporate clients, the difficult issue of junior talent development will need to be addressed.

Ross is certain that the joining together of LPO providers and law firms will herald the end of the traditional pyramid structure in law firms. “You will see an increasing reliance on LPO and technology providers embraced within the traditional law firm delivery model and supplanting the base of the pyramid,” he says.

“There will be a move from the traditional pyramid structure to one that resembles a lower leverage of junior associates and paralegals at the bottom tier of the pyramid, with a plug-and-play relationship with LPOs supplanting that.”

But what about the training and development of the young lawyers of tomorrow? With a nod to Professor Richard Susskind’s tomes in this area, Ross says that “the young lawyers of tomorrow may well find that their futures do not rise within the traditional law firm pyramid structure”.

“Their futures may be with LPO providers. They might be with alternative staffing providers, with technology companies. They may enter the world of legal project management or legal consultancy services or online providers of legal support services. There is an entire world of opportunity out there.”

This will no doubt be a chilling thought for any trainee aspiring to make partner at a leading law firm one day. Ross, however, feels that this change is inevitable and that it is incumbent on law schools – of which he is quite critical as being “antiquated” in their approach to legal education – to update their curriculums to reflect the changes in the sector.

“There needs to be within law schools an increasing acceptance of the necessity for young lawyers to learn about how technology impacts the delivery of legal services, to understand what alternative legal services providers can potentially ?offer them in terms of career paths, and to have an understanding of what legal project management truly is as a skill ?set,” he says.

“Law schools have done a poor job ?of embracing the change that is hanging over us,” he adds. “If you think about ?the huge volume of institutions out there that are providing legal courses to the young lawyers, paralegals and legal executives of tomorrow, it really is only a few shining lights that are seriously examining the antiquated methods of delivering legal education.”

One institution that he highlights as providing modern legal education is Suffolk University’s recently-launched Institute on Law Practice Technology and Innovation, which studies how technology is revolutionising the practice of law.

A natural revolution

LPO has taken the legal world by storm over the past decade, driven mainly by corporate clients looking for value for money and increased efficiency on high-volume, process-based work.

Although most law firms were initially hesitant about working with LPO providers in the early years, many not only embrace the LPO relationship today but also have their own copycat centres.

The future that Ross envisages of law firms and LPO providers operating under the same roof may seem disturbing, but as the pace of change increases under the weight of the global recession, it’s clear that sticking your head in the sand won’t do your firm any good.

“I think change is both inevitable and unsettling for many,” reflects Ross. “But the opportunities that are with us today and over the coming years, with LPO providers and law firms working together, opens ?up a world of opportunity to provide more cost-effective and readily-accessible ?legal services to both consumers and corporate clients.”

“That’s a world I am excited about,” he concludes. Not everyone will be, of course, but there is every chance that Ross’ predictions will come true in the next three to five years. Will your firm be prepared to face that future if and when it arrives?

Manju Manglani is the editor of Managing Partner (www.managingpartner.com)