I would like to begin by thanking the organisers of this Conference for inviting me to speak on the dynamic concept of Legal Process Outsourcing.
I would like to briefly mention my background and my business interest. I used to be a visiting lecturer on several subjects and one of the subjects was Insurance law and claims.
I am the Chairman of two underwriting and insurance broking organisations and we do need services of lawyers. Most of our claims where lawyers are involved are settled out of court. There are however occasions when we are involved in mediation and there are also times when we have to go to courts.
I also own two properties companies where we need lawyers for conveyance and other issues.
I therefore take a keen interest in developments affecting the legal and financial sectors.
I am an active Member of the House of Lords where I speak on a range of subjects including the economy, legal matters, defence and international development.
Like most industries, the commercial legal sector was adversely affected by the economic downturn.
The industry has responded through a variety of measures such as reducing the number of associates employed for every partner.
The advent of Legal Process Outsourcing has had an impact on reviving the fortunes of the legal industry.
Legal services are renowned for being expensive and therefore hard to obtain for people on low to moderate incomes.
In responding to calls from clients for more affordable services, the industry has rightly taken steps to achieve this through the concept of Legal Process Outsourcing.
The announcement of Rio Tinto’s outsourcing deal with CPA Global two years ago raised the profile of LPO services.
The benefits of outsourcing were compounded when it was revealed that Rio Tinto had saved $14 million dollars within the first few months of the arrangement.
Research about UK and US corporations and law firms commissioned by CPA Global revealed that almost 75% of law firms were engaged in outsourcing.
There is a danger that those in the industry who do not embrace the benefits of LPO will be left behind.
The Chief Justice of New South Wales has recently called for Australian law firms to consider outsourcing work for this very reason – and as a means of reducing the cost of legal services.
In my own business of insurance and financial services companies are hiring LPO providers for services such as carrying out due diligence, document review and contract management.
The growth and success of legal process outsourcing strongly suggest it can be used more broadly in the financial sector.
Particularly during the current economic downturn, companies should seek to innovate and find more cost effective methods of providing services.
A number of firms have also decided to offshore their services by creating subsidiaries of their companies, as opposed to entering into agreements with specific third party providers of LPO.
Legal Process Outsourcing can substantially reduce costs associated with carrying out the services that firms would usually require of paralegals or temporary staff.
It has changed the way company’s process documents by increasing efficiency and reducing costs.
LPO has consistently been proven as an effective model in reducing company and client costs as limited upfront investment is required.
There is also minimal risk involved in LPO from a client’s perspective.
The American Bar Association Committee on Ethics ruled that clients are entitled to know who they are being represented by – and also that clients have the power to veto their counsel’s use of a temporary lawyer.
Guidelines by the Law Society also advise that clients should be given the right to request that work relating to their case is not outsourced.
The benefits of LPO to those in the industry are clear to see; however a greater emphasis should be placed on relaying this to clients.
Having said that, few clients have chosen to go down the route of using their power of veto as outsourcing has proven to be considerably cheaper than the traditional method, from their perspective.
Changes to US regulation now suggest that LPO providers and law firms must share electronic documents.
This is to be welcomed as it reduces the chance of either party inadvertently disclosing confidential information.
Critics of the LPO model have claimed that the practice is unethical – I categorically disagree with this argument.
If the quality of services carried out by LPO providers was compromised as a result of lower costs, and clients in turn received a sub-standard service then the accusation that this practice is unethical would stand.
However, the overwhelming evidence from the industry proves that this is not the case.
It is the duty of the outsourcing legal firm to ensure that the necessary due diligence is carried out before choosing an LPO provider as they are privy to sensitive information.
Written confidentiality agreements should be an industry requirement for outsourcing relationships of this nature.
Just as there is very little room for error when scrutinizing and amending Government legislation – the same is true when making the decision to outsource or offshore services to a third party.
The greatest challenge for a legal firm hoping to engage in outsourcing is ensuring that services are delegated to companies or individuals, who have the required level of competence to perform such tasks to a high standard – commensurate to that expected by both the client and legal firm.
The quality of services is critical to ensuring that LPO continues to grow and become a sustainable industry.
The vast savings made by legal firms who use the services of LPO providers is immaterial if the work carried out is not of a high standard.
Companies also have a duty to appropriately oversee the completion of outsourced projects.
Legal Process Outsourcing is compatible with an increasingly global world economy.
The industry is established in the United States, the Philippines, Israel, South Africa, Latin America and is thriving particularly in India.
The Indian legal system has many similarities with both the British and American systems, and has proven to be an inherent advantage for Indian LPO providers.
India has a population which exceeds 1 billion people, 65% of whom are below the age of 35.
LPO services in the country are so popular that 13 new law schools have opened to meet demand.
Research suggests that there are close to 10,000 lawyers working for providers of legal outsourcing.
Profits for the sector are expected to reach $1 billion by the end of the year and increase to $4 billion within the next 5 years.
LPO is having a significant impact on emerging markets.
It is thought that South Africa may emerge as a competitor for India due to increased interest in services from Britain in particular.
In order to ensure a high level of quality in services, it is important that LPO providers invest in the training and development of their staff.
Outsourcing allows firms to remain competitive.
Certain individuals have expressed concerns that LPO will lead to fewer English and American graduates being employed as the jobs historically carried out by new graduates are now being done through outsourcing for a fraction of their hourly rate.
Increased competition has a positive effect on quality as legal professionals will have the added incentive of achieving and maintaining a high standard of quality to retain their jobs.
I firmly believe that extra competition will improve the calibre of legal professionals.
The State Representative of Connecticut Patricia Dillon has introduced a Bill to limit the use of legal outsourcing for clients in Connecticut.
The proposal would ensure that ‘unlicensed’ workers in offshore jurisdictions who carry out the drafting, reviewing or analysis of any legal document on the behalf of clients in Connecticut, would be charged with the unauthorised practice of law.
Should this draft legislation become an Act, it could affect the Legal Process Outsourcing industry.
As a businessman and a firm believer in the principle of free trade, I am against any proposals that encourage protectionism and stifle innovation.
It was Adam Smith who articulated this in his seminal work, the Wealth of Nations, when he said, and I quote,
“Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people and of directing it towards the employments most suitable to the interests of society”
The proposed intrusion by Representative Dillon is unnecessary and unwelcome.
Commerce cannot thrive if politicians take it upon themselves to pursue misguided agendas.
It has been estimated that only 1% of the money spent on legal services in the United States goes to outsourcing companies based abroad.
I strongly support the view taken by the American Bar Association that outsourcing not only has the ability to reduce client costs, but that it also creates opportunities for smaller firms to take on larger projects.
Small and Medium-sized companies in every part of the world play a vital role in job creation and are crucial to achieving a sustainable economic recovery.
Politicians and law makers should be doing everything in their power to encourage the success and creation of small businesses.
There is potential for all parties to engage in a mutually beneficial long-term strategic partnership as a result of outsourcing.
The role of Legal Process Outsourcing is set to expand over the coming years.
The industry is already having an impact on professional ethics and is challenging the existing notions of legal services procurement.
The success of LPO suggests that increased demand may arise from other fields such as compliance, human resources and contract portfolios servicing.
The implementation of the Clementi Report should provide the LPO industry with encouragement.
The proposals to open the legal market to other providers resonates perfectly with the principles of outsourcing.
The implementation of the Legal Services Act and the transition to Outcomes-Focused Regulation will result in regulatory changes that may also positively influence the global LPO industry.
All the evidence suggests that the legal industry must adapt to fully accommodate this trade.
The benefits of LPO in reducing costs, boosting efficiency and saving time spent on litigation in tort law for example, suggests that it will successfully make the transition from a nascent industry to an established industry.
Thank you for your time – Enjoy the rest of the Conference.