The Financial Crisis and Legal Process Outsourcing Conflicts

I’ve read several articles over the course of the last couple of weeks referencing the recent turmoil in the financial markets and the potential impact this may have on the LPO industry. I came across this evening an interestingly novel perspective, and well written article on the outsourcing weblog by Gary Zeiss. Gary has previously contributed to this blog and has generously authorized my reproduction of his piece here. Over to you Gary:

The Financial Crisis and Legal Process Outsourcing Conflicts

By: Gary M. Zeiss (click here for Outsourcing Weblog bio)

While I've written about the effect of the financial crisis on general BPO and IT outsourcing services, I haven't yet discussed the potential for legal process outsourcing to move to center stage as a viable offshore alternative.

Given the tectonic shifts in the financial market that have occurred in the past two weeks, there is little doubt that an avalanche of litigation will ensue. In fact, it is possible that the quantity of securities litigation will be so great, and the amount of paper that requires analysis so large, that few companies will have any choice but to look to alternative sources to perform critical discovery tasks.

Where this gets really interesting is in the potential for legal conflicts. While anyone with experience in the LPO business will argue that these companies do not "practice law," the services rendered, particularly for eDiscovery, are knowledge work that can lead to conflict concerns. For example, if an eDiscovery staffer working on the defense-side of a litigation matter learns of a practice undertaken by the defendant, that same LPO staffer could highlight that practice for a plaintiff in subsequent litigation. This could prove to be an extremely complex problem for the large LPOs with institutional clients.

What will this mean for the LPO industry? I foresee (at least in the securities/document review arena) an increase in segmentation between plaintiff-side and defense-side LPO services. This may also lead to segregation by size, with larger LPOs gravitating to institutional clients and large-firm relationships, while smaller LPOs develop targeted expertise for plaintiff firms.

Another challenge that may face the industry is a focus on conflict-checking during the hiring process. Given the turnover at outsourcing companies in general and the difficulty in completely verifying records, it is possible that offshore attorneys will ultimately be typecast according to their "side" of the conflict - limiting employment mobility for offshore professionals.

On the other hand, and particularly on the defense side, I predict the development of long-term, institutional relationships between LPO providers and their clients. This increased stability will be good for the market and will help solidify LPO work as a valuable part of the outsourcing suite of services. Plaintiff-side companies will have a larger marketing challenge, no doubt, but also stand to develop reputations in specific types of litigation that could insulate them from market volatility.

Counterbalancing all of this value derived by recognizing that LPO work has some of the characteristics of legal "knowledge work" and needs appropriate ethical boundaries. This cannot help but be good for the LPO industry as it legitimizes what has historically been viewed as a niche practice. With broader acceptance and clear boundaries, LPO work will likely thrive over the next few years.