Ohio Rules of Professional Conduct Do Not Prohibit Outsourcing

The Supreme Court of Ohio Board of Commissioners on Grievance and Discipline issued Opinion 2009-6 on August, 16 2009. The Opinion concludes that the Ohio Rules of Professional Conduct do not prohibit an Ohio lawyer from outsourcing legal services domestically or overseas. There is little novel in the Ohio Opinion, however, it does a reasonable job of bringing together some of the key ethical issues raised by earlier Opinions released by the ABA and various State Bar Associations.

The most interesting discussion point that I gleaned pertains to the current modus operandi within law firms of engaging with, and subsequently marking up the cost of domestic based contract attorneys, and the lack of disclosure of this practice to clients. According to the Supreme Court of Ohio the scenario whereby disclosure, consultation and informed consent is not necessary when a law firm engages a contract attorney, is in a situation when for example a sudden illness of an employee requires a temporary replacement who functions as an employee of the law firm. The Opinion states that,

“Outside this narrow circumstance, disclosure, consultation, and consent are the required ethical practice”.

Although the Opinion does not reference the common practice of engaging domestic based contract attorneys for large scale document review projects, as I interpret it, that would not fall within the “narrow circumstance” detailed above.


This appears to somewhat contradict a Legal Blog Watch piece that I recall reading a few weeks ago. The article, A Post About Ethics Rules, Offshoring and Mark-Ups on Contract Attorney Fees was first written back in 2007, but referenced again more recently in the article, Is Marking Up Contract Lawyer Costs Worse When Plaintiffs Lawyers Do It?

The author comments early in the piece:

“As a general matter, virtually every state bar allows lawyers to mark up the cost of legal research and writing services, so long as the overall costs are reasonable. However, firms are not required to disclose the cost differential for legal work performed by U.S. lawyers, whereas disclosure of mark-ups are required for foreign lawyers.”

Stephen Gillers, a Professor of Legal Ethics at New York Univeristy School of Law in Manhattan comments further, stating:

“Law firms can earn more by using labor they can mark up without disclosure,'' said Stephen Gillers, professor of legal ethics at New York University School of Law in Manhattan.”

I appreciate that the Legal Blog Watch articles are dealing specifically with the lack of any requirement to disclose the level of mark up to clients, rather than the very existence of the contracting relationship. However, it isn’t a huge leap to assume that oftentimes, in practice, law firms are also failing to “disclose, consult and obtain consent” as to the very existence of the temporary attorney engagement.

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Better, Faster, Cheaper. The Recipe for Law Firm Success!

Law.com’s legal blog watch references a recent article featured in the Canadian Bar Association publication, National.

The article’s author Mitch Kowalski, envisages a hypothetical acceptance speech in 2020, by Canada’s Legal CEO of the year, the fictional Nancy Kwan. Ms. Kwan is CEO of BFC Law Corporation, formerly the law firm of Bowen, Fong & Chandri. She jokes that, “some of our lawyers and staff playfully yet proudly suggest that BFC actually stands for better, faster, cheaper.”

She sums up her company's success as being due to four factors. These include the elimination of the partnership structure, outsourcing, the promotion of knowledge management and fixed fee billing. I want to avoid doing the article any disservice by simply regurgitating what Mitch has so expertly penned, however I will sum up a couple of the main points. I do however highly recommend that you read the entire piece as it is both well written and in my opinion, remarkably on point. To access the full article click here.

Elimination of the partnership structure

BFC eliminated individual ownership rights and created a separate corporate legal entity, with the decision making process in the hands of a board of directors comprised of independent company GCs. These GCs were paid a directors’ fee as well as owning shares in the company itself. Senior lawyers, formerly would be partners, were now Senior Vice Presidents recompensed by an annual salary, bonus, and of course shares in the company.

Outsourcing

BFC identified HR as their biggest expense, and set about minimizing these costs. They unbundled their legal services into separate constituent tasks. Anything routine was outsourced to low-cost legal services providers. Nancy reveals that BFC outsource to India legal research, document preparation and due diligence work. Furthermore, the tasks previously undertaken by the law firm’s night staff, were now outsourced by the company to support staff in the Philippines. In addition to utilizing offshore resources the company also contracts with a pool of “work from home lawyers” domestically.

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Law Society Cautions Against Career in Law

The Lawyer.com reported recently (click here for the full article) on the U.K. Law Society’s information campaign targeting law students, warning them off a potential career in the law. According to the article the campaign will target university and secondary school students, and contain information about the cost of legal training as well as the shrinking number of training contracts of offer. The article quotes a Law Society spokesperson as saying:

“We’re not telling people not to be a solicitor, but we are warning them about the risks and cost implications attached.”

On the one hand I applaud the sense of realism demonstrated by the Law Society and the recognition that without putting too fine a point on it, in a legal profession impacted by the forces of globalization and commoditization, there is simply not going to be the need for quite so many lawyers. However, perhaps the Law Society, and here in the U.S., the ABA, would be equally well served in liaising with academic institutions, which are in my opinion, still in large devoid of law school curriculum tailored to meet the requirements of a modern day, fast changing, and global legal environment.

I wrote almost a year ago, in my article Lawyer, Rainmaker, Candlestick Maker:

I believe firmly that there is insufficient emphasis placed on the development of rainmaking skills within the law degree………..Universities must take an increased level of responsibility in helping mould young attorneys so that they are capable of hitting the ground running on day one with an understanding of the requisite qualities necessary to succeed in the business that is law.

The J.D. adopts the Case (a method of studying landmark cases) and Socratic methods (a method of examining students on the reasoning of the court in the cases studied) as its didactic approach. I am not advocating for one moment the removal of this structured form of tuition, however I question whether it alone, ……… is sufficient adequately to prepare young lawyers for the real world. It is all well and good being able to regurgitate case law and to construct a written legal argument, but there are people all around the world who can also do this at a much lower cost and to whom we are now easily connected.

Insufficient time is spent on practical client interviews, networking skills, understanding the business of running a law firm, communication and negotiation techniques. Yes, all newly qualified attorneys are aware of the billing requirements soon to be incumbent upon them, but do they understand why these requirements exist? Are any law students able to learn about alternative billing structures, the history of the hourly rate, fixed fees, fee-capping arrangements and how billing accurately and clearly for the provision of legal services can actually be utilized as a marketing tool in attracting clients? Do any Law courses require their students to prove their mettle within a networking situation? Would it be impossible to replicate a networking event or to send students to such events with a variety of goals to be achieved?

While many of the skills highlighted above are in fact honed over time, that does not diminish their ever-increasing importance and the role that these skills can play in guiding young lawyers’ careers to the top of the ladder. By decreasing the focus on antiquated teaching methods, and improving law students’ understanding of the role that technology plays in the practice of law and the delivery of legal services, universities, Law Societies and Bar associations will greatly enhance law graduates’ long term chances of success.

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