Re-thinking the "Middle Office" in Law Firms

Think about the vast “Middle Office” of BigLaw – all the work required to run a law firm that is neither law practice nor entirely routine back-office support (e.g., copy center, payroll, or plant watering).  This includes secretarial support, IT, marketing, finance and accounting, HR support, and business research.

I’ve seldom heard of firms consciously deciding (1) the level of support they should provide and (2) how best to provide that support.  Headcounts by function seem artifacts of history and management idiosyncrasy.  For example, I know of firms where the lawyer to secretary ratio ranges from about 2:1 to 6:1 and IT spending as a percent of revenue from 3.5% to 7%.   It’s hard to explain these big variations, especially in otherwise similar firms. 

I fear that the tough economic times will compound the irrationality.  Your firm may have laid-off lawyers and staff.  Has it used the crisis as an opportunity to re-think and rationalize support?  Probably not!  Why not improve long-term performance while you reduce costs short term? 

Consider what a few innovative firms did even before this crisis.  These leaders consciously decided to re-tool lawyer support.  Orrick opened a global operations center in low-cost West Virginia in 2003.  Some British firms moved back-office operations to India around 2005.  Top 30 UK firm Osborne Clarke outsourced much of its Middle Office to legal outsourcing company Integreon early in 2009 (See the OC press release).

Now that we are in a crisis, your firm should think hard about the support your lawyers need and how best to provide it.  If your firm operates multiple offices, you cannot win the argument that support staff must be in the same building as lawyers.   Once free of the “same building” shackles, think creatively about support.  Perhaps it makes sense to centralize some functions in one office.  Or perhaps you can rid yourself of the headache of owning and operating large teams and let an outsourcer do it for you.

If you not yet analyzed what support to provide lawyers and how best to do so, now is the time to act.  You may find, centralizing, offshoring, or outsourcing provide the support you need at lower cost. 

Standardizing Transaction Documents

If your practice involves transactions, you regularly crank out similar documents.  How consistent are they?  Do you even have a way to measure consistency?  (Do you care?  You should and maybe your malpractice carrier does.)

I am a non-practicing lawyer.  As a business person, I’ve worked on many contracts, from routine NDAs to complex deals.  The huge variation in terms that ought to be standard always astounds me.  I know that key terms differ for good reasons but variations in boilerplate language serve no discernable legal or business purpose. 

Lawyers view themselves as artisans and honestly believe that their art (er, I mean drafting) is the best.  But who’s to say until a court rules on the deal or document?   Why not standardize where possible and focus on custom language where it really matters.  That would reduce negotiation time and deal risk.  It would also reduce legal fees.  Hold on, maybe the billable hours explains why so much variation exists!

This year, a tool is coming to market that analyzes deal documents, breaks them down by provision, analyzes which documents contain which provisions, and quantifies variation across similar documents and provisions.  Kingsley Martin, a lawyer and leading legal knowledge management expert, formed KIACC to develop this tool and help lawyers gain control of their documents.

The approach he advocates – and tools he has developed – helps standardize documents.  Clients should demand standardization: simplifying lawyering will save far more money than just bargaining down rates.  Moreover, doing so frees lawyers to focus on negotiating and crafting provisions that really matter. 

Taming the Document Review Beast

Twenty years ago I advocated that lawyers develop budgets for large matters.  Lawyers reacted poorly.  They were either puzzled: “Why would anyone even think that is useful?” Or they were outright hostile: “I am an artiste and you cannot expect me to predict how long my works of beauty will take to create”. 

How times change.  One of the biggest costs in litigation today is e-discovery and document review.  Law departments no longer have blank checks to pay for whatever their litigators fancy.  Like their corporate peers in finance, marketing, or manufacturing, inhouse lawyers must live by budgets and predict costs.

E-discovery processing and documents review is expensive and typically subject to huge cost overruns.   Fortunately, the market and process has matured.  A combination of sophisticated software, deep experience handling EDD, and standardized approaches allows some vendors and one law firm to change the price model.  Instead of fees tied to gigabytes of data or hours spent,  these innovators charge a fixed price per document for discovery.  The “all in” price includes collection, processing, hosting, and review.

It’s hard to think of an easier way to introduce predictability into otherwise inherently chaotic litigation.  Vendors that offer fixed per document pricing include Huron Consulting Group, LawScribe, and Integreon.  Dorsey & Whitney’s (LegalMine sevice) is the only law firm I have found that has publicly announced a fixed price per document service.

If your firm runs document review or EDD as a profit center, this is a threat.  If you can keep profiting from junior or contract lawyers, then your clients must love you.  Smart firms, however, don’t assume love is forever.  They see the coming cost tsunami and curry favor with clients by offering a fixed price for EDD and document review.

Working Virtually

Five years ago I wrote an article in  Law Practice Management on “working virtually.”  Some firms, typically smaller ones, are finally beginning to adopt this model.  Will their BigLaw brethren be smart enough to learn the same lessons?

Most lawyers believe the myth that they must work in close proximity to collaborate and sustain their culture.  If you tell clients that your firm assembles the best team across all your offices, how can you argue that lawyers must show up in downtown offices?  Their colleagues may well be in other cities.   As for culture, notwithstanding Woody Allen’s remark that 70% of life is just showing up, simply being in the same place is neither necessary nor sufficient.

I’m not saying do away with downtown, central offices.  Instead, firms can offer the option to work at home or in a low-cost suburban satellite office part of the week.  This reduces both lost commuting time and the carbon load.   Have lawyers come downtown when they actually need collaborate in person.  Wow, what a concept: scheduling time for real collaborate instead of pretending it just happens every day.  Firms that do so likely will find that sharing offices downtown becomes viable, which can dramatically lower occupancy cost.  

Of course, in the current crisis, firms are shrinking, not growing.  They are retaining too many lawyers, not losing enough.  So the need for space or to accommodate demands for work-life balance may seem remote.  Yet now is exactly the right time to make difficult changes.  A firm that set out now to optimize how and where its lawyer work and says what it is doing publicly signals clients and recruits that it’s in business for the long term.  Most importantly, it would be better-positioned for the inevitable economic turnaround.

Think you have nothing to worry about by ignoring this?  Some large firms do allow this flexibility already.  And some start-ups are built on the idea of working virtually, for example, Virtual Law Partner, LLP in the US and Optim Legal in Australia.