Many companies now offshore key support functions. Will the in-house legal department be next?

If there is one group of employees who should be comfortable with the concept of offshoring, it is arguably a company’s in-house legal team. In many situations, the corporate legal department will already have played a crucial role in any previous offshoring initiatives. Many general counsels will therefore be familiar with the legal, technical and managerial issues involved.

As a result, it may be prudent for senior corporate lawyers to consider whether some or all of their company’s legal or contract drafting functions should be offshored. At a time when all support functions are under constant pressure to cut costs, does it make sense to employ highly-paid in-house lawyers in expensive head office locations?

Why offshore?

In many respects, the offshoring of legal service should be a useful alternative to outsourcing to traditional law firms. Law firms outsourcing typically allow the corporate legal function to overcome “peaks and troughs” in their workload, without the need to retain expensive in-house counsel. Offshoring may be an alternative method of keeping legal overheads to a minimum. If companies offshore their legal work to employees in low cost jurisdictions, it is true that the offshore legal staff will remain a permanent and constant overhead. However, in some circumstances, their lower wages and associate overheads could prove cheaper – and more predictable - than engaging western law firms on an ad-hoc basis. Alternatively, companies may choose to both offshore AND outsource their legal work to third party companies, such as RR Donnelley (formerly known as Office Tiger) or Mindcrest.

Yet, while it may make sense for a company’s general counsel to consider legal offshoring, to date, few appear to have done so. A 2004 survey by the Association of Corporate Counsel found that just 1.8 per cent of US general counsel had offshored any of their legal functions – although eight per cent said they would consider doing so in the future. As a result, legal offshoring remains a minority activity – albeit one which many companies are increasingly considering.

An option for all companies?

When considering the offshoring process, one of the most important factors is to establish whether offshoring would be culturally acceptable to the company. If the company has already outsourced other support functions, the answer is likely to be “yes”. It is also helpful if a company routinely and successfully operates in another jurisdiction – the fear of “the unknown” can often act as a limiting factor in any offshoring initiative.

However, counsel should also be aware that “cultural acceptance” at board level is very different from “capable of implementation” within the company itself. One counsel interviewed for this feature – whose employer had offshored many of its support function for several years – reported how the proposal to offshore the legal function was not initially welcomed within the company. “Although our company accepted offshoring in principle, no one wanted it in practice,” they say. “It would affect people’s jobs, and also how they work. Ultimately, there were times when I had to force the idea down people’s throats.”

Another important consideration is whether legal offshoring would fit with the company’s overall organisational structure. Some multinational companies operate a largely decentralised legal operation, with the majority of their lawyers “embedded” in their local business units. In such circumstances, offshoring may not be a viable option, without significant internal restructuring. By contrast, it is arguably easier to offshore a legal function which has already been consolidated into one centralised location.

If a company has already offshored other corporate functions, the general counsel will be at a distinct advantage. It is likely that a comprehensive due diligence process will already have been carried out, evaluating the strengths and weaknesses of various offshore locations. This due diligence process typically involves a review of a jurisdiction’s legal and political systems, its tax regime for offshore companies, its IT, telecoms and transport infrastructure, even – in some situations - its geological stability.

Where to offshore?

Of course, just because a particular jurisdiction is suited to one particular offshore function, it does not automatically follow that the same location will always be suitable for legal offshoring. Suitable locations for legal offshoring may depend on local language skills, the candidate country’s legal system and traditions, and also its rules governing the “unauthorised practice of law”. In some situations, the laws governing a company’s head office may ban the exportation of sensitive data – rendering offshoring legally unworkable. In addition, sending data offshore may reduce the availability of legal professional privilege – especially if non-lawyers are involved.

To a certain extent, the type of work to be offshored may also dictate the choice of offshore locations. For matters requiring regular “head office” supervision, it may be preferable to base the offshore legal function in a location that is accessible by direct short-haul flights. Conversely, in other situations, it may make more sense for an offshore legal function to “follow the sun”. Here, by deliberately placing the offshore legal function in a remote time zone, documents can prepared “over night” for early morning inspection. This model may be particularly useful for legal functions engaged in routine, mass-produced document drafting, where minimal head office supervision is normally required.

In some circumstances, it may be preferable to create several offshore legal centres. This can avoid the need to make compromises in relation to time-zone issues, local language skills or legal traditions. For example, Craig Guarente, who manages Oracle’s global contract services – but not legal - division, initially intended to run the company’s entire offshore contracts facility from a 24-hour per day centre in Romania. However, during the recruitment process, it quickly became apparent that it would be difficult to hire suitable candidates on that basis. Not surprisingly, most potential employees in Romania preferred to work normal daylight hours. Oracle therefore decided to establish three separate bases for its offshore contracts function. The Romanian arm would serve Europe and the Middle East, while Costa Rica served the Americas and The Philippines, the Far East market.

This approach also allowed Oracle to tailor the services offered by the various offshore contract functions according to the skills of their employees. For example, a lack of regional language skills meant that the offshore contract function in Romania was limited to processing contracts in English and a small number of European languages. By contrast, the Costa Rican function could draw on a much larger pool of English and Spanish-speaking recruits. As a result, it can offer a more comprehensive range of offshored contract services, with sufficient staff to support the entire American continent.

Of course, when faced with so many competing considerations, many counsel may decide that the whole offshoring concept as simply too onerous to even consider. However, there is one final option that counsel may wish to evaluate – relocating the legal function to a low-cost region within their own country. Although – not strictly speaking – offshoring in the true sense of the word, this option may overcome many of the problems associated with offshoring, while still delivering a tangible cost saving.

What to offshore?

Where the process appears feasible, the next obvious question should be – what matters are most suitable for legal offshoring? To a large extent, this will depend on legal needs of each company. For non-contentious matters, preliminary research for low-value patent filings is an obvious candidate – even the US Patent and Trademark Office has apparently gone down this route. Likewise, large scale document-assembly of standard form contracts could also be considered, especially if the supporting IT infrastructure is already in place. Legal research may also be possible, depending on the specific skills of the offshored personnel.

Whatever type of work is initially offshored, it is important for counsel to recognise that this is likely to change over time. The type of work that can be offshored will, inevitably, depend on the specific needs of the business, and the particular skills of the offshored staff. For example, the general counsel may decide to offshore their bulk contract drafting process for several months or years. Initially, these contracts may have been highly bespoke, and only capable of being drafted by skilled lawyers. As the process becomes more standardised, the same document could be drafted offshore by legal or non-legal staff, making use of standard templates. Ultimately, this work may be fully automated using document assembly packages, with no legal involvement during the initial document drafting stage.

For contentious matters, document scanning and coding are obvious candidates for offshoring – anecdotal evidence suggest that cost savings compared with traditional law firms can be significant. Andrew Schaeffer, managing counsel - operations and partnering and Vincent Catanzaro - discovery counsel and litigation support manager from DuPont estimate they saved US$500,000 by using RR Donnelley (formerly Office Tiger) for several pieces of discovery – even though they received a very high quality of service. “RR Donnelley use top-quality Philippines lawyers who have, on average four years’ experience,” says Mr Catanzaro.

In a typical discovery process, the DuPont legal team split their workload three ways. The in-house teams acts as overall project managers, and are responsible for the overall decision-making process. The offshore function provides document review and coding, and also the quality control of this function. Outside counsel provides the specialist legal expertise, training, high-level privilege review, and overall quality assurance for the projects. 

Summary

In many respects, offshoring offers the in-house legal team a Holy Grail – the possibility of reduced costs, coupled with an improved level of service. Yet, it must be recognised that this process is still in its infancy, and is bedeviled by legal, logistical and cultural challenges. Before engaging in any offshoring initiative, counsel should be fully aware of all of the potential risks, as well as the rewards. But, if the signs are positive, it is definitely a move that they should seriously consider – before they are forced to by their own management.

Takeaways

• Is your employer sympathetic to the "offshoring" concept? Have other support functions already been offshored?
• Is your legal function on a "stand-alone" basis, or is it embedded within existing business units? The former arrangement is normally easier to offshore.
• What jurisdictions would be suitable for an offshored legal centre, taking into account of time-zone difference, legal traditions, and local language requirements?
• What should be the relationship between an offshored legal function and a company's regular law firm? Should they work together directly, or should the in-house legal function act as a filter between them?
• What type of legal work would be capable of offshoring? Is this work likely to change over time?