Legal Outsourcing – Politically Correct? Or Politically Incorrect?

Several weeks ago I lectured at a continuing legal education seminar on the opportunities, pitfalls, advantages, disadvantages and benefits of selective legal outsourcing. It wasn’t a “hard sell” talk. Being a litigation attorney myself and having attended scores of legal seminars, I am personally offended by blatant salesmanship offered by some CLE speakers, a practice encouraged by an emerging trend to charge, rather than pay, supposedly qualified speakers to grace the podium. Nonetheless, during the question and answer session at the end of my talk, one younger lawyer was clearly upset at the notion of sending any U.S. jobs offshore. His questions reflected anger, even outrage, at the prospect of any U.S. legal work being sent offshore.

One question bubbles to the top: Is legal outsourcing, or any type of outsourcing, politically correct? A second question follows: What really is political correctness anyway, and why does it matter?

Wikipedia defines political correctness as “a term applied to language, ideas, policies, or behavior seen as seeking to minimize offense to gender, race, cultural, disabled, aged, or other identity groups.” Conversely, political incorrectness is “a term used to refer to language or ideas that may cause offense or are constrained in orthodoxy.” Political correctness has been traced back to Mao’s Little Red Book. The term was adopted in the 1960’s by the radical left as a self-criticism of dogmatic attitudes. In the 1990’s the characterization was used by the political right in the U.S. to discredit the Old and New Left. Almost always used pejoratively, “political correctness” is a label ascribed by one group to another with the purpose of controlling or manipulating thought and/or behavior.

One problem with political correctness is determining who, exactly, is “correct” in their thinking. Should Jesse Jackson or Rush Limbaugh define political thought and social ideas in America? Does it have to be one or the other? What about the slogan “Buy America?” On its face, a movement to buy American goods and products exclusively would seem to be so universally politically correct that no reasonable person could take an alternative position. Wouldn’t buying American-made cars ensure American jobs and help the overall American economy? Well, perhaps, but the Big Three U.S. Automakers are apparently on their way out, while foreign manufacturers such as Honda and Toyota are hanging tough. Why? The Big Three are saddled with union contracts requiring high wages and benefits, even for some retired or laid off “workers” who are not currently producing cars or parts at any GM plant. GM had its best sales year ever in 2007. It sold over 9 million cars all over the world—the same number as Toyota. But Toyota made $20 billion and GM lost $40 billion. One year later, GM is on the rocks. Would the picture have been different if free trade had been restricted and GM could not sell autos any place outside the U.S. and Toyota could not sell in America? Not likely. Businesses run on the bottom line. Do incoming revenues exceed expenses? If not, the remedy is fairly simple: either increase revenues or decrease expenses (or both).

So what does this have to do with U.S. law firms and companies selectively sending some legal work offshore to be produced at significantly lower cost? Assuming that quality offshore legal work can be reasonably obtained, isn’t it crazy to even entertain the idea? Won’t even more U.S. jobs be lost?

On November 11, 2008 The New York Times headline declared: “Law Firms Feel Strain of Layoffs and Cutbacks.” The article noted that law firm personnel, including attorneys, were being laid off because the clients were no longer able to afford the legal fees charged. Indeed, the Financial Times reported a survey concluding that “corporate legal bills soared nearly 20% (in 2006) and could increase by a further 9% in 2007.”

The law firm of Heller Ehrman, founded in 1890, folded in September 2008. This was a firm specializing in big litigation cases, a supposedly recession-proof legal arena. As recently as 2004 Heller ranked second on the American Lawyer’s A-List. Nonetheless, financial challenges led to its demise. In December 2008 a similar fate befell Thelen LLP, an 84 year old law firm, which had 600 lawyers in 2006. At the end of December 2008 Thacher, Proffitt & Wood LLP, hired by the treasury department three weeks earlier to work the the government’s $700 billion bailout, announced it would dissolve. These jobs at these three law firms were not lost because of legal outsourcing, which, at present accounts for but a tiny fraction of U.S. legal service business. They were lost because of financial realities: law firm expenses (salaries being number one) exceeding revenues. Law firm clients are increasingly saying “we can’t pay these ever increasing rates any longer.” Clients question why they should be paying U.S. associate attorneys, for example, $200 or more hourly to perform large scale document review, when this task can be undertaken competently by offshore lawyers at a fraction of the cost. Further, recent ethical opinions by U.S. bar associations (San Diego, New York, and ABA) allow for a law firm sending work offshore to charge its clients a “reasonable supervisory fee” to oversee outsourced legal work. Wouldn’t Heller Ehrman, Thelen and Thacher have been wise to consider selective legal outsourcing as a means to survival, thereby preserving American jobs?

So, is outsourcing some legal work offshore “politically incorrect,” un-American, and likely to lead to a drastic loss of U.S. jobs that would otherwise not occur? Or, instead, is selective legal outsourcing but another tool (like computers, word processing software, voice recognition technology, email) to enhance efficiencies and improve the bottom line for law firms and their clients alike? The decision is best made by you, yourself ,and your firm or company rather than checking the wind and asking, “is it politically correct?”