Should law firms ever be in businesses other than practicing law? And
does the answer to that turn on legal ethics, or on microeconomics,
or both?
The question is no longer academic. In "All in One Law
Firms,"
the Financial Times reports that:
Robert Glennie, the former chief executive of KLegal – KPMG’s now disbanded tied legal network – and a legal business consultant, says: “Lawyers have not been at the forefront of diversification, but it is becoming increasingly common. I think it will be a trend among the more creative firms.”
What type of "diversification" are we talking about? For
starters, some firms have begun offering services which are "next
door neighbors" to hard-core, traditional legal work. For
example, DLA Piper has created "DLA Upstream" with offices
in London, Brussels, and Edinburgh: A team of 27 professionals
who have extended DLA’s traditional work in government affairs and
lobbying to PR,
"reputation management," and "pan-European alliance building." According
to DLA, clients see savvy communication with the media as fitting hand-in-glove
with any high-profile piece of litigation or regulatory reform effort,
and appreciate one-stop shopping.
Likewise, employment firms have begun to branch out into training—not
much of a stretch past lectures plus whitepapers—and in what
is arguably even closer to traditional corporate advisory work, Eversheds
has compiled and offers an online database aggregating corporate
governance and compliance law from across Europe: An electronic
version of your high-priced cross-border securities partner.
Uncontrovertibly farther afield is this plan by a firm with its
roots in—where else?—California:
"Orrick Herrington & Sutcliffe, a US firm fast expanding
internationally, is planning an outsourcing services company for
other law firms."As part of its business strategy, the west coast-based firm has
based its entire global “back office” functions, such as accounting,
finance, technology, payroll and administration, at an operations
centre in Wheeling, West Virginia. It is also considering moving
much of its fundamental legal research there."Ralph Baxter, Orrick’s chairman, says the firm has made huge savings
by shifting the functions to one central location. But he wants
to go further, and is convinced the firm can “commercialise its
back office”, offering its operations centre as an outsourcing
service for other law firms, handling administration, IT and even
basic legal research for them."
Have we now gone a bridge too far? From the ethical
perspective, I don’t see any transgression in what Orrick is
offering other firms —subject
to all the usual safeguards and checks against conflicts, breaching confidentiality,
maintaining Chinese walls, etc. But I would defer on this point to others
more steeped in ethical nuance.
On the microeconomic front, however, I will weigh in. The
strongest argument against what Orrick proposes is
that none of those back office functions is a "core competence"
of a law firm, so what business do they think they have diving
even deeper into that particular pool? But the contrary
view is that Orrick evidently set up the West Virginia operation
(this is speculation on my part—I have no actual information
on this point from within Orrick or elsewhere) precisely because
Baxter & Co. recognized these functions did not need to take
place on Fifth Avenue in New York or Market Street in San Francisco,
and that a dedicated and unified staff would not only be more
efficient but would actually become more adept and productive
over time, premised on the reality that they are full-time
Back Office Experts, and not partners’ secretaries moonlighting
with the time and billing system.
Once Orrick built that capability, then, the question becomes
is it legitimate to attempt to maximize its value by offering
its capacity at some price greater than marginal cost? The
answer to which, microeconomically speaking, is trivial: Of
course.
