Thomson Reuters Embraces Legal Process Outsourcing

Thomson Reuters announced last Thursday that they'd aquired a leading legal outsourcing company, Pangea3, in a move that according to the compnay:

"Gives Thomson Reuters a leadership position in the fast-growing legal process outsourcing market."

Reuters' press release notes that:

• Peter Warwick, president and chief executive officer of Thomson Reuters Legal, said legal process outsourcing will be key to helping law firms and corporate legal departments be more responsive and cost-effective.

• The acquisition is true to their mission to help the legal system perform better, every day, worldwide; we will now bring to the legal marketplace a responsive, high-quality, transformative resource for a broad range of legal support work.

• This is particularly important as law firms and general counsel adjust to the realities of the 'new normal,' where efficiency, quality and responsiveness are paramount," he noted.

• The LPO marketplace is growing at more than 20 percent annually and projected to exceed U.S. $1 billion this year.

The ABA Journal reported that:

"Thomson Reuters already has about 8,400 employees in India, but this would apparently be the first time the company would be providing legal services themselves, rather than just legal information and consulting services to law firms and other legal providers. The move into providing legal services – and, at least in a small way, competing with its own legal information clients – comes at an interesting time, as the United Kingdom readies to allow companies to invest in law firms next year."

It is definitely an interesting development, but one that is clearly consistent with the Reuters' strategy "to develop world-class information, software and workflow solutions for legal professionals around the world."

Because legal process outsourcing fits squarely under the heading of "Workflow Solutions."

The Survey of Small Firm Economics

Last week we looked at the survey of the 250 largest U.S. firms, and this week we'll look at The Survey of Law Firm Economics, a joint project of ALM Legal Intelligence and The National Law Journal, for which the majority of respondents were firms with fewer than 150 attorneys.

Consistent with the largest firms, the small and mid-size firms also saw an historically unprecedented double dip.

According to law.com:

In 2008, revenue per lawyer declined by the largest percentage in 25 years — nearly 5%. In 2009, the figure dropped again, this time by less than 1%. Although the decrease was slight, a two-year drop in revenue-per-lawyer figures is unprecedented for firms taking this survey.

And yet, according to the report, small and mid-size firms actually increased profitability by:

• Aggressive cost cutting.

• Expense per attorney dropped by 5% in 2009, the largest ever decrease in expense-per-lawyer.

• Expense-per-lawyer also dropped in 2008, making it the first consecutive year drop in that category since numbers have been tracked.

• Net income was also up by 2.7%.

• However, actual realization rates dropped 2%, and partners wrote off 7% more of their time than in 2008.

• Billable hours also dropped for both partners and associates.

So, if billable hours were down and clients were paying less of their bills, was aggressive cost cutting the sole component of the rise in net income?

No. According to the report, small and mid-size firms also compensated by raising rates.

Hourly rates for the average equity partner are now at an all-time high among surveyed firms.

Which means we seem to have a disconnect. Because most observers feel the balance of power has shifted to the client side. And, as we've discussed, the current ACC Value Challenge expects firms to drop costs by 25% next year.

It would appear that expectations on one or both sides of the equation will have to change.

Results from the NLJ 250

The National Law Journal's annual survey of the 250 largest U.S.-based law firms by headcount is out, and the numbers are starting to crystallize our collective perceptions from the last two years.

The largest U.S. law firms trimmed another 1,400, making this the second consecutive year of cuts and the largest two-year decrease in headcount in the ranking's 33 year history.

Over the last two years, the NLJ 250 have shed more than 5% of their attorneys. The only other consecutive two-year decrease was 1992-93, which saw cuts totaling less than 2%. So, we're clearly in uncharted territory here.

Digging a little deeper into the numbers we see:

• More than half of the 250 saw decreases, while more than 2/3 of the top 50 saw declines.

• Some firms even saw double-digit percentage cuts.

• Associates, again, took the biggest hit, accounting for the majority of the decreased headcount.

• Where headcount did rise in 2010 was in the "other category", which includes non-associate attorneys, contract lawyers, and temporary attorneys.

According to Altman Weil consultant Ward Bower, "There are fewer lawyers producing more work and more revenue." Which means "there's been a reset."

"Law firms are unlikely to hire hordes of associates as they had before the 2007 recession any time soon, if ever."

And this seems to be another indicator that what used to be considered associate-level work is now being accomplished via new, emerging channels.

Collecting Law Firm Data

Last week we discussed the ACC Value Challenge's latest initiative to reduce law firm spending by 25% in 2011.

One obvious question was what tactics will Law Firms ultimately embrace to tackle such a hefty directive?

Corporate Counsel reported last week on one interesting new tool that may factor into the mix.

ACC's longtime general counsel Susan Hackett announced the organization's new initiative to ask law departments to post their internal data -- anonymously -- on an ACC site so all firms can compare how their departments are performing.

The vast majority of law firms track internal data like:

• Outside Legal Expenses

• Actual Performance Compared to Amount Budgeted

• Department Spending as a Percentage of Revenue

But this data is of limited value if it can't be measured against other firms, and that's what the ACC's new database seeks to correct. According to General Counsel:

"Only 24 percent of the survey's respondents said they have the tools or capacity to benchmark their legal departments against others. And that inability to compare, Hackett said, is preventing them from making more effective use of the numbers."

Hackett said they hope to have something up and running, "even if not fully 'populated,'" by mid-2011.