By: Bill Myers

April 8, 2005, Chicago Daily Law Bulletin

When Ganesh Natarajan relinquished his partnership at a large Chicago law firm to set up a legal services company four years ago, he hired 20 lawyers and went looking for clients.

But the corporate counsels who sent work his way never saw those lawyers -- they were headquartered thousands of miles away, in India.

Today, Natarajan's company, Mindcrest Inc., is looking to expand its clientele by providing legal services to major law firms in the U.S.

"We're getting so many phone calls now," he said. "This whole idea of overseas legal services is taking more traction than it ever has."

Offshoring, a cost control measure that has achieved great favor in the business world, now is penetrating the legal industry.

It's a logical development, said Joel F. Henning, the Chicago-based senior vice president and general counsel of Hildebrandt International, a legal consulting firm.

"When law firms are starting associates at $ 125,000 and up, they just can't afford to have the associates doing the low-level work that can be done cheaper overseas," Henning said.

Last year, Henning's company announced that it was teaming with OfficeTiger -- one of the U.S.' largest "business process outsourcing" companies -- to offer U.S. companies cut-rate legal research, document review and other low-level tasks performed by foreign attorneys.

Some expect law firms themselves to set up overseas shops to do their own legal work.

Forrester Research Inc., for example, is predicting that up to 10 percent of all associates hired by large American law firms in 2011 will work overseas.

And by 2015, predicts the Cambridge, Mass.-based private research firm, 40,400 lawyers' jobs will have been sent abroad, costing American lawyers $ 4.3 billion in lost wages.

But, thus far, the "offshoring" of legal work is being handled through service firms, rather than by law firm employees themselves.

Natarajan, a former partner at McGuireWoods LLP, now pays lawyers in Bombay to do legal research and other "paper-pushing" tasks, like the preparing of Employment Retirement Income Security Act documents, for American companies.

Though his business is still small, its revenues have tripled every year since 2001, Natarajan said.

Natarajan is not the only one excited about the prospects of offshore legal services.

New York lawyer Sanjay S. Kamlani, the co-founder of his own offshore legal services firm, estimates that the U.S. sent $ 1.5 billion worth of legal work overseas last year. By 2010, the industry will be worth $ 6.5 billion and by 2015 it will be worth $ 16 billion, Kamlani predicted.

Asked how he could be so sure that companies like his can be successful, Kamlani cited a recent survey of in-house counsels by a trade magazine. Asked to name their biggest concern, 86 percent of respondents cited legal costs.

Results like that show that law firms are under pressure to cut their legal bills, Kamlani said.

Sending the work abroad can cut a law firm's costs by up to 70 percent, he said.

Corporations were the vanguard of the movement of legal work overseas. General Electric, America's fifth-largest corporation, announced last year that it was setting up part of its "in-house" legal department in India.

But the core concept is not foreign to the larger law firms. Many have been farming out secondary functions for years.

In 2003, for instance, Hinshaw & Culbertson LLP hired Digital Divide Data to help build its marketing list.

Digital Divide is a U.S. nonprofit whose workers live in Phnom Penh, Cambodia, and Vientiane, Laos. The staff is made up of handicapped men and women, as well as abused women and women rescued from brothels. They are paid to do data entry for U.S. companies.

Digital Divide workers entered contact information for a marketing database with almost 77,000 names on it -- the largest marketing database of any law firm in Chicago, Hinshaw marketing director Kelly Fox said.

And they did it for a bargain-basement rate, Fox said. About five years ago, Hinshaw paid $ 1,000 for a 5,000-name marketing list that it could use only once. With Digital Divide, a similar list of 5,000 names became the exclusive property of Hinshaw -- for only $ 400, Fox said.

"Every penny I've spent with them has been worth it," she said.

The enthusiasm for offshoring is not unanimous, though.

First, not everyone is convinced that sending legal work abroad is as practical as its proponents say.

Brian Uzzi, a Northwestern University sociologist who studies the legal profession, says that the practice of law is difficult to break down into smaller tasks -- unlike, say, the manufacture of a car, where bolts can be made in one place, tires in another and the car put together in still another place.

Henning acknowledges that economies of scale in the practice of law are different from those in other endeavors. And this, he said, gives American lawyers protection against being replaced altogether, because clients will continue to focus on the quality of legal work and not the quantity of it.

"In order to conduct an audit of General Electric, you need an army. In order to argue the biggest case that General Electric has ever litigated, you need a platoon," Henning said.

But others have deeper concerns about sending legal work abroad. One of them is Cheryl I. Niro, a partner at Quinlan & Carroll Ltd. and a former member of the American Bar Association's Commission on Multijurisdictional Practice.

Niro says that while sending legal work abroad represents "a good business opportunity," lawyers should proceed carefully.

"To the extent that Illinois lawyers -- educated, licensed and experienced in Illinois law -- lose a measure of legal work, it threatens the vibrancy and the health of this state's bar," said Niro, who is also the former president of the Illinois State Bar Association.

This is not just a matter of self-interest, Niro said.

"We fund most access to legal services for the poor, we donate our time and money to countless not-for-profit organizations, we teach, we speak to local organizations -- we are public servants in many ways. Our communities need our bar to remain healthy and strong for those and countless other reasons," she said.

Loyola University Chicago School of Law Professor Charles W. Murdock, who teaches courses on securities and corporate law, shares Niro's concerns.

But he adds that there is another possible undesirable consequence: sending legal work abroad raises the specter of corruption, on a global scale.

"Law firms in the United States are supposed to have systems in place to guard against insider trading, to protect confidentiality, to protect against conflict of interest. It's the states that have been responsible for admitting people to the practice and for discipline. Now you've got people doing legal work who are not going to be subject to anyone's oversight and discipline," Murdock said.

Niro said she first considered the question of foreign lawyers practicing American law when legal-assistance sites began popping up on the Internet a decade or so ago.

"Who's responding to the questions? Where is that lawyer sitting? It's not always easy to tell," Niro said.

Niro said she hopes that, if legal work continues to move abroad, "a balance can be struck" between the need for the profession to adapt to changing economics and the need to remain a service profession.

"I don't think this is a simple issue of finding less expensive legal services," she said. "We must be most cautious that we don't allow business opportunities to erode the core values of our profession."

For now, the argument over offshoring is mostly hypothetical, Hildebrandt's Henning said, because only a few of Chicago's law firms have bought legal services from overseas. Henning would not name them, citing client confidentiality.

And so far, the overseas work that Chicago law firms have contracted for has been the kind of work usually done by legal secretaries or paralegals, Henning said.

But Henning said he expects the size and scope of the industry to expand dramatically in the coming years.

Many offshore services companies are excited about the legal market because law firms continually have mammoth projects, like the discovery process in litigation, that require lots of low-level work.

"To us, it's very valuable because we're trying to develop clients that will give us an ongoing relationship," Digital Divide co-founder Jeremy Hockenstein said.

"From our perspective," Hockenstein added, "there's some new niches like this ... that I think have been untapped."

Offshore services companies probably do not have long to wait to tap the law firm market, says Mindcrest's Natarajan.

"Companies have now outsourced a variety of functions. You can pretty much pick any area and they've done it. And now the general counsels are under pressure from the CEOs to look into it" so they can cut their legal bills, Natarajan said.

There can be only one conclusion, Natarajan said: "The idea of offshoring itself is here to stay. It's not going away."