Abandoned in Place: Global law firm abandons DC and NY back office operations

In the old “Perry Mason era,” a law firm was mostly lawyers (almost all men), each with a secretary (almost all women) — the more wood on the walls, the better.  And each lawyer had a fairly big, personal office, with the secretary outside the door (within hollering distance) — the more senior the lawyer, the bigger the office.  This business model dictated how a lawyer could bill, usually for flat fee or hourly work, then more contingent fees later on.  You could bill for the lawyer’s professional work, but the clerical services and things like maintaining file folders were included in the lawyer’s fee, not a source for separate profit.  Law office layouts had to change to accommodate new technology, like copiers, computers, printers, and so on, as well as squads of new, typically lower level, staff, like paralegals — pyramids grow from the bottom up.  Libraries grew until paperless research caught on (around 1980), just as lawyers started having their own personal computers.  The rise of computer research let firms cut librarians (usually overhead then, not so today) as well as reducing the secretarial staff very substantially (also overhead).  Even massive file cabinets and stacks of boxes have become less common.

Beginning in the ’60s, the pressure to increase lawyer profits began to take off, which led to “innovative” ways for lawyers to make more money.  Hourly billing became common at this time in part to make more money, but also to justify otherwise undocumented flat or retainer fee quotes.  Of course hourly rates and billable hours quotas tended to go up (never down), but other developments included addition of more billable timekeepers, like more associates and then the non-lawyer paralegal.  Some creative methods were applied to recover out of pocket expenses, as long as they were real and not marked up for profit.  Hybrid fees, mixing contingent fees or bonuses with discounted hourly fees could also provide an upside while covering all or most of the downside.  Some traditional law firm work is being “outsourced,” which should be an expense passed through at cost, but some firms are trying to keep this inhouse for the money.  Other dubious expenses are the use of temps and contract lawyers, marked up and billed like lawyers — even hidden in the bill that way — which is currently keeping most of Wall Street and other “big law” firms afloat, though ethically and legally suspect.  Any of these can be abused, but these trends continue through today.  These days, firms will try to push anything onto the bill — vigilant clients have to push back.

The big fancy vanity office of the old law firm is a liability now — mostly wasted square footage.  You can usually tell how long a firm’s been in its current space by the office and work space layout:  One lawyer and one secretary, one secretary for several lawyers, a big library, a small library, no library, big central printers and copiers, big bullpens of cubicles for paralegals and temps, paralegals and temps (and files) in the cheap space (like a basement), and so on.  The more “modern” layout is to park the back office in another town, state, or country where space and people are cheap.  Here’s an example of how one firm is selling the “good news” that its back office is now in South Africa and Kentucky — does that make Kentucky the South Africa of America (??):

The new centre [it’s a merger of a US and British firm] will be handling billing, technology support and conflict checks for Hogan Lovells by August and will provide a crucial link between American offices and the firm’s existing business support base in South Africa.  [The ‘crucial link’ seems to be adding a duplicate link — not sure how that “links” anything.]  Hogan Lovells is just one of a growing list of Big Law firms who have opted to set up ‘back offices’ outside of major business hubs. Chief operating officer and financial officer Scott Green describes the approach as ‘seed-and-grow’ rather than ‘lift-and-shift’, as moving back office operations to the more economical Louisville will not generate any layoffs and see only one employee, Hogan Lovells global head of conflict [very funny title — conflict checking] Bill Ball, transferred to Kentucky. ‘As we have jobs vacated in Washington and New York, we’ll look to see if those jobs can be added in Louisville,’ he commented. [In other words, what they are saying in corporate speak is they aren’t moving their old operations and the people who did the work to the new location — just letting the new one grow to replace them — which bad news for the existing staff since it implies they will gradually become obsolete and be phased out, not transferred.  Despite the tone of gradual shifting, I’d bet 90% of the NY and DC folks will be on the street in a year or so.]

A win for Kentucky [and a loss for DC and NY — probably not as bad for clients]

The new centre [bloody English] will launch with an initial 50 staff and eventually grow to around 250 positions [wow, they seem to be running a pretty inefficient operation for the tasks described above] on an average salary of $65,000 per year, with a total investment of $8.9m over the next decade. ‘As one of the world’s most influential law firms [according to itself], Hogan Lovells’ decision to locate a business services centre in Kentucky is a testament to the quality of our [Kentucky] workforce and the desirability of our location,’ said Kentucky governor Matt Bevin in a statement. [Nope, what it does say is you’ve got about the cheapest folks they could find in the US and, presumably, weak employee rights.]  Hogan Lovells’ Washington, DC regional managing partner Alice Valder Curran commented of the choice: ‘We chose Louisville as it has an excellent supply of [cheap] talented people, is well placed in terms of time zones [Louiville’s in the same time zone as New York and DC, as is most of the US population, very funny] and offers good opportunities for cost savings when compared to Washington, DC and a number of our other existing office locations.’ [Take that DC and NY.]

The point of greatest interest to the author of the original piece was that HL wasn’t going to move [“lift and shift”] its existing operations to the new location.  While many firms have precious documents and files that must be preserved indefinitely, most legal files can be returned or destroyed in five or so years after a matter closes.  In the meantime, a few existing employees can be retained to handle those papers while all new matter goes to the new office, with much lower overhead.  Basically HL’s too cheap to move the people and materials — they’re being abandoned in place like a rust belt factory.