Law Firms Seek Super Savings with Back-Office Centers

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Written By admin at Tuesday, October 9th, 2012

Josh Anderson for The Wall Street Journal
Sean Whelan, finance chief of Pillsbury Winthrop Shaw Pittman, at an operations center the 700-lawyer firm is building in Nashville, Tenn.

Quick legal word association game for ya, LBers.

When we say “efficiency,” what’s the first word that leaps to mind? Is it is “BigLaw?”

Thought not.

How about “cost-sensitive”? Nope, not “BigLaw” either?

Well, as WSJ explained today, that could be changing. Big firms are under more pressure than ever these days to run a tight ship. No more relying on rate increases to boost profits. Clients who demanded discounts during the recession continue to push back on law firm pricing, and demand for legal services is flat.

So law firm managers are warming up to something their corporate clients learned years ago: if you can’t goose your top line by raising prices, to turn a profit you have to start paring away at waste and excess further down the line.

As a result, more firms are setting up back-office centers in flyover country, where rents and labor costs are cheap. Need to talk with somebody in finance? Better call Nashville, or Lexington.

Other law firms are farming out a wider range of work to legal outsourcers – companies that staff mailrooms, and do legal document processing and other support tasks.

These aren’t new approaches. But the increasingly competitive legal marketplace means that big law firms — even those that had been reluctant to detach information-technology, human-resources and other support functions from offices in big cities — are coming around to the idea.

“The law firms for years were just fat and happy, and they didn’t really have a reason to do this,” said Mark Klender, a principal at Deloitte Consulting who has advised firms on setting up back-office centers. “One client said the golden age of law firms is over.”

Whether back-office work ends up in the hands of outsourcers or law firm employees, in the future most of it will be handled off site, said Ralph Baxter, chairman of San Francisco’s Orrick, Herrington & Sutcliffe LLP.

“There is all this work to support law firms that is not our core business,” said Mr. Baxter, whose firm made a splash in 2002 by moving its back-office technology and finance operations to Wheeling, W.Va. “There are cheaper, faster ways to do it.”

Some firms have been doing this for years, but the pace has picked up a bit since the downturn in 2008.

Here’s a short list of some of the other dozen or so BigLaw shops with current or planned back-office centers. Most are so-called “captive centers” staffed by firm employees, except where noted:

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