EXCLUSIVE: Outsourcing stifles training contract growth at City law firms — reductions in London graduate intake at Baker & McKenzie and Allen & Overy following Northern Ireland support office ventures
The denizens of Belfast are doubtless looking forward to the launch of the latest legal services factory in the capital of Northern Ireland following Baker & McKenzie’s announcement this week that its centre will open in the autumn.
But there is a growing view that the move won’t be as much a cause for celebration among law students aiming to bag future training contracts at London’s top firms — with increasing speculation that legal profession structural changes will trigger a significant drop in places. Indeed, in some significant instances this is already happening.
Outsourcing of legal processes began some time ago, with vast centres sprouting in cheaper developing world jurisdictions such as India and the Philippines. Initially, they occupied themselves with low-grade work but increasingly moved into more complicated fields.
But big law firms in England and the US have remained sceptical over quality standards. However, they appear to be resolving those concerns by “near-sourcing”, a horrible bit of jargon that effectively means finding cheaper areas closer to home.
Stateside, that means the big New York, Chicago, Los Angeles and San Francisco practices look to venues in less glamorous states. And for the London firms — it’s good morning Belfast.
But not just Belfast, although magic circle firm Allen & Overy and magic circle wannabe practice Herbert Smith Freehills also recently launched legal services factories in the city. Meanwhile, Ashurst has plumped for Glasgow, a jurisdiction that could soon qualify as outsourcing abroad, while Anglo-US giant Hogan Lovells has set up shop in the UK’s second city, Birmingham, and Berwin Leighton Paisner is scheduled to launch in Manchester.
It could be a coincidence, but the announced plan for Baker & McKenzie’s Belfast operation — which is its second global outsourcing venue after setting up in Manila 14 years ago — coincides, Legal Cheek can reveal, with a 12% drop in the number of training places on offer at the firm’s London office. This year, the firm has taken on 34 trainees in London; next year it will take 30. The fall is out of step with the prevailing mood of recovery, with legal market growth nearing pre-recession levels, according to the Law Society.
A spokesperson for Baker & McKenzie told us:
“Our intake number has varied over the years and is below its peak at the moment. Our entire London office accounts for approximately 9% of the firm, with trainees making up less than 10% of that.”
Likewise, Allen & Overy is shedding 5% of its training places, dropping from 90 to 85 in the 2014-15 graduate recruitment round that commences in October. The firm did not respond to Legal Cheek‘s request for comment about this decline.
The other firms in the near-sourcing game have not jettisoned places, but they’ve not gained either. Herbert Smith stayed steady this year on 70, Hogan Lovells on 60, BLP on 45 and Ashurst on 40.
The numbers may not seem massive, but they counter the general perception that firms are gradually increasing their training places after the global financial crisis-induced meltdown experienced over the previous few years.
And more broadly the outsourcing/near-sourcing phenomenon has potentially profound implications for the traditional construct of business law firms. If the type of work usually allocated to junior lawyers and trainees is shipped out to either near-shore or off-shore venues, what does that mean for the traditional pyramid structure of legal practices?
For example, Baker & McKenzie estimates that within three years it will have between 200 and 250 “professionals” based in Belfast. However, according to a firm spokeswoman, only 70-plus of that figure will be qualified lawyers, with the rest being support staff, and how many of those will be comparatively cheap paralegals is anyone’s guess.
The firm’s London managing partner, Paul Rawlinson, commented on the opening:
“One of the compelling reasons for choosing Belfast was the availability of a high-quality, well-educated workforce, able to support … all of our … regions. We believe we can offer great opportunities to legal and other professionals in Northern Ireland wanting to work on cross-border matters for a truly global firm.”
While Tim Gee, the firm’s head of global M&A added:
“We are planning on building global centres of excellence in Belfast in the areas of due diligence and deal closing, which will be an integral part of our transactional team. Backed by project management specialists, the centres of excellence will provide integrated support to our deal teams around the world. The value for clients will be better risk assessment and more efficient execution.”
All of which could be ominous for law students aspiring to training contracts in the bright lights of London — or anywhere else, for that matter.