Henderson: Attention Law Schools: Our Cheese Is Being Moved

The Legal Whiteboard:  Lots of Jobs for Law Graduates -- Just Not Grads in the U.S., by WIlliam D. Henderson (Indiana):

This story is fresh off the newswire: "Law firms are no more the preferred destination for fresh law graduates looking for jobs.  With outsourcing catching up even in this industry, legal process outsourcing (LPO) companies are now bagging a large number of graduates."  A law professor opines, “There is a rising trend of students opting for LPOs. The nature of work is changing and these places offer good packages and work culture. ... [P]romotions also come faster in LPOs.”

Wonderful news.  But the story was written for the Hindu Business Line.  The law graduates went to school in India.  Why are the LPOs become more attractive jobs for Indian law grads?  Probably because (a) LPOs are increasingly focusing on process and technology, engineering out the drudgery work, and (b) process and technology are creating a sustainable competitive advantage within a global industry -- and that can support higher salaries.

In the same story, Rohan Dalal, the Managing Director of Mindcrest, a U.S.-based LPO with headquarters in Chicago, pegged the annual growth at 30% per year [remember that number]. ...

The key takeway? Law office jobs peaked in 2004 ... Chart 2 below compares change in total employment from base year 1998 for "Law offices" and  "All other legal services."

The takeaway from Chart 2 is that "All other legal services" is growing very quickly, albeit from a much smaller base.  When Law offices were shedding 26,100 jobs after the 2004 high water mark, the "All other legal services" category was adding 5,700 new employees.  It worth noting that the average 2009 salary in All other legal services are 40% lower than in law firms ($46,800 versus $78,500).

Between 1998 and 2008, the "All other legal services" category grew from 1.0% of the Legal Services Sector in 1998 to 1.9% in 2009, essentially doubling in size. ... If the 30% growth rate is correct, the "All other legal services" sectors could be 3-4% of the U.S. legal service market. ...

If we play 30% growth over a 10-year period, the total employment changes by a factor of 13.8.  So, applying that factor to the 21,600 employment in "All other legal services" in 2009 would equal 300,000 in 2019.  Granted, a large portion of these jobs would not show up because the employment opportunities will be increasingly in places like India.  Further, technology may curtail overall growth of even Indian legal jobs.  But here is the bottom line -- under all scenarios, the number of traditional jobs for U.S. law school graduates will almost certainly stagnant or decline. 

For lawyers and law professors, our cheese is being moved.  Over the last three years, I have given several dozen structural change talks.  Many lawyers tend to view it with skepticism or a desire to just run out the clock.  The law professors tend to treat it as just another academic workshop.  Regrettably, we have conditioned ourselves to believe that all ideas and data we discuss are just that -- academic.  In contrast, just this week, two general counsel of growing and important technology organizations told me -- largely in passing, not to make a point -- that Indian lawyers living in India are a regular part of their global work teams.

The longer we ignore this, the more foolish we will look.  Legal service vendors, again financed by the nonlawyers, are now in the process of taking over larger portions of the global supply chain; and thanks to technology and process, the work is destined to be lucrative.  Within a decade, a nonlawyer will be heralded in The American Lawyer for inventing a legal process.  And many U.S. law schools will shrink in size and eventually close.  Why?  Because what we teach is increasingly disconnected from how law is being bought and managed by clients.  This is what structural change is eventually going to look like.