Tired of Practicing Law But Still Want to Work for Your Firm?

Should law firms ever be in businesses other than practicing law?  And does the answer to that turn on legal ethics, or on microeconomics, or both?

The question is no longer academic.  In "All in One Law Firms," the Financial Times reports that:

Robert Glennie, the former chief executive of KLegal - KPMG's now disbanded tied legal network - and a legal business consultant, says: "Lawyers have not been at the forefront of diversification, but it is becoming increasingly common. I think it will be a trend among the more creative firms."

What type of "diversification" are we talking about?  For starters, some firms have begun offering services which are "next door neighbors" to hard-core, traditional legal work.  For example, DLA Piper has created "DLA Upstream" with offices in London, Brussels, and Edinburgh:  A team of 27 professionals who have extended DLA's traditional work in government affairs and lobbying to PR, "reputation management," and "pan-European alliance building."  According to DLA, clients see savvy communication with the media as fitting hand-in-glove with any high-profile piece of litigation or regulatory reform effort, and appreciate one-stop shopping.

Likewise, employment firms have begun to branch out into training—not much of a stretch past lectures plus whitepapers—and in what is arguably even closer to traditional corporate advisory work, Eversheds has compiled and offers an online database aggregating corporate governance and compliance law from across Europe:  An electronic version of your high-priced cross-border securities partner.

Uncontrovertibly farther afield is this plan by a firm with its roots in—where else?—California:

"Orrick Herrington & Sutcliffe, a US firm fast expanding internationally, is planning an outsourcing services company for other law firms.

"As part of its business strategy, the west coast-based firm has based its entire global "back office" functions, such as accounting, finance, technology, payroll and administration, at an operations centre in Wheeling, West Virginia. It is also considering moving much of its fundamental legal research there.

"Ralph Baxter, Orrick's chairman, says the firm has made huge savings by shifting the functions to one central location. But he wants to go further, and is convinced the firm can "commercialise its back office", offering its operations centre as an outsourcing service for other law firms, handling administration, IT and even basic legal research for them."

Have we now gone a bridge too far?   From the ethical perspective, I don't see any transgression in what Orrick is offering other firms —subject to all the usual safeguards and checks against conflicts, breaching confidentiality, maintaining Chinese walls, etc. But I would defer on this point to others more steeped in ethical nuance.

On the microeconomic front, however, I will weigh in.  The strongest argument against what Orrick proposes is that none of those back office functions is a "core competence" of a law firm, so what business do they think they have diving even deeper into that particular pool?  But the contrary view is that Orrick evidently set up the West Virginia operation (this is speculation on my part—I have no actual information on this point from within Orrick or elsewhere) precisely because Baxter & Co. recognized these functions did not need to take place on Fifth Avenue in New York or Market Street in San Francisco, and that a dedicated and unified staff would not only be more efficient but would actually become more adept and productive over time, premised on the reality that they are full-time Back Office Experts, and not partners' secretaries moonlighting with the time and billing system.

Once Orrick built that capability, then, the question becomes is it legitimate to attempt to maximize its value by offering its capacity at some price greater than marginal cost?  The answer to which, microeconomically speaking, is trivial:  Of course.