Brian Peccarelli, chief operating officer, Customer Segments, Thomson Reuters, recently sat down with David B. Wilkins, faculty director of the Center on the Legal Profession, for a conversation on the growth of the alternative legal services industry.
David Wilkins: This issue of The Practice is all about the rise of so-called alternative legal service providers. I say “so-called” because the lead article is actually titled “Taking the ‘Alternative’ out of Alternative Legal Service Providers,” and it argues that we are really developing a new corporate ecosystem in which it is wrong to think of the players as just being law firms and then everybody else. Instead, it’s a much more complicated environment composed of, yes, law firms but also a host of other service providers that we now, somewhat mistakenly, call alternative legal service providers (ALSPs). Why we’re so excited to talk to you is that Thomson Reuters has been both a driver of and a participant in this change. And you, in particular, have seen this change, not just from the legal side but also similar changes that have come out of the tax, accounting, and audit side.
We are not a professional service firm. Where Pangea3 was going was better aligned with a place like EY, which is a professional service firm.
The first time I realized what a big player Thomson Reuters was going to be in the ALSP space was when you bought Pangea3 in 2010, when Pangea3 was seen as the gold standard in the Indian legal process outsourcing (LPO) game. That made a lot of people sit up and take notice. Then, of course, just recently you sold Pangea3 to Ernest & Young (EY), which is itself now becoming a major player in the ecosystem. Could you talk a bit about why Thomson Reuters decided to spin Pangea3 out to EY and what that says about the market for ALSPs more generally?
Brian Peccarelli: In thinking about this interview, it struck me that this whole space is constantly evolving and is never static. From a Thomson Reuters perspective, the one thing we always try to do is stay close to our customers, and close to the market, to foresee what’s coming. We participate in it, learn from it, and then engage in ways that offer the best value for our clients and align them better in the market. When it comes to the legal managed services business, and Pangea3 specifically, at the time we acquired the company in 2010, it was, as you said, an outstanding business. And we grew it significantly over time. During the time it was part of Thomson Reuters, it had over 1,000 attorneys delivering services from seven global locations on three continents, so it was quite complex. At the same time, we looked at it over the long term and, when we saw what was going on in the marketplace, we determined it didn’t fit strategically with where we wanted to go and where we could add value to our customers the most. We are not a professional service firm. Where Pangea3 was going was better aligned with a place like EY, which is a professional service firm. We are a full-spectrum, technology-enabling organization, and doubling down in those areas to serve our customers was a better fit with our mission.
Wilkins: As I write in the lead story of this issue, people often forget that law firms were the “alternatives” when they first arose in New York City in the early decades of the twentieth century. Over time, they developed a very effective model that was well aligned to their customers—all the big companies that were developing during this era and were facing all the new laws and regulations being promulgated. But now law firms are facing these new players, which are often self-consciously portrayed as alternatives to them. How do you see law firms adapting to this new competitive environment, and what’s the role of an organization like the one that you lead in this adaptation process?
Peccarelli: As you say, time really flies, and the changes keep coming. You are right to point out that it really wasn’t long ago when there wasn’t a true “global” law firm as we see them today. So, evolution in the legal market, including that of law firms, has been ongoing. Today, technological evolution is enabling a lot more choices. For example, it’s enabling remote-work forces so lawyers can now have virtual office–less law firms. It’s also enabling smaller law firms to compete more effectively with larger ones by adapting technology.
At the client level, they have always had a choice in how to handle their legal matters: in-house counsel, outside counsel, projector matter-based engagements, freelance counsel, and a growing list of other ALSPs. Even going back in time, the concept of the general counsel in a corporation wasn’t prevalent. Evolution has always occurred. At the same time, it is now about the choice of who to use and then how to bring the pieces all back together.
Time really flies and the changes keep coming.
At the matter level, it’s not just about who is doing the work but how it’s being done. Do you automate the task? Who owns and manages the resources that are behind the task? Do you use your own staff for the task or tap into outside resources or a combination of both? Is it an opportunity, or is it about staying ahead of competition that’s out there right now?
Some law firms are using ALSPs themselves. Others are investing heavily in technology. Others are setting up their own captive ALSPs. They are all experimenting and figuring out what delivers the most value. At the end of the day, it’s about driving efficiencies and value for the client and figuring out the best way and best combination to deliver that type of service. I believe that will continue to evolve, especially with technology playing such a central role in all of this.
Wilkins: I want to pick up on that last technology point. If we look at the technology sector, we have seen tremendous consolidation over time. Do you see that kind of consolidation happening in the legal market?
Peccarelli: It’s about putting the client at the center of the thinking and doing what’s best to deliver solutions that meet their needs. So, whether you’re the general counsel delivering work internally or a law firm delivering work to a general counsel, it’s about finding the best way to deliver that work. Like we’ve already seen with some ALSPs, there is going to be consolidation and scaling up. We saw that with the development of law firms when they went from solo practitioners to the global law firms they are today.
As you mentioned earlier, if we equate it to what happened in the accounting industry, it was very similar, where routine things become automated but then the high-value work still has to be delivered. If you follow history, it leads to generating scale and generating integration between solutions, integration between technology, and the ability for ALSPs, law firms, and others to find the right combination of tools to deliver the most value.
Wilkins: There is a built-in complexity about doing all of this because lawyers have multiple responsibilities. On the one hand, there’s a drive toward efficiency and profitability and workflow—getting the job done as quickly and easily as possible. At the same time, there are public values, like that rule of law, that lawyers are charged with upholding. To go back to that cross-professional example, we know that in the world of accounting there were a lot of questions asked in the context of Enron and WorldCom about the professional role of accountants and the accounting profession. Is there a cautionary note there for lawyers?
Peccarelli: It’s a fantastic point and one that we should all be mindful of. It gets back to the heart of what’s being delivered. And I’d actually argue that what’s going on in the disaggregation or the unbundling of services is an opportunity for companies to better protect the core values of their organizations. Because the unbundling isn’t just about efficiency. It moves work around that’s routine, nonstrategic, or that the company doesn’t really have the resources or expertise to handle themselves. In a perfect world, this is freeing up the general counsel’s office to focus on high-value work while at the same time providing them with transparency through automation. They can do that with counsel from the law firms that are supporting them and focusing on the same type of high-value work and strategic planning. It allows law firms themselves to focus on how they can add value to the organization and support the overall business goals by looking at them holistically, rather than just looking at the routine tasks.
What’s going on in the disaggregation or the unbundling of services is an opportunity for companies to better protect the core values of their organizations.
Wilkins: I can’t help but ask you in one final question, as somebody who’s spent his life teaching law students, what do you think all this means for legal education and how we can best prepare future lawyers to live in this new world? You won’t be surprised that many of my students are quite anxious about this and what it means for them. I know that you care a lot about young people, and I wondered if you have thoughts about how we ought to be preparing lawyers for the future.
Peccarelli: That’s a great question, and it’s something that resonates across industries. The traditional training after law school and at the beginning of a young lawyer’s career was doing basic legal work. Lawyers went through a progressive process of on-the-job learning. The same was once true for somebody in auditing. It used to be ticking and tying invoices and looking for anomalies. It was tedious work, but through it you learned the craft. Now all of that is automated—it just happens, and it kicks off the anomalies.
The innovation taking place today is changing the process for people to get this type of on-the-job learning. We’ve got to think about how to prepare people with the understanding that they’re not going to go through the same cycles that others did a decade ago or even two decades ago, when they joined the workforce. We need to look at how we bring the practice of the new legal marketplace into law schools and prepare them so that they can enter at a different level. Again, there was a lot of work that they would have gone through to get the feel and practice of law that is instead going to be automated or is being done through ALSPs. I think it’s an incredibly important point, and it’s an area where we should all be working together to find answers.
Brian Peccarelli is the chief operating officer of Thomson Reuters, where he oversees all customer-facing operations.
David B. Wilkins is the Lester Kissel Professor of Law at Harvard Law School, vice dean for Global Initiatives on the Legal Profession, and faculty director of the Center on the Legal Profession.