Pennsylvania Firms Not Looking To Move Back-Office Locations
Originally Published Feb. 12, 2013
Editor's note: This is the first in a series of articles examining how law firms are thinking smaller when it comes to the space they need, the costs they pay for labor and the nonlegal services they handle.
From Wheeling to Lexington and Dayton to Tallahassee, U.S. law firms have increasingly looked to move back-office operations to less expensive geographic markets in an effort to save on rent and employee compensation.
And in an era when demand for legal services is stagnant and cost-cutting measures are increasingly difficult to find, consultants are pointing to significant operational and structural changes as the only way firms will realize any substantial cost savings and, in turn, protect profits.
While law firms can probably do more in the way of cutting attorneys or staff than they think they can, law firm consultant Paula Alvary of Newton, Mass.-based Hoffman Alvary said many firms are close to the point where big net gains will have to come through major structural changes. One such example is moving back-office operations to a lower-cost market, she said.
A recent joint report by Citi Private Bank and Hildebrandt Consulting echoed similar sentiments.
"Without more transformative changes in law firm structure, it is our view that these efforts to control expenses can only be taken so far, and in fact, after a two-year dip in the immediate aftermath of the recession, we saw a significant uptick in expenses in 2011 and 2012," the report said.
According to a survey by Citi and Hildebrandt, 34 percent of respondents said they had moved their back-office support functions to cheaper locations. Of the 66 percent who had not, only 5 percent planned to do so in the next year.
Since Orrick Herrington & Sutcliffe famously moved its back-office operations to Wheeling, W.Va., more than a decade ago, the trend has gained some steam. Since 2011, Pillsbury Winthrop Shaw Pittman moved its back-office operations to Nashville, Tenn., Bingham McCutchen went to Lexington, Ky., U.K. firm Allen & Overy moved U.S. and U.K. staff to a new location in Belfast, Ireland, and just recently Kaye Scholer said it was moving operations to Tallahassee, Fla.
But is the concept of moving back-office operations to somewhere like West Virginia, Ohio or even India a realistic possibility for Pennsylvania firms? Most in the state say no. Cheaper space in the same city, however, is on the table.
"I do not believe that you will see most of the Philadelphia firms looking to move their back-office administration to a lower-cost city because I think Philadelphia ... is close enough that it's not worth the expense and the administrative obstacles to do that," Cozen O'Connor Chief Executive Officer Michael Heller said.