#FDI in #IndianLegalServices - What's in it for Who?

Why is it that I am writing on this topic for the first time in my more than two decades-long career in the legal profession? May be it is because, though I have been hearing of the "impending reforms" in the Indian legal services sector ever since the Indian economy was liberalized in the early '90s, this is the first time where it actually appears "round the corner" to me. Over these years, I have watched/listened quietly from the sidelines, sometimes with seriousness but most times with amusement or horror, as the discussions on this issue tended to veer from one extreme position to the other, seemingly not acknowledging the need to have reasoned and calm debate to achieve a fair outcome.

My attempt here is to slice and dice the issue from the point of view of what's in it for each of the various stakeholder groups with respect to liberalization of legal services ("Liberalization"), with a view to facilitating a rational and informed (and respectful) debate on this issue which is important to all Indians (and not just to Indian lawyers!). Before I dive into the said slice and dice, however, I want to make the fundamental point that in my view, the issue of Liberalization is NOT as binary as it is made out to be. For example, Liberalization NEED NOT mean only existential threats and challenges for the existing Indian law firm owners, nor need it mean a plethora of amazing opportunities for a whole generation of young Indian lawyers. One of the key points I am seeking to make through this piece is that ALL the stakeholders need to view this issue in a fair manner to arrive at an optimal solution - my experience tells me that history is as replete with instances of failed liberalization models as it is of failed protectionist models! With that, I'll dive right into my what's-in-it-for-who.

What's in it for: CLIENTS

I firmly believe that the client/customer is the most important stakeholder in any business, and I equally firmly believe that this should be no different for the legal services sector, notwithstanding our exalted status of being a "Noble Profession". Without our clients, we have no reason to exist! From the point of view of the clients, Liberalisation could hugely benefit them in the following ways:

• Several Indian companies have grown exponentially into huge MNCs, and their legal needs have undoubtedly become much more complex over the past decade or so. Many of them have vocally expressed the view that they would like to have more choice in the matter of using legal counsel for their more complex matters. Of course, Indian law firms have also responded to this growth in their clientele by upping their own game in a big way, but they have been severely constrained in their ability to grow on account of archaic and illogical Indian regulations relating to the legal profession - e.g., a law firm can't even get a business growth loan very easily on account of rules that prevent us from corporatizing and because we are not recognized as an eligible industry for debt funding by banks!
• By being able to engage global law firms even in India, clients would get the benefits of increased competition in the Indian market, while also being able to get the benefit of global best practices for more of their work.

But the Liberalization path is not necessarily strewn with roses for the Indian clients as a whole. There are also some threats that the entry of foreign law firms could pose to them:

• All Indian clients are not juggernauts with huge budgets. Most of the SME-type clients who nonetheless have a high degree of ambition could find themselves placed in a position whereby they would be forced to spend higher on legal fees as a whole on account of the general upward price pressures on fees caused by liberalization. I am aware that many analysts predict that there will actually be downward pricing pressures as Indian law firms will respond to the entry of foreign law firms by offering cut-throat discounts to keep their clients in the fold - I am not a believer in this possibility. I believe that the foreign law firms who do enter India would be battle-scarred veterans from the UK and the US who have figured out all too well by now that discounts don't buy loyalty in India, they just buy you one more deal for the league tables!
• Some of the clients as stated above may react to the upward pressures on pricing by investing heavily in beefing up their in-house legal departments, thereby making in-house departments the biggest threat to law firms, Indian or foreign.

What's in it for: INDIAN CORPORATE LAWYERS & LAW STUDENTS

The army of talented lawyers who currently work at Indian law firms, and the hordes of young law students who graduate from law schools around the country every year, collectively form the LARGEST (by sheer number) group of stakeholders in the Liberalization, and I will collectively refer to them here as "Indian Legal Talent". I am very glad to note that Indian Legal Talent has already seen tremendous and sustained increases in compensation over the past decade in particular - I started my legal career in the mid-nineties with a Mumbai-based law firm for a then princely monthly pay of Rs. 9000/-, while firms like #Lexygen today pay more than Rs. 1 lakh a month for a first year associate! Liberalization has the potential to make this even better for Indian Legal Talent in the following ways:

• Liberalization would create a new top echelon of super well-paid Indian lawyers in the form of jobs offered by the entering foreign law firms. However, I would seek to HUGELY temper the expectations of Indian Legal Talent with respect to any such dream job offers - they will surely be very few such dream jobs on offer at the fresher level, which would be a speck on the canvas. At the mid-level to senior-level, there is likely to be much more impact, as several entering foreign law firms seek to rapidly ramp up their on-the-ground execution capability by hiring possibly entire teams from the Indian law firms.
• It could also be reasonably expected that the advent of the foreign law firms could see associates and partners of Indian law firms being given some good pay hikes in a bid to retain them.
• The biggest beneficial disruptor that Liberalization can potentially bring to Indian Legal Talent is the fantastic opportunity to work on more global deals and under more structured and process-driven formats.

As attractive as all the above may sound, Liberalization is not necessarily a bed of roses even for Indian Legal Talent! Here's why:

• I have seen worrying examples in markets like Singapore, wherein there is initially a gold rush of poaching of top local law talent across segments from the local law firms by the entering foreign law firms based on certain projected level of business, and after a couple or more of years, when the business doesn't sustain (or even ever REACH!) projected levels, the same local talent is let go in hordes! I worry that Indian Legal Talent could be potentially the victims of such "use-and-throw" approaches by some or many foreign law firms, especially if they don't base their hiring decisions on realistic India business models.
• In the event that there is a sudden trend of Indian Legal Talent being let go by foreign law firms as aforesaid, they may find it very difficult to get hired back into the Indian law firms at anything close to the compensation levels that they may have become accustomed to. I see this as a huge sociological risk for Indian Legal talent.

What's in it for: INDIAN LAW FIRM EQUITY OWNERS

Needless to say, the owners or controlling partners of Indian law firms ("Owners") are a very important stakeholder group who would be majorly affected by Liberalization. To be fair to this often much-villainized group of stakeholders, it HAS to be acknowledged that they have played a tremendously important role in the growth of the Indian legal services sector over the past 25 years. Most of them have also earned tremendous monetary and reputational rewards through their involvement in the Indian legal profession, but one has to acknowledge the stellar role that they have played in grooming and catering to the professional aspirations of an entire generation of Indian Talent.

Here's how the Owners can BENEFIT (yes, you read that right!) from liberalization:

• First and foremost, if Owners take a constructive view of liberalization of legal services, they can use this politically charged development to seek meaningful and important changes to the way the Indian legal profession is presently regulated - i.e., in an ARCHAIC and ILLOGICAL manner - and seek a sweeping reform of the entire sector. Instead of taking a tone of "conditional support to liberalization, with numerous restrictions and caveats to be imposed on foreign law firms", I would strongly support the Owners asking for POSITIVE reform that EMPOWERS the Indian law firm entrepreneur community rather than an approach that seeks to restrict foreign law firms. To me, this is the biggest opportunity staring at Indian law firm entrepreneurs, and we simply should not squander it.
• Again, the Owners largely fall into two camps - one of these camps openly welcomes Liberalization because they see opportunities to formally partner with incoming foreign law firms. It is an open secret that the Indian market has its share of "best friends relationships" with foreign firms, and clearly, Liberalization would afford some of the Owners a chance to "come out of the closet" and hold hands openly with their foreign partners.
• The Owners could also benefit from better exposure to use of technology, organizational structures, project management practices, marketing methodologies and so on that the foreign law firms would bring into the country. This would help Indian law firms grow in a rational and qualitative fashion.

The risks to the Owners is an easy one to list, as they have been listed and discussed very publicly for the past 25 years! Here goes:

• DELUGE of poaching of top talent, often in droves. This is a REAL RISK for most Owners. This is NOT going to be an easy one to deal with, and all Owners need to come up with sensible and sound strategies to deal with this risk effectively. There IS going to be a period of bleed and burn, while Indian law firms figure this one out. And it will NOT be easy.
• A huge reveue stream - referrals from foreign law firms - could just dry up, almost overnight. Again, this is a VERY REAL RISK that Owners just have to deal with through sound strategy and execution. Some Owners will deal with this risk by forging formal, exclusive partnerships with entering foreign law firms, while others will choose the independent path and try to gradually reduce their reliance on foreign law firm referrals.
• Some of the Owners who choose the formal partnership path could face some client retention challenges, as some of their Indian and foreign clients may have strong global relationship with a different foreign law firm from the one that the Owners have partnered with. There could also be conflicts of interest - imagine if the Indian law firm acted for Pepsi and the foreign law firm it partnered with acted for Coke!

What's in it for: INDIAN GOVERNMENT

Yes, the Indian Government could benefit too! Here's how:

• Many of these foreign law firms are huge businesses with global revenues in billions of dollars. If some of these "Big Law" firms set up shop in India, the Indian tax authorities could earn substantial taxes from the Indian operations of such foreign law firms.
• India would finally be seen globally as a country that plays ball on its commitments to free trade and services!

Downsides to the Indian Government? Just one major one that I can think of.

• If the Government implementation in an ill-thought-through or knee-jerk fashion, driven by populism or other extraneous considerations, without giving appropriate thought to how it should be implemented, the Government will very soon have on its hands a ticking time bomb of unmanageable dimensions. In the "best case adverse scenario", the Government could be left red-faced because very few foreign law firms show interest in setting up operations in India. In the worst case scenario, we could be staring at a post-gold-rush kind of scenario wherein hundreds or even thousands of talented young lawyers are left in the lurch after being shown the lure of the lucre by foreign law firms!

I know this has turned out to be a long article, but the issue is not one in which I could write a 280 character post, so thanks to all of you for your patience and attention! As I said, this is an issue that affects India as a whole, and not just the legal profession, so it is important for non-lawyers to be aware of as well.