That is a good question, I'm pretty sure this does not hurt you but it may have some type affect on the site. I'm sure there is a reason that the no follow option is in place.

It does not hurt your Page rank. Actually it is good for it, because Google sees that you are also linking to related sites. All links are good, I think.

Only bad thing that could happen with outgoing links is that people can leave your page for other info.

It's not an issue of linking - he'll link to me, the issue is about convincing him to stop nofollowing all his outgoing links.

I need proof - he's been told by someone that every link you have gives your pagerank away to the site being linked to. I can't just say that's not how it works - I need to prove it.

Google must have said something about this at some point somewhere... I just can't find it.

There is such a thing as pagerank bleed, and it can happen particularly when the outbound link is lower than the sited linked in.

And no, I do not have legal documentation, just 10 years of online experience.

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yes... i have to agree with the post above... have been doing much research on this lately and he is correct indeed....

Refer to Matt Cutts if you want some authority About Me

Unfortunately, you're not going to be able to find the proof, remember back in late '09 Google said they were going to take PR out of the Webmaster Tools because,

"We've been telling people for a long time that they shouldn't focus on PageRank so much; many site owners seem to think it's the most important metric for them to track, which is simply not true."

That's their stance, that we read to much into PR so they would tell your client to stop worrying about it.

I don't believe them but that's for another thread.

Here's a link to Larry and Sergey's presentation on PageRank and how Google works from 1998 in Brisbane. Go there and download the PDF file.
http://ilpubs.stanford.edu:8090/361/

Basically you will not get any written proof for what you are asking. However if you both have a links pointing to each other, then the links will get diluted and you will not have a sufficient amount of link juice.
Check this out : if it helps

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Your client is right.

page rank may not drop but it will bleed.

I never came across such an official reference. I doubt you can find any.

You cannot ever lose pagerank from a page. A page merely passes juice to another page via a link. If a page is a PR4 and you then link out to 5 sites that will not result in it dropping to a PR3. Basically, if a page has a PR4 and that page links out to 20 other pages, it will divide the available page rank and pass some to each of those 20 pages. If you then add another link so that it is 21 pages, it will dilute the available pagerank slightly between all of them and so on.

Also, bear in mind that every new page automatically gets assigned page rank upon being crawled and indexed. I think the value is between 0.12 and 0.15. That number can then increase as you link to that page from both internal and external pages.

Also, just to point out. When people refer to bleeding pagerank, it doesn't mean losing it exactly, it just means passing pagerank to non imporant pages rather than your 'money' pages, or external pages. It's good to structure a site so that you don't waste lots of your pagerank on areas of your site that doesn't really benefit from it.

Look at this hey... quite a debate going on over something that shouldn't really even be an issue. AndyBlack, I like your explaination, and it's the position I believe to be true.

Google's created quite the monster here with people being afraid to link out to other websites.

There are so many similar problems when you work on someone elses site that I decided to get out of that business.

Good luck.