Managing Legal
Thus began an October 15 article in “Above the Law” — one of the leading news websites directed at lawyers — particularly lawyers employed by law firms as “associates”.
Under the headline “Biglaw Firm Makes It That Much Harder to Get Your Bonus”, here’s the complete text of the first paragraph:
“As we enter the home stretch to make billable hour targets in advance of bonus season, one firm is changing the ground rules on its associates and robbing them of a small but significant chunk of time that they’ve always been able to count toward their 2100 hour minimum.”
Quite appropriately the reporter focuses on what this means for specific interests of the law firm associates who are his readers.
But for a business lawyer concerned with managing a company’s legal affairs, what jumps out is something else. This is a timely reminder of the cockroach-like survival of the billable hour — and of its business model corollary: The pursuit of “associate leverage”.
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So I interrupt my four-part series, “Why Can’t They Say ‘Yes” or ‘No’? Understanding How Lawyers Talk to Business People”. I’ll continue those posts on Monday, October 22.
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For those beguiled by the legal profession’s boosterism about the alleged decline of the billable hour (see here, here, and here) — and about the much-ballyhooed rise of alternative fee arrangements (here and here) — the reality still doesn’t correspond to the hype.
Let’s not kid ourselves. Despite that hype, using “time-consumed” rather than “value-delivered” to price lawyers’ services remains standard.
And because the billable hour remains the standard — proliferation of associate attorneys thrown at legal projects (each with their own meter running) remains the standard too.
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The most concise summary of these two standards comes from a 2009 commencement address at the University of Chicago Law School by the legendary, now recently-retired federal appellate judge, Richard Posner:
“… Hourly billing is cost-plus pricing, which is not businesslike.
“It invites padding, for example in the form of repricing the time of inexperienced new associates.”
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Judge Posner’s phrase, “repricing the time of inexperienced new associates” refers to the practice of hiring lawyers as employees (associates) — i.e., not partners or shareholders who own the firm — and then billing their time to clients by the hour.
The firm hires such associates — for X per year in salary, bonus, and benefits — and then bills out their time to clients for some multiple of X. With the excess going to the partners’ or shareholders’ bottom line.
How can the law firm ensure that they get their desired annual multiple-of-X in billings from those associates? By conditioning their bonuses on an annual quota of hours charged to clients.
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I ran across the above article by reading a tweet yesterday from Patrick Lamb in which he quoted it:
Mr. Lamb’s tweeted comment — especially the bolded text below — is worth considering:
“Article begins “As we enter the home stretch to make billable hour targets in advance of bonus season…” ‘Tis the season for clients to get ripped off by imagined hours and unneeded work. Time to pushback. Explore options.@ElevateNextLaw @ElevateServices #LawCompany”.
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Mr. Lamb, along with Nicole Auerbach, co-founded Valorem Law Group 10 years ago — a prominent and much-admired national commercial and corporate trial practice based in Chicago — which from its founding consistently avoided billing clients by the hour. In fact, Mr. Lamb “wrote the book” (two of them)* on alternative fee arrangements.
And earlier this year Lamb and Auerbach announced that lawyers from Valorem would join a collaboration called ElevateNext and a law company called Elevate Services in a “moonshot” designed to reduce by 50% the $10.5 million legal spend of Univar, a Fortune 500 company.
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The October 15 “Above the Law” article is rightly directed to the distinctive interests of law firm associates. After all — law firm associates among this publication’s readership are the lawyers-thrown-at-projects who make such law firms’ numbers work.
But as to whether or not the billable hour, “associate leverage”, and hours quotas for associates “work” for a business seeking to manage its legal affairs, I agree with Patrick Lamb’s words quoted above:
“Ripped off.”
“Imagined hours.”
“Unneeded work.”
* Alternative Fees for Litigators and Their Clients, American Bar Association Law Practice Division, 2014; Alternative Fee Arrangements: Value Fees and the Changing Legal Market, Ark Publishing, 2010.