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Defining the Value of Lawyers’ Work: Where to Get Reliable Numbers for Sound Management Choices (Part 1 of 3)

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“What gets measured gets managed.”
This proverb, widely attributed to Peter Drucker, presents a tough question in the context of a company’s legal budget:Measure what, exactly?The cost-plus pricing method of the legal profession’s business model — charging the client company according to hours billed — offers the following answer:You should measure the number of hours that the attorneys decided to take in doing a particular job.This total — according to the view prevailing in 2019 — will tell you what a lawyer’s work product is worth to the client company.
Which calls to mind another proverb, offered by Seth Godin earlier this week, in a different context:“… Measuring the wrong thing is worse than measuring nothing at all.”According to the measure given to client companies by most lawyers — and accepted by the majority of such client companies — a contract that took 20 hours to complete is worth twice as much as one that took 10 hours.

Most business leaders — accepting this time-the-attorney-chose-to-expend measure — manage their legal spending accordingly.

…

Which brings to mind the experience of Patrick Lamb, who, along with Nicole Auerbach, founded Valorem Law Group (ElevateNext) — one of a tiny few elite law firms who never bill by the hour — in a June 20, 2018 presentation:

“I remember sitting at my first large trial where we [represented] a plaintiff in a case against probably an AmLaw20 firm [the nation’s 20 largest law firms by gross revenues] at the time, and we got a great verdict.

“And I remember sitting there thinking: ‘We’re going to get paid less than these guys are for getting a much better result’.”

The losing law firm had billed hours for more attorneys and perhaps at higher rates. But — because hours billed defined each law firm’s value to their respective client — the losing firm got paid more than the winning law firm.

Patrick Lamb: “It bothered me from that moment forward”.

So in founding their own firm a decade ago, Lamb and Nicole Auerbach “focused on client outcomes” — to use their phrasing — rather than on sheer bodies and hours thrown at a case or transaction.

…

“Client outcomes”.

Sounds like a common sense measure of value. Certainly better than the arbitrary “how-long-did-my-attorney-decide-it-should-take?”.

So how can you measure lawyers’ work in terms of client outcomes? In Seth Godin’s terms, how can you avoid “measuring the wrong thing”?

…

Client outcomes measures — “right thing” metrics — have been offered as alternatives to the legal profession’s prevailing billable hour under two main headings:

1. “Data-driven”, and    

2. A price agreed in advance.

Neither is self-evident. Each is conceptually messy.

And after wrestling with both one understands why most lawyers — and (something that always surprises me) many if not most company clients — default to hourly totals.

To something that’s easily knowable once the bill is sent and received.

Though notoriously uncertain until sent and received.

And not very instructive of value for making management decisions about the legal budget.

…

In Part 2 I turn to recent discussion among innovative lawyers relating to “data-driven” valuation of the work lawyers do, and, in Part 3, to the use of a price agreed in advance between lawyer and client.

 

Part 2

Part 3

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