The Point
On September 19 Ron Friedmann, a highly regarded authority on law practice management processes and technology at Gartner, posed the following question to other legal experts on Twitter:
“If you could magically make stick one change in each of #BigLaw [large law firms] and corporate legal departments to improve them, what would it be and why?”
Alex Hamilton replied:
“Corporate legal department: only buy on fixed fees.
“Big law: the above will fix it“.
This Matters to Your Business
Alex Hamilton founded Radiant Law, a law firm whose focus is helping large companies create, negotiate, and manage their commercial contracts (see profile here). He founded the firm a decade ago after service as a partner of Latham & Watkins (presently the second-highest grossing law firm in the world), where he famously proposed basic innovations to achieve efficiencies at scale using sophisticated, technology-enabled processes. He is world-renowned for his expertise in optimizing a business’s contracts at scale, and is author of a landmark text on the subject.
Hamilton defines “fixed fees”: “You know … the total in advance (or where there may be variable volumes etc you know how it will be calculated based on outputs [results of the legal work performed]”.
Alex Hamilton’s diagnosis of, and prescription for, the corporate Legal function:
1. Diagnosis:
(1) Interests of corporate clients versus those of their law firms are antithetical to each other, due to the prevailing billable hour business model (whatever advantages the one necessarily disadvantages the other); and
(2) Because hourly billing measures only activity of outside lawyers and not the value they create, all law firm work — and the work of in-house counsel hired as more economical substitutes for law firm work — focuses solely on lawyer activity and not at all on value.
2. Prescription:
” … Fixing fees is a great starting point to [1] aligning interests and [2] putting focus onto actually creating value.”
Because …
The billable hour business model distorts the pricing of outside legal help, which also distorts the pricing of in-house counsel hired as less expensive substitutes for law firm attorneys.
Based on three-plus decades on alternating sides of the client / lawyer table, I have concluded that corporate clients’ ongoing acceptance of the billable hour business model is the single biggest impediment to those clients obtaining — and to lawyers in firms and in-house delivering — the full fiduciary potential of the legal profession.
Unless and until corporate leaders use their companies’ purchasing power to advance Alex Hamilton’s proposed “one change”, the corporate legal function won’t achieve much in the way of innovation and its efficiencies.