Incentives Shape Legal Services

March 11, 2023

Perverse Incentives Influence Behavior

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The Point

This week a strategy consultant sought my advice about engaging counsel on the legal implications of a project. I explained that her project was in an area where governing law was relatively straightforward. Though attorneys need to do lots of expensive work to address some situations, this project was not one of them.

I cautioned that too many firms incentivize lawyers into framing business issues so as to insert more complexity, more complication, and more uncertainty than the situation warrants. And then bill accordingly. So she needed to carefully select trustworthy, client-focused counsel.

From my email later that day:

” … In connection with my apologies earlier for possible cynicism about having to carefully manage one’s lawyers, the linked tweet from an attorney and technology expert I admire (Alex Su) illustrates why I am so cautious … The law can be an honorable profession, but clients need to be realistic about the perverse incentives their lawyers are working under.” Continue reading

March 8, 2023

Biglaw Firms Rarely Adopt Automated Deal Platforms Because They Go Against the Legal Profession’s Hourly Billing Incentives

by Joel A. Webber

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The Point

Why don’t law firms use a software-enabled platform to automate transaction processes that attorneys typically carry out themselves? For less cost, with more accuracy, and faster than those attorneys can do manually?

Last month Gartner analyst Ron Friedmann put the question this way:

“Over the last 5-7 years, we’ve seen the rise of deal platforms. Have these helped address this problem? I thought this class of LegalTech would sweep the market because it can reduce coordination. But my sense is it has not. Is this read right? If so, what went wrong?” Continue reading

February 2, 2023

The Power of Incentive: Radiant Law’s Fixed Fees Drive It to Be the Most Efficient Firm in its Specialty

by Joel A. Webber

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The Point

From Radiant Law Founder Alex Hamilton’s brief interview video contained within LexisNexis’ lengthy new report, Calling Time on the Billable Hour:

“When we started Radiant, what was absolutely clear to us was that the incentives were all messed up within law firms … If you’ve worked … like I have as a partner of a big law firm, you know that there is a huge amount of silly activities that are not really adding value and are being charged to the client at huge rates.

” … We knew that we had to fix the incentive problem … no hourly billing. What has that meant for us? It’s meant that we are at risk … We’ve had to figure out how to do deals or write business contracts in a way that we’re not constantly losing.

“Because we know the game, the initial estimate is always blown through in the hourly billing world. If you have to live with a fixed price, and really live with a fixed price, then you’ve got to get better at how you do it.” Continue reading

April 15, 2022

Thomson Reuters’ 2022 Corporate Legal Report Says Over 80% of Billings in the U.S. and Canada Are Still Based on an Hourly Rate

by Joel A. Webber

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The Point

Many in the U.S. legal profession have long touted “pricing innovation”, promising corporate clients savings and cost certainty.

As of 2022 these promises remain largely empty.

Because in the U.S. corporate legal sector the billable hour continues to prevail. By a wide margin. So says the 2022 State of Corporate Law Departments Report issued by Thomson Reuters Institute, provider of information and technology to attorneys. Continue reading