Managing Legal
Just yesterday the American Bar Association’s ABA Journal posted — under the category “Legal Technology” — an article that described and evaluated some of the latest and most advanced software for the following task performed by attorneys:
“These mobile time-tracking tools make it possible to track your time and enter it contemporaneously, ensuring that you capture — and charge for — all of your billable time.”
You read that correctly: Applications designed to “capture — and charge for — all of your billable time” are an important part of what’s considered “legal technology”.
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My point:
Don’t believe it when you hear that the legal industry has replaced the billable hour with a business model more aligned with business values. The tangible evidence shows otherwise.
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Am I criticizing the American Bar Association? Or the article’s author?
No.
The ABA’s journal has to cover time-tracking applications — and an author concerned with “legal tech” has to write about them — because hourly billing is at the heart of the legal industry’s business model.
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This article’s matter-of-fact reporting on the latest technologies to perform the outmoded — and commercially dysfunctional — task of totaling lawyers’ hours as the basis for their charges is worth noting.
It’s worth noting because there’s talk in serious quarters to the contrary.
For instance:
The Georgetown Law Center / Peer Monitor’s 2017 Report on the State of the Legal Market reported, “the Death of Traditional Billable Hour Pricing” over the decade following the 2008 Great Recession.
The report attempted to qualify that patently inaccurate observation with the acknowledgment that, “the majority of matters at most firms are still billed on an ‘hourly basis’” — with “hourly basis” in quotation marks:
“Plainly, the imposition of budget discipline on law firm matters forces firms to a very different pricing model than the traditional approach of simply recording time and passing the associated “costs” through to the client on a billable-hour basis [italics supplied by me].”
Thus the 2017 Report appeared to argue that a legal bill is not made on an “hourly basis” where there’s been such “imposition of budget discipline” on that legal bill.
This was a tortured denial of the obvious:
1. The same 2017 Report showed in its own reporting on lawyers’ charges to clients that the prevailing approach consists in hourly fees: In each of the 9 charts reporting lawyers’ charges to clients the 2017 Report described attorneys’ charges for their services as “Lawyers Billable time [my own italics]” (ditto for all 11 such charts contained in its 2018 successor report).
2. Both the 2017 Report (Charts 3 and 4) and 2018 Report (Charts 4 and 5) defined “productivity” simply as the total hours billed by lawyers to their clients. Simply “Billable time” — nothing about what might have been accomplished in such time billed: “Productivity is determined by dividing the total number of billable hours recorded by all lawyers in a given category over a particular period by the total number of lawyers in that category [Footnote 5 in the 2017 Report and Footnote 12 in the 2018 Report].”
3. Both the 2017 Report (Charts 1 and 2) and 2018 Report (Charts 1 and 2) defined “demand” for lawyers’ services with references to attorneys as “all timekeepers”.
There’s lots hype about change and innovation in the legal industry. But the focus for the last 50 years has been — and it remains — all about the hours.
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I’ve posted my criticisms of hourly billing in this publication (here, here, and here). I summarize these with a quote from former federal 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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Kudos to the ABA and the author of the above article for their candor: Despite enthusiastic boosterism within the legal industry to the contrary — hourly billing is alive and well. It has not been replaced with anything more reflective of attorneys’ actual value to the business.
That’s not good.
And business owners and executives should be aware of that.