Professor Bainbridge...on law, politics, religion, culture & food

We should care because in order for the average associate to work more hours the clients are going to get hosed. I really doubt the rainmakers can develop that much more work on short notice.

I’m not so skeptical of Stracher’s arguments.  For one thing, while clients (especially big ones) may be sophisticated about many things, the inner workings of their outside law firm can be a black box to many of them.  Also, they may see the need for use of outside firms as a necessary evil that they’d prefer not to use, but have to use because everyone else is (kind of like pro athletes who would prefer not to use steroids, but feel the need to do so because they think everyone else is).  Plus, one of the things a client buys with their legal fees is the ability to pass the buck to the law firm (but the lawyers told us this was all fine!) if things go bad, which is something they can’t do as well with in-house counsel and is something many clients, consciously or not, may consider to be worth a premium.

There is an agency problem with the General Counsel of the corporate clients of these firms. In routine matters, their incentive is to bring them in house or to find other ways to save money. It increases their empires and gives them something positive to report (everything else they report is bad news). With non-routine work, their incentive is to cya. Take-overs, big law suits, if everything goes smoothly, it will be expensive and no will care that it went smoothly. If there is a problem, the GC will blame the outside lawyers, but it must be a top firm, otherwise the GC will get fired for trying to save a nickel at the wrong time.

I think a lot of big firm associates would be happy to take 75% of the pay in return for 75% of the billing requirement, but they won’t.  Suggest something like that and you’re immediately off the partnership track, if not out the door completely.  In a way it’s absurd, since it means major law firms don’t get the best lawyers, they only get (most of) the best lawyers from among that subset of lawyers willing to have no personal or family life.  Then again, lawyers generally make the worst managers, and this is just another reason why.

James Stewart wrote the infamous book “The Partners: Inside America’s Most Powerful Law Firms” where he wrote about associates billing 24 hours in a single day.  Another type A lawyer was not to be outdone and billed 27 hours in a single day when he flew from the East coast to the West coast. 

If I was a client and saw that, I would have to raise the B.S. flag.  How does one bill 24 hours in a day?!  Did the associate wear a diaper and a feeding tube?

What is the point of this post?  That billable hours are dumb.  It’s bad for the client, it’s bad for the associate, and it’s bad for society.  The only people it helps are the partners.  Billable hours is just a form of of a pyramid scheme, where the masses of associates make the money and pass it up the pyramid.

We do not have a big firm. We do not seek to be a big firm. We do seek however to have big clients with important matters.

The give back is on the wrong side of the equation. In our firm Partners do not draw more than 6 times the amount of the lowest paid associate. Billed time is kept to a makeable 1500 hours a year. Weekend work is only required by the needs of the case or client not on profitability.

Before there are raises, hours are assessed. If we are not working to capacity then we add work and profit goes up. If we have no room for one more thing without requiring a 33+ hour billable week, then we hire another attorney or lump out some work to an “Of Counsel”. Every 5-6 years we hope to give our lawyers a 4-6 month sabatical (on a rotating basis).
Vacations are 2-4 weeks long and we try to have a “late in-early out” policy on Mondays and Fridays in July and early August.

Results? Average hourly fee is $250 per hour. Profits are very strong, job satisfaction is high and client satisfaction is at an all time high. Legal staff earns about 50% what big firm lawyer earns. I earn about 25%-33% of a partner.
We work an average 50 hour week and spend time with family and in bar activities. I have not missed a concert or a ball game in years.

America’s lawyers are bringing the hard times onto themselves. If you want to have a life you have to trade off. Given the cost of training and replacing attorneys, big firms should encourage a culture that includes a life for it’s employees.

As for Corporate America, too many are missing the boat. The value in American Law is in the small and medium sized law firms. There is a tremendous amount of experience and knowledge there looking for an opportunity to work for quality clients.

Part of this is being driven by the clients accepting being billed on a per hour basis, rather than insisting on being billed on a results basis or a per case basis.

I know of no other major industry where billing is accepted on a per hour basis. Law firms are getting paid primarily for activity and secondly for results, which leads to work practices designed to maximise the hours worked by the lawyers.

I worked for a large insurance company. When we billed on a per hour basis our lawyers would give each case the Rolls Royce treatment. When we started spending $30,000 in legal fees on a claim that cost $5,000 to pay an a regular basis we questioned whether the lawyers focus was the same as ours. When we changed to paying fees on a per claim basis the lawyers behaviour changed. Claims that could be resolved easily and quickly were, but the ones that were disputed were still contested appropriately.

We had feedback from the lawyers who were allocated our work and they were very happy because the focus was “cut to the chase” and they were actually able to increase their profitability to the firm whilst reducing the number of hours they worked a week.

I too was a NY associate who (more or less) found a way out of the rat race. Although a small percentage (10%? 20%?) of associates do in fact want partnership and are willing to put in the hours for it, many of us had no real option for the first few years because of law school debt. If firms raise billable requirements, we just had to work them, or try to switch firms often enough to get the debt paid off. Then, once the debt was paid off (by working long hours, no doubt shortening life expectancy in the process), so long big firm!

Other than the increases in billable requirements, I don’t think much has really changed since I was in law school in the early 90s—sure, associate pay is higher, but so are the costs of law school. The unfortunate aspect of this dynamic is that, at least when I attended law school, I had no idea that I’d be stuck working for a big firm. I can’t fairly blame anyone in particular for not telling me, though.

Law firms like Skadden do not offer highly commoditized services. I think they are participants in an oligopoly (or, more accurately, multiple oligopolies in different areas of law). As such, if all firms in that oligopoly raise prices, clients have little option but to pay them.

Look, Clients are to blame because most would rather pay for hours worked than the unknown result achieved. Most clients cannot give the value of the success they seek.(Not all, many such as insurance companies can quantify their success)Hence most do not want to pay for that success. Moreover a lot of clients want the law firm to take the chance on their risk.

For example client comes in with a trade secret/no compete clause claim. I have asked if we win the claim and put the new guys out of business, what is that worth to you?

They have no idea. They don’t know how bad they might get hurt by the new team. If we are able to agree on a figure of value, we then have to negotiate what happens if we are only partially successful.
No matter what happens about midway through the case, they have decided that they are not as bad off as they first feared. Now the deal is a bad deal and we are the bad guys.

On the other hand. Assume they made a bad deal to begin with. You tell them they have little or no chance but that maybe you can win an injunction that will give them the chance to get their product to market ahead of team 2 and so they will get a competitive edge. You work really hard get a window of opportunity, they can’t get there in time and blow the opp. You are now not getting paid because you didn’t get them enough time. *remember they were entitled to no time.

The hourly rate works best because it is easier to understand. You get paid for the time you work. BTW doctors are in fact paid that way as are many other businesses. (hourly labor costs, T & M ring a bell?)

Many Criminal lawyers would love to work on a contingency basis (how much is a year of your life worth?) but are forbidden by rule or statute. Same goes for result oriented billing.

The only thing that may bring some value to the billing is getting an agreement that certain mundane costs will be fixed. Contract review, real estate closings, sealing records request. A premium for fast work can be set so clients can pay for time advantage, but especially in litigation, the hourly rate protects the client and the attorney best.