The BigLaw Con Game
First, a little history. In the beginning, lawyers used a form of value billing to price their services. The lawyer would be given an assignment, he would complete the task(s) and provide a bill “For Services Rendered,” which included a price for all of the work. He arrived at this price by doing some type of calculus in his head, using variables such as time spent, difficulty, the ability of the client to pay, how much the lawyer needed to pay his own bills, and importantly, the ultimate success of his work and its value to the client. While quaint, the system worked because the client was only expected to pay a fair amount – with the value delivered to the client being a key determinant in the final price. Did I say quaint? Back in the good old days, it wasn’t unheard of for a lawyer to accept chickens or a quarter of beef as payment for their services. This system worked quite well for individuals and small businesses, but not so well for larger corporations. It’s hard to imagine IBM delivering a herd of cattle to their firm for successfully defending a patent troll litigation suit.
So, beginning in the 1950′s, and as a result of business clients demanding more pricing predictability, lawyers began switching to the billable hour model. What could be more predictable than time x hourly rate = cost? Only one, tiny, little problem. Ask any honest lawyer, or all the rest after a shot of truth serum, and they will tell you that the billable hour system leads to a direct conflict of interest between the attorney and the client, because it invariably rewards inefficiency. This is because self-interest and human nature generally trump the wonderfully romantic concept of fiduciary duty. Adding more time to the equation, equals higher cost, equals higher attorney profits. Adding more time at ever-higher rates equals higher PPP – the holy grail to BigLaw partners. Pure greed motivated BigLaw to build their “leveraged pyramids” in only a couple of decades, whereas it took the Egyptians centuries to build the Great Pyramids using non-billable slave labor.
The key to the BigLaw leveraged pyramid is that their slave labor – billable timekeepers – generate vast amounts of revenue. Who do you think actually benefits from having $200 – $800 per hour associates doing hundreds or thousands of hours of commoditized and/or basic work? You, the trusting client, or more likely, FatCat equity partner? Exactly what incentive do you think FatCat has to hand that work off to an efficient LPO who bills at a fraction of that cost? Zilch. Zero. Nada. Under the billable hour model, clients certainly got their “cost certainty,” but at the expense of grossly overpaying for almost all of their legal needs and services.
But certainly, the Great Recession of 2008 has changed things, right? Depends upon how you define change, I guess. Old habits die hard. BigLaw has become so reliant on milking the fat cow of the billable hour, that it just can’t help itself in these times of massive change in the legal industry. Whereas a bevy of new legal providers have emerged from the rubble that are offering real value, and gasp, upfront fixed pricing, BigLaw continues to ignore making any client-friendly changes. Case in point – the latest BigLaw layoff news. Weil, Gotshal & Manges, one of the U.S.’s most prestigious and profitable law firms, just laid off 170 employees – 60 associates and 110 staff, including 60 legal secretaries. I can hear GullibleClient now: ”Hhhhrrrmmpphhh, I’m sure they did that to lower overhead so they can be more efficient and deliver us more value, right?” Uhhhhh, wrong. While they did lower their overhead, they didn’t do it to save you any money, but rather to keep their FatCat PPP numbers from falling. ”Yeah, but all those legal secretaries were inefficient!” Actually, legal secretaries are a client’s best friend, as they do very valuable work and don’t bill a penny. Their services are supposed to be included in the partner and associates’ hourly rates. As a client, you want legal secretaries because they save clients money, by doing work that billing timekeepers shouldn’t be doing. Guess who will be doing that work now that those secretaries are on the dole? Yep, BigLaw paralegals, associates (at least those who aren’t in the unemployment line next to the canned secretaries), and partners (who are experts at single-finger-pecking away at their computers), who will all now now be doing all that secretarial work, and billing you, the client, at their ridiculously high rates. Abracadabra, wave the layoff wand, and poof, more billables out of thin air. Just one more grift in a long line of BigLaw con games. Win-Lose, what BigLaw does best!
Here’s a little test I’d like General Motors and American Airlines, or any other of Weil’s clients, to undertake. Now that Weil, according to its executive partner, Barry M. Wolf, has taken “actions [that] are essential now to enable our firm to continue to excel,” why don’t you take a close look at your next set of bills to see if you can find any actual savings to you. I’d be willing to bet that you will actually find the opposite, that your bills will show an increase from Weil’s sleight of hand. I’ve got a couple of lobsters and a cold six-pack of Corona that says I’m right. After all, Weil doesn’t care about you at all, but rather to “maintain its historic profitability in the new normal.” Sounds like the same ol’ BigLaw shell game to me.