Wow! Today will go down as a momentous day in the history of jurisprudence. Besides my guest post “How to Win Clients and Influence Your Bottom Line” being featured over at MyCase, a couple of “minor” decisions on equality and marriage were handed down by the U.S. Supreme Court. So, once you’ve had time to digest the repercussions and fall out from my guest post, I hope you will give a couple minutes of your time to peruse those new SCOTUS rulings.
Clients, have you looked in the mirror lately? It’s not a pretty sight. Fifty years of constant billable hour abuse have understandably left you unable to stand up for yourself. I know you’ve tried your best. Given the circumstances, asking for meager discounts does seem like progress. They make you feel better for awhile, but has anything really changed? If you’re honest with yourself, you know the answer to that. Tired “solutions” like generic fixed fees, capped fees and blended fees are really nothing more than the billable hour in drag.
But here you are, looking for help, which is a huge, positive step in the right direction. I applaud you for your courage. It’s not easy being bullied. Before we can move forward, however, we must first identify the key dynamic behind the cycle of abuse.
The Root of the Problem:
Time x Rate = Cost
It really looks too innocuous to be the cause to all of your problems, right? It’s also so confusing. As a client, haven’t you always craved predicability and certainty? Nothing could be more simple than to have your lawyers bill you for the amount of time it takes to complete any given task. But, you’re missing the 800 pound gorilla sitting right on the beginning of the equation. The “time” factor, as practiced by your lawyers for the last 50 years, has had no real limits placed on it. They’ve been given a license to do wrong.
How did this happen? Because you meekly turn away when they look you straight in the eye and give you the same old tired excuse that has caused you so much needless pain and suffering throughout the years:
Legal matters are simply too unpredictable to accurately plan and budget.
There is no arguing that this is what your attorneys need you to believe. If you buy into this one assumption – they get a free ride – the bank vault door is left wide open. As I discussed in Part II, if they are freed from any rational budgeting constraints, and can instead bill with brazen impunity to meet or exceed their minimum billable hour quotas.
The whole house of cards rests on this assumption. If they’re right, it looks like you’ll just have to grin and bear more of the same. But, what if they’re wrong? What if you’ve been bamboozled all these years? Then, my friends, you’ve got a chance to kick this bad habit. And it’s about time you get some good news. The bastards are wrong. One hundred percent, unequivocally, categorically, full-of-malarkey, incorrect.
Now I realize that this will be a shock to your system. Even though you’ve known in your gut that your lawyers weren’t perfect, you trusted them. In the past, even when you might have suspected that they didn’t have your best interest’s at heart – and you even reached out for help – none could be found.
I can’t change the past, but I can lead you out of the darkness, into a place where fairness and common sense reign. Listed below are real, concrete steps that you can take today that will allow you to leave the billable hour behind altogether, or at a minimum, defang the surly beast.
Option 1 – New Litigation Matter:
You’ve just been sued. Your old firm can’t give you a budget and only provides a non-binding estimate or range that is invariably low. In the past you had no choice but to take it on the chin.
New solution: Pick up the phone and call Valorem Law. They will break your matter down into comprehensible stages and give you a fixed price for each necessary and/or foreseeable phase. They will further discuss other value pricing strategies like holdbacks and success bonuses, each designed to incentivize the firm while aligning the interests of the firm and client. Win-Win. Don’t like Pat, because he went to the University of Michigan, then try Conduit Law, or Cognition LLP, or Miller Titerle. Just do it. All will easily crush your tired, good ol’ boy firm. In fact, they regularly beat your AmLaw 100 firms. Oh, and did I mention that some of them guarantee their work? If you aren’t completely satisfied, you can choose to not pay some, or all, of their fees. I think you’ll like being treated so well once you get a taste of it.
Option 2 – The “Bet the Company” Case:
So, you know you’ve been mistreated, but you’re not quite ready to throw your abuser to the curb. These cases, however, are the most dangerous to your bottom-line, especially when no budget is in place. Welcome to 7 and 8 figure legal fees and unsolicited discussions of potential bankruptcy. The costs of discovery alone in these cases can make the devastation left behind after a clash between Godzilla and King Kong look like child’s play. Godzilla is no match for a team of first-year BigLaw associates grinding out endless 10 hour days at up to $800 per hour on document review. Hello, welcome to $2 million a month legal bills. Those bills will leave a mark on even the biggest clients.
Solution 1: Bring in Novus Law to handle the document production and related discovery. Your current firm will throw a tantrum like an irritable 2-year old, but so be it. It’s your case and your money. You’d be better off using Novus in conjunction with Valorem, but you’re still moving in the right direction. Why Novus? Because they will give you a fixed price per document that will be at least half the price of what your stodgy old firm can do it for. And they will do a far better job of it, too. Need proof? Here is what Bruce MacEwen of Adam Smith, Esq., and a key consultant to Big Law, had to say on this issue:
The founder and head of one of these firms, which is in the business of applying Six Sigma processes to document review, and which has demonstrated consistently and convincingly that their quality is immensely superior to that produced by BigLaw associates working on the same document sets, remarked fairly casually to me not long ago that “for every dollar of revenue we gain, BigLaw loses three.”
Solution 2: Legal Project Management (LPM). Bring in Elevate Services or ERM Legal Solutions to professionally scope and budget your case, and equally importantly, to monitor and ensure that the scope and budget are being met. For a relatively small upfront fee, they will easily deliver a massive ROI. And don’t tell me you don’t have the budget for this. You’re about to hand over a blank check to your abuser, yet you can’t afford to pay a fair fee to the nice guy who will treat you like you’ve never been treated before?
Option 3 – Assess the Situation Before Acting:
Okay, you know you need and want change, but the problem seems so big and confusing that you don’t know where to start. Money is tight. You need more information to better understand the scope of your problem with the billable hour. Baby steps are better than no steps. I’d recommend looking into a data analytics and benchmarking company like Sky Analytics or TyMetrix. I’ve seen Sky Analytic’s legal spend data and it shines a very bright light on the dirty little secrets of all those “venerable” AmLaw 100 firms. Armed with this objective and conclusive evidence of abuse, you will now be motivated to leave the billable hour behind for good.
Just Take Some Type of Action:
Any or all of the options listed above will lead you to a much better place than where you currently are. It’s just hard to see when you are in the cycle of abuse. Most of them can be implemented today for less than you would pay one of your BigLaw partners for one single day of their time. Yet I keep hearing of resistance. The only thing that can explain that resistance is the perverse psychology of the battered client syndrome. It’s all you know. You are unable to blame your abuser and irrationally see their methods as omniscient. This series has been an attempt to show you that there are currently far better alternatives that exist in the real world. The key to breaking the cycle is to take that first real step. Help is out there. You can do it.
*Disclaimer Alert: The only “compensation” I receive from these 21st century firms and companies is straight answers to my questions that demonstrate that they “get it.”
Part II – The Billable Hour is Dead to Me (And Why it Should Be Dead to You, Too)
Part Ia – The Billable Hour is Dead to Me
Part I – The Billable Hour is Dead
Time for some straight talk. Big Client, you might want to sit down. Your trusted fiduciaries, i.e., BigLaw (pick your favorite, they are all equally guilty), have been stealing from you, for as long as both you, or they, can remember. Not just squeezing you for a few extra ducats, but backing-the-armored-truck-up-to-your-bank-vault-and-cleaning-you-out kind of highway robbery. Who says, thieves don’t prosper? These fat cats are living the high life, all because you’ve given them the ultimate hall pass. You should be ashamed of yourselves. I would have a hard time looking at myself in the mirror every morning.
What’s at the bottom of this gigantic pull-the-wool-over-your-eyes Big Swindle? It really all just boils down to one single little white lie, told over and over, by just about every lawyer to every client, over the last 50 years:
Legal matters are simply too unpredictable to accurately plan and budget. Because of this we have no choice but to bill you by the hour.
Really? We can send a man to the moon, but we can’t figure out how to scope and price a lawsuit? Law is somehow more complex than rocket science?
We can build the Eiffel Tower in less than two-and-a-half years, which had 18,038 different parts joined by 2.5 million rivets, using only 300 people on site. Must have been too hard to plan for, right? Uh, no, there was plenty of pre-planning – 1,700 general drawings and 3,629 detailed drawings – all requiring each rivet hole to be specified within 0.1 millimeters. You give the Eiffel Tower project to an AmLaw 100 firm and they would put 18,038 timekeepers on it and bill 2.5 million hours. Then they’d send you 17 detailed bills with 3,629 general block-billed time entries. Because they didn’t plan, they would have to scrap (settle) the project right before the public unveiling, because it would have a 50-50% chance of collapsing (losing at trial). Of course, they’d get fully paid for this rudderless and bloated project, whether it remained standing or not. Sound all too familiar, right?
So, are legal matters that much harder to plan and budget for than moon landings and the construction of world-famous monuments? Of course not. Yeah, but, well, uhhhhh……..then why doesn’t my law firm do it? The answer is again, surprisingly simple. Ready? Because by not doing it they get to bill you whatever they want to, need to, or can just plain get away with. By not requiring any upfront planning and budgeting, you enter a very dangerous and uber-costly world controlled by Parkinson’s Law and its nefarious corollaries. And trust me, none of these stomach churning variants end well for you, the paying client.
For those weak of heart, you may want to locate your nitroglycerin pills. Parkinson’s Law, which at first glance appears so harmless, was first postulated by Cyril Northcote Parkinson in The Economist in 1955:
Work expands so as to fill the time available for its completion.
Sounds tame enough to me. If you have 4 hours to complete a project, you get it done in 4 hours. If you are given 6 hours, you will use the 6. But what happens when you have no deadline and you charge anywhere from $300 to $1250 an hour? A macabre storyline right from Game of Thrones, unfortunately, as revealed by Parkinson’s legal corollaries below:
I. Parkinson’s MBHQ Corollary:
Work expands to magically fill (or exceed) a time keeper’s minimum billable hour quota, whether per day, week, month or year.
Here’s where things get downright nasty. Let’s say I’m a BigLaw associate and I only have 3 cases to bill on, but I need to get an average of 9 hours a day in to meet my 1900 minimum billable hours per year quota. Let’s say in a normal situation, i.e., one without quotas, I could do everything needed on those cases in 6 hours a day. Fantastic, that leaves 3 hours for social media, long lunches and general workplace stuffing off. Or, if I was an exemplary employee, I could use the rest of my day on business development and pro bono work. In the real BigLaw world, I absolutely, positively, have to bill those 9 hours, whether the work is needed or not. I have a couple of options:
- First, I could actually do more work on the cases (although not needed).
- Second, I could pull out my trusty magic-bag-of-associate-tricks and morph an honest 6 into the required 9 (rounding up, multiple 0.1′s for every email read and phone call made, unnecessary conferencing and file review, etc.).
- Third, I could just make up the extra 3, the first few times promising myself that I’d make it up later (yeah right.) From the client’s perspective, however, all three options result in an extra 33% of unnecessary time. But that extra 33% of unnecessary time to the client, is the vig or juice that feeds the BigLaw machine.
Like I said folks, unchecked Parkinson’s Law is not your friend. Don’t believe me? Then you haven’t seen the bills that I have. Teams of associates (and partners!) billing an average of 9 or more hours a day (sometimes up to 19!), month after month. And they weren’t in trial, they were reviewing and re-reviewing this and that document and engaging in endless conference calls among themselves. For almost 3 years and counting – no end in sight. Did I mention this little $30 million matter didn’t, and doesn’t, have a budget. Not a penny spent on project management. Although I could find plenty of great project managers who would work for far less a day than just 1 hour of 1 partner’s hourly rate, and deliver a massive ROI on that investment.
II. Parkinson’s HRMR Corollary:
Work billed at a higher rate produces more revenue than work billed by a qualified lower-rate time keeper.
Rational clients want work to be done by the lowest-rate qualified person. Thus, for basic commoditized work like document review, the client would prefer $30 per hour contract attorneys to perform the work rather than $300-$800 per hour associates. However, given the fact that there is no budget to adhere to, or project management trying to best utilize resources, managing partners much prefer to use higher-billing associates for the work, and to do as much as is humanly possible (or inhumanly possible, if allowed – see above and below.)
III. Parkinson’s WTMCCAP Corollary:
Work expands to whatever is the most the client can afford to pay (or will tolerate).
This is the default law that comes into play when there has been no upfront planning and budgeting. The managing partner goes by gut instinct to determine what any given client will find acceptable. Just how much blue Kool-Aid will the client drink. This can become especially dangerous to clients in a “bet the company” case, where the firm is essentially given a blank check because of the importance of the matter. When client’s doth protest too much, the partner may even grant “discounts” to appease the client who walks away feeling vindicated, as the partner simply adds an extra timekeeper to make up the difference.
As you can see, Parkinson’s Law, and it’s money-sucking corollaries, all act to unfairly fill up BigLaw’s coffers, at the expense of the paying client. There’s no getting around the laws of human nature – work is always going to expand to fill the time available for its completion, just like the sun is going to rise in the east and set in the west. But while you can’t change the first part of the law, you can effectively manage and control the second part – “the time available for the completion” of any given tasks or phase of the matter. Taking this step is the key to real legal spend management, and I’ll discuss exactly what this looks like in my next installment.
Despite what your attorney wants you to believe, the vast majority of the law isn’t rocket science, and even if it was, you can still plan and budget just like NASA did for those moon landings. In fact, I know of a few firms that can do more than just give you a budget – they will give you an upfront value-based price for any matter. And guarantee it.
Part I – The Billable Hour is Dead
Part Ia – The Billable Hour is Dead to Me (highly recommended for the picture alone)
You can thank D. Casey Flaherty for the tweak to my “The Billable Hour is Dead” headline. Mr. Flaherty, the driving force behind those pesky little tech audits that no law firm has yet to pass (and who in his spare time dabbles as Corporate Counsel for Kia Motors America), recently brought this article from Slate to my attention, “Declaring Things Dead is Dead.” Noting that Nietzsche started the “declaring things dead” form in 1882, with his infamous statement “God is dead,” the author proclaims:
Declaring things dead — long a popular way for writers to draw attention to themselves — is totally, inescapably dead.
Point taken, Casey. Busted. You win. I guess I was trying to use a catchy headline to pull in some extra readers. But I’m man enough to ‘fess up and do the right thing, so I’ve changed the headline for Part Ia. No more trickery for me, just hard-hitting content.
Blah blah blah.
Have a great weekend, everyone. Part II to follow shortly.
Done. Toast. El Finito. Sayonara. Stick a fork in it. Elvis has left the building. Don’t-let-the-door-hit-you-in-the-backside-on-the-way-out kind of dead.
Yeah, but some of you will say, “How can it be dead, when it is still everywhere around us?” We only need to look to the fate of the dinosaurs to answer that question. Just as BigLaw and the Billable Hour ruled the Legal World for the last 50 years, the dinosaurs were Kings of the Cretaceous Era, right around 66 million years ago. But instead of a devastating asteroid impact, BigLaw was hit by the similarly earth-shattering Great Recession of 2008, which forced clients to wake up and take a closer and deeper look at their ever-escalating legal spend. What everyone saw, however, was as equally terrifying as the mass extinction of the dinosaurs. We have seen the ruthless and greedy pursuit of BigLaw profit take precedence over the delivery of value to the hand that feeds, i.e., the client. It is no coincidence that the “holy grail” metric for BigLaw is PPP, or more accurately, PEPP (average profit per equity partner). The only problem with PPP from the client’s perspective, at least, is that there is no correlation between high PPP and good lawyering. Rather, the reckless chasing of PPP has hyper-incentivized the worst ills of the billable hour model. Steven J. Harper, former BigLaw partner extraordinaire, and author of “The Lawyer Bubble,” cuts to the chase in a New York Times’ Op-Ed:
The billable-hour system is the way most lawyers in big firms charge clients, but it serves no one. Well, almost no one. It brings most equity partners in those firms great wealth. Law firm leaders call it a leveraged pyramid. Most associates call it a living hell.
Since the Great Recession, BigLaw has somehow managed to maintain, if not slightly increase, its average PPP. It has done so in a most gruesome manner, through brutal layoffs, de-equitization of partners and a screw-turning increase to an already over-leveraged system. All of this mayhem has been aimed at maintaining their own fat slice of the pie. None of these desperate measures, by the way, have any relation to delivering better value to the client – quite the opposite. Rather than offer any real legal project management and/or more effective process, BigLaw slashes non-billing positions like legal secretaries and other support staff.
Which brings us back to the end of the dinosaurs. It is estimated that over 75% of all species on Earth vanished within a very short period of time, yet the vast majority did not perish from the great explosion itself, but rather from starvation caused by the resultant impact winter. But this devastation and extinction also provided stunning evolutionary opportunities for those more nimble. In the wake of the extinction, many groups underwent remarkable adaptation, producing a myriad of new and beautiful species such as horses, whales, bats, birds and fish.
The Great Recession of 2008 was BigLaw and the Billable Hour’s fiery asteroid. It didn’t kill most of them directly, but they have clearly begun to starve from the fallout. They are too big and lumbering to adapt. Into this desolation, many new and exciting groups have emerged that are not only surviving, but which are beginning to thrive in the new world order. I’ll discuss these new species and their ever-increasing role in the final death knell of the Billable Hour in my next post.
All is not lost for BigLaw and the Billable Hour. After all, some have speculated that lizards may have also evolved during the long, miserable, impact winter, thereby providing a potential niche market for the smaller and leaner ancestors of the once mighty dinosaurs.