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October 12, 2007

The Billable Hour: The Way of the Happy Rich Dinosaur?

Or, "No thanks, I'll just watch". Call me a Mastodon but my firm's not willing to give up the billable hour. Clients like it. So we like it. It works for our clients and our firm, especially in providing value, especially for longstanding clients, and for our model: high-end services for high-end clients who know and trust us in a "muscle boutique" setting. The hour gives us the power to be enormously flexible in adding value.

For all clients and all lawyers, the billable hour model is not perfect, I admit. There is a huge potential to abuse clients. But resorting to a value-billing/flat-fee model, in my view, would make matters much worse.

As an aside, my firm's clients apparently do not believe that hourly billing for us is supplying Hull McGuire with blank checks, or that we milk engagements. This has nothing to do with being good or morally superior. It's a business thing. Clients know we want repeat business. So we work hard at keeping the bills both fair and satisfying on a gut-level so they'll come back. The rest is done with trust--the most intangible, important and pivotal element is the relationship. I can't help you there--but you'll know it when you get it.

I'm sure there are many firms like ours in these respects. And so far

not one of our clients--i.e., GCs from large and often mega-large companies--have asked for any arrangement other than hourly billing. Some have had over 20 years to ask for value-pricing or something like it. They have not. When they do, we will listen.

However, I think that even in the long-term very few sophisticated and sane GCs will ask for complex litigation or regulatory disputes conducted on a straight value-pricing basis. It would alienate the best commercial trial and administrative law talent in America, as the course of the law's more contentious matters can be truly wild and unpredictable. It's hard to budget for a war.

For some transactional (which can be quite war-like) and some less contentious work, value-billing may make sense. But asking many of us to do it because it's fair and makes sense--and without market pressures and an existing value-price-based economic structure--is like asking us to "give peace a chance". If we agree, we'll feel both good about ourselves and smart--but we'll get run over. There's simply no business incentive for many to join in that good fight.

Moreover, let's assume for a moment that "value-billing"/flat fees went beyond its current status as an alternative client-lawyer arrangement and that it became the "norm"--don't worry, it won't--or to stretch this out a bit, it became, in effect, "required" across the board. It would: (1) compromise good clients who want outlandishly fine legal talent and niche specialities, which this country, by the way, has in abundance; (2) further dumb-down corporate legal products and services (additionally, dilution of the gene pool in recent years at some of the larger firms as they expand, nationally or abroad, is already a problem); (3) make client service even worse; (4) excuse if not exalt mediocrity in legal work in general; and (5) cause some fine lawyers to leave the profession. Welcome, folks, to McLaw. I hope that I am wrong, or that it never happens.

Further, and in a slight variation on the theme, until the market somehow changes, our firm is simply not interested in would-be clients of any size who want up-front "deals" on rates and services. We work too hard. We run from such companies when they find us; they don't get what we offer. We also understand that in-house counsel of a few fine American companies conduct "bidding"-type and RFP programs. Well, again, no thanks. For us, participating would degrade client and firm alike. Color us grandiose.

But if our clients and new clients we seek in the future change, we will change, too. So in the meantime, we listen. We watch. If we're not getting something important about the BH issue--which right now seems to us about as compelling and as relevant as the dreaded Y2K crisis--we'll come around. So we start with Carolyn Elefant's article in Legal Blog Watch, "Boston Firm Bans Hour", reporting on Jay Shepherd's firm and recent post at his fine Gruntled Employees.

Updated: 5:00 PM PT, 10/12/07

Posted by JD Hull at October 12, 2007 10:56 PM

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