For as long as anyone can remember, the atomic unit of law firm work has been the billable hour. Even its critics have to acknowledge that the billable hour has a certain elegant logic to it. The more man-hours a firm spends on a matter, the more it should cost, either because the work is long and tedious or complex and difficult. As one of the building blocks of the industry, the billable hour has shaped all areas of the legal profession. That includes law school, where the ability to work harder and longer is envied and cherished.
The billable hour has always been disliked to a certain degree by the biggest consumers of legal services: general counsels at major corporations. The billable hour encourages sloppiness and inefficiency at the same time it encourages diligence. Now general counsels are using the worst market for legal services in some time to launch the largest attack on the billable hour in almost two decades (at least). An attack that is succeeding:
Money spent on alternative billing arrangements has totaled $13.1 billion this year, versus $8.6 billion in the like period of 2008, according to BTI Consulting Group Inc., which surveyed 370 lawyers who work at Fortune 1000 companies.
What once was solely the province of boutique firms and high-tech corporations is becoming more and more the norm. The WSJ Law Blog correctly notes that the billable hour will never be completely eliminated but its iron grip on how legal services are marketed and provided is slipping. That means it’s time for everyone, including law students and law schools, to prepare for a world where the billable hour is not the default measure of either law firm profit or associate productivity.
This means that law schools need to get away from simply teaching that more work is better. Law professors who grade using checklists and the accumulation of points encourage this attitude. These courses reward getting as much down as possible during the exam and hoping some of it was what the professor was looking for. More professors need to encourage economy of thought by punishing a “throw everything against the wall and see what sticks” approach, or at least discouraging it in favor of selecting the best argument rather than any you can dream up.
Law students would be wise to invest in skills like cost-effective researching. While there’s a certain safe feeling you get from watching 100 cases print off of Westlaw, you won’t be able to do that in practice. Students will need to learn to narrow their research and make smarter searches. Combined with teaching students to quickly synthesize their thoughts and make the most effective arguments, graduates will be better prepared to work in a world where staring at a piece of paper for six minutes is no longer considered a productive use of time.
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I know a few solos who work without a para, and without a secretary. Can you imagine? You have to answer the phone, do the scheduling, draft and stamp every filing, and do your own accounting. That’s on top of conferencing with clients and other attorneys, researching, and (occasionally) standing in front of the Court doing a little advocacy. While these folks don’t make $145K a year, they do well enough, AND they don’t lay down 60-hour workweeks.
The key to their success is extreme time management, and every law student – even those aiming for big firm life – could pick up some tips from one of these “Zen lawyers”.
That’s where the biggest push to kill off the billable hour (as much as possible) will come. It’s not when general counsels are able to demand these fee arrangements. It’s when GCs start questioning the assumption that regional firms, small firms, and solos couldn’t do some of this work just as well.
There are a number of areas — creditor’s rights, in particular — where small firms/solos can do the job as well or better than the big boys, and for less money. For example, it doesn’t make sense for the local branch of a big corp to send a past due accrec up the chain to national headquarters, to be passed on to the corp’s big firm of choice. Ultimately, those accounts are only going to be farmed back out to local counsel anyway, and at many billable hours. It’s more efficient for the local branch to bring a stack of files once a month to a local CR attorney — ahem — who is familiar with the local courts, and will work the cases on a contingency arrangement.
The only problem is that national corporate structures are still highly centralized, and would be unlikely (to say the least) to allow that level of decision-making at the local level. Perhaps you’re right, and a change is brewing. I’m always in favor of more pie for the small firm/solo community.
I could not agree more. Law schools do their students a disservice if they do not do more to prepare students for law practice in a more cost-conscious world.
But one aspect you did not address is what the end of the billable hour might mean for law students as they search for jobs. IF there is a greater move toward alternative fee arrangements, it may end up reducing the job market for first-year associates at AmLaw 200 firms. For at least the last two generations of law students, success was defined as attending a top law school and/or graduating in the 10% or 20% of your class. That usually meant you were ticketed for a job at an AmLaw 200 firm which, until recently, were paying in the mid-$100,000s for new grads.
But those first-year salaries were based on a law firm economic model of a billable hour leverage pyramid in which partners at the AmLaw 200 firms could charge clients for billable hours generated by first-year associates. Not only have many Fortune 500 companies rebelled at paying anything for first-year associates, but if the firms were to move toward more alternative fee arrangements, based as they are on “value,” then the firms will have an even harder time trying to bill clients for work done by first-year associates. That’s because generally, there is not much “value” in the work done by first-year associates (document review and/or legal research can be done more cost effectively either by paralegals or even by off-shore lawyers). True “value” that can be used and billed for only comes later when a lawyer gains experience. So it’s possible that the greater utilization of alternative fee arrangements may lead to a lessening of the demand for first-year associates at the large law firms.