Gruntled Employees

Of sticker shock and empathy

I'll never forget the stickers from the night before my wedding. On the other hand, my brother Bill probably can't remember them.

Because of the fumes.

Let me explain:

Just before the wedding, my bride-to-be had everything under control. The flowers were set, the caterer was prepared, the ceremony site was ready. She was as calm as a bride can be. But then a friend of my parents asked what should have been an innocuous question:

"What are you doing for wedding favors?"

Wedding favors? Now to me, "wedding favors" was as foreign a concept as "centerpieces" and, well, "marriage." Turns out "wedding favors" are defined (by Wikipedia) as "small gifts given as a gesture of appreciation or gratitude to guests from the bride and groom during a wedding ceremony or a wedding reception." Who knew?

Alarm bells replaced wedding bells! This was a crisis of the first degree! Fortunately, the inquiring family friend was quick to provide a suggestion: small silver picture frames in which we could place cards telling each guest where they'd sit at the reception. Then they could take their frames home and toss the seat cards and replace them with pictures of their cats, or whatever. (This was 12 years ago, before there were blogs.) Brilliant!

My fiancée sped to the local Christmas Tree Shops, a New England bargain store that specializes in little knickknacks. Amazingly, Heidi found a bunch of little frames similar to the one in the cheesy picture above. She immediately bought 150 of them and brought them back to me. My job was to do the desktop publishing: make nice calligraphic seat cards with each guest's name and table number. That job was hard enough. My brother's job was much worse.

He had to do the stickers.

You see, every single one of these little silver frames had a silver UPC sticker on it. Not so much on the frame, though. On the glass! And the glue on these stickers must have been that kind of glue they use for keeping those tiles from falling off the Space Shuttle. The stickers themselves fell apart if you tried to scrape or pick them off.

Since he was best man, Bill's job was to remove the stickers. The only hope was to use some high-powered chemical solvent and a razor blade, which is what Bill did for hours in the underventilated living room of my apartment. Twelve years later, he's still not the same. (Actually, he's fine, though he lives in Oklahoma, which is odd.) (His living there; not the state itself.)

Anyway, this brings me to my point: the frame-maker forgot about empathy. Someone at Cheapo Frames Unlimited or whatever made a decision to put bar-code stickers on the glass part of the frame. Maybe he or she did it because the store would need to scan the stickers at the cash register. Maybe it helped with inventory control. But I guarantee you that the sticker decision-maker lacked the critical character trait of empathy — namely, empathy with the customer who was going to be using the cheapo frame. He or she never stopped to think how the customer would feel when confronted with the unremovable sticker. He or she never wondered how the customer would be able to see the wedding guest's table number (or how the guest would later see the cat picture) through the permanent label that obscured the frame's transparent glass face. The frame-company decision maker had no empathy for the customer.

And neither did his or her supervisors. Neither did the owner of Cheapo Frames Unlimited. Neither did the buyer at Christmas Tree Shops.

Having empathy for the customer — or the end user of a product or service — is an undervalued, underpromoted, and undertrained quality in today's business world. Here are some examples where empathy for the customer or end user is missing:

• The people who package children's toys. In their quest to thwart the one or two percent of toy-store customers who would steal accessories out of a Dora the Explorer package, or whatever, they tie everything down with wire, then tape it to the inside of the box. It takes twenty minutes to free your kid's toy from its package. The manufacturer didn't think about how unhappy that delay would make the child, or her dad.
• Customer support lines that play recorded advertisements for the product you're having trouble with while you wait 31 minutes for a live human being. My particular favorite is when you call your internet provider because you can't connect, and the recording tells you that you can get answers to your questions at www.whatever.com. Uh, no I can't ... The company never thought about how that would sound to a frustrated customer.
• Billboards that have the same tiny little text at the bottom that a print ad has. I'm driving 60 miles an hour past your billboard; how am I supposed to read the little text? Obviously, the art designer didn't think about the driver's ability to actually read it (or didn't care if it was read).
• Lawyers who fill their letters, contracts, and briefs with pompous and stuffy legalese. Don't they want the reader to actually be able to read it?
• For that matter, lawyers who bill by the hour. Don't they wonder how the client is going to feel when she gets a bill showing that it cost her more money because it took longer for her to get what she wanted?

Managers need to make sure that everyone in the workplace thinks about what the customer is going to do with the product or service, and how the customer is going to feel about it. That's empathy, and it's critical to a company's success.

Seth Godin has written about this before in his excellent blog. See his post from three years ago called, simply, "Care." And Becky Carroll at Customers Rock! blog has a nice post on empathy called "Empathy Matters."

As for the wedding favors, they were a hit at the reception, Heidi and I are still married 12 years later, and Bill's only a little woozy from the solvent fumes.

Hourly billing across the pond

The war on hourly billing is being waged worldwide. Last week we talked about the battle in this country ("The billable beast of burden" and "The fool or the fool who follows him") and in Canada ("No hourly billing, eh?"). Yesterday, London's Financial Times had an article by legal correspondent Michael Peel saying that hourly billing may be on the outs in the UK as well. The article, with the promising title "UK law firms to reform hourly fee system," says that top London law firms are facing increased pressure from clients unhappy with large bills. Peel writes:

Top firms told the Financial Times that they were increasingly offering alternatives to hourly rates and making more use of cost-cutting business practices, such as putting services offshore. Tim Jones, head of the London office of Freshfields Bruckhaus Deringer, said that, although hourly billing still had a “fairly central role in most people’s thinking”, firms were increasingly offering clients deals such as fixed fees or rates tied to the success of transactions.

He said: “I think the big firms are very conscious that the efficiency of working practices is going to be absolutely fundamental in the coming years. We will have to look very carefully at how our terms are structured.”

The "efficiency of working practices," as Freshfields's Jones puts it, is the key point. Hourly billing, as we've said many times, discourages efficiency by rewarding inefficiency.

Peel reports that at Linklaters, another "Magic Circle" firm, a "significant amount" of the work is no longer billed by the hour. Peel does note that British firms have been somewhat slower than their American cousins in considering alternatives to the billable hour. But it's comforting to know that the opponents of hourly billing have allies overseas.

No hourly billing, eh?

The Great Billable Hour Debate of '08 is playing out north of the border, too. Maclean's magazine is the Canadian equivalent of TIME or Newsweek, with nearly three million readers every week. In the current issue, writer John Intini has a terrific article called "Time to stop the clock? A backlash against the billable hour has some firms charging flat fees." John covers the entire issue from the reasoning behind hourly billing to the problems it causes for clients and lawyers. His reporting also uncovered some great lines: When asked how fast law firms are shifting away from hourly billing, Vancouver consultant Richard Stock quips, "Global warming is faster."

I talked to John at length about the subject and whether we'd soon see a tipping point away from hourly billing. John writes:

Experts anticipate that the current economic downturn will lead to further belt-tightening and could force more companies to reassess deals with their lawyers. “The days of just writing cheques are coming to an end,” says Jay Shepherd, whose Boston firm, Shepherd Law Group, banned billable hours last year and doubled its 2006 revenue. “There is no other business that we don’t know the price of something before we buy it. Imagine getting on an airplane and being told they’re going to charge you by the minute. It’s crazy. Nobody would do it.”

Shepherd, who describes the billable hour as “anti-client,” says the savings his six-lawyer outfit provide is the result of team efficiencies, not cut rates. In addition to flat-fee pricing, his firm offers unlimited advice plans: for a fixed price a client can call the office as often as needed without worrying about a big surprise at month’s end. “It’s almost as if we’re in-house lawyers for them,” he says.

[Since I was speaking to a reporter for a Canadian magazine, I said "cheques" instead of "checks." Good of John to notice that over the phone.]

Our discussion turned to the question of timesheets — the same topic we were debating in yesterday's post ("The fool or the fool who follows him?"). To recap, Tom Kane over at Legal Marketing Blog.com called us "foolhardy" in his post "Has Your Firm Tamed That Damn Billable Hour Yet?" because we don't internally track lawyers' hours. Here's that topic covered in the Maclean's article:

Shepherd — who predicts the billable hour will last another decade — doesn’t even track his staff’s hours for internal purposes. This has prompted many competitors to ask how he knows if associates are doing their work? “I manage them,” he says. “That’s my job.” And late nights or weekends holed up at the office don’t impress him. “The firm,” he says, “doesn’t get anything more if it takes longer and the client wants the work done as fast as possible.”

Intini notes — correctly — that it's easier to change the firm culture at a boutique firm than it is at a megafirm. He again quotes Richard Stock, who says that at larger firms, "the business model is entrenched across hundreds, if not thousands of people in the corporation. It’s not an especially nimble ship.”

That's true, but you have to start somewhere. Great article, John!

As for the Tom Kane post, value-billing guru Ron Baker had this response on his VeraSage Institute site. And Columbus lawyer Mike Grodhaus's terrific new blawg, The Alternative Fee Lawyer, wades into the fray in his post, "Timesheets & Alternative Fees." After nicely summarizing the discussions, Mike gives his own take:

What's fascinating to me about this debate is that is not an "apples to apples" comparison. Tom Kane and Jay Shepherd aren't even really talking about the same thing. What Jay Shepherd is talking about is a complete paradigm shift in how lawyers (or any professionals, for that matter) should think about pricing their services.

Not that I'm discounting Tom Kane's mindset. To me, a law firm (like mine) that uses alternative fee arrangements but still uses timesheets internally is still much better than a law firm that bills all its clients by the hour. Indeed, if we ever move the profession to that brave new world without the billable hour, doing it this way will probably be the transitional phase to Shepherd's wholly value-driven approach. But it certainly makes you want to learn more about Shepherd's way of pricing his law firm's services.

Make sure you check out Mike's blog, which now adorns our Blogroll over on the right of your screen. While I still bristle at the term "alternative billing" (which smacks of the seamy, like "alternative lifestyle"; see last year's post, "No-alternative billing"), Mike brings a broad, balanced approach to the conversation. Welcome, Mike!

The fool or the fool who follows him?

In our last episode, "The billable beast of burden," I talked about the recent ABA Journal article that described Shepherd Law Group's successes in banishing the billable hour ("Taming the Billable Beast," February 2008). I also mentioned that there were naysayers about.

Tom Kane is one. He writes Legal Marketing Blog.com, a fine site with a surprisingly generic name for a marketing site. Perhaps "Raising Kane" was taken. (Actually, it turns out it was — see here — by a self-described "recovering lawyer." Huh.) Tom covers the ABA Journal article in his post "Has Your Firm Tamed That Damn Billable Hour Yet?" and commends us and the other two firms for addressing the billable hour problem. (Thanks, Tom.)

But he also takes a shot at something I said in the article, and I feel the need to respond. Here's Tom:

One troubling point mentioned in the article relating to the Shepherd firm. And that is the statement involving CEO Jay Shepherd that “he denies secretly keeping track of hours spent on each case.” If the firm doesn’t do so, IMHO, it is being foolhardy based on the following simple reasoning:

• You can’t make a profit on fixed fees unless you know what your costs are;
• You can’t know what your costs are unless you know how much time (and other dollars) are consumed by the matter; and
• There is no way to know how much time is being spent on matters if you don’t keep track of hours!

Duh!

So, either they are guessing which means they don’t have a clue what their profit margin is either, or the firm has some other means of determining costs that I am unaware of.

"Duh," indeed! Wow. We're being foolhardy to the point of being duhed. (New word; pronounce it "dud." Think of me when you use it. "Hey, Mom! In school today my teacher duhed me.") So I was all set to roll up my sleeves and explain how Tom's "simple reasoning" (IHHO — in his humble opinion) was flawed, when I learned that the Godfather of Value Pricing had already done so.

Ron Baker is the founder of VeraSage Institute, a think tank dedicated to helping professional-service firms rid themselves of archaic billing practices. He is the author of Professional's Guide to Value Pricing, which is the ultimate hornbook on the subject. Having Ron publicly defend your billing practices is like having Martha Stewart compliment your table setting (only without the whole jail thing). Here's Ron in his post "He Who Says 'A' Must Say 'B,'" responding to Tom's "duh":

No, not Duh. There are over 500+ firms worldwide, across all professional knowledge firm sectors, from advertising to CPA firms and law to IT consulting firms, that don’t do timesheets.

This doesn’t mean they don’t know their costs, it’s a question of WHEN do they know their costs. With timesheets, you only know them in arrears. With our methods, you know them BEFORE you do the work.

What good is it to know your costs if the client doesn’t like your price? This is known as price-led costing; Toyota has been using since it was founded in the 1880s, and Toyota does not have a standard cost accounting system (nor do they do timesheets).

In the real world, value drives price, not costs. Price actually drives costs, so it makes sense to know value and price before you spend a nickel on any costs....

I just wanted to set the record straight. If the Shepherd Law Group is smart — and they are  — they will trash timesheets. [Thanks, Ron. Already have. — JS] They are the cancer in the professions; it is just a matter time before they will be buried.

Ron also says that timesheets "keep professionals mired in the mentality they sell time." In another place, Ron has written one of the best arguments against timesheets ever:

So what good is measuring hours logged on a timesheet? Do you think you can measure the value of a Picasso, the deliciousness of a meal prepared by a five-star chef, the splendor of a building designed by an architect, or the acting ability of an actress, by looking at the hours they work? As they say, it’s easier to count the bottles than describe the wine. You remain mired in counting and costing the bottles, while we are interested in the quality, taste and subjective value of the wine.

Knowledge workers aren’t inspired to track every six minutes of their day. No one entered this profession with the objective of logging the most hours. Not only is it the wrong theory of value, it’s also demeaning, demonstrating a lack of trust, treating them like children.

Oh, snap! I really couldn't have said it better myself.

No, we don't track hours spent at Shepherd Law Group, secretly or overtly. Other lawyers often shake their heads knowingly and then ask me how I know whether my associates are working. "Uh," I reply, "with this crazy new thing called management." (They usually shake their heads some more and wander off, muttering.) Our associates work hard because they want to help our clients and they want to do a good job. That's why we call them professionals. Professionals don't need an annual billables goal to make them work hard.

Now I don't want to dis Tom too much; he's written some good things against hourly billing. And he went to my dad's alma mater, the Cross, so he can't be all bad. Still, he may think I'm foolhardy for trashing timesheets, but there will soon be many other "fools" following our lead.

The billable beast of burden

Finally! The writers' strike is over and we can all get back to work. Thank goodness I can now live off my DVD residuals, or whatever. Ahh, the power of the Union. Nothing like sticking it to The Man ... and the makeup person, and the costume person, and the hair stylist, and the gaffer (whatever that is) and the best boy (just what makes him so good?). Shutting down an entire industry for a hundred days and billions of dollars is a small price to pay for a tiny-but-respectable percentage of the revenue generated by webisodes. Because everyone watches webisodes ... right? Ka-ching!

[End of management-biased sarcasm. Actually, I'm just a little cheesed off that "24" has been pushed back to January 2009 because of the writers' strike. For a Gruntled take on "24" from last year, please see "What would Jack Bauer do? Use plain English."]

Since we last spoke, the hourly billing debate has been going full throttle. The current issue of Crain's Chicago Business reports that "only 16% of in-house lawyers say hourly billing is their preferred arrangement." Yet hourly billing remains the dominant way that lawyers bill their corporate clients. Samantha Stainbaum's article, "The end of hourly fees?" quotes Northwestern Law dean David Van Zandt, who offers a possible explanation: "It's difficult for companies to evaluate what they're getting, so they fall back to hourly billing."

That's possible. Still, if five out of six in-house counsel would prefer something other than hourly billing, don't we outside counsel have an obligation to provide it? The February issue of the ABA Journal has a story by David Gialanella called "Taming the Billable Beast." In it, he talks about three law firms who he says are "changing the billable equation last year in hopes of reducing associate and client dissatisfaction."

Two of the firms focused on first-year associates' billing requirements: Dallas's Strasburger & Price, who cut first-year billing requirements from 1,920 hours a year to 1,600; and Atlanta-based Ford & Harrison, who got rid of first-year requirements altogether.

The third firm went even further. (This may sound familiar.) David writes:

Shepherd Law Group in Boston has thrown out the billable hour altogether in favor of flat fees and fixed prices, and it could not have asked for a better result.

In 2007, says CEO Jay Shepherd, the firm “billed exactly 0.0 hours [yet] more than doubled our revenue for all of 2006.” He adds, “It sounds too good to be true. It’s not.”

Now there’s no looking back for Shepherd, whose firm handles labor and employment law. He recently added a sixth attorney, and he denies secretly keeping track of the hours spent on each case.

In their new billing model, Shepherd and the other partners can get together to brainstorm strategies—something that would have required billing for several different attorneys. Most clients would never stand for those sessions if charged by the hour.

It’s easier for a boutique firm to institute a change, but Shepherd cannot argue with results: Research becomes more focused; soon, efficiency improves. For the Shepherd Law Group, at least, eye-popping numbers are to follow.

(Thanks, David.) The point here isn't to trumpet our firm's successes (at least that's not the main point). The point is that clients want a better system, one that puts their interests in line with their lawyers' interests — rather than in conflict with them. And it can be done successfully.

But there are plenty of naysayers.

Next post: The naysayers say "nay." Stay tuned ... (unless there's another writers' strike).

"Beat the clock": The Boston Globe on hourly billing

Busy, busy, busy. I know. I hate it when bloggers make excuses about why they haven't posted in a while. But we've been very busy at my firm lately. (So busy that I missed noting Gruntled Employee's first anniversary, September 28.) Why so busy?

Because we abandoned hourly billing.

In fact, during 2007, Shepherd Law Group has billed exactly 0.0 hours. And in doing so, we've more than doubled our revenue compared to last year. Clients don't really want to hear about our revenue, but if they think we're doing something to make less money, they immediately get suspicious. (Fear not, good clients. We're still capitalists.)

Our revenue growth comes from two sources: new clients fed up with the value-insensitive system of hourly billing, and increased efficiency driven by our flat-fee system. Our up-front pricing places our interests squarely aligned with our clients' interests, which makes them happy and forces us to be more efficient.

But don't take my word about it — I've already written many posts on the subject of hourly billing.

Instead, check out this article from today's Boston Globe. Sacha Pfeiffer, the Globe's world-class legal-business reporter, profiled our firm and its campaign to kill the billable hour. Whatever I could tell you, she says it better. And the article has kicked off a huge discussion. As of day's end, the story had been emailed via the Globe's site, Boston.com, 674 times (surprisingly, only once by me). That was more than four times more than the story of the Red Sox sweeping the Angels in the ALDS, and third-most for the past week.

In the blogosphere, people are discussing the article and the model. Here's a sample:

• Ron Baker's Verasage Institute, "Another Trailblazer: Shepherd Law Group"
• Susan Cartier Liebel's Build a Solo Practice, LLC, "The Billable Hour "Cockroach" is Being Snuffed Out....One Law Firm At a Time"
• Law School Dilettante, "I really shouldn't be thinking about jobs yet"
• Andrew Perlman, Legal Ethics Forum, "Billable Hours — A story and a question"
• Marie S. Newman, Out of the Jungle, "A trend in billing?"
• and, more acridly, Drew Curtis's news aggregator Fark.com with 122 comments and 10,135 clicks as of midnight.

Legal advice: 30% off! (Why discounts don't always save you money)

It seems like more clients are complaining about their legal bills. With hourly rates rising into record-setting territory (see "Cheaper than A-Rod: Some lawyers getting $1,000 an hour"), there's plenty to complain about. Many  sophisticated clients are questioning whether the problem is hourly billing itself. (See "No-alternative billing" and "Outside counsel ignoring GCs on hourly billing.")

And how are many law firms responding?

Discounts.

Taking a page from the mattress sellers' handbook, some law firms are offering discounts for certain services. Employment law is a common example, since it's often seen as less critical than securities law or mergers-and-acquisitions work. (Of course, without talented employees, your securities and your acquisitions aren't worth a heck of a lot, but that's a fight for a different post.) "Six hundred bucks an hour for defending a discrimination charge? You're right, client. Tell you what I'm gonna do ...."

Thinking that they're mollifying the cost-sensitive client, the lawyer offers a discount in the form of a lower rate, written-off time, or a change in the staffing of a project. But these discounts can actually increase your legal costs. Here are five reasons why:

1. Lawyers are rational, and will work harder on more-profitable matters.
Now most lawyers are ethical, but they are not selfless saints. Instead, most lawyers are rational human beings. (Yes, believe it or not, lawyers are human beings, no matter what you've heard.) Human beings tend to respond to incentives. They tend to prioritize their actions based on the expected rewards.

Let's say a lawyer has two otherwise identical projects to work on: same level of difficulty, same amount of intellectual interestingness. The project for Client A is billed at the lawyer's usual rate of $400 an hour. The project for Client B is billed at a discounted rate of $215 an hour. If the lawyer has an hour to bill before a meeting and wants to add as much as possible to the firm's bottom line, the lawyer — a rational human being — will usually choose Client A's project.

Knowing that the undiscounted project is more rewarding, the rational human lawyer will tend to give his or her best efforts to that project. Now some lawyers will tell you that they put the same amount of effort into each project, regardless of the reward. But they're either lying to you, or they're lying to themselves. Or maybe they're just not rational human beings.

2. Lawyers are rational, and will work less hard when they know their time is worth nothing.
Sometimes it makes sense to have two (or more) lawyers working on the same task at the same time. Multiple lawyers can brainstorm together to come up with the best ideas about how to proceed on a case. Bringing another lawyer to a client meeting can help make sure that nothing gets missed.

But clients hate being billed for this. When they see a bill entry that describes two lawyers having an office conversation about a case — whether it's called analysis or strategy session or whatever — they often see it as an attempt to jack up billable hours. Knowing this, the smart rational human lawyer will cut his or her time so as to not show the doubled-up billing. But being rational and human, and knowing that he or she can't bill for that time, there will be a tendency to mail it in. No one likes to work for free.

3. In the billable-hour paradigm, there is no incentive for efficiency.
Discounting doesn't solve the biggest problem with hourly billing, which is a built-in disincentive to efficiency. If I take longer to do a job, the client pays me more. Lowering the hourly rate doesn't change that reality.

4. When a firm lowers its rates, it must make up the difference some other way.
Discounting the hourly rate has no effect on the law firm's costs, like associates' salaries and rent. Assuming the firm desires to make a profit (and why shouldn't it?), it must make up the shortfall somewhere else. That somewhere else is more hours, not-entirely-necessary work, or the use of partners to do associates' work (getting the higher discounted rate instead of the lower one).

5. For a cost-sensitive client, a firm may push work down to a lower-level associate.
Instead of using a discounted rate, a firm might lower the client's costs by giving work to a junior associate that would have otherwise been done by a partner or senior associate. This artificial staffing imperative rarely helps the client. A junior associate might take longer to get the job done, and might miss something. Then the partner has to redo the work, and then cut his or her time (see number 2 above). Work should be done by the right-level lawyer, regardless of the rate.

*    *    *

These five reasons apply more to partners than to associates. At most firms, associates are more concerned with the total number of hours they bill than the rate at which they bill. (In fact, they often don't see the final bill.)

The bottom line for clients is to look at the bottom line — not just the discounted rate. You might just find that your law-firm discounts are actually costing you more.

[Note: I revised and reposted this piece on September 21 because I didn't think the original version was good enough.]

Cheaper than A-Rod: Some lawyers getting $1,000 an hour

Just as the debate on hourly billing is heating up (see "Hourly billing: Presumed Unethical"), here come some cream-of-the-crop New York lawyers jacking their fees up to $1,000 an hour. These grand attorneys have crossed a previously unthinkable threshold, kind of like the sound barrier used to be. Nathan Koppel writes a terrific article in yesterday's Wall Street Journal, "Lawyers Gear Up Grand New Fees." (Subscription may be required.) As is common in Journal stories, the article's lede showcases Nathan's top-notch writing:

The hourly rates of the country's top lawyers are increasingly coming with something new — a comma.

The article has a great quote from an unnamed New York partner (whose own rate isn't disclosed): "We have viewed $1,000 an hour as a possible vomit point for clients." (Call it the client's "emetic rate.") Even David Boies, arguably the nation's top litigator, has misgivings: "Frankly, it's a little hard to think about anyone who doesn't save lives being worth this much money." (Boies charges $880 an hour.)

Some of the Grover-getters sniff that they're not overcharging at all:

Still, some lawyers are confident they're worth $1,000 per hour, and that now's the time to break the barrier. "I haven't personally experienced resistance to my billing rates," [Simpson Thacher litigator Barry] Ostrager says. "The legal marketplace is very sophisticated."

According to the article, law firms blame the rate increases on rising costs, such as $160,000-a-year salaries for first-year associates. Ironically, when interviewed about associate-salary increases, these law firms often say that they don't intend to pass it along to clients by raising rates. See Delaware Law Weekly, Apr. 21, 2006; Law.com, Mar. 20, 2006; ABA Journal Report, Feb. 2, 2007. Is the legal marketplace so "sophisticated" that it will overlook these earlier protestations?

My favorite quote in Nathan's article comes not from a law firm but from a potential customer of these high-priced services:

Considering a major-league baseball player can make the equivalent of $15,000 per hour, "$1,000 for very seasoned lawyers who can solve complex problems doesn't seem to be inappropriate," says Mike Dillon, the general counsel of Sun Microsystems Inc.

Compared to Alex Rodriguez's $25-million-a-year deal, these lawyers are a bargain.

For more reactions, see The Journal's "Law Blog Thousand-Dollar Bar"; Law.com — Legal Blog Watch's "Billing Rates Hit the $1,000 Mark"; Legal Profession Blog's "$1,000/hour? Nero has become managing partner and is fiddling away...." and "$1,000 per hour"; and Blawgletter's "The Hourly Fee Must Die."

Hourly billing: Presumed Unethical

Lawyer Scott Turow, acclaimed author of Presumed Innocent and other legal thrillers, has fired a warning shot at hourly billing. His provocative article "The Billable Hour Must Die" is the cover story of this month's ABA Journal. It's a well-written, well-argued piece that catalogs the problems that hourly billing creates for lawyers and the legal-services industry.

But the key passage in the piece is this one, where Turow argues that hourly billing is actually unethical:

But at the end of the day, my greatest concern is not merely that dollars times hours is bad for the lives of lawyers—even though it demonstrably is—but that it’s worse for clients, bad for the attorney-client relationship, and bad for the image of our profession. Simply put, I have never been at ease with the ethical dilemmas that the dollars-times-hours regime poses, especially for litigators....

But from the time I entered private practice to today, I have been unable to figure out how our accepted concepts of conflict of interest can possibly accommodate a system in which the lawyer’s economic interests and the client’s are so diametrically opposed.

Looking again to the Model Rules [of Professional Conduct], Rule 1.7 provides in part that “a lawyer shall not represent a client if the representation involves a concurrent conflict of interest,” which the rule defines as occurring when “there is a significant risk that the representation of one or more clients will be materially limited by ... a personal interest of the lawyer.”

I ask you to ponder for just a few minutes whether that rule can really be fulfilled by hourly based fees.

As Gruntled readers know well, I agree with this argument. If I bill by the hour, and a task takes me longer to complete, that's good for me (more money) and bad for my client (more time before satisfaction). That's why my firm has completely abandoned hourly billing — we've billed exactly 0.0 hours in 2007. Once a law firm has done the analysis and has learned how hourly billing is bad for its clients, how can it not be unethical to continue the practice?

Here are some other voices on the topic:

• Luke Gilman, Blawgraphy: "More on the Billable Hour, Charting Your Own Course." Key quote: "The overriding incentive of the billable hour regime is to bill as many hours as you can get away with. When you have a fiduciary duty to your client and a minimum billable hour requirement from your firm, the conflict is inevitable."
• Daniel J. Solove, Concurring Opinions: "Bye Bye to the Billable Hour?" Key quote: "The billable hour does little to measure and reward quality of work. It simply measures how long it took an attorney to complete a particular task."
• David Giacalone, f/k/a: "Broadening the hourly-billing debate — consider yourself, your clients and your ethics." This is a thorough and comprehensive post on the different sides of the argument from an ardent defender of hourly billing. (David's a Harvard Law guy, which I guess explains the poetry at the end of his posts. Hope he's following the Harvard Law blog policy — see here.)

Please lend your own voice to the debate.

No-alternative billing

I hate the term "alternative billing." It has that sneering, look-down-your-nose quality to it, like "alternative lifestyle." Actually, I think lawyers have done a very good job of marginalizing it. I mean, there's hourly billing, and then there's ... what?

The lawyers look away and reply, "Well, there's ... (ahem) ... alternative billing."

"Oh?" the clients ask. "How does that work?"

"Uh, well, there are contingency fees, blended rates, flat fees, fixed fees, retainers. That sort of thing. It's not the traditional way of doing things. Very few of our clients ask for it."

"Oh."

As if there's something wrong with it. As if traditional (hourly) billing came over on the Mayflower. (In fact, it's only two or three lawyer generations old.) And the menu of "alternative" arrangements sounds ominous: a collection of ways to bilk the client.

Actually, 62% of in-house counsel say they're interested in "alternative" billing arrangements, according to the Association of Corporate Counsel's 2006 Managing Outside Counsel survey. This figure is surprisingly high, since most in-house lawyers migrated from large law firms where the almighty billable hour rules. But after working in the real world of business and bottom lines, in-house lawyers are seeing hourly billing for what it is: a way to increase clients' bills.

But in the same survey, corporate counsel report that 90% of their outside lawyers resist the idea of "alternative" billing. (Read more about the survey in Outside counsel ignoring GCs on hourly billing.)

Maybe clients will continue to put up with this. But I doubt it.

Pretty soon, they'll start looking for "alternative" lawyers.

Hating lawyers around the world?

Since my recent post, "Why businesspeople hate lawyers," I've learned that this isn't just a problem for lawyers in the United States. There's an excellent legal-marketing blawg in Brazil called, unsurprisingly, "marketingLEGAL." (Or maybe it is suprising. Only the title is in English; the blog is in Portuguese.) The blog's author is Marco Antonio P. Gonçalves, a legal-marketing specialist in Rio who is coauthoring a book on the subject. Marco Antonio devoted a recent post to translating my thoughts into Portuguese and expanding upon them. Apparently, lawyers in Brazil face similar problems of popularity, and the trifecta of hourly billing, legalese, and legal-not-business advice are at the root of the problem. (I'm guessing his solution to legalese would not be "plain English." Is there such a thing as "plain Portguese"?)

A note on language: I listen to a fair amount of bossa nova (the Gilbertos, Jobim, Getz), but I don't speak any Portuguese. Fortunately, we have Google to translate foreign-language blogs and webpages. That an online service can instantly convert a webpage into another language with reasonable accuracy is very cool. But it does lead to some amusing false notes. It calls the post "Why business-oriented men do not like lawyers," and it labels "hourly billing" as "collection for the moment." You can read the translation of Marco Antonio's post here.

Working our way across South America, I just got an email from Ivan Cavero, who writes the Peruvian blawg PracticaLegal: Sólo Marketing Legal. (Google's intepreters can give it to you in English here.) Ivan is a legal-marketing trailblazer in Peru, and he came across my post via Marco Antonio's blawg. He's working on a similar post for Spanish readers.

A while back, I heard from Jim Belshaw, a strategic consultant in Sydney, Australia, who writes the excellent and thought-provoking blog, Managing the Professional Services Firm. He's got some good thoughts on work-life balance and associate retention.

Some might be concerned that the problems US lawyers (and their clients) face are shared around the world (or at least, I guess, the Southern Hemisphere). But I find it comforting to know that people like Marco Antonio, Ivan, and Jim are adding to the conversation and helping to find solutions to these problems. So: obrigado, gracias, and ta, mate.

Why businesspeople hate lawyers

Oh, they may tell you that they don't. "Hate" is such a strong word, and so forth. But most businesspeople really, really don't like lawyers.

Why?

Three reasons, all of which are related:

1. Billing by the hour
2. Using legalese
3. Giving legal answers instead of business answers

And what do these three things have in common?

They're all examples of lawyers putting themselves first, instead of putting clients first. Hourly billing prices legal services based on the time the lawyer spent, not on the value the client received. What difference does it make to the client whether something took two hours or four hours? Rarely does the client get twice as much value when something takes twice as long (and thus costs twice as much).

Next, lawyers speak and write in legalese to show off that they are, in fact, lawyers. Rather than trying to find the clearest way to communicate with their clients, lawyers fall back on shopworn phrases whose meanings they're not even certain of. "Wherefore, premises considered" — I mean, who really talks like that? Lawyers use legalese the same way doctors and cops use the jargon of their professions — to set them apart from the people they serve. (For more on jargon, see Abandoning jargon "at a high rate of speed.")

Finally, businesspeople ask their lawyers business questions but get legal answers in return. How many of you have asked a lawyer a question about your business only to receive a memorandum on what a statute or regulation or court opinion says. You don't care about the dicta in Smith v. Landingham; you just want your lawyer to solve the problem.

So as we start the new year, lawyers should add to their lists of resolutions three things that put the client first:

1. Price legal services based on the value to the client
2. Use plain English
3. Give clients business answers

For more about putting clients first, read Dan Hull's always-excellent What About Clients? blog. Dan's a lawyer who understands about putting his clients first. His blog's tagline asks the fundamental question: "True service — are we lawyers delivering?" I'm certain that businesspeople don't hate Dan.

Dan started the year off with a terrific list of client-service blogs, which include heavy hitters like Guy Kawaski's How to Change the World and David Maister's Passion, People and Principles. Check out the list here.

Happy New Year!

Amtrak blows whistle on lawyer bills

The Saturday edition of the Wall Street Journal had this fine article by Nathan Koppel and Ashby Jones: "Amtrak's Lesson: Check Legal Bills Closely" (subscription probably required). They report that the federally funded railroad company had audited its legal bills, finding that it had allowed outside law firms to ignore the company's billing guidelines. After spending over $100 million in outside-lawyer fees from 2002 to 2005, it realized it could have spent "substantially" less.

The article has plenty of ammunition for opponents of hourly billing, such as:

• 41% of the fees one firm submitted had "cryptic" descriptions for tasks, such as "Review Amtrak documents." William Ross, a law professor and consultant, noted that while these phrases were common in law-firm bills, they didn't help clients evaluate whether the work was necessary.
• Another firm billed exactly nine hours of a paralegal's time on 10 different occasions in a single month. The auditor thought it unusual that there were no entries for 8.9 or 9.1 hours. Ross suggested that this practice could mean that the times were estimates: "Attorneys often bill exactly the same amount of time, day to day. It's like they are trying to fill a quota."

[I'll pause while you let that last phrase reverberate in your head.]

• Some of the law firms used "block billing," despite the Amtrak billing guidelines' barring the practice. Block billing is when "law firms lump together tasks without itemizing how much time each one took.... [It] can make it tough to gauge whether lawyers spent an appropriate amount of time on each task." Another lawyer, apparently unconnected with Amtrak, defended block billing, saying that it was not necessarily "evidence that you are not providing good legal service."

[That may be true. But it's certainly not evidence that you are providing good legal service.]

• The article also cites the problem of close relationships between the in-house lawyers and the outside law firms, where some of them previously worked. The Amtrak auditor said, "The attitude of the law department was that they shouldn't manage the [outside] law firms, because they were their buddies."

So Amtrak has learned to watch their law-firm bills more carefully. But that is just a stopgap measure for a much bigger problem. Hourly billing does nothing to help a client determine the value of the work that was performed. Just because something took longer doesn't mean it was more valuable to the client. Without hourly billing, in-house counsel won't have to worry about whether their outside counsel "are trying to fill a quota."

Peter Lattman's WSJ Law Blog treatment of this issue is here. Earlier coverage on this topic is here and here.

Outside counsel ignoring GCs on hourly billing

The Association of Corporate Counsel has just released its 2006 Managing Outside Counsel Survey. Martin Daks of the New Jersey Law Journal summarizes some of the key findings. Much will be made of GCs' concerns about compliance issues. But what I find most interesting is in-house lawyers' feelings on hourly billing. Daks writes:

Despite criticisms of the hourly billing format, its use continues to grow. In 2005, 87.1 percent of companies said they used standard or discount hourly rates, compared with 81.2 percent in 2004 and 81 percent in 2003.

While 62 percent of respondents are open to alternative fee arrangements — including fixed, blended hourly rate, contingency and retainer — they say that 90 percent of outside counsel resist the suggestion.

(My emphasis.) Ninety percent? Outside lawyers will tell you that they listen to their clients' concerns, but apparently that doesn't apply to the almighty billable hour. Now tell me if this sounds like a coincidence:

And companies are quicker to fire outside counsel. In 2005, 55.6 percent reported they terminated the relationship with at least some of their firms, up from 50.7 percent in 2004. The most-cited reasons were poor quality of work and results, lack of responsiveness, high fees and personality issues.

I wonder how much of the "lack of responsiveness" had to do with resisting clients' requests for alternative billing.

You can get the ACC's press release here, and you can order the survey here. Compare all this with Ed Poll's post on the popularity of alternative billing in his excellent Law Biz Blog, and the discussion in Carolyn Elefant's always-insightful My Shingle.

More on billable hours and work-life balance

No less than the eighth-highest-ranking lawyer in the country, Associate Justice Stephen Breyer, had this to say about the problem of billable hours in the foreword to the ABA's August 2002 Commission on Billable Hours Report:

The villain of the piece is what some call the “treadmill” — the continuous push to increase billable hours. As one lawyer has put it, the profession’s obsession with billable hours is like “drinking water from a fire hose,” and the result is that many lawyers are starting to drown. How can a practitioner undertake pro bono work, engage in law reform efforts, even attend bar association meetings, if that lawyer also must produce 2100 or more billable hours each year, say sixty-five or seventy hours in the office each week. The answer is that most cannot, and for this, both the profession and the community suffer....

Does [the billable hour] unnecessarily aggravate the pressures that threaten to confine the lawyer to the office, insulating him or her from the community? Moreover, does the billable hour contribute to or undermine a practitioner’s ultimate goal — to provide clients with the best legal services possible? And to the extent billable hours are counterproductive on either or both counts, how, when, and to what extent, might it be possible to change billing methods?...

[The Commission's task] concerns how to create a life within the firm that permits lawyers, particularly younger lawyers, to lead lives in which there is time for family, for career, and for the community. Doing so is difficult. Yet I believe it is a challenge that cannot be declined, lest we abandon the very values that led many of us to choose this honorable profession.

So at least one Supreme Court justice believes that work-life balance is an important problem, and that billable hours just may be one of its causes. (You can access the entire Commission report here.)

Lawyers and work-life balance

There is an important conversation — well, important to lawyers — going on in the blogosphere about work-life balance. Dan Hull's always-insightful What About Clients? kicked up some dust in a post about how small firms can win clients away from big firms:

get off your knees, quit bottom-feeding, chuck both your "niche" market thinking and your work-life balance nonsense (the first 8 to 10 years for associates, and lawyering done right after that, should be hard work for even the gifted), steal the good clients, provide outrageous service and get rich.

Professional coach Julie Fleming Brown's Life at the Bar picked up on the "nonsense" tag and has this post about how lawyers can adjust their own balance and still provide excellent client service:

But it’s possible (and necessary) to adjust the balance in whatever direction is most desirable for a particular lawyer and still to provide excellent service. Such an adjustment will lead to certain consequences, whether it’s rapid advancement in career, a deeply satisfying personal life, handsome or sub-optimal earnings, burnout or boredom, or most likely some shifting mix of these and other consequences.

Dan Hull responded with a forthright post about work-life balance being a "dumb-ass issue":

WLB is "your" problem--not mine. Each one of us creates our own quality of life as we learn to lawyer, keep lawyering and serve clients.... If you are a job-hunting student or young lawyer expecting my firm to support a regime of work-life harmony, please try another shop.

This conversation led me back to an excellent summertime post on Tom Collins's More Partner Income
that calls for some creativity in valuing the work of those attorneys (mostly mothers) who work fewer hours:

Let’s turn this conversation around. On the one hand, let’s deal with the child raising years of lawyer-mothers; and on the other hand, let’s start celebrating the benefits of lawyering, including the satisfaction of service to others ....

I think Tom's right. There is a creative way to solve this problem: ending billable hours.

More to come ...

Options investigations: lawyers cutting cookies?

Peter Lattman again on the stock-option debacle: Many of the press releases reporting the results of law-firm investigations contain amazingly similar language. Peter quotes from several in his post.

Lawyers often reuse language that they find elsewhere rather than reinventing the wheel. And no one's suggesting that the law firms here did anything wrong. But one can't help wondering if lawyers are turning options investigations into a commodity practice. A law firm adds the most value when its advice to a client is unique to that client's situation and needs.