Gruntled Employees

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.