Gruntled Employees

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.

Taking a dip in the talent pool

Human Resources is a term that no one likes. The best you can say about it is that it's a mild improvement over the sterile Personnel. In 1989, the the American Society for Personnel Administration changed its name to the Society for Human Resource Management "to reflect its broadened scope and influence in business and political worlds internationally." (Uh, okay.)

But many of us feel that Human Resources still has an artificial, impersonal feel to it that belittles the importance of the role. Last May, Karen Dempsey wrote a fine article on the topic in Personnel Today aptly called "What's in a name: 'HR' or 'personnel'? Does it really matter?" Karen asks:

But why this obsession with titles in HR? Other departments such as finance and operations don't waste their time wringing their hands and wondering what title will get them more credibility in the business. At the end of the day, does it really matter what outfit the HR profession is dressed in?

Back in November, British management consultant Scott McArthur covered the issue in his excellent blog McArthur's Rant, in a post called "It’s all in a name? – HR practitioners speak out":

There is no consensus (so far) apart from the feeling that it is up to the individual to prove their value to their respective organisation irrespective of their job title.

One of our first Gruntled posts ("How to save HR — Step 1 — Moving HR to "C" level") took a page from top business guru Tom Peters's book Re-imagine! Business Excellence in a Disruptive Age — page 256 in fact. There (at least in the hardcover edition), Tom advocates for changing the name of HR to "Talent Department." (Or even the slightly more exuberant "Seriously Cool People who Recruit & Develop Seriously Cool People.") As I wrote back then:

You could do worse than to read Tom's chapter on Talent and implement half of his ideas for building HR into a strategic arm of the company, with a Chief Talent Officer reporting directly to the CEO.

Now another top business guru, Seth Godin, has brought back the topic with a great post on his eponymous blog. His post, "Marketing HR," gets to the root of the problem:

Understand that in days of yore, factories consisted of people and machines. The goal was to use more machines, fewer people, and to design processes so that the people were interchangeable, low cost and easily replaced. The more leverage the factory-owner had, the better. Hence Personnel or the even more cruel term: HR. It views people as a natural resource, like lumber.

Like it or not, in most organizations HR has grown up with a forms/clerical/factory focus. Which was fine, I guess, unless your goal was to do something amazing, something that had nothing to do with a factory, something that required amazing programmers, remarkable marketers or insanely talented strategy people.

Seth, author of Purple Cow: Transform Your Business by Being Remarkable and The Dip: A Little Book That Teaches You When to Quit (and When to Stick), has this for a solution: "Change the department name to Talent." Seth concedes that this might make people uncomfortable because it sounds like "spin." And he's right.

But if we're going to insist that the function of "human resources" is as important as we say it is, then we should be prepared to defend a more highfalutin name. Many leading companies have already done this; Apple, Citigroup, Deloitte & Touche, and even a law firm, Sheppard Mullin (no relation), all have Chief Talent Officers.

Your company — whether it's a hospital, a software company, a bank, a paperboard mill, or a law firm — does not work without the talent that makes it work. Put someone in charge of finding and keeping that talent, and then recognize that person's job with the proper title: Chief Talent Officer.

Watch your wiki

Managers and HR professionals have to pay attention to their employees. It's right there in the job description. Monitoring work, evaluating performance, tracking compliance. Sometimes, for various reasons, they have to pay attention to other things: an employee's computer files, email or internet usage, or MySpace page.

Well, now there's something else to monitor.

As you probably know, Wikipedia is "the free encyclopedia that anyone can edit." It is the world's largest wiki, which is a website that people can collaboratively draft and revise. (I often try to throw handy, helpful Wikipedia links into posts.) It's a great resource for quickly learning about basically anything. As Steve Carell's character Michael Scott said on "The Office":

Wikipedia is the best thing ever. Anyone in the world can write anything they want about any subject. So you know you are getting the best possible information.

Mind you, this came in the same episode where Michael said this:

It was a crime of passion, Jan. Not a disgruntled employee. Everyone here is extremely gruntled.

(Remind me to get my lawyers after NBC.) (Or as NBC calls them, "law stylists.")

Anyway, since anyone can edit a Wikipedia entry, nearly anyone does. Many Wikipedia contributors and editors log in to a free Wikipedia account, and make their contributions and edits "in the clear." But many others make their points anonymously, which can lead to abuse. Imagine a disgruntled employee firing up Wikipedia (anonymously, or perhaps pseudonymously), then amending her company's Wikipedia entry to include the intraoffice illicit affairs going on in the Sales Department. Or the secret cross-dressing in Accounting. Or whatever.

People can also embellish their company's Wikipedia entry. Dave Hoffman over at Concurring Opinions had a piece last summer about Wikipedia users at major law firms changing entries to "burnish their reputations and trash their competitors." See "A Slow Day at the Office: Lawyers Editing on Wikipedia." Robert Ambrogi had a similar collection at his LawSites blog.

But there's hope for HR pros and managers looking to see what their wiki-wielding workers (OK, I promise I won't do that again) are doing to their corporate entries. Last year, Cal Tech grad student and hacker extraordinaire Virgil Griffith created WikiScanner, a tool that links Wikipedia edits to the companies and organizations owning the computers that made the edits. In other words, say you're sitting at your desk at Dow Chemical, and you want to anonymously remove references on the Dow Wikipedia entry to Bhopal or breast implants. You make your changes and lurk off into the night. But WikiScanner will rat you out, by cross-referencing the IP address of your Dow computer to the IP addresses known to be assigned to Dow. While WikiScanner can't identify your particular machine, it's likely that the company's IT geek squad can narrow it down to your station.

Wired magazine wrote an article last year announcing WikiScanner and including a list of the most salacious edits, including the Dow example I cited, plus edits from Diebold, Exxon, and the Church of Scientology. (No word on whether Tom Cruise's IP address has shown up yet.) An employee at Wal-Mart, everyone's favorite employer, edited the entry to say that workers there were underpaid (here).

To be sure, searches on WikiScanner will probably show you that most employees are editing entries on "buttock cleavage" (found on the computers at the US House of Representatives here) or "Hispanic porn stars" (ditto) or "chest hair" (ditto). (Not to be outdone, the US Senate — here — appears interested in "cow tipping," "fast casual dining restaurants," and whether Han shot first in the cantina.) (He did.)

But if your company is big enough to merit its own Wikipedia entry (and by "merit," I mean that you or one of your coworkers wrote one), then you may want to check in with WikiScanner and see if your employees are trashing your company or its customers.

Or maybe they're just sharing "canker-sore stories" (yep, the Senate again).

[Big shout out to Christopher Mirabile, long-time Gruntled reader and idea-generator, for pointing out the WikiScanner phenomenon.]

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).