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!

Comments

[Ed Kless]

Great post, when are the Tom "Duh" Keans of the world going to realize that hourly billing is the "alternative billing" in the real world! We have 150 years of economic thinking on our side.

[Mike Grodhaus]

Jay, I didn't realize you spoke Canadian. Thank you for the kind comments about my blog. You're on my blogroll, too.

Ed Kless' previous comment is right on the money: what you and I now call "alternative fees" was the norm in the legal profession in this country until the late 1950s-early 1960s when billable hours became the rage. So perhaps we should label billable hours as the true "alternative fee."

[James Mason]

Jay:

I agree wholeheartedly about both the "alternative billing" thing (alternative lifestyles? what?), and the timesheet issue as well, but there's something that I think we tend to gloss over that's even more important, particularly with respect to the fact that YOU, and your firm, seem to "get it," without having had to be told.

I'm talking, of course, about the whole "Culture" thing. Even Intini, as good as his article was (is?), misses the point entirely.

You can't CHANGE culture any more than you can manage a herd of cattle, or tell your cat what to do, it's an illusion. Culture is created by all the members of an organization, and it's continually being reinvented as people come and go, and change themselves.

But as you, and other firms, law-ish or not, change the way in which they bill, other things about firm practices change too, and then, maybe, it becomes a chicken-and-egg issue. And maybe that's the problem.

Is it people who're willing to see more than the narrow-angle view that adopt value billing, and other rational rules (like NOT micromanaging time, like NOT worrying about if lawyers are working into the wee hours every night, like NOT packing lawyers into casefiles like overeager freshmen into little cars), or does the willingness to adopt value billing indicate a certain level of rationality in the first place?

I'm not sure that it matters all that much, but the question itself is fascinating.

Warm Regards,

James E. Mason
Managing Partner
Mason|McRight Legal Recruiting

[Sandeep]

Alternative fee arrangements as wonderfully displayed as an answer to the problems raised by hourly billing techniques is actually a threat to law firms as such. Who cares?
The convergence systems followed by most of the companies shows that in future work will be narrowed to a few big law firms offering AFA. Then smaller law firms will be eliminated from the whole game.
It is the most horrific threat AFA poses to the whole arena of law practicing.