Articles Posted in The Billable Hour Business Model

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The Point

Many in the U.S. legal profession have long touted “pricing innovation”, promising corporate clients savings and cost certainty.

As of 2022 these promises remain largely empty.

Because in the U.S. corporate legal sector the billable hour continues to prevail. By a wide margin. So says the 2022 State of Corporate Law Departments Report issued by Thomson Reuters Institute, provider of information and technology to attorneys. Continue reading

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News Item

From the American Bar Association Journal, January 27, 2022:

“Goodwin Procter is providing ‘thoughtfully curated weeklong’ trips to associates and some other billers, so they can get relaxation time on the law firm’s tab … The trips are valued at $5,000 to $10,000, depending on lawyer seniority.

Those eligible for the program include associates, professional track attorneys, science advisers and science law clerks who billed at least 1,950 hours last year, according to Reuters.”

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Excerpt from the Financial Times article (subscription required) cited in my Wednesday, January 28 post:

A female partner at Skadden [Arps law firm] says: ‘When a lawyer has done 2,500 billable hours in a year the law firm goes ‘hurrah’. In many other businesses, she says, ‘management would be saying hang on, have we got a mental health issue here? Are we distributing work poorly?As long as our profession charges clients and rewards success and gives bonus by reference to chargeable hours [nothing will change].‘”

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The Point

The legal profession’s business model incentivizes physical and mental exhaustion by looking to hours billed as the yardstick by which an attorney is measured.

This is bad for the lawyer and bad for the client.

This Matters to Your Business

A recent piece in the Financial Times documents this (“Junior lawyer burnout:M&A boom accelerates exit from elite firms”, Jan. 2, 2022)(subscription required).

Put aside for the moment that a large percentage of hours billed come from recent law grads whose experience is scant and whose training is thin.

Given the stakes for a client business, legal work is intellectually demanding — so mental acuity is imperative. And even the most proficient lawyer isn’t at his or her best without adequate rest and mental health.

Yet, as the Financial Times article states:

“Law firms are strict hierarchies in which associates work in cohorts under partners who dole out their work and monitor their performance, based largely on ‘billable hours’. Associates at top-flight firms are generally expected to bill anything from 1,900 to 2,200 hours a year … training, business development and other pressures add hundreds more, depending on the firm.”

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THE POINT

As former general counsel and legal innovator Jeff Carr tweeted the day after the above headline:

“OMG!… Wait, didn’t this story run in 1998, and 2001 and 2008 and 2014 and, well every year there’s a survey? Oh well, might be a slow news day.”

DISCUSSION

This is old news. Really old news. Though I guess it doesn’t hurt to run a survey for current, empirical confirmation.

According to a corporate general counsel group called “In the House” and LegalBillReview.com, 73% of in-house counsel believe their legal department are spending too much on their outside counsel.

Chris Colvin, head of “In the House”, offered some context:

“He noted that the survey was sent to in-house counsel before the pandemic caused by the new coronavirus began. He said he expects the number of in-house counsel who think they are spending too much on outside counsel would increase if the survey were done today.”

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Last Thursday (March 5, 2020) I was, for the umpteenth time, shocked to be reminded of how un-businesslike the legal industry’s billable hour-based business model really is.

I say “un-businesslike” rather than “crazy” — or something more colorful — because the clients I serve are businesses themselves. And their businesses succeed or fail based on their results.

The legal industry (the vast majority at least) demands that their client businesses pay on the basis of lawyers’ inputs. And as I explain below, law firms charging by the billable hour business model routinely misstate what those inputs are.

So it’s no wonder that lawyers and business people have such a hard time understanding each other.

They literally occupy different universes.

From a commercial standpoint at least.

So what shocked me last Thursday?

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P&L executives concerned with managing legal risk and controlling legal costs should know that artificial intelligence (AI) promises greater accuracy and lower costs in litigation tasks. If and when the legal industry adopts the technology.

And last month some of this promise appears to have been realized in some concrete, and economically accessible, terms. Again, conditional on actually acceptance and use of this AI. 

For a business, litigation is (usually) a huge waste of money. And a large chunk of this wasted money goes to formal requests that lawyers make to judges. Requests that they and their adversaries spend lots of time (read “money”) fighting over in front of a judge.

It’s called “motion practice”: Your honor, please dismiss this case; please exclude this testimony; please make my adversary give me the papers in their files that I want to look at; etc.

In a legal industry where the number of hours billed (usually) defines value, this typically results in each law firm assigning not just a litigation veteran whom they put in charge of the case — but also multiple, less-experienced attorneys to maximize those hours billed.

How do these less-experienced attorneys fit in here? Happily (for the legal industry’s business model at least), “motion practice” requires lots of what those recent law grads were trained to do when still in law school: Researching cases, statutes, and rules; and creating “briefs” that describe why those legal authorities require that their client’s requests (via this “motion practice”) should be granted.

Late last month, Casetext, a legal tech firm known for its artificial intelligence (AI) research tool “Case Analysis Research Assistant” (CARA), announced “Compose”, their automated brief-writing product.

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10 Ways That Outside Counsel Disguise Overbilling“. 

Headline of a December 17, 2019 article in Corporate Counsel, a prominent publication directed to in-house lawyers.

Citing the Association of Corporate Counsel’s findings in its “2019 Global Legal Department Benchmarking Report”, the article begins with this statement of fact:

” … Large companies with big legal departments go over budget by about 37% every single year.

“Why do they go over budget? A big reason is overbilling from the outside law firms they hire to do work for them.”

Cost overruns of that size.

And inaccuracies in charges imposed on clients by people who serve as fiduciaries (attorneys) to the clients harmed by those inaccuracies.

Inaccuracies that advantage those outside firms — not ones that result in under-charges.

How did this become business as usual? How can it be that such overruns and billing inaccuracies are normalized?

What’s so wrong with this area of Legal — outside lawyers’ charges to client companies — that the article’s author, Ryan Loro, can be part of an entire industry — “legal bill auditing” — that checks up on the accuracy of what lawyers bill their clients? And gets paid solely from the excess of what law firms charge over what they agreed to charge (i.e., no net cost to the client)?

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The case of Cass v. 1410088 Ontario Inc. contains this one sentence written by an Ontario Superior Court judge in the course of disallowing from an attorney’s fee request the amount designated for “legal research”:

“If artificial intelligence sources were employed, no doubt counsel’s preparation time would have been significantly reduced.”

Padding on the hours billed for researching case law is a favorite method for bulking up legal fees related to court cases — for lawyers in the United States — as well as for those in Canada:

1. Thomson Reuters’ Canadian arm noted this:

“Judge says AI could have been used”, and “Courts mindful of technology”.

2. A Toronto-based intellectual property lawyer offered this observation:

“Really, that judge was saying, ‘If you can do this faster, why are you not doing it faster? Why are you charging your client for something that could be done more efficiently?”

3. And the CEO of legal AI pioneer Ross Intelligence Andrew Arruda tweeted:

“If artificial intelligence sources were employed, no doubt counsel’s preparation time would have been significantly reduced.

“… IT’S HAPPENING FOLKS.”

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Thus began an October 15 article in “Above the Law” — one of the leading news websites directed at lawyers — particularly lawyers employed by law firms as “associates”.

Under the headline “Biglaw Firm Makes It That Much Harder to Get Your Bonus”, here’s the complete text of the first paragraph:

“As we enter the home stretch to make billable hour targets in advance of bonus season, one firm is changing the ground rules on its associates and robbing them of a small but significant chunk of time that they’ve always been able to count toward their 2100 hour minimum.”

Quite appropriately the reporter focuses on what this means for specific interests of the law firm associates who are his readers.

But for a business lawyer concerned with managing a company’s legal affairs, what jumps out is something else. This is a timely reminder of the cockroach-like survival of the billable hour — and of its business model corollary: The pursuit of “associate leverage”.  

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