Articles Posted in The Billable Hour Business Model

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The Point

In every U.S. jurisdiction except Arizona and Utah: “A lawyer or law firm shall not share legal fees with a nonlawyer ….” (With exceptions set forth here that don’t apply to this discussion).

In plain terms, American Bar Association Rule 5.4, and its counterparts in the legal “ethics” canons of the other 48 states, says that lawyers — and no individual or entity other than lawyers — may have any ownership interest in a law practice.

Not a Big Four accounting firm that fields its own teams of attorneys. (In contrast with England & Wales, or Singapore, or Spain, or Canada).

Not an alternative legal services provider (ALSP) that “segments” services ranging from the most sophisticated one-on-one legal advice to automated business processes that do routine and recurring legal tasks more efficiently, more cheaply and more accurately than law firm attorneys or in-house counsel. (Again, in contrast with England & Wales ….) Continue reading

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The Point

Where corporate Legal needs the services of a specialist, it should look primarily among law firm partners for the practitioner who has spent years — more typically decades — focused on the narrow legal area in which the company’s need arises (more on this here and here).

Surprisingly, attorneys employed by such firms as associates — especially the larger ones — receive very little training for their work (see here, here, and here). Yet these law firms assign such associates alongside such partners and bill them at hundreds per hour for their supporting role.

Management lesson: Corporate Legal, to get the expertise its client company requires, should maximize the services of the specialists it really needs, and minimize the services of associates who role is mainly to bloat billable hours (see here and here about the law firm financial technique called “associate leverage”). Continue reading

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The Point

From a November 28 report in American Lawyer Media / Law.com (subscription required):

“‘Surprised, Angry, Dismayed’: Legal Departments Vow to Fight Law Firms’ Rate-Hike Plans … The in-house legal community is expressing outrage that law firms will be pressing for aggressive rate hikes in 2023, even though they know that legal departments are under extraordinary pressure as the economic outlook sours”.

C-Suites and business owners concerned about their Legal functions have three options here:

1. The emotional option: Whine about frustrations,

2. The tactical option: Make do the best they can without challenging law firms’ status quo for hiring specialist attorneys, and

3. The strategic option: Take charge, using the same management disciplines by which other corporate functions and business units achieve operational effectiveness. Continue reading

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The Point

1. High-stakes corporate legal services call for optimum performance from the attorneys who provide them.

2. But long hours to the point of fatigue are the default mode for both in-house and law firm attorneys. (Stresses on in-house lawyers are such that a 2022 Wolters Kluwer survey finds 70% of them are “very to somewhat likely to leave their current position in the next year”. Bloomberg Law reports this week that law firm attorneys bill an average of 2,052 hours per year.)

3. Planned over-work for those who shoulder such consequential legal duties is unwise. Continue reading

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The Point

1. After two years of white-hot demand for their services, Bloomberg Law’s recent headline says demand for the junior lawyers who work as employees of big law firms (“associates”) is taking a sharp downward turn.

2. Even without the Pandemic’s boom / bust impacts on the legal market, the vast majority of such associates end up as short-termers who spend about six or fewer years at firms that nevertheless charge hundreds per hour for their work.

3. Those law firms lack an incentive to invest robustly in the average associate’s professional development, because most associates won’t become partners.

4. So the hundreds per hour charged for such associates’ time pays for the services of young attorneys who too often have been given only ad hoc preparation — who are “supervised” by one, two, or even three levels of attorneys senior to them — with consequent wasteful duplication. Continue reading

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The Point

1. If you don’t know the quality of what you’ve bought, no amount or kind of cost data can tell you if it’s money well spent.

2. The Thomson Reuters’ 2022 Legal Department Operations Index reported that 70% of corporate legal departments track total spending by law firm, and that other cost-control categories comprised 13 of the top 16 data sets on which they focused management attention.

3. But a mere 8% reported quality of legal outcomes among their top 3 focus areas, prompting one legal tech provider to observe: “Only 8% of Legal Teams Care About Quality. Really?”

4. Karen Skinner, of Gimbal Canada, one of the top half dozen law practice management experts in North America, had a different view:

“In-house teams not interested in quality of legal outcomes? It’s more likely they have no easy way to measure quality.”

Continue reading

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The Point

On September 19 Ron Friedmann, a highly regarded authority on law practice management processes and technology at Gartner, posed the following question to other legal experts on Twitter:

“If you could magically make stick one change in each of #BigLaw [large law firms] and corporate legal departments to improve them, what would it be and why?”

Alex Hamilton replied:

“Corporate legal department: only buy on fixed fees.

“Big law: the above will fix it“. Continue reading

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The Point

1. With the launch of its new “Precision Research” platform, Westlaw  promises to cut in half the time lawyers take to do their legal research, and offers more precise results.

2. Law firms bill hundreds per hour for legal research by junior / trainee associates who are only one, two, or three years past graduation. And most bills of better qualified law firm attorneys are on an hourly basis as well.

3. Cutting the time for that legal research time in half would cut the hourly bill for that legal research in half.

4. Cutting that bill in half would be good for client companies, especially in a recession. But, in the dysfunctional world of the billable hour business model, it would be deemed bad for law firms — and possibly a dubious move during a recession. Continue reading

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The Point

After an historic high number of law firm hours billed industry-wide in 2021, Q2 of 2022 has seen an historic year-over-year drop in those hours. This drop will likely cause major, near-term, upward price pressure on law firm rates.

Traditionally, general counsels, the practicing attorneys who run corporate law functions, mostly accept such rate increases (albeit with ineffectual grumbling).

Therefore, with inflation at the highest it’s been in decades, it’s going to be up to you as a business leader to step in and make sure that your company makes robust use of its purchasing power with those law firms. Continue reading

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The Point

It’s considered a best practice among lawyers in-house to “manage” work relationships with their law firms by writing rules for them to follow. “Outside counsel guidelines” they’re called.

And they don’t work all that well as a substitute for more conventional management relationships. It’s common (subscription required) for in-house attorneys to review their law firms’ time entries in detail, and then complain to those law firms about departures from the outside counsel guidelines. With those law firms then having to respond accordingly. A chronic waste of everyone’s time.

Setting a fixed price upfront for a matter would eliminate the “need” for the business client to tell its law firms exactly how they must do their work on that client’s behalf, and avoid the related “need” for in-house counsel to audit their compliance. Continue reading

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