Perverse Incentives Influence Behavior


The Point

This week a strategy consultant sought my advice about engaging counsel on the legal implications of a project. I explained that her project was in an area where governing law was relatively straightforward. Though attorneys need to do lots of expensive work to address some situations, this project was not one of them.

I cautioned that too many firms incentivize lawyers into framing business issues so as to insert more complexity, more complication, and more uncertainty than the situation warrants. And then bill accordingly. So she needed to carefully select trustworthy, client-focused counsel.

From my email later that day:

” … In connection with my apologies earlier for possible cynicism about having to carefully manage one’s lawyers, the linked tweet from an attorney and technology expert I admire (Alex Su) illustrates why I am so cautious … The law can be an honorable profession, but clients need to be realistic about the perverse incentives their lawyers are working under.”

This Matters to Your Business

From Alex Su’s tweet, recounting the following story he’d read from a legal recruiter; and the “lesson” that legal recruiter drew from it to “guide” young lawyers in their careers:

“I was  working with an attorney who graduated from the top of his class at a top 5 law school. He was working for a major NY law firm, and a junior partner had brought in a big client and gave this young attorney [associate] an assignment to do.

“The young attorney was very smart … and told the partner that a part a certain contract involved in the potential litigation could put an end to a potentially long, drawn-out lawsuit. All they had to do was point it out to the client.

“The junior partner was extremely upset with this. The junior partner was interested in billing lots of hours to the matter — both this client and the big, costly lawsuit were important for this attorney’s standing in the firm ….

“The associate [young lawyer] ended up getting fired over this incident … The law firm wanted nothing to do with someone who would not play the game ….

The best partners are always finding all sorts of work that they can do for their clients — and this is what keeps them busy. Attorneys at all levels need to find work to be done, and create work when necessary.”

Because …

Sadly, the “helpful” advice to a young attorney contained in the legal recruiter’s final paragraph above reflects a viewpoint shaped by the profession’s prevailing incentives.

To the objection that this is an extreme instance of legal’s perverse incentives, consider a widespread phenomenon seen every year: hourly billing quotas that determine attorneys’ compensation and advancement (see here, here, and here).

Is it unrealistic to expect that an attorney working under such a quota, faced with a shortfall to their required number of hours, will be tempted to stretch out the hours that a task takes?

Begin to move your company’s law firm relationships to engagements based on value, and not on time spent.

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