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(Originally Published in AmLaw Daily August 27, 2009)
With front-page coverage in Monday’s Wall Street Journal about the "Billable Hour Under Attack", and a major opinion piece in Corporate Counsel calling for Alternate Fee Billing, it's probably worth recapping where we are in the debate over the billable hour.
Let’s start with a bit of reality check. Moving away from the billable hour is no more inherently transformational than moving to the metric system would be. It may be a milestone of change or it may be a catalyst for change, but in and of itself it is not a huge change, just as redefining a yard as a little less than a meter won’t make anyone taller, richer or better looking.
The arguments for the Billable Hour (and, as previously noted, the most interesting thing is that no one seems to want to vigorously defend it) are pretty clear:
- It’s out there, we know it, it more or less works, we don't know anything better; and
- An hour of time is the core of what lawyers deliver, and firms price hours more or less appropriately, so that hours spent is a good measure of value.
- Not all hours are created equal, so total hours is a poor surrogate for value;
- Billing by the hour gives firms an incentive to spend more time than needed, rewards poor diagnosis of the real issue and retards process improvements and the substitution of less expensive resources (better trained lawyers, nonlawyers, less expensive lawyers, offshore lawyers or technology); and
- Hourly billing impedes a more sophisticated discussion of value.
Great firms and great relationships can deliver great value in either method; mediocrity can survive in either as well. Overall prices may be the same, higher or lower. Ditto for value and profitability. In my opinion, I think you'll find that a firm which moves from hourly billing to alternate fees, after thoroughly studying the issue, engaging with clients around it, aligning their processes, and passionately embracing the new practice will probably see a twenty percent increase in the value it can deliver for the same amount of time, which could either accrue to the client or the firm. But the opposite will also be true--a firm that passionately moves from alternate fees to hourly billing will also see a value gain. It is the engagement with the model, not the method of counting, that will make a difference.
I think it is fair to say there is nothing new to be said intellectually about the billable hour; organizations ranging from the ABA to the Canadian Bar Association to the Association of Corporate Counsel have published pretty deep analyses showing why it’s time to move to something different. The only "defense" one hears is the classic lawyerly issue-spotting, corner case hypothetical critique of the alternative--not a spirited explanation of why the Billable Hour works. In my view, "the unexamined billing system is not worth living," and the biggest problem with the billable hour is that is leads to pretty nonrigorous self-assessments by firms and unproductively vague conversations between lawyers and clients.
As I discussed back in January, this is all more interesting as an example of how law has a conversation with itself and manages change than it is intrinsically. As Bruce MacEwen has sagely written, the Billable Hour debate is at its heart a debate about trust between firms and clients, and a symptom of its decline. Twenty-four months from now we will surely have more work delivered via alternative fees, and we will surely still have billable hours. Some firms will thrive in one and not the other, some in both, and some in neither. Some will learn from the changes, others will learn nothing.
I am moderating a panel of managing partners (Brad Karp from Paul Weiss, Don Lents from BryanCave, and Ed Reeser who has his own firm) at the American Lawyer conference in New York City on October 26 where this will be discussed. Join us there if you can, and in the many other debates and discussions that will be taking place online and in different fora.
In the meantime, I would suggest at a minimum every firm and client carefully examine its current model and experiment with the alternative, and then assess the relative client satisfaction and profitability of each. Firms who discuss billing methods with themselves will develop a much better understanding of their business and how to help clients, and those who discuss it with clients will develop both a better understanding of their clients’ business and restore some of that lost trust. Firms that simply presume that the future will be a mirror of the recent past, and so shut down learning, are on the path of what we have come to know as Hellerization.
