Is the billable hour a trap? A contrarian perspective.
In Law Firm Fees & Compensation: A LawBiz® Special Report, I discuss several formats for billing legal services. Jeff Bleich, President of the State Bar of California, discusses one of these formats, the billable hour in his April column of the California Bar Journal. He raises the specter of the “billable hour trap.” He maintains that the profession must change its fee structure and move away from the current policy of billing by time. He reflects the thinking of many lawyers who are feeling the pressure of working long hours.
Because of his comments, I began to think about this subject in a way different than I have ever done in the past. I want to share some of my revelations as, perhaps, a catalyst for your further consideration on what clearly is a very important issue.
First, is the billable hour truly a trap? Or is the desire for economic rewards in a society whose cost of living continues to increase the real trap? Lawyers, no different from any other segment of our economy, want to earn a “reasonable” living. In fact, if asked, most lawyers would admit they would like to earn as much as possible. Just look at the many lawyers both in large firms and boutique firms who accept million (multi-million?) dollar annual compensation packages. And consider the many lateral moves by lawyers made primarily for their personal economic betterment.
Second, the assertion that our ethics rules are promulgated to resolve clients’ problems as cheaply and efficiently as possible just is not true. Our rules maintain a certain amount of decorum and boundaries to assure that we fight for our clients within the same sandbox and don’t sneak in an 800 pound gorilla. Nothing more, nothing less. For example, there is no punishment to the lawyer who refuses to discuss settlement … until the time of trial. In the meantime, both sides have rolled up many thousands of dollars in wasted legal fees … despite both sides being able to closely predict the outcome of the matter in question. There is no requirement that legal work be outsourced, either to India or to another law firm down the street with less overhead and lower fee structure.
Third, lawyers are not the hardest working folks in our economy. Yes, some are. But, I came from industry. I worked in a family business. I owned and operated several manufacturing ventures. I knew long hours before I ever practiced law. Talk to the CEO of companies and they will regale you with stories of long hours and hard work. Lawyers do not have a monopoly on hard work.
The billable hour is only a method of accounting; it is not the reason we work long hours. We work long hours because we love what we do; we love helping people; and we want to earn more money to better take care of our loved ones. Billable hours merely provide a method of accountability for those clients who may not see the value of what we do. If clients, in fact, fail to understand our value, we have failed to properly communicate with them and we have failed to understand the value to the client of what we do.
If we use a different method of accounting, such as “value billing” or fixed fees or any of a number of other methods, and we fail to have the “value conversation” with our client, they will continue to fail to understand what we do, why we do it, and how we helped them. And, they will then procrastinate or refuse altogether to pay our bills. And, we will continue to work long hours … if that is our proclivity … because we want to do more and earn more.
Lawyers wanting to do better for themselves drives much of what they do. President Bleich said the Bar helps lawyers only to better serve the public. So, too, I believe that lawyers will change their billing approach only when they understand how it will benefit them. Protecting the public will not be the motivator, though it may be the sales pitch used to attract more lawyers to a different method of billing. Remember the airline mantra, put your oxygen mask on first and then attend to your children.
Finally, President Bleich suggests that we must act as a profession. Years ago, in focus studies done by the State Bar of California, I learned that people view the profession one lawyer at a time, usually their own rather than the opposing lawyer. So, I ask President Bleich if he is billing his clients still based on hours, or is he billing his clients based on value? Has he followed the example of Patrick Lamb, an attorney in Chicago, who left a well-respected firm in order to open another law firm whose billing goals are based on value? This is one lawyer at a time.
President Bleich raises an important issue. I respectfully disagree, however, with the framing of the issue. I don’t think it’s a matter of the billing method used, but rather of failing to have the discussion about the value of the matter to the client … and the consequences that would follow from an open and candid conversation with the client about value.Tags: Cash Flow - Finances, Management, Marketing, Personal, Thoughts