Taming the Billable Beast
Three firms take different approaches to change by-the-hour billing
Posted Feb 1, 2008 10:33 AM CDT
By David Gialanella
The billable hour is the dandelion of law practice: pervasive and not so popular.
So, when seeking to avoid the negative effects of a system that provides the profits for many a firm, there can be as many approaches as there are landscapers in the phone book.
Three law firms were among those changing the billable equation last year in hopes of reducing associate and client dissatisfaction. Each took a different approach, and though it’s still early, each firm’s leaders like the current results.
NO HOURS, NO CHARGE
Ford & Harrison took a big step back from the billable hour, removing requirements for first-year associates to meet a billable quota and not charging clients for contributions by first-years. It’s a move that only further emphasizes the need to foster strong relationships with clients, according to managing partner C. Lash Harrison in Atlanta.
Clients do tend to get excited about the first-year program as it benefits them, but fear of the unknown takes over for some, Harrison says: “The problem is, it moves people out of their comfort zones sometimes.”
Still, the outside response has been positive. Shelling out to pay first-year lawyers always has been a major sticking point with clients, attorneys say. And Ford & Harrison’s clients are beaming.
That’s the response employment attorney Lauren Wherley has come to expect. She is a first-year associate with the firm, which changed billable-hour requirements last August. When clients hear about the firm’s new “year one” program, which allows first-year associates to concentrate on clinical training instead of meeting a traditional quota, the clients’ eyes light up, she says.
“It’s great to see their reaction,” says Wherley, who works out of the firm’s Washington, D.C., office helping represent a number of airlines across the country. “They get another attorney, another set of eyes, another mind—and they don’t have to pay for it.”
And Wherley not only is out from under the billable-hour cloud but also has gotten highlighted assignments other rookie associates don’t often get. For example, she was able to accompany a partner to an arbitration hearing, where she was responsible for preparing witnesses. She also has written a brief on her own since she began working last summer.
“That’s a big deal for a first-year associate,” Wherley says.
The new policy played no role in attracting Wherley to the firm; the program was installed after she began working at Ford & Harrison. Nonetheless, the idea is a tantalizing one for prospective employees.
According to a February 2007 straw poll conducted by the ABA Journal, about 84 percent of associates would prefer a more manageable billable-hour requirement, even if it means smaller checks.
Anything that differentiates a firm can be used as a recruitment tool, Harrison says. And curtailing attrition at large firms like Ford & Harrison would be the flip side of the personnel coin. But law firms remain for-profit businesses, and it’s still too soon to tell whether the change will make a difference.
“I don’t think anyone has enough data to really say yes or no,” he says.
At least one small firm, however, already is saying yes. Shepherd Law Group in Boston has thrown out the billable hour altogether in favor of flat fees and fixed prices, and it could not have asked for a better result.
In 2007, says CEO Jay Shepherd, the firm “billed exactly 0.0 hours [yet] more than doubled our revenue for all of 2006.” He adds, “It sounds too good to be true. It’s not.”
Now there’s no looking back for Shepherd, whose firm handles labor and employment law. He recently added a sixth attorney, and he denies secretly keeping track of the hours spent on each case.
In their new billing model, Shepherd and the other partners can get together to brainstorm strategies—something that would have required billing for several different attorneys. Most clients would never stand for those sessions if charged by the hour.
It’s easier for a boutique firm to institute a change, but Shepherd cannot argue with results: Research becomes more focused; soon, efficiency improves. For the Shepherd Law Group, at least, eye-popping numbers are to follow.
Refusing to take the billable hour as gospel is also quite handy as a marketing tool, says the business-minded Shepherd. Clients hear about flat rates and they are almost automatically interested, he says.
Still, if revenue is the main concern, there’s no way around having to do some guesswork at first. Any flat-rate system takes some getting used to.
“We know when we underprice something—after the fact,” Shepherd says. Some matters take more work hours to resolve than others—hours that cannot always be predicted. “At the same time some firms are resisting overbilling, we’re resisting underworking.”
Even when clients offer to renegotiate fees in an especially time-consuming case, Shepherd Law Group sticks to its guns. “We bear the risk—not the client,” Shepherd says.
There is the argument that flat rates create an incentive to cut corners in the interest of saving time. Still, the lawyer who does a shoddy job will not be in business for long, no matter how he bills his clients, Shepherd points out.
The converse argument—in favor of discarding the billable hour—makes sense, Shepherd says.
“How many other things do you buy without knowing the price?” he says. “Could you imagine getting on a flight ... and paying by the minute?”
However, a change in billing systems does not have to be so dramatic. At Strasburger & Price, the billable-hour requirements for first-years were slashed by 320 hours in 2007, down from the 1,920-hour standard.
Retention was the big theme, according to managing partner Daniel L. Butcher of Dallas. While other firms might say they want to hang onto their recruits, this 140-lawyer firm is showing how by making the first year more educational, he says.
“We want them to spend more time on training,” Butcher says. “Our overall approach with associates is trying to get people who want to be a part of what we are. We want to put our money where our mouth is.”
New associates now do a total of 550 hours of training, including trial academy and mentoring. Reallocating associates’ time and allowing them to work more closely with partners lets them get to know clients better and more quickly. And they more readily invest themselves in the future of the firm.
First-year Carlos Garcia, for instance, could not have completed his first bench trial or sat in on daylong motion hearings were it not for the new policy.
“I grew up in a small town in southern Texas where my father was one of the few lawyers in town,” says Garcia, who now works out of the firm’s Dallas office. The kind of one-on-one experiences he’s gotten at Strasburger & Price were ones he wanted but never thought he would get right out of law school.
Garcia, who does condemnation law and has a mechanical engineering background, also was able to study for the patent bar exam. It was the smaller, 1,600-hour billable requirement that made those study hours possible, he says.
In his second year, he will have to meet the traditional 1,920-hour requirement. He says the shift is not so much a scary proposition as it is the end of a very fun ride.
“I’m a little disappointed I won’t get to shadow as much, but hopefully I’ll get more experience doing motions on my own,” Garcia says.
As with any change, there is some internal resistance, particularly with a few long-standing partners who may see the program as failing to force first-year associates to earn their stripes the old-fashioned way, Butcher says.
“A few of our partners remember how deep the snow was and how far they had to walk to school.”