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Law Firms Confront Issue of Underutilized Partners; 15 Percent Plan Cuts in Early 2013

Nov 19, 2012, 12:00 pm CST

Comments

Such nice euphemisms. I think Hickock is buried in a town called "Underutilized Partners, SD."

By B. McLeod on 2012 11 19, 1:20 pm CST

The only way to not be on the expense side of the ledger is to be a revenue producer. All lawyers must build their own businesses since clients will do business with them because of them. This cannot be done by just networking. That is, by hoping that someone will refer a client. We believe it is about getting the right referrals from the right people to the right clients while making the competition irrelevant. That takes work and a plan but it is worth it! We have seen it change lives over the lat 16 years.

By Ken Potalivo on 2012 11 20, 1:38 pm CST

How do most firms calculate the bonus structure for those exceeding their billable goals? Does anyone know of any useful literature on the subject?

By George on 2012 11 21, 12:10 pm CST

I charge flat rate fees. I think the billable hour is going to eventually die. If a firm is forward thinking, they may want to start adapting to this reality and instead adapt a fee schedule that is about the task then adjust that for the complexity or simplicity of the task, rather than go with a billable hour. My practice continues to grow and I think a lot of that is about having a good reputation in my field in terms of being among the best at it, but also charging flat rate fees so folks know what they are getting into upfront. People will pay for the stars but for more routine work, the billable hour I fear will be starting to die. This may mean a reduction in revenues or could be an increase in business with the revenue side restructured. But as budgets change in terms of what is paid for legal services, restructuring the approach to legal fees should occur and maybe the lawyers should be judged by different metrics.

By elklaw on 2012 11 21, 12:56 pm CST

I agree with Elklaw. Billable hours work only where they can be passed on to customers, as with public utilities. For almost all other uses, and particularly for individual clients, they misprice the value of the service rendered. They also misallocate firm resources; useful talents that are called upon only occasionally must be kept on board and subsidized by the "mass-producing" billable workers, only to be cast aside when the billable workers demand more pay for what they do for the firm. Flat fees value the actual benefit to the client. Fees rise or fall according to supply and demand. Now that the legal services market is glutted with lawyers, flat fee work will rise because the many talented lawyers who work outside of the old law firm system will be the ones who make the real market that serves real people.

By Steve on 2012 11 21, 2:43 pm CST

Flat fees work well for routine cases where you know what to expect beforehand; but flat fees discourages lawyers from doing anything more than the bare minimum amount of work on the file, because there's always another billable file waiting to be billed. At least that's what I've found.

The legal market is shrinking and it's already oversaturated. There's a business model out there somewhere comparable to that of a contractor or plumber or some other service industry. Run the business out of your home office to keep overhead low, pay employees next to nothing (hard to do to keep lawyers around though) and keep volumes high. The days of the client visiting the lawyer and paying $325 an hour for any sort of general practice work is coming to an end.

By Indentured Servant on 2012 11 21, 4:04 pm CST

Agree with Elklaw generally. I now have a primarily transactional practice. My billing for wills, trusts, marital property agreements, incorporations, leases, real estate sale and purchase transactions, is generally on a flat fee which I generally quote at the beginning. Sometimes I come out equivalent to an hourly billing, but more often I come out making less. But that's the way it is, and the clients get the benefit. However, I find that for probates, and for elder law / Medicaid planning consultations, only an hourly rate makes sense. The same goes for litigation matters (the few I can't get out of doing.) Doctors charge by the procedure, which is akin to a flat fee. Many in the trades (electricians, plumbers, auto mechanics) charge by the hour. Both methods have validity. I don't think lawyers have to compartmentalize themselves into only one billing method, regardless of what corporate in-house counsel may prefer. The lawyers are trying to make a living, just as such in-house counsel are trying to show their bosses how much in savings of legal costs they are making. Billing has to be sensible, and it has to be fair not only to the payor, but to the payee/provider.

By TG1974JD on 2012 11 21, 4:07 pm CST

Back to the topic: I bet a lot of the partners who are shown the door are the older ones, unless the firm already has the pay-cut* and/or mandatory retirement process firmly in place. Although some of the older ones bring little value, I think the mandatory retirement process is short-sighted.

There is little substitute for the wisdom, experience and judgment the older lawyers can bring to the process; they may enjoy the mentoring that no one below them will do since it is not only off the clock but eats into the clock. Long-time clients respect them, even as their businesses transition to the next generation.

But that's all as if this were a profession. As a business, dump them at the Union Mission.

*Why isn't it illegal age discrimination to cut pay or fire based on age? One large firm considered simply reducing compensation 20% a year starting at age 65 until the old guy got nothing.

By Hadley V. Baxendale on 2012 11 21, 6:39 pm CST

With firms making career decisions for partners based on their working attorney (collections for their own working hours) numbers, I noticed at my former firm lawyers generating work in areas they should not be practicing in but keeping the work for themselves anyway because the firm moved away from meaningful consideration of origination of work along with attorney prduction to emphasizing attorney production alone. The clients and professionalism suffered. The firm was at grater risk. Rainmakers were not adequately compensated. Partners became competitors of each other, someimes for the same business. Not good.

By I got over the wall on 2012 11 21, 8:36 pm CST

I think Wells Fargo measured the wrong statistic, and the ABA should've noticed!

The percentage of the firms surveyed that plan to cut partners says little or nothing about the firms' health. Any or every firm, utterly regardless of its financial health, could plan to cut one or two deadbeats, or practitioners of a defunct specialty; the statistic is a crapshoot.

The meaningful statistic would have been what percentage of a firm's partners the plan to cut. If you average out that number, you'd find out whether there's an overall trend of ill financial health.

Journalists - and readers - should be quicker to ask ourselves, "Why," when we see what's reported.
No sense agonizing over something meaningless. Duh.

By Avon on 2012 11 22, 1:53 am CST

Do you think the partners on the way out the door see the cho-cho train coming? I think most won't. I liked the way it happened to me. No advance warning. A pay gut after a decent year. What did that tell me? Get off the train, grab your files and walk down the street toward the low rent district.

By FRANK MARTIN on 2012 11 23, 8:48 pm CST

Everybody else will know first. (It's a clue when the UPS man pops his head in your office and asks, "Oh, are you stil here?").

By B. McLeod on 2012 11 23, 11:55 pm CST

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