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Law Practice Management

Top Cravath Partner: Kill Billable Hour

Posted Jan 6, 2009 6:50 PM CST
By Martha Neil

Evan Chesler isn't the first prominent lawyer to make the suggestion. But his call, in a January magazine article, to kill the billable hour used by most corporate law firms as a basis for charging clients is bound to be influential because of his position at the helm of one of the most prestigious New York City-based law firms.

Neither clients nor lawyers like the billable hour system. It robs clients of control and gives attorneys the wrong incentives, rewarding them for long-running litigation rather than speedy success, writes Chesler, a Cravath Swaine & Moore presiding partner, in a Forbes op-ed piece.

The solution, Chesler says, is for lawyers to be more like Joe the plumber, Joe the electrician, and Joe the general home contractor. They should give the client an up-front price, building in leeway for the unexpected. They, if they win, they should be rewarded with a success fee—which also provides quality assurance for the client.

"For reasonable periods of time during the life of a lawsuit, say three months at a time, I should do what Joe does: identify the client's objectives, measure, calculate, build in a contingency and come back with a price," Chesler writes. Winning, not effort, he says, deserves the A.

Hat tip: The Am Law Daily

Related earlier coverage:

ABAJournal.com: "Scott Turow: Ban Billable Hour"

ABAJournal.com: "Will Corporate Counsel Push Law Firms to Drop Hourly Billing?"

ABA Journal: "End of the Road for the ‘Cravath Model’?"

Comments

1.

Jose M Delgado
Jan 9, 2009 5:44 AM CST

More control of lawyers, yes.  More control of procrastinating assciates and partners, yes. Budgets, yes.  Success fees, yes.  Cooperative mood bewteen client and lawyers, yes.  But turn law into an “exact” science is ilussory.  The truth, as always, lies in between.  The law of the pendulum (from billable to nothing or symbolic unless you “win”) is always a bad counsellor.

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2.

C. Lamont Whitham
Jan 9, 2009 6:32 AM CST

See my article in the current issue of the Virginia Trial Lawyers Journal.

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3.

Nigel Tufnel
Jan 9, 2009 7:35 AM CST

In consulting, we call that a firm fixed price contract.  Some clients opt for those over time and materials in order to have cost certainty.  It’s been an option in management consulting for a long time, but the difference in firm economics probably won’t make it work for big law.  Your first, second, and third year associates aren’t all that profitable at their billable rates given their cost, whereas first and second year folks in consulting are extremely profitable.  If you want to move to a value-based billing approach, you have to move to a value-based hiring approach.  That probably means hiring less on the basis of class rank and looking harder at each individual applicant, what they’ve done before and during law school, and keeping a close eye on night students, who are more likely to have had career success in the past and better professional skills coming in.

For what it’s worth, I’m a graduating night student this year.  I don’t plan to leave mgmt consulting because the job market is so bad.  I originally wanted to work at a smaller firm with a better balance.  I don’t know how you folks do the hours in big law, but I respect your ability to do it.

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4.

Dan
Jan 9, 2009 8:14 AM CST

“The solution, Chesler says, is for lawyers to be more like Joe the plumber,”

Unlicensed?

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5.

Jesse A. Torisky
Jan 9, 2009 8:27 AM CST

“C. Lamont Whitham-See my article in the current issue of the Virginia Trial Lawyers Journal.” Unfortunately, this cannot be done unless you are a member of the Bar there or have a subscription to that journal.

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6.

C. Lamont Whitham
Jan 9, 2009 8:39 AM CST

Jesse A. Torisky - Send me your e-mail address at monte@wcc-ip.com and I will send you a copy.

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7.

Jesse A. Torisky
Jan 9, 2009 8:56 AM CST

Thanks, Lamont, much appreciated.

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8.

Jeremy
Jan 9, 2009 9:02 AM CST

Dan—

Joe the Plumber was not “unlicensed”—he worked under his employer’s license.

Just like nearly every realtor is technically “unlicensed” because they are working under their employer’s broker’s license (which is different from the salesperson’s license 90% of realtors have).

But I won’t let facts get in the way of left-wing smear…..

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9.

L
Jan 9, 2009 9:12 AM CST

I like the idea.  But I wonder how courts would look at this in terms of awarding attorneys’ fees (or attorneys’ fees applications in bankruptcy)?

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10.

Stone
Jan 9, 2009 10:03 AM CST

This industry is just at the beginning of a massive change. The billable hour will largely die off. Give this guy credit for speaking out about it, now let’s see him do something about it.

The old game is over. It’s dying, let’s move on now.

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11.

Bob
Jan 9, 2009 10:08 AM CST

Now that would be innovative - have “lawyers” rather than paralegals work under the partner’s license when they go to court. No pesky law school there.

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12.

Steve
Jan 9, 2009 12:00 PM CST

This all seems well and good, but as an associate, I can’t see how it benefits me and see only potential harm.  In a firm where a significant amount of the bonus depends on billable hours (subject to a diminishing returns curve so as not to incentivize associates to work too much, burn out and produce poor work product), if that measure is removed, how am I to be rewarded/compensated for the fact that because of the project(s) I happened to be on, I worked a heck of a lot more than the guy/girl down the hall?  Sure, you say, but this just means there have to be other potentially better forms of reviewing and then compensating associates.  Fine, but they will all be less precise (e.g., subject to management skewing, politics and shorting the associates) then being able to point to hours worked and having an idea of where you stand.  I know billable hours certainly should not be the only measure, but they do help reward you for having had to work a lot more than someone else.  Of course, they are of no import where bonuses are all lockstep, which also seems to disfavor someone who works more.
You can change the fee structure, but associates still have to do the work, no matter how much or what the deadline

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13.

Mark
Jan 9, 2009 1:44 PM CST

Great article! As a client and business manager, it amazes me that law firms do not incent people to drive positive results for clients and award the best people for solving customer problems effectively (every industry has created performance measures for people that have the customer in mind – including medicine). I will though applauded the economic genius of the leading law firms by creating an industry norm where it’s expected that employees work twice the hours of other professions by offering employees about a 30%-60% incremental pay differential, thus minimizing the firms personnel expenses (wages), building space and infrastructure costs, while driving for more and more throughput (creeping billable hour commitments). Albeit misdirect and unsustainable as a long term business model relative to other business sectors.

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14.

Karen
Jan 9, 2009 1:55 PM CST

Bravo, Mark!  Well said, couldn’t agree more.

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15.

JEH
Jan 9, 2009 2:11 PM CST

“Winning, not effort, he says, deserves the A.” Is not the right formula for legal work.  Lawyers are not henchmen or hit men, paid for winning at all costs.  Or at least they shouldn’t be.  A lawyer’s job is to represent his client, to serve as the client’s voice in court, to provide legal counsel, or to negotiate on the client’s behalf.  But just because the client’s case needs to be stated as best it can be does not mean the client’s position can always prevail or even should always prevail.  On the contrary, our judicial system is based on the idea that attorney are officers of the court first, and only then the representatives of their clients.

To me, a lawyer earns his professional fees for putting forth every effort to state the client’s case and perform the client’s work, not merely for winning. 

Just as it is reprehensible to pursue the billable hour at the expense of the client’s financial interests, it is equally reprehensible to to pursue a “winner take all” strategy at the expense of the system of justice we swear to support and uphold. It is not my duty to “win” for a death row inmate.  It is my duty to make every effort to present his case and present it well. 

To me, our first professional responsibility has to be to the courts, then to the clients.

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16.

Paul
Jan 9, 2009 2:21 PM CST

Getting rid of the billable hour should be the primary goal of the legal industry.  However, the comment “Winning, not effort…deserves the A” points out a problem: who the hell would take on a losing case?  And who knows at the client intake interview whether the client is in the right or not or, even if he is, whether the case is a winner?  Why take it on if you’re not sure it’s a slam-dunk winner?  Who hasn’t—even by no fault of their own— won a case they shouldn’t have or lost a case they shouldn’t have?  Getting paid for winning and not effort arguably creates more perverse incentives than the billable hour (I don’t believe so, but it’s possible).  How about this idea instead: CUT the damn hourly rates, absolutely CAP associate and partner hours at 50 per week (with almost no exceptions) and work into the retainer contract some kind of “speedy resolution” bonus?  Yes, lawyers will make less money.  Lawyers will also loathe their jobs less (somewhat) and can have a life.  Associates won’t drop out in droves and partners might not get divorced three times before marrying their assistant.  And, yes, your job CAN be done in 50 hours per week—you THINK the world will collapse if you don’t work much more than that but, guess what?  It won’t, the client won’t, the firm won’t, you won’t.  Is this idea perfect?  No.  Is the billable hour perfectly perverse?  Yes.  Change it for the good of the profession, the attorneys and the clients.

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17.

Isaac
Jan 9, 2009 4:39 PM CST

I don’t see anything wrong with giving cleints a price range upfront.  We can still keep track of billable hours for internal purposes, such as for monitoring efficiency, awarding bonuses, etc…

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18.

Mike
Jan 9, 2009 6:19 PM CST

It will fail!!  This is a business people—and it’s a “cash flow” business.  I can see it now.  A lump sum contract with a clause for “additional work authorizations” and “change orders”.  I love the naive presumption that you can somehow “measure” the case and its infinite layers of potential work (read “discovery explosions”) as if you were a plumber doing a take-off on a job with a set of plans.  Dumb

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19.

Peter
Jan 9, 2009 7:55 PM CST

Law firms are rewarded for providing work billed hourly that is reasonable and effective - it’s called having a good reputation and tends to lead to long term financial success - amazing!

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20.

Mark Matthews
Jan 12, 2009 12:44 PM CST

Billable hour is used for two purposes:  driving revenue and measuring employee productivity.  Until the industry comes up with a new way of measuring the latter, it won’t die.  But it should!

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