Six Minutes And Counting: Reproaching The Billable Hour

BY ROB FRIEDMAN

New York Biglaw firms recently raised starting salaries to $160,000 while announcing huge increases in summer associate classes (Skadden’s class is up 35%). Business is booming at corporate law firms throughout the country but the supply of cogs is running dangerously low. How low? Cadwalader interviewed at the University of Pittsburgh law school for the first time this year. Proskauer recruited at Northeastern.

What is going on here? The economy is strong and new JDs have attractive non-legal job prospects, but these are not the days of the tech boom that hit soon after I graduated, when you could skip Civ Pro to create a new search engine and then take it public before Torts. 160 grand at entry-level is nothing to sneeze at.

It seems the lure of Biglaw is not what it used to be. Firms are losing warm bodies faster than they can be replaced. According to a recent NALP study, 37 percent of associates leave their firms after three years. Only a third stay beyond five years. The modern law firm pyramid appears to be crumbling.

Senior partners are indignant. Who are these young lawyers who roll into the office at 10:30, turn down Friday afternoon assignments, and eschew wristwatches? Don’t they want to be partners in 8-12 years? Is $200,000 after guaranteed bonus not enough compensation for 25-year-olds with no experience or practical legal skills (or any other skills, unless you count swinging a Wii nunchuk)?

Blame the billable hour – the mortar that holds the law firm pyramid together – or, more accurately, the pressure to churn out more and more of them in the same 24-hour day (you didn’t really believe that 1,900 hour requirement, did you?). Blame the recording of your waking hours in six-minute increments so precise that you will frantically scramble through your telephone call log to figure out if that conference call was a .3 or a .4; working an 11-hour day to get 8 hours of billable time and then staying extra late, not because the project is urgent, but because you have not yet hit an arbitrary hours target; or missing crucial mentoring opportunities because they are not billable. It is demoralizing and demeaning for any lawyer who believes that they are selling specialized knowledge and expertise and not merely slices of their time.

Clients hate it too. They know that 2,400 hour billing targets make for heavy pencils, and that there is plenty of churning and padding in their bills. Mark Chandler, Cisco’s General Counsel, gave a remarkable speech recently in which he observed that the “most fundamental misalignment of interests is between clients who are driven to manage expenses, and law firms which are compensated by the hour.” It is a system that in many instances rewards conflict over resolution, that overcompensates lawyers who lack focus and direction and undercompensates those who work efficiently and add value.

Alternatives exist. Until the 1960s, the flat fee was the dominant legal billing method. Its demise was largely caused by rampant price-fixing, but also by the difficulty of putting a fee on increasingly complex matters. But it can be done. Consulting firms like McKinsey regularly use flat fees for complex engagements.

Contingency fees have long been in use by plaintiffs’ lawyers, but more corporate law firms are using them as well. Corporate defendants are hiring firms that usually practice on the left side of the v. The marketplace realizes that there is no better alignment between the interests of clients, lawyers, and law firms than a system that gives everyone a significant stake in the outcome.

This is not to say that the billable hour should be banished – hourly retainer agreements often make sense for lawyers and clients – but risk-averse corporate lawyers need to get over their fear of alternative billing arrangements and think creatively about billing arrangements for every new matter. What is riskier than billing by the hour is relying exclusively on growing law firm profits through increased hourly rates, hours targets, and leveraged associate-to-partner ratios. The ever-massing pyramid is crumbling under its own weight.

So what can a young lawyer do other than avoid law firm life? My best advice is some old investing advice: pay yourself first. Look at your legal career like a big piggybank of hours. The billable hours pay the bills. The non-billable hours go into the bank. Put aside hours first for your life outside of the firm. Then put hours aside to learn from a mentor, to appreciate how what you are doing helps your client, to truly understand and master everything you do the first time you do it (hint: read the rules!). The time that is left is your billable time, and you must use it as efficiently as possible. Turn out excellent work and partners will want to work with you and clients will want you on their team. Don’t obsess about your hours – try not to even know your numbers – so long as you are busy. Eight years later no one will remember how many hours you billed as a first-year associate but your reputation for responsive, exceptional, value-added work will serve you well. And you will have a full piggybank.

Rob Friedman, a former RECORD editor, worked at a New York City law firm for seven years. He is now an insurance coverage litigator in the West Palm Beach, FL office of the law firm Gunster Yoakley.

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