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The Billable Hour is Dead

May 29, 2013

Done. Toast.  El Finito.  Sayonara.  Stick a fork in it.  Elvis has left the building. Don’t-let-the-door-hit-you-in-the-backside-on-the-way-out kind of dead.

BigLaw Feeding on Client, circa 2008

BigLaw Feeding on Client, circa 2008

Yeah, but some of you will say, “How can it be dead, when it is still everywhere around us?”  We only need to look to the fate of the dinosaurs to answer that question.  Just as BigLaw and the Billable Hour ruled the Legal World for the last 50 years,  the dinosaurs were Kings of the Cretaceous Era, right around 66 million years ago.  But instead of a devastating asteroid impact, BigLaw was hit by the similarly earth-shattering Great Recession of 2008, which forced clients to wake up and take a closer and deeper look at their ever-escalating legal spend.  What everyone saw, however, was as equally terrifying as the mass extinction of the dinosaurs.  We have seen the ruthless and greedy pursuit of BigLaw profit take precedence over the delivery of value to the hand that feeds, i.e., the client.  It is no coincidence that the “holy grail” metric for BigLaw is PPP, or more accurately, PEPP (average profit per equity partner).  The only problem with PPP from the client’s perspective, at least, is that there is no correlation between high PPP and good lawyering.  Rather, the reckless chasing of PPP has hyper-incentivized the worst ills of the billable hour model.  Steven J. Harper, former BigLaw partner extraordinaire, and author of “The Lawyer Bubble,” cuts to the chase in a New York Times’ Op-Ed:

The billable-hour system is the way most lawyers in big firms charge clients, but it serves no one. Well, almost no one. It brings most equity partners in those firms great wealth. Law firm leaders call it a leveraged pyramid. Most associates call it a living hell.

Since the Great Recession, BigLaw has somehow managed to maintain, if not slightly increase, its average PPP.  It has done so in a most gruesome manner, through brutal layoffs, de-equitization of partners and a screw-turning increase to an already over-leveraged system.  All of this mayhem has been aimed at maintaining their own fat slice of the pie.  None of these desperate measures, by the way, have any relation to delivering better value to the client – quite the opposite.  Rather than offer any real legal project management and/or more effective process, BigLaw slashes non-billing positions like legal secretaries and other support staff.

Which brings us back to the end of the dinosaurs.  It is estimated that over 75% of all species on Earth vanished within a very short period of time, yet the vast majority did not perish from the great explosion itself, but rather from starvation caused by the resultant impact winter.  But this devastation and extinction also provided stunning evolutionary opportunities for those more nimble.  In the wake of the extinction, many groups underwent remarkable adaptation, producing a myriad of new and beautiful species such as horses, whales, bats, birds and fish.

The Great Recession of 2008 was BigLaw and the Billable Hour’s fiery asteroid.  It didn’t kill most of them directly, but they have clearly begun to starve from the fallout.  They are too big and lumbering to adapt.  Into this desolation, many new and exciting groups have emerged that are not only surviving, but which are beginning to thrive in the new world order.  I’ll discuss these new species and their ever-increasing role in the final death knell of the Billable Hour in my next post.

All is not lost for BigLaw and the Billable Hour.  After all, some have speculated that lizards may have also evolved during the long, miserable, impact winter, thereby providing a potential niche market for the smaller and leaner ancestors of the once mighty dinosaurs.

16 Comments leave one →
  1. May 29, 2013 6:14 am

    As Darwin said: it is not strongest of the species that survives nor the most intelligent that survives, it is the one most adaptable to change.

    However, just to throw a lawyer joke/wrench into your argument…sharks survived the great extinction quite well.

    Great post. Looking forward to the next one.

    K.

  2. May 29, 2013 9:43 am

    Oh if only it were as easy as this. Until law firms have a ownership structure that rewards profit and not revenue the saga continues.

    [Originally posted on LinkedIn]

  3. May 30, 2013 7:09 am

    Great stuff Mike. Here is my follow up “response” to your post.

    http://chisconsult.com/articles/the-billable-hour-is-dead/

    [Originally posted on LinkedIn group “Alternative Fee Lawyers”]

  4. May 30, 2013 7:12 am

    “It’s not dead…, it’s resting; pining for the fjords!” Dead, or almost dead. Either is an improvement over the status quo. My travels and discussions with many of the same folks as John (and surely Mike), however, suggest that we have “miles to go before [we] sleep.”

    [And the gauntlet has been thrown down. Can anyone else work Monty Python and Robert Frost into a post less that 275 characters long?]

    [Originally posted on LinkedIn group “Alternative Fee Lawyers”]

  5. May 30, 2013 9:41 am

    The billable hour
    Unpredictable black hole
    Sucked into the void

    Game on!

  6. May 31, 2013 8:43 am

    Mike, your article is to the point as usual. And like the dinosaurs, biglaw is trying to avoid acknowledging the obvious. The good part is that this creates opportunities for the survivors to break into new markets using innovation and adaption.

    [Originally posted on LinkedIn group “Value Pricing for Professional Services”]

  7. June 3, 2013 6:31 am

    As a former in house counsel, I became engrossed with this blog and the other The Last Honest Lawyer’s blogs. They are all spot on! This guy ought to be a keynote speaker at the next Association of Corporate Counsel annual meeting. ACC’s archives are replete with articles about how to do more with less, and proposed fancy (and often unintelligible) alternate billing models. This guy is a real breath of fresh air with oodles of GC-friendly common sense. If I were still in house, I would sure check out his services: http://clientfirstlegalsolutions.com/ . And for you skeptics out there, I should make clear, I don’t know him or his business. I never even heard of him until 35 minutes ago. I am just wowed that he is tackling this problem head on and … well, honestly!

    [Originally posted on LinkedIn group “Inhouse Legal”]

  8. June 3, 2013 6:35 am

    When I was 15 I attended a talk at our High School on Renewable Energy.

    I remember coming home to tell my Dad, who was and is a coal mining engineer, that he will be out of a job by the time I get into the workforce and that he should start looking for a new career. My reasoning was this – there is no way my generation (informed of the concept of pollution environmental responsibility) was going to dig up coal and burn it when there was an endless source of clean, accessible energy.

    My Dad didn’t share my concern, though he admired my enthusiasm to pursue a career in environmental services (as it was then called).

    Today, 21 years later, Australia (and to my knowledge most of the Western world excluding Scandinavia) burns more coal per day than ever before.

    And my Dad still gets paid to build new coal mines.

    I admire the sentiment of the death of the billable hour and quietly campaign against pay-per-hour, but I suspect Mark Twain would agree that the death of the billable hour has been greatly exaggerated.

    [Originally posted on LinkedIn group “Value Pricing for Professional Services”]

    • June 6, 2013 6:47 am

      Darren, I agree that the death of the billable hour has been greatly exaggerated but I can also say that a number of professional service firms across Australia (and the world) are making the move to alternative fee arrangements/fixed fees, etc. In the infamous words used in a shampoo commercial from some years ago “It won’t happen overnight, but it will happen.”

      I think that some of the main reasons we continue to burn fossil fuels is that they are still available and the cost to replace infrastructure such as power generators is very high. We all agree that the continued use causes pollution and depletes our mineral resources. Sooner or later, we will run out of coal to mine. I think most people agree that sooner or later, we will have to stop burning coal.

      This where the billable hour differs. There are alternatives available now and as client awareness increases, so will the demand from clients for an alternative to hourly billing. There is a significant change in mindset involved for professional firms but minimal capital costs of making the change. Sure there will always be those who want to be billed by the hour but in my firms experience, they are increasingly in the minority.

      [Originally posted on LinkedIn group “Value Pricing for Professional Services”]

    • June 6, 2013 6:49 am

      Agree with you entirely Craig. Also agree with Darren that the death of the billable hour is exaggerated. http://chisconsult.com/the-billable-hour-is-dead-sort-of/ There are alternatives available and your firm is a prime example of that Craig. All lawyers know there are alternatives-most just refuse to change unless and until their clients make them. Firms like yours and an increasing number of others Craig are proactive and innovative and they and their clients are all the better for it.

      [Originally posted on LinkedIn group “Value Pricing for Professional Services”]

      • July 1, 2013 8:41 am

        John, I enjoyed your post. And I particularly like the use of the words proactive and innovative. Accountants and lawyers work in a reactive environment and they have themselves to blame for this stressful environment.
        Timesheets are predominately a fairy tale, made up at the end of the week, that satisfies those at the top that think billable hours are a form of productivity. The alternative to time sheets is to take a proactive approach and meet with your client and determine their needs and wants, and in particular their wants. And be creative and innovative in delivering on those wants.
        You can then both agree on a value for the benefits (not the processes) that will come out of the work that will be done. This starts the proactive process for the professional. An agreement has been reached, and payment agreed upon. Both parties are happy and there is no argument about the invoice at the end of the process. There is nothing left to do for the professional but produce the goods. And they won’t have any timesheets standing in the way of productivity.

        [Originally posted on LinkedIn group “Value Pricing for Professional Services”]

  9. June 3, 2013 7:15 pm

    Mike Ayotte’s comments about the billable hour are refreshing, and his analogy to the age of the dinosaurs is right on. Our behaviors are shaped by what we measure and what we reward. For clients, how can a system based solely on the billable hour lead to efficient problem solving and better client service? For lawyers, how can a compensation system that rewards billable hours more than anything else lead to better mentoring and more satisfying careers for newer lawyers?

    [Originally posted on LinkedIn group “Inhouse Legal”]

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