Legal Commentary

The Daily Trifecta: Change Meets Law

By Patrick J. Lamb

Bear with me on this one.  I came upon three different articles that, in my mind at least, fit perfectly with each other.  Sort of like getting the Rubik's cube right. 

First is this list of the 13 Worst Things About Hourly Billing, brought to you by The Greatest American Lawyer.  Thanks to my friend Gerry Riskin for alerting me to this post.  Here's my favorite:

4. The moment a client opens up an hourly bill and realizes that the last month effort just cost three times more than she expected for the entire project.

Second, there was a discussion over at Legal On Ramp that included Ron Friedman's post of comments from Sheryl Katz (BigLaw associate and partner at WilmerHale, Bryan Cave, Perkins Coie, and Graham & James, general counsel, and business person):  Here are her comments, which are significant enough that I have reposted them in full:

I read your blog post about the possibility of large companies getting sick of big firms and going to small firms. Having been a General Counsel I think this is highly unlikely as more than a minor trend.

If small firms that would do the same quality work for less were truly available, I would have farmed out more work to them. In some cases former law school classmates, or former attorneys at Wilmer or other firms that I knew, were available in smaller firms to help on matters. Sometimes this resulted in good quality work and lower bills. However, small firms often don’t have the depth of staff, so some matters that are not even necessarily that big can really only be handled by a bigger firm. Also, on a lot of transactions you really need your tax lawyer, corporate lawyer and banking lawyer to be at the same firm.

Then there is the issue of outside parties on transactions. If you are working with a large bank or Venture Capitalists or Private Equity, you may find that they want to work with a “name brand.” Often they are indifferent to the legal fees because they are not the ones paying the bills.

There are very good lawyers everywhere; there are great solo practitioners. Unfortunately, there is also a lot of mediocrity. If, as General Counsel, I had to put too much work into the project training outside counsel or fixing their work, then I didn’t want to use them again. The firm I used the most was expensive but always did an excellent job, and its associates were efficient enough that the bill was often cheaper than less competent counsel from smaller firms.

On the other hand I regularly used a small IP firm that had split off from a large mega firm. The work was consistently great and it was a bargain. But I knew the lawyers really well and before I used them I tried several small IP firms and was very frustrated.

Going to a large firm in a lot of cases is sort of like going to a chain restaurant. You pretty much know that the minimum you are going to get is going to be acceptable. And if the firm messes up, as General Counsel, you are covered. After all, you can always say “It may be a mess but Blank, Blank and Blank is reputed to be a great firm so don’t fault me for hiring them.

The third article was an AmLaw Daily article, The Innovation Agenda: Are Lawyers Stuck In GM's Tire Tracks?  One key quote from the article:

“The analogy to the auto industry is perfect,” stated Fred Bartlit, with his usual conviction. The founder of Bartlit Beck Herman Palenchar & Scott added one qualification: “Lawyers are harder to change than car executives. They’re trained to find things wrong with a new system.” (Bartlit, it should be noted, has represented General Motors Corporation in the past.) Bartlit, who left Kirkland & Ellis 16 years ago to found a nontraditional firm, stressed that lawyers' behavior can only be understood by examining the science of paradigm shifts. "The last to change are the ones who were best at the old system."

These there articles highlight the challenge now confronting the legal profession.  At this point, there can be no serious argument that the hourly billing system is in a client's best interest.  Firms have mastered the model and used it to squeeze out profits beyond anyone's immagination only a decade ago.  At the same time, however, apologists for the present system have fashioned arguments to sustain the system.  Those arguments, along with the virtually insurmountable obstacles to cultural change in large and mid-size law firms, combine to create persuasive proof that law firms cannot and will not change to meet their clients' needs.  The change needed is akin to turning around an aircraft carrier in a bathtub. 

President-elect Obama's new Chief Of Staff, Rahm Emmanuel, was recently quoted as saying "a crisis is a terrible thing to waste."  My prediction as that as companies continue to sink under the weight of  the declining economy, more and more will look to smaller firms and alternatives to the billable hour in an effort to squeeze greater value from their service providers.  People looking back at Sherly Katz's prediction that this will be only a minor trend may well view it as an enormous understatement.

Full post as published by In Search of Perfect Client Service on December 30, 2008 (boomark / email).