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BigLaw Ensures Profits In Downturn Through “Alternative Billing” Arrangements

Published by on January 13, 2009

An email I received yesterday regarding a seminar on increasing law firm profitability in a down economy caught my attention.  The email caught my attention not because of the topic, but because of one of the bullet points within the email.  Lately, the press has been reporting on alleged dissatisfaction with the billable hour model.  (For […]

An email I received yesterday regarding a seminar on increasing law firm profitability in a down economy caught my attention.  The email caught my attention not because of the topic, but because of one of the bullet points within the email. 

Lately, the press has been reporting on alleged dissatisfaction with the billable hour model.  (For example, see here.)  In our opinion, the problem with the billable hour model is not the model itself, but rather a lack of trust in attorney/client relationship.  That is a topic for another day. 

The bullet point in the email caught our attention, however, because it illustrates our thoughts in prior posts regarding the misguided priorities in law firm economics (for our prior posts on law firm economics, see here).  More after the break.

The bullet point in the email we received yesterday said: 

“How firms are successfully moving away from billable hours to achieve revenue equal to 200% of the lawyers’ hourly rates.”

In our view, this kind of mindset is the very reason that the billable hour model is distrusted.  The alleged failure of the billable hour model falls directly on those firms who have abused it by expending unnecessary amounts of effort on projects.  That abuse of the billable hour has ensured one thing – – record profits per partner and revenues for BigLaw.  (See here, for example.)

The current rallying cry is for the elimination of the billable hour system.  As mentioned above, this hue and cry arises from an abuse of trust in the attorney/client relationship.  (our previous post on the incentives in alternative billing arrangements is here).  Those crying for elimination of the billable hour model believe that going to fixed fee or other types of alternative billing arrangements will help control legal costs.  On the contrary, as this small bullet point illustrates, BigLaw will always ensure that profits per partner do not decline. 

We believe that focusing on increasing profitability without consideration of client needs is looking at the situation backwards.  The foremost priority of an attorney should be to serve clients.  As a matter of justice, attorneys should make a fair rate of return on their work.  But playing a shell game with alternative billing arrangements to “lock in” profits seems contrary to the spirit of professionalism that we should be following.

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