Big Law Firms Begin to Mull Alternatives to the Billable Hour
As noted in our News section, in a January 30, 2009 New York Times article, it was reported that in response to the economic recession, dwindling deals and projects, a few of the most prestigious and large law firms are now beginning to consider offering their clients, including small businesses and commercial firms, more cost-effective fee arrangements.
If you read the article carefully, it is clear that the existing firm structures, which have long used the billable hour as the chief yardstick for evaluating attorney performance, leave the managing partners of these firms in a big quandary: one the one hand, in this economic climate, it may be necessary to offer alternative billing arrangements to retain long-time clients (or entice new ones to retain their firms); on the other hand, adopting such new fee arrangements threatens to open a huge Pandora’s Box: How do you evaluate attorneys’ performance, especially when comparing associates across different departments? For example, how can you fairly compare (or contrast) attorneys in the bankruptcy department, who may have ample billable work, with an attorney in the litigation department, who is now working – at least partially - on a flat fee basis?
Even more basic, if you’ve been exclusively using the billable hour for decades (if not longer), how do you even begin to evaluate what a reasonable flat fee for a particular task might be that still makes sense for the client?
Frankly, if you’re anything like me, I can’t garner much sympathy for these firms’ fear that they will be losing money (and leaving more money in their clients’ pockets) by charging their commercial litigation or small business clients too little for a given task. And the reason for this is straightforward: if these firms were genuinely interested in doing what was best for their clients – rather than their own coffers – they should be pleased at the opportunity to serve the public good. One would certainly hope that was a large part of why they became lawyers in the first place.
Indeed, on a fundamental level, it can be argued that keeping your clients’ interests primary, even at a short-term cost to your firm’s bottom line, makes good business sense: if you satisfy your client, chances are they will not only come back, but will refer additional business your way.
In the final analysis, the large law firms’ willingness to begin considering alternative billing arrangements should be questioned rather than applauded. In a word, “What took you so long?” Many, if not most, smaller law firms have offered such options all along.