Seriously. Can the one person who likes the billable hour please raise your hand?? I’d like to know what about it you like? Is it the math? Junior partner Susan is standing in line to purchase a frappuccino and decides to check her e-mail. If it takes Susan 3 minutes to read and respond to the e-mail from Client A, and 2 minutes to read and respond to the e-mail from Client B, how much did her $6 frappuccino cost? Or is is the ego thing? Corporate partner Bill is billing $600/hour and working in a Class-A highrise while that know-it-all he went to law school with, who thought he was oh so smart, is only billing out at $275 as a family law specialist in a Class-B building on Ventura Blvd.? They both drive the same BMW series and live in similar suburban neighborhoods. Can you guess which one is fully engaged, and manages to make it home for dinner every night with the family? It can’t be the stress that is bringing on an ulcer at 32 from trying to bill 2000 hours/year as an associate because that was the deal made with the devil for that starting salary out of law school at $145,000 – $160,000/year? He’s still driving that POS used car he got in college, just praying to pay off the last of his student loans before the next round of layoffs. The New York Times today has an article, What’s an Idea Worth? that challenges the business as usual behind the billable hour. One of the major flaws of the billable hour model that I see from my office is that it not only rewards the biller for being less efficient, it brings on a lot of stress and lack of enjoyment for your day-to-day work. Jason Blumer, the accountant example in the story, shook things up when he took over his father’s accounting practice:
There would be no time sheets, no dress code and, most radical of all, no billable hours. He was convinced, in fact, that the billable hour was part of a series of mistakes that took all the fun out of his profession. To him, it seemed like a relic of a dying economic age and one that was depriving his industry of billions in profit. (skip) Just as Apple doesn’t want to be in the generic MP3-player business, Blumer didn’t want to be just one more guy competing to charge a few hundred dollars an hour to do your taxes. A few years ago, he said, he realized that the billable hour was undercutting his value — it was his profession’s commodity, suggesting to clients that he and his colleagues were interchangeable containers of finite, measurable units that could be traded for money. Perhaps the biggest problem, though, was that billing by the hour incentivized long, boring projects rather than those that required specialized, valuable insight that couldn’t (and shouldn’t) be measured in time. Paradoxically, the billable hour encouraged Blumer and his colleagues to spend more time than necessary on routine work rather than on the more nuanced jobs.
And for those attorneys who are more senior, and are selling their efficiency along with their years of intellectual capital, how long will you limit your value to the 1/10 of an hour? In discussing the article, my friend Ann Lee Gibson posed the following question:
What is the value of the legal services necessary to save a client $10 billion in revenue over the next 20 years, and achieve the stakeholders’ goals? Is it the $300,000 in non-discounted fees?
Some will argue yes. Some will argue no. But the intellectual capital necessary to bring that deal to fruition is most definitely worth more to the client than the $300,000 billed in this example. But our current billing and valuing systems do not take into account these types of deals. Sure the example is to an extreme, but what about a divorce, or a merger, a criminal trial? They are all worth a certain amount to the client, and to the lawyer. Will an attorney or law firm get the pricing right every time? No. But over the years law firms and attorneys should have a good understanding of how much it will cost to achieve the client’s goals. Yet we’ll continue to break down the value of work, experience and intellectual capital of the most minute activity to the 1/10 of an hour. And we will neglect to reward the successes achieved through experience and knowledge. Sadly, while the article rings truth paragraph after paragraph, the author doesn’t have any solutions. He refers to the few — what he calls — “Cliff Jumpers” out there leading the charge to dump the billable hour, but no one has figured out how to accurately price intellectual capital and productivity:
Perhaps without realizing it, the Cliff Jumpers are at the forefront of one of the great challenges of modern economics. Measuring productivity is central to economic policy — it’s especially crucial in the decisions made by the Federal Reserve — but we are increasingly flying blind.
I don’t know if we are any closer to getting rid of the billable hour then we were a decade ago. I don’t know if a law firm of any notable size (10 or more attorneys) will be daring enough to take on a different model. But like so many rhetorical questions, it is definitely worthy of a discussion around the water cooler. (ht to Tim Corcoran for posting this article to my legal marketers group on Facebook — PM me you’d like to join … He’s on vacation too this week)