Legal Commentary

Tiffany's And The Billable Hour

By Patrick J. Lamb

    Great (and lengthy!) post by Bruce MacEwen in Adam Smith, Esq. discussing theories about why General Counsel have been slow to move from the billable hour notwithstanding how much they loathe the status quo.  No summary can do justice to the post, so be sure to invest the time to read it.  It's provocative, to be sure.

    Bruce makes this point:

    Finally, I elaborate a bit on the thinking behind my suspicion that "GC's don't really want to change," by analogy to shopping at Tiffany's:  ... I violently agree that we lack sensible or compelling measures of the "quality" and the "value" of high-end legal services today. If the shocking durability of the billable hour teaches nothing else, it teaches that we are by and large at a loss to determine value (a/k/a price), since we are throwing up our hands at valuing the output and resorting to the blunt instrument of summing the costs of the inputs (with a profit margin built in, to be sure).

    My point about the imprimatur of a brand name, or "quality," as Paul nicely puts it, may be a bit more subtle or at least a bit different than the implication that GC's will pay a price equal to the "detriment...if they didn't have it." My point was that having a Magic Circle or a New York Elite firm's name on your acquisition agreement or your IPO registration or your massive IP licensing deal has an in terrorem effect against challengers. It's like buying your diamond engagement ring at Tiffany's instead of on 47th Street. It may not actually be better quality, but it's perceived that way, and at some (I would suggest fairly self-aware) level that's precisely the bargain the buyer is striking.

I offer this thought for consideration:  no one buying decision fits neatly into any one category.  I wholeheartedly agree with Bruce that on mega deals or mega lawsuits (usually the deals and suits that the Board pays attention to), GC's are prone to selecting a name brand.  And if the matters truly are cost-be-damned kinds of matters, its hard to fault the logic.  But I operate on the premise (and perhaps I am wildly wrong here) that a material amount of external legal spend goes to more routine deals and disputes where price is much more a concern.  In those circumstances, the Tiffany's argument does not carry the day.  Indeed, while the engagement ring may come from Tiffany's, many birthday gifts come from 47th Street.  I think there are a combination of factors, including the ease of starting a matter on the billable hour basis--you send it to a lawyer with instructions to "handle" and--poof!--its off your desk.  Any other kind of alternative fee arrangement requires much more up front investment of time, and as we all know, time is a very precious commodity.  Then, too, there's the age-old issue of lawyers and change.

    I look forward to the comments that Bruce's post triggers. 

Full post as published by In Search of Perfect Client Service on June 18, 2008 (boomark / email).