Corporate & Securities Law

The Billable Hour Alarm Clock

By John Wallbillich

You know it’s going to be a great week when the first thing you hear Monday morning is the president of the American Bar Association talking about the Billable Hour.

ABA president Stephen Zack was interviewed this morning on NPR’s Marketplace. Full text and audio are here. President Zack responds to a question about client interest in alternatives to the billable hour by touching all the bases:

The clients and the lawyers recognize that we have to have a partnership when we represent a client and their interest and the lawyers interest have to be one in the same and that is to efficiently deliver legal services and provide value.

Wow, that’s a mouthful! Mr. Zack then continues, when asked whether this “change” could mean less money for lawyers:

Well, value billing doesn’t mean less money. It could mean more money. If in fact you have a multimillion dollar lawsuit and you are able to resolve that lawsuit with one phone call let’s say, aren’t you happy to pay a value-related result as opposed to having to try the case for several years, pay those fees, and then on top of it have to pay the verdict.

A-hah!

There you have it. Just when you think a sign of progress on legal cost control is the mainstreaming of the issue on NPR’s morning business segment, the ABA president lets us know that alternative billing can be about more money, if clever outside counsel play their cards and structure their AFAs right.

Mr. Zack certainly knows something about fees and incentives, given his service with the Boies, Schiller & Flexner law firm. That firm takes on significant cases, at real risk, and often shares in the upside with very satisfied clients.

But it is not a marker for mainstream corporate legal services. And the bromide about clients and outside counsel “partnering” is a very tired one in the circles I travel in.

For the vast majority of legal services, GCs are looking for solutions, not partners. Heck, many law firm partners aren’t really even partners, so how could a client be one?

The interview ends with this nugget from Mr. Zack, when asked if lawyers could sometimes leave money on the table:

That’s part of it. It’s got to be fair on both sides. And if not, there are folks that feel very comfortable that the hourly billing is working well for them and they’re going to continue to use it. So we’ve got to find a way that lawyers are adequately compensated but more importantly that the client feels that they are getting what they’re paying for.

That’s fine, but it turns on what you mean by “adequate compensation.” In the next wave of change for corporate legal services, many if not most firms in the Am Law 200 are going to find out that client’s don’t value their services for what their costs + profits demand.

It’s not a pretty reality for the large-firm dominated American Bar Association. And it is a reminder for all GCs that before you spend many months on an AFA, consider whether the work in the meantime could be done by a lower-cost option.

Maybe by a member of the BBA: the Bangalore Bar Association.

Now that’s a wake-up call.

Full post as published by The Wired GC on February 14, 2011 (boomark / email).