Tag: time based billing

But what of the lawyers indeed?

I suggested to one of my colleagues this morning that he should read The Lex Column, and in particular The law of diminishing returns. The question it put was

But what of the lawyers? As private partnerships, they are shielded from close inspection, but some pain probably lies just around the corner.

The answer?

But there are already signs of forced consolidation, especially among US firms overexposed to a sickly domestic market. Anecdotal evidence from European firms with big overseas networks suggests that several American outfits are desperately seeking mergers. Expensive offices in Hanoi and Bahrain used to be seen as a drain on partners’ takings; now they may be mandatory to survive. Charge-out rates fell, in real terms, during the recession of the early 1990s. Newly qualified lawyers should nail down those six-figure salaries while they can.

The comments were directed at the global players, but they hold good for most law firms. There is little doubt in my mind that consolidation, and pain, is coming. The current economic climate is yet one more accelerator.

It was not all doom and gloom

The good news is that, unlike banking, the industry generally bills on a time-spent basis, so failed deals and falling transaction values won’t annihilate takings. Insolvency and litigation practices, too, should provide a buffer, as businesses fail and claims mount. And there are a few cost levers to pull: routine word-processing and finance functions could be dispatched to cheaper locations worldwide.

Yes and no: time based billing is already under threat (see previous posts) and it is rare that there is not an element of contingency in deal fees.

Legal Week’s poll today is ‘Will a major law firm go the way of Lehman?’ (and see Charon QC’s post Law review; sackings, shortselling and stupidity. . .) And the voting? Currently 68% are saying No – law firms will tough it out and 32% are thinking we are all under threat.

Selling time

My favourite New Yorker cartoon is of two large, plump cats, either side of a mouse-hole. One is saying to the other, “If we were lawyers, this would be chargeable time.” It says it all. My partners have had to put up with my constant refrain, when we discuss billing strategies, that we should not be in the business of selling time, but instead should be persuading our clients to pay for value. The problem is that time cost as a measurement seems so simple, clients may not like it but are used to it, and everyone else does it, so why should we change. Well, things are changing. Front page of the FT on Monday was the report Lawyers in UK reform hourly charges. This began,

Leading London-based law firms are reforming their system of hourly charges as they come under fire from clients who feel they are paying too much at a time of soaring legal industry profits.

Leading firms told the Financial Times that they were offering alternatives to hourly rates and making more use of cost-cutting business practices, such as putting services offshore. The shift highlights growing external pressures on the legal profession to change, after a period of dramatic earnings growth achieved through expanding internationally and exploiting the corporate takeover boom.

British firms have for the most part been slower than their US counterparts to examine alternatives to hourly billing. In the US, firms have for several years been under significant pressure to reform.

All I will add is about time to. It is not enough to argue that because it is easy, it must be the right way to do it. And if this is happening in the City, how long before it reaches the rest of us?