Who Supports The Billable Hour?
I attended a NEO ACCA conference on alternatives to the billable hour a few days ago. In the next few blogs I will share some impressions, observations and thoughts.
First, let me make an observation: it was fortunate I went because I contributed to making the audience slightly larger than the presenters. You would have thought there would have been far more interest. There appeared to be a number of people who signed up for the program from the names at the welcome table, and the room was clearly prepared to accommodate many more participants, not mention the array of free food for breakfast.
I found the program quite interesting; and I tend to be skeptical of various schemes designed to reduce legal costs. So why was there no more interest? I have no idea, but I would like to hear from others who might have an explanation.
There was one explanation that arose from comments from the firm that was the focal point of the presentation--consumer resistance to change. The forum was not the typical situation where a series of in-house attorneys complained about the absence of alternative billing formats and representatives from firms resisted change or reluctantly expressed a willingness to consider alternatives after listing all the obstacles to change. It was a presentation where the law firm was actively promoting its willingness to participate in alternatives to the billable hour legal market. What they noted was the resistance of the market place to accept it. The lackluster attendance at the presentation certainly suggests market apathy.
So why was this law firm who is enthusiastically marketing alternatives to the billable hour struggling to sell the idea? Why aren’t clients lined up outside their door to take advantage of this new billing? Where were the participants in the NEO ACCA conference on the topic?
Of course, one might be able to offer explanations for each of these circumstances that do suggest that in-house counsel as a group favor alternatives to hourly rates. However, it just may be that notwithstanding all the protests by in-house counsel they really prefer hourly billing. It might be that protests against hourly rates are simply a disguise.
Robert Banks, the former General Counsel of Xerox and father of ACCA, spent an unsuccessful year with a law firm after he retired from Xerox attempting to sell services directed at helping in-house counsel control outside legal fees. After that year in which he was not particularly successful he shared his views that “in-house counsel did not want to manage outside counsel, they wanted to look like they were managing outside counsel.”
The hourly rate serves that objective in a couple of respects. First, the review of these fees creates the impression that the in-house counsel is intimately involved in the outside attorney’s detailed efforts. There is little doubt that in-house attorneys feel a need to be involved in the activities of the attorneys they hire as expressed in the description that they wanted outside counsel to work with them in a “partnership.” The debate between Steve Bokat and me in prior blogs explored that issue. Flat rate billing and contingent fees appear to diminish, at the very least, the apparent role of the in-house attorney in the daily decisions of the outside firm. Where the firm is providing both the time and fees associated with discovery, a major role for in-house counsel, controlling those expenses, would be largely eliminated.
A consequence of these billing practices may well result in less need for as much in-house staff. The firm at the NEO ACCA event noted that an advantage of the fixed fee arrangement was that it eliminated the need for paralegal staff to review the bill (or was paralegal a euphemism for lawyer).
Those of us who have been in-house know that there are huge pressures to grow the size of a law department. Both prestige and salary are associated with size of the department you manage; lawyers like to hire other lawyers if for no other reason than to demonstrate how much work they have. It is not unique to lawyers for sure. But the reality is that bigger is generally better for the employees, whether or not it may be good for the shareholder or owner.
If the in-house job description is to manage some aspect of the legal function, be it litigation or acquisitions, the lawyer might well be reluctant to forego the hourly rate, and the actual or apparent control that goes with long-term fixed-term agreement, where his real attention is only required once every couple of years.
Similar characteristics exist for contingency fees.
The effort to control costs using these techniques is not new. It remains to be seen whether the present effort has anymore staying power than prior attempts.
