<p>This is absolutely true, but misses the point of why the legal profession is going downhill at the moment. </p>
<p>Businesses and clients do indeed demand a lot of legal services… but you left out the fact that those services are now demanded to be ‘efficient and cost competitive.’ </p>
<p>For one, the billable hour is increasingly coming under fire. In the past you had a lawyer on retainer who, when dealing with legal issues, was essentially compensated more for being less efficient. </p>
<p>The firm that efficiently dealt with a matter in a few days and put it to rest was compensated little… Meanwhile, the firm that turned it into a big to do with hearings, subpoenas, teams of associates working the background and dragged it on for a year or more went laughing all the way to the bank. </p>
<p>Such silliness was the bread and butter of the legal profession for the last several decades, but those days are rapidly coming to an end. </p>
<p>Today, many businesses source their legal services just like they would source paper and pencils. Instead of just paying whatever their high priced law firm says is necessary, companies will now assess the needs of the situation and objectively analyze each firm’s ability to handle the matter effectively and efficiently. Much of what was previously handled by high priced associates is now sourced to lower priced paralegals. </p>
<p>Yes, one needs to be careful about what goes where but it’s increasingly extremely difficult for many firms to justify staffing someone who charges $200+ an hour to do what frequently amounts to mundane routine work that could be handled just as effectively by someone paid a fraction of that amount. Furthermore, many routine matters are now paid on a statement of work basis rather than a billable hour basis (ie I’ll pay you $X to successfully sort out the permits to build my bridge). </p>
<p>As a result of all the above many firms quickly found they could no longer get away with staffing massive teams of lawyers on each case and would only win work by selling small and efficient teams. Suddenly it took a lot less lawyers to get the same amount of work done… and that’s the state the profession finds itself in at the moment.</p>
<p>Well that’s a more just system than a pure no-fault system, but it also entails more lawyers and lawsuits. </p>
<p>Which is kinda the point I am trying to get at – if you simplify the system to try and cut down on the amount of legal services necessary, you usually have to sacrafice some other important value.</p>
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<p>That may very well be the case, but I’m not sure how it ties in to the arguments of those who want to drastically reform the legal system.</p>
<p>Ok, I see. I was in a bit of a side discussion.</p>
<p>Getting back to your point, I am a bit skeptical because, as far as I know, the billable hour has been “under fire” for a long time. What’s different now?</p>
<p>The billable hour has never been popular, but until relatively recently it was largely accepted as ‘just the way it works.’ </p>
<p>I don’t think that model will ever fully disappear, but what has increasingly come under fire is what’s being billed for and the the rates being paid. </p>
<p>In most cases legal work is a cost center not a profit center. Where there’s a cost center there’s a strong incentive to keep costs to a minimum and hence clients, and especially companies, have gotten much smarter about sourcing such services. The economic downturn only added fuel to the fire. When company executives looked over their P&Ls that ‘legal services’ line was likely very big and they quickly start asking “What are we getting for all that money? Surely we can find someone to do the same thing for a lot less!” They looked and sure enough they could.</p>
<p>To justify having a team of lawyers making huge salaries firms now have to justify that the work they’re doing could only be performed by someone with that level of training/salary… and the fact was that in many cases the work being performed simply didn’t require that level of expertise. When clients noticed, a lot of big firms got caught with their pants down and office towers full of high paid attorneys that fewer and fewer people were willing to pay a premium for. </p>
<p>We went through just such a process within my own company and have saved bundles. I don’t need a Harvard trained lawyer with a fat salary to file some basic regulatory paperwork… so we found some much more cost effective options that get the job done just as well and cost us a fraction of what we were paying before. </p>
<p>Even on more complex matters our former primary fancy big law firm has to compete with proposals against other players. Sure if the matter at hand requires the expertise in a specific subject area that a hot shot attorney at the big firm has then we’ll pay a premium for that service, but for most matters we get high quality service from firms that staff us much leaner and more efficient teams at a lower price–so they get our business. </p>
<p>Rocketman, I see your point but there have been many downturns where companies engaged in this sort of cost-cutting and people made the sorts of arguments you are making. Billable hours weathered those storms pretty well.</p>
<p>Based on history, it’s pretty likely that the economy will improve and boom again like it has so many times in the past. Assuming that the weak economy is putting pressure on the billable hour, wouldn’t we expect it to come back along with the economy?</p>
<p>IMO billable hours won’t even come close to disappearing at firms that are at the top of the market. Firms not in that position have definitely had to adjust.</p>
<p>Some pressures will go away, but if your a company and you’ve developed a much more competitive way to source your legal services that’s saving the company a lot of money why would you give those savings up just because the economy has improved? I don’t think most will. (and again I’m not talking so much about billable hours vs flat rates as much as I’m talking about the amount that clients are willing to spend for a particular service).</p>
<p>I disagree with this. While it’s true that there is a growing glut of lawyers, there is a limit to the number of the sort of elite graduates who populate BIGLAW firms.</p>
<p>If there’s been anything so unique about this crisis, it’s that it hasn’t been faced by us in history. </p>
<p>Boom times aren’t coming anytime soon. Stagflation is far, far more likely.</p>
<p>I will say, though, that many of the firms seem to have stabilized (with some showing increased PPP and revenue). Yes, other firms are suffering, but that’s just the way business works: Some models work, others don’t. For the fortunate few working at the stabilized firms, I think the job security is rock solid.</p>
<p>True, but many of those firms now lose business to the ‘growing glut of lawyers.’ The old argument that “we’re BIGLAW and it’s in your best interest to always pay the big bucks to work with us” just isn’t holding water anymore. </p>
<p>My own company is just one example in an increasing trend… we yanked the plug on on most of the bread and butter work given to our fancy big firm and bid it out to those with much more competitive pricing. </p>
<p>Of course partners at bigfirm quickly called us up when they found out what we were doing to say that we might be paying less but the quality of the work will be lower. It wasn’t. </p>
<p>They also tried to say if we didn’t send the majority of work their way we’d no longer be a priority client and they might not be able to take us on right away for our next big specialist matter. We called their bluff many times on that one too… and they were so desperate for our business we even got a big discount on our earlier rates.</p>
<p>Paul Weiss: 2% increase in PPP to 2.69 million (apparently, 2009 was their best year ever). 3.8% decrease in revenue. Gibson Dunn: 1.6% increase in PPP to 1.69 million. 4% increase in revenue. Irell: 27% increase in PPP to 2.49 million. 10% increase in revenue. Kirkland: 1% increase in PPP to 2.5 million. 2% increase in revenue. THere was also a net headcount increase.</p>
<p>Almost positive we’ll see stellar financials from WLRK, S&C, DPW, Cleary, Debevoise, and Munger Tolles when they come out.</p>