Manifesto: BigLaw is broken by pauljacobson

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									BigLaw is broken

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(or “Why the legal services business must change!”)

A manifesto and call for change by Paul Jacobson



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Introduction
The current model for legal services is anachronistic and detrimental to the very people the model should be helping; clients.  The current economic climate is only emphasising the need for change as clients find themselves faced with ever increasing legal fees at a time when they have to cut costs to stay afloat.  These clients may be tempted to cut back on their legal projects or stop legal work being handled for them altogether until the crisis abates but the problem with this is that the legal challenges they face won't simply go away.   It is like refusing to seek medical attention for a potentially devastating illness because doctor's fees are a little higher.   The problem isn't the need for these vital services or even the services themselves (per se) but rather the billing model used to charge for those services. The solution isn't just to reduce fees.  This is a complicated mess that needs to be untangled as much as possible and reviewed both holistically and in detail in order to understand the problem and suggest a solution.

Current legal services model
Clients generally have this notion that big is better.  Smaller law firms understand that as a general rule the more lucrative clients will take their work to the larger law firms without much regard for the quality of service  or the level of expertise they could receive at the smaller firms.  One part of the perception is the fact that larger firms can attend to a wider variety of legal issues than smaller, more specialised firms (and there is a degree of merit in this perception).   A larger and perhaps more influential part of the perception is, well, perceptions.  A large firm in its own building with a shiny sign must be more valuable and worthwhile than a smaller firm which doesn't have flashy premises.  Lawyers in more expensive suits must be better than lawyers who don't wear expensive suits.  Surely?!

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The catch is that those "features" don't come cheap and, at the same time, misrepresent what you are going to get for your money at the end of the day.   Law firms traditionally charge per hour and the larger firms charge like the proverbial wounded bull.   Going further lawyers at those larger firms are under tremendous pressure to meet budgets which are broken down into often absurd numbers of billable hours.   They are under direct and immense pressure to meet their budgets and under indirect pressure to go beyond their budgets for fear of falling behind in the race to the top.  It is a high pressure environment before you even consider the workloads. To make matters worse, clients often expect to have their work handled by the most experienced lawyer in that field at the firm and while that person, typically a partner or director, may attend the initial consultation or interaction with the client, the work will often be delegated to a more junior attorney who has a massive workload already.   This is done partly to manage fees (few clients can afford a partner billing at R3 000 to R4 000 over the life-span of a matter which could run to the tens of hours) and also to maximise the economies of scale the larger firms develop by hiring more and more junior lawyers.  Ideally junior attorneys should earn roughly a third of what they bill (optimistically).  The balance of the fees goes to overheads and their principal's earnings.   A partner who can farm work out to half a dozen junior lawyers earns more money and is more likely to meet her obscene fees budget.   None of this is new and these economies of scale are necessary to help build a thriving business, particularly in this industry.

Although you may instruct the partner or director in charge, you may find that your work is being done by lawyers you never meet and know nothing about. You get a bill and they fade back into the woodwork.

“The billable hour must die”
You don't have to go far on the Web today to find a discussion about the problems with the traditional billable hour fee model1 .  It has proved to be the mainstay of the legal services industry and the default billing method.  Heck, I still have an hourly billing model in my fee structure partly

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Interesting history of the billable hour in the United States here
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because some clients prefer it and partly because it is somewhat more lucrative.  At the same time I echo Evan Chesler's sentiment in his article titled "Kill the Billable Hour"2: I'm a trial lawyer. I bill by the hour. So do the associates who work for me. I have lots of clients, so I can pretty much work, and bill, as much as I want. This needs to be fixed. Yes, you read that correctly. Clients have long hated the billable hour, and I understand why. The hours seem to pile up to fill the available space. The clients feel they have no control, that there is no correlation between cost and quality. Richard Mulholland expressed a similar sentiment somewhat more succinctly  on Twitter on 10 February 2009:

In fact you donʼt have to look far for a vibrant debate about why the billable hour should be shown the door (or at least a smaller office in the basement next to the typewriter). The only people the billable hour really benefits are the lawyers who charge fees for their time. Jay Shepherd published an amusing and yet cringeworthy post titled “A coffee parable” in which he conceptualises a fictional coffee shop modelled like a traditional law firm. The whole post is worth reading at least once and contains the following revealing narrative: When I'm all but delirious from my lack of caffeine, my barista finally tells me that my latte is ready. It seems well made, and it tastes fine, although I would have preferred to have it more quickly. The young woman thanks me and wishes me a good day. "But I haven't paid you yet." "Oh, don't worry," she says. "We'll send you an invoice." Nearly two months later, I receive an envelope with the name of the coffee company on it. By now, I've already forgotten what I had gotten. I open the envelope and nearly faint.

2

Chesler is the presiding partner at Cravath, Swaine & Moore in New York, one of a number of large firms whose most senior lawyers bill more than $800 an hour.


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"What the heck?" Inside is a three-page invoice. The dollar amount is outrageous for a cup of coffee. But what's truly staggering is the level of itemization. First, there's a charge for the young woman's time with the following description3: Conference with customer in regards to customer's preference for beverage. Further discussion with same in regards to size, temperature, and fat content. Online research conducted in regards to same. The time she spent is tracked to the nearest tenth of an hour.

The change we need
One factor which contributes substantially to the billable hourʼs dominance is the perception that bigger is better. This perception entrenches large law firmsʼ position as the port of first call and something to aspire to if a client canʼt afford their fees just yet. Small law firms become necessary yet a distant second or third to their larger counterparts. Because the billable hour has been (and remains) so lucrative for large firms with their many production lines (also known as “candidate attorneys”, “associates” and “partners”) it became the gold standard for other large law firms and for the smaller firms hoping to emulate their colleaguesʼ success. Then it just became the way legal services are billed for in law firms. The billable hour influences law firm culture completely. It determines rates of progression and how lawyers compare themselves to each other. It determined measures for success in a law firm. Lawyers have budgets based in billable hours than translate into insanely long work days, nonexistent family lives4 and early heart attacks. It isnʼt pretty at the top although the office space up there is beautiful. Clients who pay the kinds of fees large law firms charge are starting to question those fees and the basis on which they are calculated. Reasons for this include the tough economic climate and the realisation that the billable hour is an inefficient billing model. While large law firms have ignored their critics (including bloggers and their own lawyers), they canʼt ignore their major clientsʼ calls for a review of the fees they charge. Thankfully. So what kind of change is required? For starters there is the billing model itself and then, perhaps, there is the perception that large law firms are the only firms truly capable of servicing a clientʼs needs well.

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this is where I cringed As Lisa Lerer put it in her article titled “The scourge of the billable hour”: It's a classic, needling lawyer's question: Spend two hours at your daughter's soccer game, or bill the time and pocket $1,400?
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Value billing
Chesler recently gave an interview to the New York Times and explained how his firm is shifting to fixed fees with success fees for positive outcomes, not to mention fees for achieving other milestones for their clients. This is a lot closer to what many lawyers describe as value billing. According to Allison Shields 5, value billing or value pricing refers to a method of pricing your services based upon the total value of the services provided to the client, rather than the number of hours it takes to complete the engagement. Hourly billing assumes that what the lawyer is selling is time, when in reality a lawyerʼs skill, expertise, innovation, and the service they provide to their clients. Value billing represents a move away from the inefficient billable hour to a billing model more focussed on efficiency, deliverables and, well, value. The emphasis shouldnʼt be on how long it takes to get the job done. The emphasis should be on getting the job done faster, smarter, better6 . That is what clients should be paying for. If anything lawyers should give up part of their fees if they draw a job out. It is important to point out that value billing doesnʼt necessarily

Value billing doesn’t necessarily mean lower fees. It means you pay more for what you get than for the amount of time it took to produce a given result.

mean lower fees. Often it may well mean just that. At the same time, value billing might mean that a client is charged a higher fee for delivering a complex result urgently. Value billing may incorporate success fees over and above a fixed fee as the new incentive for the law firm to work faster, smarter, better. The big challenge value billing presents is calculating an appropriate fee for a given case. Lawyers are so accustomed to

simply starting the clock that they have lost touch with the true value of their work and how to calculate it. It seems that the best way to become more accurate calculating an appropriate fee for a given matter is trial and error (mostly error). Eventually it becomes easier to work out what a fair fee for a job should be.

Biglaw is the woolly mammoth
Large law firms are cumbersome and slow to change. Their business model is based on managed processes and, where necessary, managed change where absolutely necessary. Pick an analogy: woolly mammoth, Titanic … there are a few to choose from and they all mean big, lumbering and not very well suited to rough seas or icebergs. Sure, they are powerful and, well, big and do their job, their way pretty well. They require huge resources to keep them going (that is to say, copious quantities of cash) and their needs only increase over time as their lawyers demand higher salaries, they take on more lawyers and staff and build fancier offices. They arenʼt too concerned about your feelings or thoughts about their
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writing as a guest blogger on Home Office Lawyer on 18 May 2007 Sounds a little like an episode of the Bionic Man/Woman
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fees.

If you donʼt like what they have to offer you are free to go to some other large firm or,

shudder, a smaller (in other words, lesser) firm. Take it or leave it.

Small law firms are viable alternatives
Small law firms are, by their nature, required to be more frugal with their resources and, almost by habit, with yours. They have to constantly change to meet evolving market demands and adapt new and more effective business practices. Small law firms usually either become jack of all trades or specialise on specific areas of the law. There are probably more generalist small firms than there are specialised firms and that makes for a pretty busy playing field. There is a fairly common perception, partly contributed by large law firms, that small firms are inferior and not as capable of providing sound legal advice. While there is some truth to the perception that small firms, on their own, lack the resources to satisfy a large clientʼs varied needs, small firms are viable alternatives to their more expensive lumbering cousins. It is important to remember a simple truth when thinking about small and large law firms. Regardless of the panelling on the office walls (or lack thereof), legal services are not provided by law firms, they are provided by lawyers either working on their own to tackle an issue or in concert. When you break it all down, you are dealing with individual lawyers doing what they do. In large firms you have more of those individuals. Another important thing to remember is that simply being in a large firm doesnʼt mean the lawyer is good (same thing applies to any firm actually). Small law firms are potentially more nimble, embrace new technologies more readily and arenʼt afraid to try something new to improve a clientʼs experience. Rather than adopt a “take it or leave it” approach, they make a point to change to suit their clientʼs requirements (or they should, at any rate). Their fees are lower, often much lower, and they are more likely to adopt an alternative billing model than their more entrenched colleagues in across town. Oh, another important thing to know about many small firms is that the lawyers who run them went to the same law schools as their large law firm colleagues, are trained by those large law firms and used to work at large law firms before striking out on their own. They have the benefit of that exposure to a large law firm environment and the insight to leave what is often a toxic environment7 for a healthier space to do meaningful work for clients they want to work with. This doesnʼt mean they donʼt work as hard either. Lawyers in small firms often work even harder than their large law firm colleagues. Smarter too.
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Legal services are provided by individuals, whether they are in a large firm or on their own. Simply being in a large firm doesn’t make the lawyer any good at what he or she does. Same thing applies to small firms too, by the way. Good and bad lawyers are individuals too.

It is an inside joke that large law firms are toxic work environments with long hours and a disregard for any meaningful work-life balance. Well, it would be a joke if it was funny.


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Besides being able to service larger clients with increased ease as technology bridges the gap between small firms and the sheer numbers large firms can throw at a problem, small firms are banding together to offer a more comprehensive set of services to large clients. They do this through referrals to other small firms or by collaborating on clientsʼ projects to provide a better rounded service. This isnʼt that different to what lawyers do in large firms. They refer clients to their colleagues down the hall and, where they can, they bring a number of lawyers with different skill-sets to the boardroom table to tackle multi-faceted cases. The benefit of using a group of small firms is that you could find yourself being serviced by a group of motivated, hard-working and niche lawyers who are experts in their fields and who charge more appropriate fees to boot.

The old model doesnʼt work, help change it
BigLaw doesnʼt work as well as it used to. Part of that is because large law firms are so expensive even their better informed corporate clients are rebelling against them. There is an alternative and it is a smaller, more effective law firm that bases its fees on tangible value rather than on how long it takes to do the work. The question is how much longer clients are going to continue accepting hefty bills for wasted time spent on work which could be done faster, smarter, better.



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Paul Jacobson is Jacobson Attorneys' founder and principal attorney. He started out his career as a commercial litigation attorney with Werksmans Incorporated and left to start his own practice, Jacobson Attorneys, in August 2005. On 1 August 2007 he launched a new media law and policy focus area in Jacobson Attorneys. This new emphasis draws on his experience with social media to provide an innovative service to clients involved in the new media space. He has worked as General Counsel for the non-profit organisation iCommons and served as a member of a sub-committee of the SA Standards sub-committee dealing with Information Technology: Document Description and Processing Languages which recently considered and rejected the proposed Office Open XML standard in South Africa. He is presently also a part-time WASPA adjudicator and considers complaints filed against mobile operators registered as WASPA members. Paul focuses on the intersect between social media (or "new media") and the law. He is particularly interested in open content licenses, protection of personal information and freedom of expression on the Web. He has maintained blogs since December 2004 and takes an active interest in the South African online digital community. He is also a social media fanatic and makes use of a variety of online services to interact with clients, colleagues and members of the broader online community including Twitter, its open source equivalent, Identi.ca and Seesmic (a short form video messaging and posting service).



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