What’s in an Attorney Rate?

Some Thoughts to Think Before Agreeing to

BIGLAW’s 2013 Rate Increases

It’s that time of year, when BIGLAW announces rate its increases for the next year.  In BIGLAW’s business-as-usual, rate increases have become the primary manner in which firm executives show growth to their membership and higher “profits-per-partner” than their competitors.  The other manner—i.e., strictly enforcing billable hour requirements despite lack of work—ranks a close second.  After all, because of BIGLAW billing abuses, many corporations have realized incredible savings by INSOURCING their legal work, particularly in the regulatory and transactional arenas.  With litigation, corporations have largely deferred their business risks to their insurance carriers, which have increasingly used basic benchmarking practices to guard against over-billing.  Thus, with work drying up, rate increases have taken on added importance. 

Of course, rate increases are completely illusory.  After all, at most firms, client rates vary wildly, depending only on how much the client is willing to pay.  Insurance carriers have wisely negotiated “panel rates” that, in more specialized areas like Employment Practice Liability (EPL), reasonably resemble market rates; by contrast, mid-sized employers often fall prey to “firm standard” rates until insurance coverage kicks in, at which point, rates plummet to “panel rate” range.   Further, rates are irrelevant in light of the time variable.  In fact, it ultimately matters little if the bill reflects charges of 20 hours at $500/hour or 50 hours at $200/hour.  The more fundamental question is whether $10,000 worth of legal work had any bearing on the client’s outcome. 

Now, this more fundamental question does not necessarily suggest that the BIGLAW attorney time was not “real” (i.e., actually worked).  LawFrat does not want to suggest, after all, that attorneys with billable quotas would be unethical to the point of fabricating or stretching hours on a project.  As a central tenet of human behavior, however, if management gives employees (including attorneys) a numeric quota, most will achieve it using a variety of means, some legitimate and some not.  But, the more IMPORTANT question is whether (1) the $500/hour attorney delivered a superior product; and (2) most of the $200/hour attorney’s time was necessary—i.e., summary judgment-like EEOC position statements, pointless discovery disputes, numerous in-firm conferences, 10-page carrier reports, gratuitous overstaffing. 

Nevertheless, over the past several years, rate increases have kept pace with BIGLAW’s rising cost of doing business, costs that BIGLAW passes along to clients.  Here again, although it makes logical sense that law firms would pass along costs to clients, the more IMPORTANT questions are whether such infrastructural costs (1) result in a superior client product; and (2) are even necessary given technological advances and their impact on contemporary legal practice.   Consider these big budget infrastructural costs that factor into client rates:

Premium Office Space Leases 

Here in Denver, firms prefer to have a “17th Street” address downtown simply so that they can call themselves a “17th Street Law Firm.” Firms lock themselves into lengthy 10-year leases, often getting excess space for future attorneys, giant servers, paper file storage, and additional staff. 

Most corporations, and certainly many insurance carriers, however, have moved away from this BIG SPACE model, in favor of more popular work-from-home arrangements and electronic document storage advancements.   Given the accelerating pace of change, workplace walls will continue to fall, as our workforce increasingly opts for more flexible work-family arrangements and the convenience that electronic document storage and Cloud backup provide.  Innovative legal practitioners can handle cases from anywhere, access information at their fingertips, and work with clients on-site instead of having them trek to their impressive and expensive downtown offices.   

Salaried Office Staff (e.g., secretaries, filing clerks, “runners”, paralegals, marketing staff, IT and library staff, layers of billing staff and management): 

BIGLAW touts its massive “resources” to throw at client legal problems, without explaining how these resources really promote any real advantage for the client.  I confess that initially, BIGLAW’s massive support infrastructure also dazzled me, especially coming from a job with the federal government where I worked with ex-military-issue furniture (and was grateful for THAT!).  I quickly appreciated, however, how little of this “infrastructure” my legal contemporaries and I actually used in our practices.  I typed all my briefs, emails, and letters; I learned how to use various computer programs to increase my efficiency (e.g., time entry systems, MS Word, Excel, Lexis/Nexis, Electronic Court Filing, Summation); I taught myself how to use the office scanner, copier, and conference feature on my telephone, all of which are deceptively easy to use.  It was easy to see that all these secretaries, paralegals, runners, and library staff existed for one reason:

OLD GUYS CAN’T or WON’T TYPE or keep pace with innovations that have revolutionized how contemporary attorneys now practice.

Female attorneys of my vintage took mandatory typing classes in high school; younger generations have worked with computer keyboards for years and have mastered it through various un-Orthodox but equally effective typing techniques.  As a result, cost-conscious, efficient, and technologically savvy attorneys simply have no need for the heavy secretarial and paralegal support.  Easily accessible legal software can perform many of the time-consuming tasks once assigned to support staff, from Bates labeling documents for production to opposing counsel to cite-checking cases to summarizing/searching deposition transcripts.  Likewise, in those rare situations in which dedicated paralegal support becomes necessary (i.e., trial), innovative practitioners can contract with a variety of extremely competent and certainly more accountable paralegal firms that provide these services at a fraction of the overall cost.

Pyramid Toppers

Most law firms’ structure takes the form of a classic pyramid scheme, whether they’re low rate insurance defense outfits or high rate, and often top-heavy, BIGLAW firms:  a foundation of “billers” (e.g., associates, non-equity partners, Of Counsel, equity partners) with high billable hour quotas; a smaller middle layer of local office or department management with reduced billable quotas, and an even smaller top layer of executive committee members engaged almost exclusively in the “management” of other attorneys.  Everyone pays up the chain, just like in The Sopranos.  And, at most big firms, the same “pyramid toppers” have retained power for years, if not decades, and look more like STEWARDS than INNOVATIVE LEADERS.  The “pyramid toppers” bill very few (if any) hours, typically because they personally have nonexistent or very small books of business, nor do they do much business development. 

Instead, they carefully track others’  billable hours and then harass/threaten the strata below them about their “productivity.”  They oversee the “compensation committee” in which everything about equity and non-equity attorneys’ compensation gets decided, and unsurprisingly, they find a way to justify their unusually large take of the overall booty.  They wield an incredible amount of power and demand commensurate remuneration, even though they actually contribute very little to the firm’s overall profitability.  They also love their titles, thereby illustrating another central tenet of human behavior: those most impressed with titles are least deserving of them. 

Innovative practitioners with portable books (particularly women) have left BIGLAW in droves in recent years, realizing that (1) they no longer need the infrastructure of a large firm to deliver excellent legal representation at more reasonable rates; and (2)  the pyramid structure (i.e., paying pyramid toppers) unnecessarily squanders their profitability from their own hard work.  At BIGLAW, where partnership never equaled “peership” anyway, this outdated pyramid structure largely accounts for why these large behemoth firms cannot achieve profitability (or so they claim) while sustaining reasonable rates. 

Go SMALL in 2013 or Pick Attorneys, Not Firms

When I left BIGLAW recently, one insurance claim representative told me that “we do not use solos or smalls,” ostensibly on the ground that they do not have the “resources” to handle their claims, particularly litigation.   Although solos and small firms may have found it harder to offer comparable services 30 years ago, technology has leveled that playing field considerably.  Now, corporate counsel and insurance carriers should ask BIGLAW “why must you raise rates to maintain profitability, when in fact, technology has reduced the overall costs of effective/excellent legal practice?”  

The blank stare in response to this salient question should speak volumes.  The “pyramid toppers” making top dollar at BIGLAW still largely consist of older white guys unwilling to implement technological cost-saving measures and lean litigation practices.  Instead, they simply raise rates, a little bit every couple of years. 

Further, corporations and their in-house counsel too often assume that attorneys practicing under the same banner offer the same quality of legal services, almost like eating at a McDonald’s in a strange city.  Professional service providers like lawyers, however, are far more difficult to standardize and mass produce than Big Macs.  Boutiques and BIGLAW create the illusion of standardization and brand quality, while doing very little to promote it.  In fact, because law firms offer less stability than ever before, they have become revolving doors for associates en route to in-house gigs, which has triggered even less commitment to attorney development.  Of course, attorney quality varies wildly, depending on the quality of legal education, subsequent training, and specialized experience. 

Small, specialty firms can deliver excellent client service at a fraction of the “cost”, enabling them to offer reasonable rates.  In addition, because technology lets them cut out unnecessary BIGLAW infrastructure, most small defense practices operate quite profitably without the pressures of a billable hour quota.  No doubt, billable hour quotas drive bad attorney behavior, creating an uncomfortable dynamic in which clients reasonably wonder whether their attorneys’ work was necessary or undertaken just to drive up the bill. 

Let 2013 be the year that business redefines what it needs and expects out of its legal counsel.  As one innovation for 2013, my little Mom Firm will develop its own “benchmarking” reports to demonstrate that our approach offers excellent services at a fraction of the cost.  One day, corporations will simply expect that accountability. 

Posted by at December 7, 2012
Filed in category: Uncategorized,

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