Today’s morning keynote at ILTA was a topic near and dear to the heart of most legal industry observers and pundits: the so called Dramatic Shifts in Legal Services. A panel of esteemed luminaries including John Elbasan of Wilkie Farr, Zabrina Jenkins, Starbucks in house counsel, Dan Linna of Northwestern University, Jeffery Schwartz of Hinshaw and last but certainly not least for reasons that will become apparent below, John Fernandez of Dentons. Unrepresented on the panel, ironically, was anyone actively practicing with a law firm which, in and of itself, is emblematic of the continuing gap between those of us who believe there is a better way to provide legal services and those who provide them.
The panelists all offered insights into what they believe is changing in the practice of law, how technology is changing the practice, how law firms could better approach innovations and how we are on the cusp of a new and efferent practice approaches. And of course, there was the standard nod to the slowness of lawyers to accept technology: they are old fashioned, they are risk adverse, they are technological dinosaurs, Luddites in the age of enlightenment. I’ve heard and even said the same thing before.
After the panel discussion went on for a while, John Fernandez, who is not known for shyness or reticence, became visibly frustrated and said: “let’s talk about the elephant in the room. The elephant in the room is that we have a business model that rewards inefficiencies and discourages any innovation that is inconsistent with that model.” As John said, “there I’ve said it.”
Lawyers Aren’t Dumb
Lawyers aren’t dumb. We aren’t necessarily risk adverse when it comes to business. We aren’t resistant to all technology. The truth is, as the managing partner of the firm I practiced with for some 30 years once said: “we have a very simple business model. Bill more hours, make more money.” That’s about as simple as it can get.
And it is and has been making lawyers a lot of money. ALM’s recent study of law firm profits for 2017 revealed record and profits for the Am Law 100 firms.
When you go through the list of attributes of lawyers, none suggest anything inherent in their makeup that would resist technological. Lawyers are smart, creative people. They are by and large fun to be with. They are joiners, social and political. Most are self-starters and energetic, competitive. They now how to use tools to persuade and manipulate people. They know how to evaluate risk. And one thing for sure, they know how to make money. Look at their track record over the last 30 years.
So, which of these characteristics is consistent with technological and innovation reluctance. Only one. The last one. And right now, the most lucrative business model for most lawyers is the one based on the billable hour. Why change models?
As long as we can make millions from the billable hour model, we ain’t going to change.
So, we can talk all we want about lawyer personalities, training and way doing business—firm not corporation. The bottom line: as long as we can make millions from the billable hour model, we ain’t going to change.
When it comes to innovation and technology, lets follow the logic the billable hour model creates when a lawyer is faced with innovation:
1. Anything that takes time away from billing house is a pain and is a waste of time I could be billing.
2. Anything that results in the billing of fewer hours, i.e. efficiencies, is a nonstarter especially if the lawyer is “unproductive” as many are. (A recent Altman Weil Study concluded some 51% of equity partners don’t have enough to do).
Most lawyers know only one business model. It’s simple and easy to use and master.
Its Our Culture
And make no mistake, the billable hour model is ingrained in the culture of virtual every law firm of any size this country. Years ago, I had a multimillion flat fee deal with a client to represent it on a national basis. I thought it was great, but it was difficult to manage. Why? Associates, who I really needed to work on the file at their lower rates, hated it since billable hours was in large part their ticket to advancement in the firm. Partners, on the other hand, all too often succumbed to the temptation to bill with a heavy hand since no client was parsing through the bills. What resulted then was a biased assessment of overall cost and profit from the matter. And I’ve seen it time and time again. We just can’t move away from the billable hour model. Even when firms try to offer flat fees, they default back to the billable to come up with their bid.
And when it comes to the clients and in-house counsel, most of them also know only a billable hour model. The billable hour model for all its bad stuff and inefficiencies does tell you more or less what a lawyer did and how long it took him or her to do it. Any other payment model does not introduce this level of transparency, if you can call it that.
I can’t tell you how many times I pitched an alternative fee for a matter only to have clients first say, “great idea” but then never do it. As one of them put it one time, if you charged a flat fee, how do I know how much you really worked on the matter? Am I getting screwed by your efficiency?
Instead of facing the elephant in the room, clients demand discounts, lower rates or they parse and scrutinize bills with a fine-tooth comb, refusing to pay for things that violate draconian billing guidelines. But the prevailing mindset remains: lawyers should work and bill by the hour.
The Productivity Paradox
Combine this with the fact that most legal tech is geared toward biglaw which by and large lives and dies (well lives anyway) by the billable hour and you have a perfect storm for innovation reluctance.
We are not Luddites, we just don’t see the return on something that is inconsistent with our model
Still doubt this? For all the reasons people say lawyers aren’t tech savvy or innovation oriented, think about all the tech lawyers do adopt. What does most of it do? Make the billing and collection of hours better and faster and more robust. Measure productivity and profitability. The industry has had little problem adopting tech in these areas. Or in areas where the tech or innovation does not result in reduced billable hours. No, we are not Luddites, we just don’t see the return on something that is inconsistent with our model.
And this runs through all aspects of the innovation/tech/law debate. Why don’t lawyers go to tech shows as Kim Craig eloquently recently questioned in her post and Jae Um discussed in her podcast interview (which I too have wondered)? ? Why should they-it’s a waste of time they could be billing and there’s nothing to learn that would help them bill more. Go to a substantive seminar like class action conference? For most lawyers that has a better ROI: there may be potential clients there and that may help get business (bill more hours).
It is hard to convince a room full of millionaires that they’ve got their business model wrong
Why won’t lawyers innovate? As Richard Susskind so ably put it, “it is hard to convince a room full of millionaires that they’ve got their business model wrong.” Its what John Fernandez aptly labeled today as the “productivity paradox”.
That’s the elephant in the room. Until the model begins to stop being so lucrative, we will continue, as Jeffery Schwartz put it, “to only nibble around the edges” of innovation in most law firms. Change? We don’t need, we don’t want it and clients aren’t making us