A lot of people have been wondering whether we had reached a "tipping point" on alternative fees and there is some evidence that we have. You see, when BigLaw starts talking the talk, it means they are playing catch-up. In the past few days, if you believe the headlines, Reed Smith, Mayer Brown ("Mayer Brown and Reed Smith set to champion fixed fees")and O’Melveny ("new business model") have all made the jump.
In our "only headlines matter" world, these headlines suggest tectonic change. But what’s the reality behind the headlines? It’s an important question, since firms won’t deliver headlines to their clients, they will be delivering invoices. And if the invoices don’t change, all the talk in the world won’t amount to anything.
The Mayer Brown story is easy to dismiss. According to the story:
Mayer Brown’s senior management is in the process of reviewing how the firm bills clients and is considering proposals to overhaul fee structures for core transactional practices including corporate, banking and real estate.
So as I read this, the fact that Mayer Brown is thinking about changing its fee structure is newsworthy. Frankly, any firm that isn’t at least thinking about changing its fee structure these days is too stupid to continue to exist. And it also bears pointing out that Mayer Brown’s review is limited to transactional areas. Most clients, however, acknowledge that litigation is the area of greatest need of fee change.
Reed Smith is in much the same boat. Again, the story is pretty clear:
Separately, Reed Smith has also been looking at changing fee structures within its transactional practices. The firm has a committee made up of partners from across the firm reviewing proposals and is looking at an increasing use of fixed or capped fees for clients within its financial industry group (FIG), corporate and real estate practices, for transactional work.
A committee is studying the issue. Wow. Aren’t we impressed.
The O’Melveny story is more interesting, because the firm at least understands that if anyone is going to really believe its changed its stripes, it is going to have to use the language of "business model change." So it does. But do the announced changes really change the business model? Here’s the telling lie:
What changes have to be made to address these new realities? For one thing, the firm wants lower associate-to-partner leverage. O’Melveny plans to reduce its leverage to “as low as 2 to 1 in some practices,” although this “will be partially offset by increases in charge hours and by fortifying associate and counsel quality.”
The essential element of alternative fees that actually work is that they shift risk to law firms, meaning the value changes from leverage and body count to experience and fewer bodies. More brain power, less body count. So a goal of reducing leverage "in some practices" to "as low as" 2 to 1 will make anyone experienced with alternative fees laugh out loud. O’Melveny might as well take out a full page advertisement saying it really won’t be changing a damn thing.
I have written before that it is not possible to be both an alternative fee firm and a billable hour firm. I’ve also written that I didn’t think BigLaw could make the necessary change to become alternative fee firms. I offer these two stories as Exhibits A and B in support of my hypothesis.