In Search of Perfect Client Service

On Monday and Tuesday of this week, I attended (and spoke at) the American Conference Institute program on Controlling Legal Expenses.  Both the speaker roster and the attendees were predominantly inside counsel, with a heavy emphasis on those involved in litigation.  The panels on the entire first day were of a like mind that alternative fee arrangements were the future.  I've written before about the Perfect Storm brewing--rising hourly rates and law firm profits meeting a bad economy and law departments facing significant cuts--and that theme echoed from one panel to the next,  Good news for Valorem--that's what we do, after all--but perhaps not so good for BigLaw and firms slow to respond.  The one thing that I found refreshing was that the inside counsel at this conference appeared to understand that a firm cannot simply say "we're now offering alternative fees" and be responsive to client needs.  The move to alternative fees requires major cultural changes in the firms, from compensation to advancement of associates.  One other key message:  fee structures like blended hourly rates and discounts are not alternative fees.  The reality is that more and more clients are looking for firms that have embraced economic models predicated on fee structures other than by the hour.  Perhaps this audience was more sophisticated than average, but I don't think so.  But even if it was, its a harbinger.

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Michael Maslanka, a lawyer from Texas, authored an article in Texas Lawyer that popped up on law.com today.  The article advises GCs to treat legal fees the same way executives treat business issues.  Beginning with the premise that increased associate salaries are akin to a rise in the company's raw materials, Maslanka writes:

Don't belabor the rise -- the cost of a company's raw materials goes up just like a firm's. Instead, GCs should treat legal fees just like the C-level execs down the hall treat business issues that cross their desks.

He then provides five helpful rules.  Its certainly not an exhaustive list and it ignores the inherent conflict between a client's economic objectives and those of lawyers who bill hourly.  But my point here is simply to offer one thought expanding on the article--those lawyers who fall behind their clients' thinking on pricing issues are destined to play catch-up for a long time.  Perhaps to the point of trying to get a client back in the door once he or she has found joy elsewhere.

There is no bigger issue today than pricing.  Every business is feeling the pinch in the worsening economy.  You're either part of the problem or part of the solution.  There is no middle ground.

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Is it here?  To be sure, predicting any storm, let alone the Perfect Storm, is a perilous undertaking.  But the stars sure look to be lining up like never before.  So take a pinch of salt, throw it over your left shoulder, sit back and let me explain.

Remember back in August when Gerry Riskin predicted bad times were ahead for the profession?  His words were "doom and gloom."  If you look at the specific factors he listed as the underpinning for his conclusion, he looks like an awfully good soothsayer.  Add some recent data to the mix.  This past week, I participated in a Managing Partners Summit and listened to Dan DiPietro, head of Citibank's Law Firm Group, share his data on 2007 and predictions for 2008.  Two days later, I was a panel with Dan at Hildebrandt's Marketing Partner Forum, so I have heard his data twice in a short period.  It sank in the first time.  It sent chills down my spine the second.  Short story--2008 is not likely to be a year lawyers look back at fondly.

There's more from my last week that fits in here.  I was fortunate enough to have lunch with Susan Hackett, the General Counsel of Association of Corporate Counsel.  She spoke to me about how angry her members are with outside counsel.  Angry!  Not shockingly, the things giving rise to the anger are the things you would guess--rising salaries for starting associates and the ripple effect, the impact of those salary increases on their fees, and law firms more focused on their business than that of their clients.  (To this latter point, I believe that it is not wrong for a Managing Partner to be more focused on his or her firm's business than that of the firm's clients.  It's just a mistake to let your clients believe that to be true.)

If law firms heard all of this and were lining up to abandon billable hours, provide far greater service and generate more value for the clients, the storm would pass with some positive results and little damage.  But what I heard this week is that large and mid-size firms seem to think this is "just another minor meteorlogical event."  They could be right--these law firm leaders are, after all, really smart people.  But the wild card here is the economy--back to Gerry Riskin's prediction.  And its not just how the economic downturn will hurt firms.  Its how the economic downturn will hurt the firm's clients with (and this is where Dan DiPietro's data comes in) not many more things to do to drive up productivity without increasing legal spend.  But the client's won't have the economic option to increase legal spend--to the contrary, many clients will face CEO demands to dramatically lower legal spend.  And too many firms are not ready to respond in a meaningful way.

You know the old saying that firms are never fired, they just aren't hired for new matters?  If the Perfect Storm develops, 2008 could turn out to be the year that the old saying was put to rest and firings became prevalent.

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I have spent more than a little time writing about high hourly rates and the hourly rate economic model.  I have spent very little time writing about timekeeping policies.  But I was fascinated to read the policies of several firms that were published at Above the Law, a blog that "provides news and gossip about the profession’s most colorful personalities and powerful institutions, as well as original commentary on breaking legal developments."  One post is about Fried Frank's policy--here--and the other--here--is about Bingham.  Be sure and read the comments.

One of the most interesting comments is from Grasshopper (sorry, I'm having a flashback to Kung Fu, the old TV series): 

Daily time entry is a good thing. I defy anybody to maintain good accounting of what they did day to day and then record their time at the end of the week or month. Daily time entry is good business hygiene. You do right by the client and right by the firm.

Well, you certainly do right by the firm.  But Grasshopper makes a good point--people can't remember what they did several days or weeks ago, or for how long.  They have to guess.  But the real irony is about yesterday--recording time in tenths of an hour (six minute segments) but doing so a day later.  Imagine the daily internal conversation: "Hmmmm, was it an hour and six minutes or twelve?  How much of that time was spent while I was looking at new YouTube videos?  Oh well, I'll bill 1.2 hours."  At several hundred dollars an hour, pretty soon those rounding errors start to add up.  And lest people think that the errors rounding up are offset by the errors rounding down, my guess is that there are few errors on the downward side.  Be serious--given the pressure reflected in these memos, who really thinks people forget hours.  Obsession about recording hours is going to be reflected in rounding errors that give "the man" what he's looking for.

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   A friend of mine passed along this quote from Scott Turow (apparently from a recent ABA Journal article);

     "One reason that dollars times hours continues to prevail is because its hard to devise a fair alternative.  Columbus setting out from Spain, destined, in some minds, to sail off the end of the Earth, probably had a better idea what he was headed for that either a lawyer or a client at the inception of a piece of litigation."

Turow, a former federal prosecutor and now a partner at Sonnenschein, is the well-known author of such classics as One L, The Burden of Proof and Reversible Errors.  He makes a good point--we spend a lot of time talking about the problem with the hourly rate system, but preciously little time talking about solutions other than abstractly.  Part of the problem is context.  It is hard to talk specifically about alternatives not tied in some fashion to the billable hour without a specific lawsuit to use as a point of reference.  I think the dialog would benefit greatly from a focus on specific case studies.

For example, in talking about "value billing" as it relates to a single lawsuit, how does one determine the value to the client?  I am guessing that most clients would begin by guessing the cost to litigate the issue using an hourly rate system and then look at how things stack up to that option.  But I invite people like Ron Baker and others more schooled in this than I am to provide case studies so that we can enhance the dialog on solutions.   Staying with the Columbus metaphor, perhaps we can then compare the solutions to how the crew must  have felt when they landed on one of the Bahama islands.

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This says everything you need to know.

Thanks to Matt Homann and the [non]billable hour, where I just saw this posted.

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                                                                             How much is time worth?  Not from a hourly billing rate perspective, but from the perspective of the value of what can be accomplished?  If you are an inside counsel, do you have extra time?  Do you have the luxury of being able to throw time away?  Few, if any, do.

With that truism as prologue, we come to the issue of time spent reviewing bills of outside counsel.  Is there a more distasteful, annoying task on the plates of inside counsel?

I have the obligation of reviewing outside counsel invoices on matters where I act as national counsel, so I have seen an awful lot of ...., how do we say it,  .... creativity.  Yeah, creativity.  I can only imagine what others have seen.  This is one of the great hidden costs of the hourly billing system.  What can I get away with vs. what can I catch.  Hard to think of anything less worthy of the time of inside counsel.  Certainly, its not the highest and best use of inside counsel's time.

Rees Morrison, who writes the Law Department Management blog, has an interesting post that questions the conventional wisdom that fixed fee agreements generate real savings of in-house counsel time.  While not drawing any conclusion, Rees tries to quantify the value saved by multiplying the hours saved times an estimated hourly cost of inside counsel's time.  From my vantage point, this analysis falls victim to the classic criticism of hourly rates that the value assigned to an hour is arbitrary, and that while the value of outside counsel's time is often overstated, the figure assigned to inside counsel's time seems to be a cost figure rather than a value figure.

Inside counsel provide the greatest value to their company when their focus is on significant business issues, or matters of great importance.  Bill review just doesn't seem to fall into those categories, regardless of the presence or absence of statistical proof.

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I received an email from Inside Counsel today announcing the July edition (which I received and wrote about yesterday).  I don't know if I missed this when I read the magazine, but the email contained this great quote:

          “When I talk to law firms, I have one hand on my wallet,”       
says William B. Solomon Jr., general counsel of GMAC. “With the pressure on firms to increase revenues, they don’t care very much about cost effectiveness.”

In my own hometown, Winston, Mayer Brown and Jenner all have announced outright dismissals or de-equitization of scores of partners.  Is there anyone who debates that this reflects an extraordinary amount of  pressure to increase revenues?  But the truth may be wholly irrelevant.  So long as clients believe it to be true, they will act as if it is.
   
    We know that great pressure can create things of great value, however.   Much has been written of late of the growing opportunities for what my friend Dan Hull refers to as "muscle boutiques."  But the fact is that these same difficult times create heroic opportunities for any big firm bold enough to adapt to the changed times.  But, alas, there is no evidence yet of any large firm having so bold a vision.

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The July 2007 edition of Inside Counsel just arrived.  This is the edition that has the results of the survey of General Counsel.  Fascinating reading.

First, the Lake Wobegon effect continues to be alive and well.  (I've covered the issue here, here and here.)  Only 19% of outside lawyers give their outside firms an "A" for overall performance (down from 21% last year and 22% in 2005).  Over 60% of the law firms give themselves an "A".   Almost 40% of surveyed in-house counsel believe law firms pad their bills.  Only 10% of outside lawyers share that belief.  Seventy percent of inside counsel disagree with the notion that law firms are actively seeking ways to reduce the cost of their services, while 56% of the outside lawyers believe firms are seeking to do so.  Almost 40% of the inside lawyers feel law firms make too much money; only 9% of the outside lawyers share that belief.  Just under 30% of inside counsel respondents believe the level of service provided by their law firms has improved over the past five years, while almost 70% of the firms agree that service has improved.

Some of the quotes in the survey report are instructive:

"Law firms can't say they are actively seeking ways to reduce costs and then pay incoming associates $160,000 per year."
                                                            Christine Helwick, GC,
                                                            California State University

"I always ask if we can have arrangements other than the hourly fee, but law firms shy away and offer reasons why it won't work."
                                                            Christian Na, GC,
                                                            Mitel Networks

"I hold my thumb on my outside firms.  It's very labor intensive on my side to prevent a runaway budget."
                                                       Paul Risner, General Counsel,
                                                       Boca Raton Community Hospital

There is little in this report that should help managing partners sleep well at night.  Save for one thing.  It appears that despite the increasing volume of complaints about matters of great importance, there is no epidemic of firms being fired.  But some day, inside counsel may realize that theirs is a buyers market.

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From the Denver Post.  One highlight:

With corporations slashing their legal budgets, more law firms are offering or accepting these kinds of cost-saving fee arrangements. The billable hour, while still the dominant form of billing, is under assault.

"Legal fees continue to increase at a very high rate, and I think companies are also becoming more careful as to how they spend their legal dollars," said Richard Baer, executive vice president and general counsel for Qwest. "As a result they're just more critical in their decisions about who they're going to retain and what they're going to have those law firms do."

Since joining Qwest in 2002, Baer has reduced the company's reliance on national law firms that charge top dollar and reduced its legal staff.

Be sure to read the comments.  Some interesting insights.

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"Put most bluntly, the most fundamental misalignment of interests is between clients who are driven to manage expenses, and law firms which are compensated by the hour."

So says Cisco General Counsel Mark Chandler in a recent speech, which is posted here. 

From the same speech:

My answer to this question is therefore simple: first, winners will be those who are able to standardize services to meet clients’ cost management and predictability needs where very good is good enough. Second, those who can differentiate themselves by providing the top notch of customized services, where that is needed, will also win. In some cases, one firm may be able to do both. But my bet is that despite the consolidation trend we’re seeing today, top quality boutiques will thrive while the cost structures of larger centralized firms will put them at risk.

This is a must read.  I'd love to have 20 minutes of Mark Chandler's time to discuss it.

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Like most other firms of its size in Chicago, Butler Rubin is approached regularly by much larger firms looking to merge (read, swallow).  Because my partners are a polite group, we smile, say thank you and then politely decline.  You see, most of us are big firm refugees and we would rather not relive those experiences.  The conversations we have with our suitors range from brief to short, but there are, occasionally, discussions that while not destined to lead anywhere are nevertheless interesting.  I want to relay one such discussion.  Of course, I won't identify the highly respected firm or its most distinguished and thoughtful leader.  But because the conversation fits so nicely with my prior post, Demand Destruction, I thought it worth a second post on the topic.  If you haven't read Demand Destruction, you might want to do so before finishing this post.

During our conversation, the subject of the recent increases in starting associate salaries to $160,000 in major cities came up.  The distinguished leader had some very insightful observations.  He said that firms like Simpson Thatcher, which started the latest frenzy, derive almost all of their revenue from mega deal, bet-the-company matters where hourly rates or the amount of fees are irrelevant, a footnote if you will.  Whether for the stated reason of trying to attract top talent or the more cynical view of trying to increase pressure on wanna-be competitors, a Simpson Thatcher strata firm will increase salaries.  Firms in that elite echelon can do so with absolute impunity.  The next tier of firms, which derive maybe 15% of their revenue from such mega-bet-the-company matters but hope to increase that number, matches the increase in order to maintain the appearance of playing in the same sandbox with the Simpson Thatchers of the world.  Then the next tier of firms, still further down the line, the ones which get 0% of their revenues from mega-bet-the-company matters, but which hope to break into that line of work (can we say "wishful thinking") then suck it up and match the increase, and so on.  Of course, for every tier but the Simpson Thatcher elite level (all 6 or 8 of those firms), the increase doesn't much change the percentage of revenue derived from mega-bet-the-company work, but it builds pressure on relationships with the clients whose revenue falls into the other 85% segment.  And those are the clients that are going to start shopping the work.  The demand is destroyed.  (All those who think this is the end game of the Simpson Thatcher move, raise your hands here.)

I asked this very insightful leader what the end-game was.  He sighed, and then  said he had spent more time thinking about that issue than any other.  And then he said, "I don't know where this all ends.  We are damned if we do, and damned if we don't."  He then sighed again, and while he didn't say so, I could almost see him thinking, "I  hope we're not just damned."

Some of the brightest people in the profession do not see an out.  Or if they do, I think they fear moving first, the same way countries fear unilateral disarmament.  But doesn't it seem that more than ever, we need some bold leaders?  Oh wait, what am I saying.  Firms like Butler Rubin, which don't obsess about the need to have multi-million dollar profits per equity partner, and which see value in being flexible in the fee arrangements we reach with clients and then are flexible enough to strike the bargain, stand to gain the most.

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That's the moral of a recent "flash survey" of top General Counsel by Altman Weil on the latest round of salary increases for starting associates.  And that's demand as a noun, not a verb.  Here are the key findings and insightful comments submitted by GC s:

• 58% of the GCs believe the newest increases are "outrageous".  Only 20% were indifferent to the increases.
• 100% reported that no panel firms had contacted them to discuss associate salary increases and what they mean for that GC and his or her company.  At the same time, 84% believe that they should have been contacted.
• Among the comments:
  • Law firms are presently riding high on high utilization rates. It will not always be this way. In economic terms, law firms are causing "demand destruction." Over time, clients will learn how to demand less legal services from the major firms, and they will be left with squadrons of overpriced, under-utilized associates who they will have to surplus. Markets have a way of correcting themselves.
  • May cause us to use second tier firms more aggressively on certain matters.
  • This is just one more factor that goes into the selection of law firms. The big pricey firms are only going to get tapped by us when we absolutely need that kind of lawyering, and we are going to insist on budgets and ridge herd on the process. The tension level just keeps increasing between the outside firms and the inside departments.
  • It's making us seriously evaluate our outside counsel selection more urgently than we have done in the past.

The Altman Weil survey is available here.

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While its much more entertaining to write about Raquel Riskin (for those interested, vote here), I return to an issue at the core of this blog--hourly billing.

Here I am reading the June 2007 issue of American Lawyer.  Nice little story about the San Diego City Attorney recommending that the City take legal action against Wilkie Farr for overworking and overbilling a matter.  From the story, I can tell that no less than 5 partners worked on the matter and that for these 5 partners, 2006 billing rates ranged from a high of $865 per hour (okay, he's the firm's chair so that number must be out of whack) to ... here it comes ... $830 an hour at the low end.  Three other partners on the matter billed at $850 per hour.

The point of the American Lawyer story is not the hourly rates.  But they sure struck me.  I wonder what their 2007 rates are....

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The Managing Partner of Morrison & Foerster, Keith Wetmore, is a fraternity brother.  Wettinger, as he was known at Northwestern in the the late 1970s, was a stellar President of the fraternity.  Because of our fraternal brotherhood, articles in which Keith is mentioned or quoted always catch my eye.  One gave me pause to think beyond the past, however.  Anyone following the profession knows starting salaries in major markets have climbed to $160,000.  Given the upward ripple, the bottom line hit for firms of any size is measured in the millions.  And I have written repeatedly that clients will pay the price for the increase, either in higher hourly rates or the sudden and mysterious need to spend more hours on the same matters.

So check this New York Lawyer article out (sub. req.).  In it, my friend Keith takes on the "who pays" issue directly.  From the article:

Morrison & Foerster Chairman Keith Wetmore said the costs of the $160,000 scale will be born internally — even if it comes from partners' profits.

"We will make a little less money this year," Wetmore said.

He also said his firm won't hike hours requirements or billing rates.

Its not that I don't believe Keith.  Its just that I can't fathom how he can pull it off--at least over the long run.  Given the pressures to report high earnings per partner for competitive reasons, the need to pay marketable partners at the market rate, and similar pressures, how can a partnership put itself in the position where it starts off several million dollars in the whole vis its competitors?  It wasn't as though Keith was infallible as President of the fraternity.  Maybe he just got it wrong here.  But if he can pull it off, more power to him.  I'll be watching--along with MoFo's clients.

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The announcement of increases in starting salaries for associates in large California law firms (up to $160,000) led to this law.com headline today:  Corporate Clients Take Note as More Firms Announce Associate Raises.  The mind just reels, doesn't it?

Here's the quote from the article that really caught my eye:

The rash of raises has some big-firm clients worried.

"There seems to be no end in sight," said James Hall, director of intellectual property at Silicon Valley's Quantum Corp. "At some point I think it has to impact how much I'll pay in legal services ... That money has to come from somewhere."

I don't know Mr. Hall.  I don't know his background.  But if he has any doubt that every plug nickel of those raises will be recovered from him and thus "impact" how much he pays in legal services, he doesn't have the fist damn clue how big law firms operate.  Big law firms are billion dollar businesses or billion-dollar wanna-be businesses.  Their first rule of business--PARTNERS DON'T PAY FOR ASSOCIATE  SALARY INCREASES.  If the money isn't coming from the partners, that only leaves the clients.  One way or another, Mr. Hall, you'll be paying.

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Great post by Ron Baker on the Verasage blog.  Titled "Why we don't need consultants!", Ron shows his rapier wit in responding to an article published in Accounting Today.   The article posits this point of view: 

While you might argue that it's the expertise of your staff and the product that you sell, the actuality is that what the client pays for is the time your staff spends on their behalf. Value billing is a great concept, but even after all these years of trying to move clients over to this method of billing, many clients still want to see how much effort, in the form of time, is being spent on their account.

Regardless of the rates and service levels that your staff provides to your clients, one great truism prevails—time is a non-renewable resource. Once it's spent or wasted, there's no getting it back.

That makes time a precious commodity and resource, one well worth using wisely. The time component of time and billing is designed to do that. By keeping track of the time spent on practice matters, you can make sure that not only will you bill for every precious minute and second, but you will also (hopefully) be able to see where time is wasted or spent poorly.

Baker's response ranges from pithy ( I wonder if Mr. Needleman asked Porsche how long it took to make his car?) to contemtuous (But what's worse, is this totally unsubstantiated, spurious, economically illiterate, and just plain stupid contention), with several stops in between.  As always, Ron Baker makes the case for value billing like no one else can or does.

With the caveat that you will do yourself a disservice if you don't read the entirety of the post, here is a sample nugget:

Customers don't buy time, Ted. If they did, I'm sure they'd buy it from someone cheaper than a CPA. And yes, time is a non-renewable resource. So what? It is for Bill Gates and Microsoft, too, but you don't see them doing timesheets. You don't see Pixar doing timesheets. Why not? Because they don't think they sell time.

Review all the time and billing programs you want. They are the buggy whip of the knowledge economy, and I personally like the idea of you investing your intellectual capital studying dinosaurs, like a paleontologist. We need musuems. But don't think majorities determine truth, they don't. At one point, we thought the earth was flat. And today, a majority of CPAs and time and billing software developers think CPAs sell time. They are wrong, and we've proven it.

[sound of applause]

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The May 2007 issue of Inside Counsel contains some interesting "Facts and Figures" (p. 24) on the views of Europe's in-house counsel. 

General Counsel who believe their outside counsel have padded their bills ...73%
In-house counsel who believe that billable-hour targets encourage padding ...95%
Law Firm partners who believe that billable-hour targets encourage padding ...50%
In-house counsel who believe project-based billing is the best alternative to the hourly rate ...68%

I love the discrepancy between inside and outside counsel on the issue of whether billable hour targets encourage padding.  For only half of outside counsel to acknowledge the obvious suggests supreme disingenuity or that many outside lawyers in Europe live in Fantasy Land.

The other interesting point is the percentage of General Counsel who believe their lawyers have padded their invoices.  While the statistic is for European General Counsel, it is fairly consistent with surveys of US General Counsel.  Law Firms who take a critical view of their situation cannot feel comfortable with this state of affairs.  But the other 98% or so who are blind to the situation no doubt will blithely persist with a system that, at its core, puts lawyers and their clients at economic odds.

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The  Wall Street Journal Law Blog contains a story that "Study Suggests Significant Billing Abuse."  In this post, Nathan Koppel refers to a study by Cumberland School of Law Professor William Ross.  The study apparently is not available on line, and I have not seen it, so my thoughts here are based on the numbers contained in the Journal post.

Ross' study finds that bill padding has remained constant while double billing have increased significantly since 1995.  Here are the numbers, quoted from the Journal post:

• Ross polled 5,000 attorneys from various walks of life throughout the country, and 251 responded. He worked with Reed Business Information to generate a random sampling of lawyers who work at law firms. Two-thirds said they had “specific knowledge” of bill padding ? a finding virtually identical to one reached by Ross in a 1995 billing survey.
• Also, 54.6% of the respondents (as compared with 40.3% in 1995) admitted that they had sometimes performed unnecessary tasks just to bump up their billable output.
• The percentage of attorneys who admitted that they had double billed rose from 23% in 1996 to 34.7% in 2007. And only 51.8% regarded the practice as unethical in 2007, as compared with 64.7% in 1995.

Based on this data, Professor Ross reaches this conclusion:  “With ever increasing compensation and billing pressures, attorneys are finding ways to generate more hours in a way that is not always ethical."  I wonder whether it was sheer serendipity or extraordinary journalistic insight that resulted in the Journal running the story (referenced here) on the growing use of alternative fee arrangements just a day later.

From this writer's perspective, these numbers reflect poorly on our profession.  It is, however,  a profession made up of adults, so I have no interest in passing judgment.  But I continue to wonder when the level of disdain among clients reaches a point where they demand economic alignment between client and outside counsel.

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                        Today's Wall Street Journal contains an excellent article by Ashby Jones on alternative fees.  The article can be obtained here (sub. req.).  Yours truly is referred to in the article, which makes it a must-read.  The Journal's law blog also has a related piece here.

Here the real potential for these stories.  Jeff Carr, the General Counsel of FMC Technologies, is one of the leading thinkers in the area of alternative fees. (Quick disclosure--Jeff is a friend and a client.)  He has been arguing that alternative fee arrangements will become more popular when CEOs and CFOs read more about them and start to ask questions based on what they are reading.  If that hypothesis is sound, perhaps the Journal article will have some impact.  Only time will tell.

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Ten days ago, I posted a pithy note repeating a speaker's declaration that the billable hour was dead.  Never in my wildest dreams did I expect that post to generate the level of comments it did, especially since I have railed against the billable hour on so many other occasions.  See some of my posts here.  But if this topic interests you, please read the comments to the post and check out this post by Ron Baker on the Verasage blog. 

The only point I want to make in response to Ron's lengthy comment is the paragraph he begins "Pat and Moe."  Ron, I don't agree with a single thing Moe wrote.  But as we have discussed, I think any seller, if it announced it would only give work to those who would agree to do it on a flat fee basis would find a number of takers.  The converse is not true.  When offering a client an AFA, most clients have one of three reactions: (1) they try to figure out how much the matter would cost on an hourly basis and use that as a basis for comparison; (2) they simply exclude you from the candidates for the work because you've created an apples and oranges comparison for them; or (3) they ask for your hourly rates.  The point is that both sides of the equation--seller and buyer--need to be willing to engage in the process.  Who leads is less important that the commitment to participate.

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All you lawyers can breathe easier now.  This just in:

"The hourly rate is alive and well.  Reports of its death, which emerged from a conference of law firm leaders in San Francisco, are, to use Mark Twain's famous line, greatly exaggerated.  The reports of the hourly rate's death were questioned when no body was found at the scene, and hope quickly developed following reports of the hourly rate's presence in San Diego.  Dan Hull, close friend of hourly rate was quoted in local reports as saying "the hourly rate is alive, well and enjoying his visit with the lawyers at Hull McGuire."  Following that disclosure, scores of reports emerged, leading to the conclusion that the death announcement in San Francisco was premature.  Said one anonymous source: "that hourly rate is so tough it will take a stake through its heart for it to die."

Now back to our regular news.

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Just thought you would want to know.

At the Law Firm Leaders Conference in San Francisco, Dan DiPietro of Citibank declared "the billable hour is dead."  He went on to say that  "I really believe the business model is tired and old and not working for a lot of firms."

Ya think?

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"People are, frankly, disgusted by it."  So says Susan Hackett, senior vice president of the Association of Corporate Counsel.  She was, of course, referring to the most recent increases in the salaries of first year associates.  Major New York firms have raised the salaries of first year associates to $160,000, and firms in Washington, Los Angeles and Chicago have raised their rates to $145,000.

By way of comparison, a federal district court judge earns approximately $163,000 and an associate Justice of the Supreme Court earns approximately $200,000.  Meanwhile, lawyers who have no experience, have never tried a case--heck, haven't even taken a deposition, are earning more than many inside counsel who hire firms to do their company's business.

I have written many times that the one certainty when it comes to associate salary increases is that partners do not pay for them.  Susan Hackett likewise expects law firms to raise their billing rates to cover the cost of the increased salaries.  Some law firms may require their associates to work more hours on the matters they have--notice, not more hours on more matters, for the firm would already have the additional matters if they were there to be had.  But when you live by a simple formula -- rate x hours = revenue -- firms will play with both sides of the equation.  But in the end, clients are the ones who live with the result of that equation.

To think that this insanity is driven by just a couple of firms where the practice is "bet the company" litigation and mega transactions, where even the most outrageous fees are dwarfed by those charged by the investment bankers.  Because these firms can charge whatever they want, they can raise rates to give themselves a competitive advantage in attracting talented law students.  Then law firms who have a taste of this kind of practice but a lot of regular work too feel compelled to match the increase so that they too continue to attract the talented associates, and then the firms who have only regular work do the same thing.  In doing this, though the firms forget two things.  One, incoming associates are mindful of the price tag that comes with the hefty salary (how many attrition articles do you want to read?) and, more importantly, most of the work out there is regular work for regular clients, and those clients cannot afford the endless increases.  Its like sheep being led to the slaughter.

So expect to hear a lot of complaining, as predicted by Ms. Hackett.  Whether anything really changes is another question entirely.  At some point, inside counsel are going to realize that they have the power to change all of this, at least with the exception of the fees paid on "bet the company" work and mega deals.  I am waiting for some inside counsel to rise up like Howard Beale in the the 1976 movie, Network, and shout out "I am mad as hell and I am not going to take it anymore."  I am waiting, but I am not holding my breath, because for too long inside counsel have fed the insanity and refused to move from the comfort zone of hourly rates to the economic sanity of alternative fees.

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I love finding examples of time sheet errors, be they deliberate or not.  Intentional deceit makes the more compelling case against use of the billable hour method, but negligent error also makes a compelling case for change.  In the August 2006 edition of Inside Counsel, Executive Editor Rob Vosper pens a piece about the use of timesheets in law departments (hey, isn't getting rid of time sheets the primary reason to go inside?).  His piece draws upon his own experience as a paralegal:  Writes Rob:

Every Friday around 4 p.m., the office manager would walk the halls to collect our time sheets.  Because I was too lazy to fill out mine on a daily basis, I had to spend a good hour every Friday afternoon recreating my work week.  It was also never clear to me who should pay for my mistakes.  Should I charge the client for the 25 minutes it took me to extract its mangled pleading from the bowels of a jammed copy machine?  And what about the 15 minutes it took me to clean the ink off my hands after a run-in with my Bates stamper?  And who should pay for the four-and-a-half hours I once spent summarizing the wrong depositions?

All fair questions, with no suggestion of deceit.  But the questions beg broader questions about the value of what was done.  Tick.....tick.....tick.  Time is running out on the billable hour (I hope!). 

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I was just reading the Chicago Daily Law Bulletin.  Seems that Mayer Brown, DLA Piper and Latham are joining the growing tide of firms raising the starting salaries of their first year associates to $135,000.  Mark Jungers of Major Lindsey & Africa, a prominent recruiting firm, predicted that Kirkland, Sidley, Winston and McDermott will quickly follow suit.  I would be surprised if any of the top 10 or so Chicago firms hold the line.  The expectation is that there will be $10,000 bumps (in some cases "only" $5,000) to the salaries (or at least annual compensation) of all associates in the firm.

What do these salary increases mean for firms and their clients?  Simple math will tell you that these "bumps" are multi-million dollar hits to the firms bottom lines.  There are, at the end of the day, only two choices.  Do the partners make less (while the associates are making more), or do clients pay more for the same work?  It does not require an advanced degree to know that the partners will not make less.

It is at times like this that the pressure to increase total hours is at its most intense.  Some firms may be forthright and acknowledge that hourly requirements will go up.  Others will do what what I have heard referred to a "manage hours up."  Other firms will increase rates.  But however it is accomplished, firms will capture this revenue from their clients.  All for the same work.

Has the value to the client increased?  Of course not. 

There has been so much negative buzz lately about value received, hourly rates, paying for associate training, and so forth.  This salary increase will do nothing but increase the economic pressures that drive wedges between clients and some of their lawyers.  Perhaps this will be the event that marks the death knell of the hourly rate.

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Dan Hull has a good post on his What About Clients blog about price competition.  His approach is not to compete on price but instead to compete on service, not price.  His insight, which I cannot improve on in any way, is that "if clients come to you for price, they will leave you for price."

This thinking mirrors Tom Peters' view.  Tom has a great slide that he uses: "You can't compete with China on cost or Walmart on price."  So don't. Compete on value.

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In December, I ran a post about outsourcing the legal function or at least parts of it (here).  My thesis was (and remains) that certain inside functions could be handled better by outside counsel on a fixed fee that would be competitive with or less than the cost of the inside lawyer).   The Wired GC has written a very interesting critique of this idea.  The first noteworthy comment is about benefits from the process of considering whether work could be outsourced:

Nevertheless, this process can have the effect of forcing the GC to take a hard look at what work is being done. Some may be outsourced to law firms. Some may be redistributed internally to lawyers, given to non-legal staff, or restructured using appropriate technology. And-possibly best of all-some work may no longer be done at all.

Frankly, these collateral benefits were ones I had not even considered.

Wired GC goes on to find some potential problems with the example I used, including the again increasing salaries for new associates and the fact that most lawyers would not like to "oversee" litigation being handled on an hourly rate by others. 

It is, quite obviously, impossible in short posts such as those in our blogs to provide a detailed proposal and analysis of the benefits of any significant idea, particularly those such as this one which are so very fact-specific.  But let me say this.  My use of the term "oversee" (as in "overseeing litigation") was a poor choice of words used to summarize the many responsibilities an inside lawyer has with respect to a lawsuit.  Issues such as budgets, settlements, insurance coverage, keeping business units apprised, setting reserves and so forth all are significant factors.  But I continue to believe my hypothesis is true--not for all but for many.  The functions I described above could be performed as well or better by a senior litigator whose salary prices her out of the marketplace for many inside counsel positions.  Why would a firm perform such work on a fixed fee akin to her what it would cost to handle these functions in-house?  Many firms (and I know this from my own experience) would be thrilled to do so to get a foot in the door.

I am thrilled that the Wired GC found my post worthy of comment.  I hope he and other inside lawyers find the idea worthy of consideration.

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Thanks to Michelle Golden at Golden Practices for her discussion of Ron Baker's new book, Pricing on Purpose.  The book is available here.  Baker is a thought leader in the area of value pricing, and I have rarely seen Michelle as worked up about a topic as she is in her post of the book.   I've already ordered it.

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In November, I began a discussion of value-based pricing. I had clipped a piece that discussed the "four realities" of value pricing but had omitted to clip the name of the author.  I now know that it was Mike McLaughlin of Guerrilla Marketing for Consultants.  Now that I can attribute the material to Mike, I'd like to continue the discussion today focusing on his second reality:

Reality #2: Clients are reluctant to leave their comfort zone.

For decades clients have used the simplicity of the hourly rate to help make decisions on choosing consultants. The hourly or fixed rate gives clients an apples-to-apples comparison-at least on price-of their alternatives.

Sure, the firm with the lowest hourly rate isn't always the winner, but clients like having a standard measuring stick. Consultants know that old habits die hard, and that the hourly rate or fixed-fee pricing won't go away quietly.

Many clients need a powerful incentive to budge them from old habits. After all, if a client can hire a consultant on a fixed-fee basis to help reduce manufacturing costs, for example, what would motivate that client to pay a value-based fee, which is likely to be higher?

 

"You have to demonstrate a dramatic difference in measurable results as compared to the rest of the pack..."

The answer is reflected in just about everything you do, from marketing and selling to delivery. You need to rethink your marketing communication, sales approach, and your value proposition to effectively convert clients to a value-based billing approach.

You have to demonstrate a dramatic difference in measurable results as compared to the rest of the pack or your clients will head right back to their comfort zone-the hourly rate.

I have struggled with this concept.  I absolutely agree with the premise--old habits die hard.  But I am a litigator--how do we discuss "value" in the concept of litigating a case.  If the case could potentially cost a client $100,000 to defend, and there is a 10% chance of a $1 million dollar verdict, perhaps the value is $200,000.  But how does one distinguish--really distinguish--between a 10% and 20% chance of a certain result?  That difference--$100,000--might be real money to some.  As long as we are left with these kinds of vagaries, I have reservations about a company moving to "value" pricing for litigation.  Certainly budget considerations might drive the litigant to something other than hourly rate payments.

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About I month ago, I wrote about "Outsourcing The Legal Function."  Today, I was reading this article at law.com about five questions law firms face for 2006.  The fifth question is whether client relationships are more critical than ever.  The author observes that "according to a recent law firm study by BTI, the vast majority of companies are shrinking their in-house counsel team, in part because they believe this will cut costs."  I attended the seminar where BTI first presented this data, which is very strong.  The reason, BTI believes, for this phenomenon is that reducing inhouse body count cuts inhouse costs, and that these numbers are more important for General Counsel than outside counsel spend. 

Whether the reasoning reflects the truth of the situation, it is inescapable the General Counsel should be thinking about outsourcing parts of the legal function.  Certainly the work can be handled by outside counsel.  For example, if a company has a lawyer overseeing litigation, any work she is doing likely could be done as an outside lawyer.  In terms of the value of the work, that value is fixed--what was the all-in cost for the inside lawyer?  Might the law firm be able to provide superior service?  Possibly, especially if the outside firm has the breadth of talent to manage (not necessarily handle) litigation with greater expertise brought to bear.  And quite possibly, someone more senior to the inside lawyer will make better judgments about tactical and strategic matters.  Experience does count for something after all.

With this said, I wonder why more General Counsel are not considering outsourcing as a solution.

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Another American Lawyer piece on the billable hours. Author Douglas McCollam does a terrific job analyzing the flaws in the system and some of the reasons it remains entrenched.  Here is an interesting insight:

The question remains then: If the billable hour is so unpopular, why hasn't it been replaced? For starters, it's a huge moneymaker for firms. To a large extent, reliance upon the billable hour is responsible for the pyramid structure of the modern law firm. With legions of associates toiling away on behalf of a narrow band of partners, the modern megafirm generates huge revenue. Take away the billable hour, however, and the foundation of the pyramid collapses. If the basic commodity sold becomes knowledge, not time, then the modern megafirm suddenly begins to look like an obsolete smokestack industry.

What if the basic commodity sold was results?  Makes me wonder how many CEOs would tolerate the system tolerated by their GCs?  If Jack Welch or others of his stature were ever charged with creating an efficient, effective legal marketplace, what would the over/under be on the future of the billable hour?  My bet would be on less than a New York minute.  CEOs like results.  Apparently the GCs are willing to focus on process.

The bottom line is that clients will continue to be offered what they buy.  All the carping in the world isn't going to cause the fundamental, systemic change needed to banish an economic model that is not in the best interest of the consuming clients.  If clients pay for "legions of associates toiling away," that is what they will get.  If they pay for hours of research on an issue that is at best a sideshow, that is what they will get.  If they choose to pay for results, that is what they will get.  The market moves to the money.  Always has.  Always will.

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Check out this post on Law.com. Brenda Sandburg of The American Lawyer reports that amongst the Amlaw 200:

- Billing rates will continue to go up. Fifty-three percent of respondents expect to increase billing rates by 5 percent or less; 46 percent anticipate raising them by more than 5 percent.

- Profits will keep rising, too. Sixty-eight percent of respondents expect profits per partner to grow more than 5 percent; 27 percent think profits per partner growth will be 5 percent or lower.

Its amazing-99% of law firms "expect" to raise rates, nearly half by more than 5%.  Did they ask their clients?  Are their clients raising their prices?  How many of their client legal departments are facing cut-backs or cost constraints?

At the same time, profits per partner are going up.  More than 2/3 think the PPP will go up more than 5%.  I wonder how their clients feel about that.

I will say that this might be misleading, akin to a peacock showing off its tail feathers.  Impressive, but not relevant.  How many of these firms will be offering discounts that more than offset the increase?  How many "negotiate" the bill on top of the discounts?

As I have said before, the system is phony.  Maybe this is the year some clients will wake up and smell the coffee.

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https://thebillablehour.com/clocks.php

https://thebillablehour.com/watches.php

Some people find these timepieces funny (checkhere). It strikes me as sad. 

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I clipped something to post about and when I went back I realized I had forgotten where I found the material.  If you recognize it, please let me know so I can edit this post to provide proper attribution.  I thought about not posting because of this problem, but the ideas are too valuable not to share and discuss.  As you can see, the author identifies four realities of value-based pricing.  I will reprint them with some commentary in four separate posts.

EDITED AS OF JANUARY 6, 2006.
I received a comment from Andrea Harris at Guerilla Consulting who kindly advised me that the material I had clipped but forgotten where I found it came from Mike McLaughlin, co-author of Guerrilla Marketing for Consultants.  Mike, my apologies.

Four Realities of Value-Based Pricing

The logic of value-based pricing for consulting work is sound. Why shouldn't consultants be paid based on the results of projects, rather than the number of hours they log on them? And to take the logic another step, if a consultant's work generates big savings for a client, shouldn't the consultant share in that windfall?

I think value-based pricing will take hold in the consulting business, so facing the realities of this approach now will prepare you for the changes ahead.

Reality #1: Clients care about the performance of their businesses-not yours.

Most clients are looking for tangible results, at the best price, when they hire a consultant. Of course, clients will pay a premium if they believe they can achieve faster, better, or more permanent results with a higher-priced consulting firm.

But never lose sight of the fact that clients are interested in their results, not your profit margin or how much time you put into a proposal or a project.

Some clients will express enthusiasm for and negotiate a value-based fee with a consultant, only to get cold feet at the last minute and ask for a time and materials or fixed-fee proposal. Clients sometimes perceive less risk and lower cost with the hourly rate option, even when that does not reflect reality.

Keep your pricing options flexible even if a client shows a strong interest in value-based pricing. You'll avoid scrambling at the last minute to create a price for services.

My take:  I agree with this to a point.  A savvy client will want you to earn a profit too since happy vendors or service providers can really help a business advance and grow.  The relationship should be one of shared risk, but also shared benefits.  One way streets are headed in the wrong direction.

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Rees Morrison has an interesting post reporting on law departments imposing staffing profiles on outside counsel (X% of work to be done by senior partners, this type of work to be done by junior lawyers, and so forth).  Rees' conclusion:  "I have my doubts that someone can so precisely define the roles of law firm lawyers in these buckets of tasks and percentages of time."  As busy as people are these days, this metric is just another problematic overlay.  The real problem identified is that inside lawyers don't trust outside lawyers to handle matters efficiently.  Certainly a fixed fee arrangement (with a kicker for results, of course) shifts this concern away from inside counsel who really should not have to waste their precious time reviewing bills to see what percentage of total time lawyers spent on various tasks. 

The arguments against the billable hour system just keep piling up.

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One of the blogs I read regularly is The Wired GC.  I just read this post in which the Wired One analyzes the results of American Lawyer's recent mid-level associate survey in terms of what the results mean for client service.  One great observation:

Since midlevel associates are often regular service providers for many law firms, I do cringe when I think that those entries on the monthly invoice represent clock-fixated young lawyers who resent their firm's partners. What do they think about the firm's clients? Am I part of the problem?

The Wired One the analyzes what clients should do about this problem.  He says:

Well, you could choose firms based upon quality-of-life surveys. In reality, however, that's not the way firms are selected-it is nice to see, but not a sufficient criterion.

The other thing a GC could do is migrate work appropriately to good firms that have lower billable hours targets. Would these firms have associates with better attitudes? Maybe. Would the firm charge less per hour? Probably.

But his conclusion is killer:

Most clients of major law firms have probably restructured operations and staffing in the last 10 years to reduce costs, increase quality, and meet competitive challenges.

How long can law firms continue to meet their challenges by raising rates and hourly targets?

The survey says: perhaps not much longer.

Let me add a couple of suggestions for clients to consider.  The real solution is abandoning hourly rates.  But I realize most clients won't just jump wholesale to this model.  So my advice?Experiment.  Send some of your work to firms that will do it on a modified fixed fee arrangement. (I say modified because I am a big believer in law firms having "skin in the game" so that the incentive to get the best result is palpable.)  Not worrying about hours or hourly rates is liberating.  Try it.  Also, try a firm who doesn't have a list of blue chip clients a mile long.  See what it means to be a prized client.  And find a firm whose commitment to client service is demonstrated.  Find out what it means to be treated by a law firm the way you are when you check in at the Ritz or the Four Seasons.  You can get much more for your legal dollar than you do.  You just have to demand more.

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We have all heard (or been heard) inside counsel bemoan the performance of a lawyer or a law firm.  Such laments invariably beg the question, "why not change?"  One barrier frequently mentioned is the cost of switching counsel.  In the vein, I draw your attention to an excellent post by Rees Morrison in his Law Department Management blog.  His conclusion is that "such concerns are over-rated."  I tend to agree, and for many of the same reasons.

In addition to the points Rees raises, however, there are a couple of others worth considering.  First, the "learning curve" process is one that fits perfectly with a fixed fee concept, allowing inside counsel to know exactly what the cost will be.  Likewise, fee agreements with respect to the balance of the case should be much easier to negotiate.  In other words, there is no excuse for inside counsel to be left wondering how much new counsel will cost.  The only issue should be whether the change is worth it.

Last point.  Given the ease with which such a situation plays into an alternative fee agreement, I encourage inside counsel to think beyond the immediate case and consider whether the opportunity at hand is really an opportunity to experiment with alternative fee arrangements so you will know whether such arrangements are within your comfort zone and help solve some of the problems you may have with outside counsel.

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Dennis Kennedy has a nice post on Intel's new advertisement for lawyers on the benefits of mobile computing.  So I followed the link he provided and went to the right column as he directed.  Finally, I hit the "Explore Legal Demo" link and Intel's ad popped up. And what does Intel say?  "You need to be more efficient.  You need to increase billable hours.  You need an edge."  There is a whole section of this ad devoted to increasing billable hours.

Here's the rub.  Efficiency should provide a benefit to a client in the form of lower billable hours, or at least the same billable hours in a shorter time frame.  But someone who knows a lot about selling to lawyers believes that focusing on "more billable hours" is a good sales pitch.

I wonder if clients react positively when they see ads like this talking about ways for outside counsel to bill more hours to their matters.

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Nice profile on Joel Henning of Hildebrandt in the Front And Center column of the Sunday Chicago Tribune business section.  Most of it is background or Chicago-focused, but I did like this Q and A:

    Q:          Some attorneys are leaving the profession because they can't compete against billing cheaters--lawyers who inflate their monthly billable hours.  Can anything be done to curb this?

    A.            I'm encouraging corporate general counsel not to put up with that kind of nonsense any longer.  Right now, I'm working with a $30 billion company.  They're demanding they be treated better, with a consistent team to work on their matters and a competitive price,  not necessarily the cheapest, but competitive.

So his answer acknowledges the problem, and then makes it look as if corporate general counsel are not demanding enough.  I agree, but I hope he's really encouraging them to demand much more than a steady team and a competitive price.  At the sake of repeating myself, in-house counsel have enormous power.  They have what every outside lawyer seeks--business.  Demand more and I believe you'll get it.  Maybe not from your current counsel, but from someone just as good who won't take your business for granted.

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This appeared recently on Adam Smith, Esq.:

At a meeting at Milbank yesterday, a senior partner had occasion to recount the tale of the pencil-sharpener, which was an actual employee at the firm decades ago.

The pencil-sharpener's role was to circulate throughout the office collecting used pencils and replacing them with sharp ones. So far, so good, and so far, so invisible.

But one day the senior partner had reason to visit a paralegal's cubicle and noticed that all the pencils, while sharp, were very short; and all of his pencils were very long.

You can intuit the rest. The pencil-sharpener provided partners with long pencils, associates with medium-length ones, and paralegals with short ones. Legend has it that a partner presented with a short pencil threw it back at the pencil-sharpener, and a lesson was learned.

A quaint tale of a bygone time where associates and paralegals were duly put in their place, silently and (almost) invisibly, but with utter certitude and devastating effects were they to be reflected upon for a moment.

Isn't it great we all know better now?

Now for the survey questions:

1)  How happy would you be paying for such essential overhead today?

2)  Do you think firms have eliminated this kind of waste?

For an answer to the second question, check out this entry from Anonymous Lawyer, a blog written by a large firm lawyer (oh yeah, its all "fictional" too):

" I got a call at seven in the morning on my cell phone from a summer associate, frantic.

"I couldn't sleep all night and I wanted to catch you right when you got up."

"How'd you even get my number?"

"The firm directory."

"What is it you need?"

"I think I gave you the wrong advice yesterday. I've been torturing myself over it. I told you the provision cut in favor of the client, but I've been re-reading the case law over and over and I think it cuts the other way. I don't think there's a case here. I'm so sorry. I know you were counting on me, and I screwed it up. I feel terrible about this. I don't want this to be your first impression of me."

"You think I take your advice without checking with an associate first?"

"Excuse me?"

"You think I actually believe a summer associate can do anything right? The project I gave you wasn't even for a current client. We solved it months ago. It was just busy work. You needed something to do, so I dug that up from my e-mail. You think it mattered?"

"But I was in the office until 2:30 in the morning working on it."

"No one told you to stay that late."

"But I thought--"

"You're here to get a taste of life as an associate. But we're not expecting you to actually do anything. Don't worry about it. I don't care if you got the answer wrong. The important thing is you got some experience. Calm down."

"But I thought--"

"I'll see you in the office later this morning. You probably still have time for a couple of hours of sleep."

"But I thought--"

"Goodbye." 

Just imagine what a Six Sigma Black Belt Efficiency Expert could do at law firms.

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I consider Nat Slavin, the publisher of Corporate Legal Times, to be a friend.  But even if he were not, I would be a regular reader of Corporate Legal Times simply because every issue contains at least one nugget of insight that really makes me think and reevaluate what I believe, and most issues contain more than one.  The July 2005 issue is a great example of multiple nuggets.

Nat's column is entitled "A New Economic Model For Law Firm Billing," and his new model, while not that new, is presented in a way that is really intriguing.  The proposal is that law firms bill on a fixed fee basis on a quarterly basis.  The rationale for the model is the need for business people to bridge the gap between budgets and actual expenses.  The rationale is presented in the context of a public company that needs to forecast and make projections to manage Wall Street expectations.

As most who have read any this blog know, I am a staunch proponent of a modified fixed fee approach-fixed fee with a success incentive (either recovery of hold back or bonus) so law firms remain "interested" in the outcome.  Whereas Nat is looking at fixed fees for a given quarter, which allows a firm to make up any losses from the prior quarter, I have been advocated for a fixed fee on a given matter.  In the context of the business need for prediction, neither approach is on the money.  Nat's approach fails because budges are set months in advance of a given quarter if not even more so.  During breakfast with a GC a week ago, he mentioned how he is now fixing his budget for 2006, and there is no line entry for new litigation.  The system evens out because litigation ends while other suits begin.  In this GC's experience, things tend to even out.  My approach works on a micro, or matter, level, providing the grist for fixing a specific line item on a departmental budget.  But my approach does nothing on a macro level, which is where much of the budgetary pressure resides.  But Nat's analysis that the gap between budgets and actual expenses has to be bridged is on the money, so my view must evolve from micro to macro, from matter budgeting to budgeting for groups of litigation.  We must move beyond matter focus to something broader.

I did say that there was more than one nugget in the July CLT.  Laura Stein, the General Counsel of The Clorox Co., authors the Inside Perspective column, which is entitled "Management Needs Lawyers It Can Trust."  The article is about the trust relationship between inside counsel and management, but the lessons must be the same for outside counsel.  While Ms. Stein's article does not mention fees per se, but she underscores the need to help management obtain business objectives in a cost-efficient manner.  Certainly this must include the budgetary process.  But as important, Ms. Stein underscores the importance of  a relationship built on trust.  And while a trust relationship between inside and outside counsel extends beyond fee issues, it certainly must include them.  The persistent failure to learn and understand the internal budget pressures faced by inside counsel and to respond in a manner that helps solve the problem rather than exacerbate it is certainly a cornerstone of a trusting relationship.

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Much has been written here and elsewhere about the utter significant problems inherent in the billable hour system.  Indeed, there seems to be something meaningful happening, if only rhetorically.  The question remains, when will conduct match rhetoric?  When will inside counsel begin to insist on budgets with meaning, on alternative fees, on their counsel having skin in the game?  When will outside counsel offer, and really push, alternative fee arrangements that are mutually beneficial?  When will we be sufficiently motivated to take that first step into the unknown?

Tom Peters has an interesting entry today about Steve Jobs and his commencement address at Stanford.  The entire address can be read here, but the gist of the speech is captured in Tom's slides.  Speaking of the importance of work in our lives, Jobs says:

" Sometimes life's going to hit you in the head with a brick. Don't lose faith. I'm convinced that the only thing that kept me going was that I loved what I did. You've got to find what you love, and that is as true for work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work, and the only way to do great work is to love what you do. If you haven't found it yet, keep looking, and don't settle. As with all matters of the heart, you'll know when you find it, and like any great relationship it just gets better and better as the years roll on.  So keep looking. Don't settle."

Having told us of the importance our job plays in our lives, Jobs has a few words of advice on how to do our jobs in a manner that is personally rewarding:

"But someday, not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it's quite true. Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma, which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice, heart and intuition. They somehow already know what you truly want to become. Everything else is Secondary."

Having told us of the importance of our jobs and the need to do things our way (think, Frank Sinatra singing "My Way"), Jobs concludes with this:

"Stuart and his team put out several issues of the The Whole Earth Catalogue, and then when it had run its course, they put out a final issue. It was the mid-Seventies and I was your age. On the back cover of their final issue was a photograph of an early morning country road, the kind you might find yourself hitchhiking on if you were so adventurous. Beneath were the words, "Stay hungry, stay foolish." It was their farewell message as they signed off. "Stay hungry, stay foolish." And I have always wished that for myself, and now, as you graduate to begin anew, I wish that for you. Stay hungry, stay foolish."

Maybe we don't need to be out there on the lunatic fringe (to quote Jack Welch), but then again, maybe what seems bold today will seem as mainstream as Apple just a few years from now.

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The last major insight from the Boat roundtables was the incred