September 2010

I recently noted that law firms were continuing to increase rates even though their clients were experiencing difficult times.  The Wall Street Journal Law Blog picked up on the story.  I love Nathan Koppel’s concluding line: "color us surprised."

In reality, it is really not surprising.  It reflects a paralysis of thinking and imagination.  By  and large, law firms don’t know how to make money other than by increasing hours or increasing rates.  There has been a lot of pressure on hours, so what else is a firm to do.

 


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Fascinating study by researchers from Temple University and the University of Texas that concludes that the pay gap between men and women partners is not due to productivity.  Here is the money quote:

Our statistical analysis concludes that women partners are compensated less than men on average at the AMLAW 200 law firms regardless of whether they are equity partners or non-equity partners. This gender disparity is not due to lower productivity of women partners. It is attributable to discriminatory practices under both disparate treatment and disparate impact analyses.

Wow.  That is a pretty unequivocal statement, but hardly a surprise to insiders.  But brace yourself for the thousand and one excuses that will emanate from law firms.

 


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What should be made of these two stories?

1.  Associate salaries in a holding pattern.  Salaries have stagnated.  Good news for clients, who have been critical of the ever increasing salary structures employed by their firms.

2.  So, what’s been happening with those hourly rates now that costs are stagnating?  That’s right, they have been increasing!  AmLaw Daily reports on a CT Tymetrix study of $4 billion worth of timesheets prepared by 90,000 people at 3,500 firms over the period 2007 to 2009.  Findings?  Almost 20% of the lawyers increased their hourly rates by more than $100 during this period, rates in general increased faster than the rate of inflation, and rates in Dallas, Atlanta and Richmond were up more than 21%, while rates in Chicago, New York and Los Angeles increased at a 14% pace.  This, while clients were slashing in-house budgets and losing huge portions of their market cap.

Conclusions?  For one, it appears that law firms are not "getting it."  Is another that clients don’t seem to care that their law firms don’t seem to give a damn?


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We now know who to blame for the billable hour.  Or at least who to blame for its perpetuation.

According to former Kirkland partner Steve Harper in  The Belly of the Beast:

Yet it survives because it has powerful defenders, including the Supreme Court’s conservative five-man majority. Yes, the obstacles facing those seeking better days are that formidable.

The lawyers in Perdue v. Kenny A sued on behalf of children in Georgia’s state-run foster care program. After eight years, the trial court awarded attorneys fees under the federal statute permitting winning plaintiffs to recover from the losers in such cases. In its April 2010 ruling, the Supreme Court adopted a rule that, ultimately, will reduce that monetary award by several million dollars.

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Importantly, the Court rejected the argument “that departures from hourly billing are becoming more common.” It noted that “if hourly billing becomes unusual, an alternative to the lodestar method [hours worked times billing rate] may have to be found. However, neither the respondents nor their amici contend that that day has arrived.”

From this, Harper concludes:

As a result, lawyers maximizing their chances for court approval of their fees will adhere to hourly billing. Innovators experiment at their peril because, depending on the type of matter, they risk not getting paid. The Supreme Court’s imprimatur on the billable hour regime creates a perpetual loop that won’t help the profession jettison it.

I don’t have statistics on this, but I am guessing that out of all of the fees paid in litigation, maybe a hundredth of one percent (one thousandth of one percent?) ever find their way into court for approval.  The phrase “tail wagging the dog” immediately came to my mind.  But on reflection, that phrase doesn’t do justice here.  To get proportions correct, it would have to the “the last hair at the end of the tail wagging the dog.”

Having tried to put the argument into perspective, I do not question the idea that lawyers will jump on this to defend their adherence to the billable hour.  Given some of the arguments I have heard over the years from people desperate to defend the billable hour, I have long sense stopped expecting perspective.


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I am delighted to be able share the news that Pam Woldow has joined Edge International.  Those who have read my blog before know that I make no secret of the extraordinary regard I have for Edge,  and my  friends Gerry Riskin, Rob Millard and Jordan Furlong.  Edge is a dominant force in the world of those who consultant to law firms of any size and dimension, in any part of the world.

The addition of Pam to the Edge lineup further cements their position as the dominant force.  I have know Pam for a number of years, have heard her speak and have spoken with her, not to mention been a voracious consumer of her writing and thinking over the years.  She is someone who "gets it," and the collaboration among this extraordinary lineup is certain to yield extraordinary things.

The topper on this is that Pam is starting a new blog too–At The Intersection.  I’ve just added it to my RSS feed.  Savvy lawyers will too.

 


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