1 Boring Old Man

Economy Pinches the Billable Hour at Law Firms
By JONATHAN D. GLATER

Lawyers are having trouble defending the most basic yardstick of the legal business — the billable hour. Clients have complained for years that the practice of billing for each hour worked can encourage law firms to prolong a client’s problem rather than solve it. But the rough economic climate is making clients more demanding, leading many law firms to rethink their business model.

“This is the time to get rid of the billable hour,” said Evan R. Chesler, presiding partner at Cravath, Swain & Moore in New York, one of a number of large firms whose most senior lawyers bill more than $800 an hour. “Clients are concerned about the budgets, more so than perhaps a year or two ago,” he added, with a lawyer’s gift for understatement.

Big law firms are worried about their budgets, too. Deals are drying up, and only the bankruptcy business is thriving. Two top firms, Heller Ehrman and Thelen, have collapsed in recent months. Others have laid off lawyers and staff. So cost-conscious clients may now be able to sway long reluctant partners to accept alternatives…

It was a brilliantly simple idea. The screen displayed a grid like a ledger sheet. Each cell could hold text, a number, or a formula that referenced other cells. VisiCalc was the first one, but Lotus 1-2-3 was the one that caught on because you could produce graphs from tables. Now it’s Microsoft Excel. But these pieces of software became bigger than just ledger books for book-keeping, they allowed modelling. Suddenly you could keep up with data, make computations, create models, do forecasting. It was a quantum leap.

Lawyers kept up with billable hours. Financiers made complex models of their proposed transactions, investments, profits and losses. Spreadsheets made mathematics into a new friend because they contained formulas for everything – business, science, engineering, etc. And from them came complex programs that allowed an even greater access to virtual reality.

Like all good things, they also brought heartache. One set of consultants would model a business and find ways to cut expenses. The next consultant would do it again, and find even more ways to trim here, charge more there. Professionals should charge somebody for every minute on the job. Someone figured out how to cut costs at McDonalds by only providing catsup on request. "Do you want cream with that coffee?" "How many sweeteners?"