Thanks to everyone who has been sending me the January 12, 2009 Forbes article written by Evan R. Chesler, presiding partner at Cravath, Swaine & Moore LLP, entitled “Kill the Billable Hour.”
It doesn’t real say anything that friends of VeraSage don’t already know. It lays the out how the billable hour misaligns the interests of attorney and customer, especially in litigation.
Chesler uses the example of a contractor he hired to remodel his kitchen. He received a fixed price, causing him to wonder why attorneys can’t do the same, even in complex litigation that can be broken down into various phases.
Once you step out of the professional realm, you realize that every other business on the planet offers a fixed price, before you buy. This is basic economics, which PKFs have been violating at their peril.
We have used examples of how absurd it would be if airlines charged by the hour, or insurance companies used cost-plus pricing. Jay Shepherd, one of our Trailblazer law firms, has a great post about what would happen if Starbucks charged liked attorneys.
I’m constantly amazed by the amount of chatter that has been spent on defending and debunking the billable hour. What’s so hard about offering customers a fixed price up-front? It eliminates all of the problems and ethical dilemmas of the billable hour.
There’s an interesting interview on the Legal Talk Network with attorney Stewart Weltman from the Weltman Law Firm, discussing how his firm uses value pricing, even when representing the defendant in a lawsuit. (Hat tip to Stephanie West Allen for passing this along).
I’m encouraged by all the talk in the legal blogosphere on this issue. But as my friend Ric Payne begins a lot of sentences, at the end of the day, talk is cheap. I’m afraid at the end of the day, Chesler will still be completing his timesheet.
I’ll be more impressed when Chesler gets Cravath to eliminate the billable hour entirely. Imagine what an enormous competitive advantage that would be for the firm.
Here’s the line I find most interesting from his article, and it’s at the very beginning:
I’m a trial lawyer. I bill by the hour. So do the associates who work for me.
Talk about defining yourself by an hourly rate. This is exactly the point that David Wootton, author of Bad Medicine, made about doctors reluctance to adopt a variety of new theories and techniques that would have made medicine more efficacious (see my review of this wonderful book here).
Wootton believes the primary obstacle to progress was not practical, nor theoretical, but psychological and cultural—”it lay in doctor’s sense of themselves.” This certainly explains Chesler’s opening sentences—he’s defined by his hourly rate.
I remain a paranoid optimist regarding all this chatter about getting rid of the billable hour. On one hand, I’m thrilled to see it getting so much attention, while on the other hand, I’m distressed that so far it seems to be a lot of talk with no action.
I’m beginning to believe in the wisdom of the physicist Max Planck’s statement, “Science progresses funeral by funeral.” Do we really have wait for the older generation to die out before changing to a more economically rational business model?
What do you think?