My inbox has been inundated with the New York Times article from January 30, 2009, “Billable Hours Giving Ground at Law Firms.”
Some of these messages contain high praise for my work and VeraSage’s in killing off the billable hour, stating how proud we should be of this moment.
But I’m not celebrating. This war is far from over. All this article is achieving is a wider exposure of more groaning and moaning over the billable hour’s inherent fallacies.
Once again, Evan R. Chesler, presiding partner at Cravath, Swaine & Moore in New York is quoted:
This is the time to get rid of the billable 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.
The article goes on to state how the billable hour has been firmly in place since the 1960s, which is not quite true. It actually reached a tipping point by the 1950s, whereas timesheets began as early as 1920 by some accounts, and certainly by the 1940s.
The article then quotes Frederick J. Krebs, president of the Association of Corporate Counsel:
I like to paraphrase Churchill, “In all these conversations, never has so little been accomplished by so many for so long. It just hasn’t happened.”
But the crashing economy may achieve what client complaints could not, Mr. Krebs added. “We may well be at a tipping point here.”
On one level, Mr. Krebs is correct. The ABA and firms have been talking, publishing, speaking, touring, and bemoaning the billable hour since at least 1992, with the publication of the seminal books of Richard C. Reed. All to no avail, at least at the large firm level.
But on another level, I believe Mr. Krebs is incorrect to think that a crashing economy, or the ACC Value Challenge for that matter, will bring about a change. How many recessions has the billable hour survived since the 1950s, including the much more severe recession of the early 1980s? If anything, it became more entrenched.
For reasons I’ve discussed many times before, sellers change pricing strategies, not buyers. That means the ACC has no power here to force law firms away from the billable hour. Oh, sure, some customers will force “alternative fee” arrangements on some firms, but that is a long way from each firm applying a new pricing model across all of its customers.
Besides, a lot of the “alternative fee” methods are nothing more than the billable hour in drag—blended rates, caps, discounted rates, etc.
Mr. Krebs goes on to say this, which I find simply ludicrous:
The difficulty is, we don’t really know what it costs us to do something.
This is not the difficulty. A monkey with rudimentary cost accounting skills can figure out the cost, especially when most of the costs are fixed!
The difficulty is firms don’t understand the value they create for their customers. They don’t seem to comprehend it, they don’t communicate it, they don’t innovate ways to enhance it, or to convince their customers of it. They whine that this is too hard, value is to fuzzy, and a host of other complaints.
Of course value is difficult, which is what makes pricing fare more complicated (and intellectually interesting) than multiplying hours by some fictitious hourly rate. But I can say one thing with total confidence: One way not to comprehend value is keep talking about billable hours.
It was John F. Kennedy who said that ambitious goals are worth pursuing “not because they are easy, but because they are hard.”
So I have a proposal for Mr. Chesler. You have eloquently laid out the case against the billable hour, in high profiles such as Forbes and now the New York Times.
It’s time for you and your partners to show some leadership, and draw a line in the sand. From here on out, Cravath will no longer bill by the hour. Furthermore, we are no longer keeping timesheets (this will shut down any conversation about hours).
Do it, Mr. Cravath. In your own words, “This is the time to get rid of the billable hour.”
What are you waiting for? Other firms to go first? Where’s the leadership? Set the example and you will start off a diffusion among large firms that will be unstoppable.
We have the knowledge of how to do this, you don’t have to reinvent the wheel, just your cultural mindset. The one that says the value you create is determined by the hours you expend.
I know how deeply rooted this mindset is, and how difficult it is to overcome. Trailblazer Jay Shepherd has a great post on an article in the California Bar Journal by a former partner defending the billable hour as “the best way to measure value because it is a mechanism of measuring the amount of work that a lawyer did for a client on a particular matter.” Karl Marx thought the same thing with his thoroughly discredited labor theory of value.
Ignore the naysayers Mr. Chesler. William Shakespeare, in Richard III, wrote that “Talkers are no good doers.”
Prove him wrong.