One issue I’ve changed my mind over the years of teaching Value Pricing to Professional Knowledge Firms is what is going to be, ultimately, the motivation for them to change?
I used to believe it was in order to achieve a better quality of life and earn more money in the same amount of time. I no longer believe this is a big enough “burning platform.” Most firms are fat and happy, and success hardly ever induces deep change.
Now I believe it will be the talent crisis. The inability of firms across all of the PKF sectors to attract, develop and inspire knowledge workers. We don’t say “retain” because that implies knowledge workers are human cattle. Who wants to be retained?
As if more evidence of this were needed, now we are seeing attacks on the billable hour for the purposes of retaining women, at least from this article, which discusses the San Francisco firm of Heller Ehrman LLP.
Attorney Patricia Gillette has concluded the following regarding the billable hour:
Blame it on the billable hour.
“The system is just wrong. The problem is, nobody has said it out loud for a long time,” said Gillette, a partner at Heller Ehrman LLP in San Francisco. “We have just assumed this is the way law firms have to be. But it’s not.”
“What I’m seeing is, we’re hitting a breaking point with women,” Gillette said. “I think the billable hour is a real problem for the law firm of the future.”
Really, no one has said the billable hour is the problem out loud for a long time? Is she kidding? Richard Reed, who published three seminal books for the ABA, has been saying it since at least 1989, that’s nearly 20 years.
Gillette goes on to say:
[A]n alternative system could measure performance and set salaries without reference to the number of hours billed, and instead focus on productivity, efficiency and quality of work.
As for payment, law firms could charge a flat fee on a per project basis, though Gillette acknowledged that some in cases—such as a big antitrust case—it might be tricky to anticipate the cost.
“We don’t have a complete solution to it,” Gillette said.
Well, we do have solution to it, it’s called Value Pricing. As for the large antitrust case, scope what you know about the case, price it, and use Change Orders for unanticipated events. What’s so hard about this? Mechanics and contractors do it all the time.
I keep thinking about whether or not lawyers are intellectually curious, because in my experience they are. They are readers, writers, thinkers, and excellent debaters. How can someone like Patricia have never heard of Richard Reed’s books, VeraSage, and all the other legal blogs that have been debating this topic for years? It amazes me to no end.
The only way firms are going to be able to get out from under the Sword of Damocles is to recognize their customers don’t buy time, hence they don’t sell hours. Reducing the number of billable hours is simply not going to work to retain any knowledge worker, man or woman.
Sophisticated knowledge workers understand the value they create is not predicated on the time they spend, but rather their intellectual capital, creativity, innovation, ability to synthesize knowledge and a myriad of other traits that simply cannot be captured in the one-dimensional world of hourly billing and timesheets.
Another firm the article discusses is Hanson Bridgett Marcus Vlahos & Rudy LLP, a 144-lawyer firm in San Francisco and Sacramento that last month lowered its annual billable expectations from 1,850 to 1,800. Yippy skippy, alert the press.
This doesn’t deal with the problem that law firm leaders are mired in the mentality they sell time, forcing them to operate under the incorrect theory of value. Start with the wrong theory of value, and you will end up with the wrong conclusion, no matter how “efficient” you are. Reminds me of the man who tells his wife while driving, “Yes, dear, we’re lost, but so what, we are making great time.”
The managing partner of this firm, Andrew Giacomini, said about this lowering of billable hour requirements:
“This latest thing is a recognition that our profession, in terms of the expectation of billable hours, has been kind of moving in the wrong direction and we wanted to take a step back and say, ‘Hey…this is reflective of our values,'” Giacomini said.
Well, if billable hours are part of your values, you need to change your value system. Start by recognizing that your law firm’s purpose is to create value for the customers it is privileged to serve, and that you are entitled to capture a concomitant portion of that value through pricing on purpose.
Until then, firms will continue to lose their human capital investors of both sexes who don’t want to be retained, or work in modern day sweatshops to the rhythm and cadence of a ticking clock.
The billable hour isn’t the problem; it’s merely a manifestation of the incorrect labor theory of value that props it up. That theory needs to be replaced. It’s obvious we have a long way to go.