Kill the Billable Hour? A British Response

As much as the legal sector experiences a change in momentum, such a change seems to be occurring now.

Last week, The Am Law Daily picked up on a piece penned by Cravath, Swaine & Moore‘s Evan Chesler in the latest issue of Forbes magazine, entitled “Time to Kill the Billable Hour.” Cravath’s presiding partner, in presenting an impassioned case for abandoning the practice of charging of clients by the hour, lent his voice to a growing debate.

In the United Kingdom, lawyers and clients have never had the same all-consuming obsession with hourly billing as their American peers. Still, over the last 20 years hourly rates have become the dominant currency here as well, and the tide slowly is turning — some British companies and firms are much further along in making the change.

Last summer, our London-based sibling publication Legal Week broke the story that commercial TV network ITV asked its outside law firms to abandon the billable hour and instead adopt alternative billing arrangements. General counsel Andrew Garard, who joined the company in the fall of 2007 from the London office of Dewey & LeBoeuf, said he wanted ITV to become the first major U.K. company to abandon this form of billing, and he initiated a review of the company’s outside legal providers.

By last November, Garard had finalized a list of approved outside counsel, a panel of nine firms, including Dewey, DLA Piper, Lovells, and Slaughter and May, that had committed to alternative billing methods. “None of the firms will bill us with reference to a measure of time on any matters,” Garard told Legal Week.

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Hard times spark falling-out of partners in leading law firms

Once regarded as secure for life, partners in Britain’s leading law firms are now being presented with a stark choice: prove your worth or leave. Almost 2,000 of them could go.Senior equity partners, who earned an average of £1.1 million in the top ten firms last year, are being told that they must accept a reduced share of profits or leave. Younger partners, promoted during the boom of recent years, are also being forced out.

Up to 10 to 15 per cent of the 11,726 partners in the top 100 firms could lose their jobs this year.

The firms are seeking specialist legal advice themselves on restructuring partnership ranks in the face of a sharp decline in revenues this year. According to Richard Linsell, a specialist in professional partnerships with Addleshaw Goddard, the law firm, lawyers are following the lead of the big accounting firms in targeting underperforming partners.

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Former GC: BigLaw Really Is Better

When Ron Friedmann recently derided general counsel for staying with time-worn practices in their hiring of outside counsel, even in the face of the worst economic crisis since the Depression, he heard from one former GC who said that large companies will not be abandoning their BigLaw outside counsel anytime in the foreseeable future. With her permission, Friedmann shares her surprisingly frank comments.

Sheryl Katz is now an independent legal and technology consultant. She was formerly vice president and general counsel at 101 Communications LLC, now part of 1105 Media. She has also been a partner with Graham & James, counsel to Perkins Coie and an associate at Bryan Cave and WilmerHale. With that experience under her belt, she believes that any movement towards smaller firms is nothing more than a minor trend.

If small firms that would do the same quality work for less were truly available, I would have farmed out more work to them. In some cases former law school classmates, or former attorneys at Wilmer or other firms that I knew, were available in smaller firms to help on matters. Sometimes this resulted in good quality work and lower bills. However, small firms often don’t have the depth of staff, so some matters that are not even necessarily that big can really only be handled by a bigger firm. Also, on a lot of transactions you really need your tax lawyer, corporate lawyer and banking lawyer to be at the same firm.
There are plenty of good lawyers in firms of all sizes and “great” solo practitioners, she acknowledges. “Unfortunately,” she adds, “there is also a lot of mediocrity.” And then there is that CYA factor heard often among GC:

Going to a large firm in a lot of cases is sort of like going to a chain restaurant. You pretty much know that the minimum you are going to get is going to be acceptable. And if the firm messes up, as General Counsel, you are covered. After all, you can always say “It may be a mess but Blank, Blank and Blank is reputed to be a great firm so don’t fault me for hiring them.”

I guess we can call her chain-resturant analogy the food-poisoning theory of law department management. Better the mass-produced burger that is safe and predictable than the risk of a gourmet meal.

By Robert J. Ambrogi on December 29, 2008 at 12:42 PM

GCs Starting to Bring the Work Back Home

Leslie A. Gordon
GC California Magazine
December 18, 2008

Like many in-house lawyers, Shannon Dwyer, general counsel at St. Joseph Health System in the Southern California city of Orange, has been gearing up for the 2010 budgeting cycle. The $4 billion, nonprofit organization, which runs 14 hospitals in three states, has a “responsibility to be a good steward of the assets,” says Dwyer. But in the current economy, she’s finding that using seasoned attorneys at large law firms is quickly becoming “cost-prohibitive.”

As a result, she’s been looking to hire a new lawyer — bringing her legal department to nine attorneys — to help handle even more of St. Joseph’s legal work in house. “It’s a basic cost-benefit analysis,” says Dwyer. “Although there’s some convincing of management to be done whenever you increase [employee staffing] at the corporate level, it’s not difficult to make the business case” that adding in-house lawyers is cheaper in the long run than paying increasingly rising outside attorney fees.

Demonstrating a trend that has significant implications for law firms, a growing number of California companies are under pressure to control costs and handle more work in house, where they can come closer to paying wholesale rather than retail for legal services. According to a 2008 survey of chief legal officers, conducted by consulting firm Altman Weil, GCs like Dwyer are planning to decrease their use of outside firms, which typically constitute the largest expense of any corporate legal department. Correspondingly, chief legal officers plan to increase law department staffing over the next 12 months, according to the survey, which was conducted this past May and June.

Specifically, the survey reports that 49 percent of legal departments plan to hire additional lawyers in the next year, up from the 40 percent who said they planned on new hiring in the last survey. At the same time, 26 percent of law departments will decrease their outside counsel, up significantly from 16 percent in last year’s survey. Only eight percent of CLOs plan to increase their use of outside counsel, down from 18 percent. Not surprisingly, CLOs cited cost control as their top concern over the next three to five years.

Hildebrandt International, another legal consulting firm, conducted a similar survey, which supports the Altman Weil conclusions. Hildebrandt’s 2008 law department survey found that inside legal spending rose by five percent in the United States while spending on outside counsel increased by just two percent. Nearly a third — 29 percent — of the 223 responding companies anticipate a decrease in the number of law firms they will use.

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Law firm fees defy gravity

As the recession gathered, legal fees grew, and one firm broke the $1,200 per hour barrier.

Leigh Jones / Associate editor
December 8, 2008

Despite the rancid economy of 2008, attorney billing rates continued their escalation trend, with nearly 71% of law firms reporting an increase in the amount that they charged clients compared with 2007. This figure represents law firms that increased their average and median billing rates firmwide.

Also this year, partner billing rates broke record highs, with one firm exceeding the $1,200 mark and another rising above $1,100 per hour.

This year’s results of The National Law Journal’s annual billing survey indicate that, although law firms upped their rates at a slower pace compared with last year’s increases, they still exacted a higher price for their labors from clients, even amid an unraveling economy.

The survey was based on information provided by 127 law firms that responded to billing questions submitted as part of the NLJ 250, The National Law Journal’s annual survey of the nation’s largest law firms. Of those 127 law firms, 109 provided billing information both this year and last, from which year-over-year comparisons were derived. The survey period ran from Oct. 1, 2007, to Sept. 30, 2008.

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43% of Law Firm Leaders Surveyed Expect to Hire Fewer New Associates

Posted Dec 1, 2008, 06:13 am CST

By Debra Cassens Weiss

Only 38 percent of more than 100 leaders of large law firms who responded to a survey are optimistic about their firm’s prospects next year.

Instead, a majority—53 percent—told the American Lawyer they were uncertain about the next year. That uncertainty appears to be affecting hiring decisions for new associates—but not for lawyers with more experience.

DLA Piper joint CEO Francis Burch Jr. summed up the prevailing sentiment in an interview for a story on the results. “Anybody who is running a law firm who pretends to be able to predict with certainty what the firm is going to be doing in the next year and how it’s going to fare is dreaming,” he said.

Despite the lack of optimism, 72 percent expected their firm’s overall head count to increase next year. Only 6 percent expected a decrease.

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Lexakos Acquires Information Technology Staffing Group to Complement Growing Legal Business Consulting Practice

Corporations Focused on Mitigating Information Management Risk Have Struggled to Harmonize the Legal, Compliance, IT and Operational Components of Effective Compliance; Lexakos Consulting Stabilizes These Cross-Functional Challenges Through Specialized Technology Staffing Solutions on a Temporary and Permanent Basis

NEW YORK, NY–(MARKET WIRE)–Dec 2, 2008 — Organizations seeking to reduce risk, contain costs and improve productivity received a boost today when legal business consulting firm Lexakos announced the acquisition of key assets from premier information technology staffing firm, The Wilson Group, and the launch of a new business unit called Lexakos Consulting and Staffing Services Group.”Organizations continue to be burdened with complex information management and global compliance issues, and need better strategies to protect critical assets, but resources for handling these specialized areas are hard to find. In acquiring The Wilson Group, we added a proprietary database with over 40,000 technologists and a recruiting team poised to address the pressing needs of our clients,” says Lexakos Founder, Rick Wolf. “We know how to identify individuals who understand how legal, compliance and IT interrelate, and stand ready to recruit professionals with these overlapping skill sets.”

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