Why the Billable Hour Endures
The Am Law Daily
Last month, I wrote a New York Times op-ed that discussed the billable hour regime and its unfortunate consequences for the legal profession. The piece generated a lot of response, most of which supported my theme. Readers generally agreed that the system rewards unproductive behavior, invites abuse, and pits attorneys financial self-interest against their clients goals.
Defending the Billable Hour
Even so, the Times published a letter to the editor in which Alan B. Moldawer, executive vice president and general counsel of Veolia Transportationthe largest private sector operator of multiple modes of transit in North America, according to its website, with transit and rail management contracts in such cities as San Francisco, Boston, and Miamiresponded to the article by defending hourly billing. In his letter, Moldawer noted that alternatives to the billable hour have not caught on because they do not allow the client the same opportunity to see the work as it is being done, evaluate its worth, and challenge when appropriate the relationship of time, task and cost.
That alternatives haven't caught on isn't theoretical, but his argument for why is. It's true that the billable hour system arose from a desire for greater transparency. Before it gained widespread use, clients typically received a bill that included a single line: For services rendered. When todays senior partners entered the profession, firms kept track of their time but didnt impose mandatory minimum billable hour requirements. In fact, a 1958 ABA pamphlet recommended that attorneys maintain better time records and strive to bill clients 1,300 hours a year.
Unfortunately, transparency gave way to behavior that focused on maximizing profits in the short term and distorted the billable hour into an internal law firm measure of productivity. Quantity of time billed became more important than the quality or effectiveness of the effort expended. Todays required annual minimum hours typically run close to 2,000and most associates understand that enhancing their prospects for advancement requires many more.
Transparency Yields to Abuse
So Moldawer is correct about the billable hours theoretical transparency. But in practice, few clients are well-positioned to challenge the relationship of time, task and cost. In a complex case, what motions should be filed and how much time should their preparation take? How many witness depositions are needed? And of what length? Whats the right level of staffing to maximize the chances for success?
Some in-house counsel possess the sophistication to provide meaningful answers to these and other questions that underlie any effort to assess the relationship of hourly fees to time, task and cost. But most dont. They trust their lawyers to do the right thing under an incentive structure that pushes those lawyers in the opposite direction.
Bankruptcy as a Poster Child
Embarrassing reports of billing deceit are rare. But the real problem isnt such well-publicized abuses. Rather, its the cultural impact of the incentive structure. In most large law firms, one practice area is particularly revealing: big bankruptcy cases.
Large numbers of bodies billing at enormous hourly rates get thrown at such matters. All that activity shows up in detailed time records that accompany massive fee petitions routinely approved by the courts. Like the U.S. Trustees office that also reviews such filings, courts lack the resources to provide meaningful scrutiny of time, task and cost.
Petitions seeking hourly rates of $700 for associates and $1,000 for partners routinely go unchallenged, as do the listed activities that consume these attorneys time. Last year, when the U.S. Trustee proposed that firms disclose whether they charge higher hourly rates for the same attorneys performing non-bankruptcy work, the profession united in opposition.
The billable hour regime endures because, like the general counsel of Veolia, clients think they have it under control. But that requires a leap of faith as outside lawyers resolve the ongoing dilemma of a system that pits fiduciary responsibility to a client against the attorneys financial self-interest. With law firms obsessing over current year profits and partners seeking to maximize personal books of business to preserve their own positions in an eat-what-you-kill world of frenetic lateral partner movement, that dilemma becomes profound.
As for the billable hours impact on other aspects of the professions culture, another Times letter to the editor offered this: Appearing before St. Peter, a young law firm associate asked why he was being taken at age 29. Taken aback, St. Peter said the associates billable hours made the associate appear to be 95.
Steven J. Harper is an adjunct professor at Northwestern University and author of The Lawyer Bubble: A Profession in Crisis (Basic Books, April 2013), and other books. He retired as a partner at Kirkland & Ellis in 2008, after 30 years in private practice. His blog about the legal profession, The Belly of the Beast, can be found at http://thebellyofthebeast.wordpress.com/. A version of the column above was first published on The Belly of the Beast.
This article originally appeared in The Am Law Daily.