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The Billable Hour's Demise: Greatly Exaggerated?

I'm going to talk about Kirkland & Ellis again, but not for long. When Big Law's alpha dog said it was going to make a new push into contingency work, my colleague Jack Newsham checked in with some of the litigation shops that are already thriving on this work.

Unlike Kirkland and its full-service brethren, boutiques like Susman Godfrey and Bartlit Beck have more or less sworn off the billable hour for years. It's in their DNA.

But this move doesn't seem like it's going to radically rejigger how Kirkland operates, even if the small portion of its work done via alternative fee arrangements ticks slightly upwards.

I've been asking others about the future of the billable hour lately, as part of a wider inquiry into the future of the profession. I wrote about the subject from the compensation side a few months ago, when Clifford Chance's Middle East offices unveiled a pilot program de-linking billable hours from attorney evaluations. 

It seemed like something worth cheering. I'm certainly glad I don't need to account for every six-minute increment of my time.

With that said, I wish I could be more optimistic about what I was hearing. Instead, it seems like a good time to trot out that hoary Mark Twain chestnut: “The reports of my death are greatly exaggerated.” Not a soul I've talked to expects the billable hour to evaporate in the next 10 years.

The more interesting question, then, is what accounts for its stubborn perseverance? This is a practice has been the standard for the last 60 years … it's not even worth running down a list of trends that were in vogue in the 1950s and have since faded into oblivion.

The thing is, I can't get a consistent set of answers.

Bruce MacEwan and Janet Stanton at Adam Smith, Esq. always have smart things to say about the economics of law firms. They told me that if law firms were run by business people, they would be servicing clients entirely differently.

“It would be the end of the billable hour instantly,” Stanton said.

That said, many law firms (though by no means most of them) are increasingly turning over greater responsibility to business professionals—earlier this week I had the story of two global firms promoting pricing experts. So what gives?

The CEO at one of those firms, Hogan Lovells' Steve Immelt, told me that much of the resistance to change comes from the client side.

“From the law firm perspective, getting away from it is attractive as long as you're not taking a huge revenue hit,” he said.

He added as firms become better and better at making sense of their pricing data, they'll gain increased confidence in alternatives to the billable hour. But clients, many of whom still equate hours worked with value, “have to get there on their own.”

Orrick's Mitch Zuklie had a similar take, suggesting that more sophisticated use of data on both sides will narrow the scope of the billable hour's application.

“More likely it will be used at the beginning of an engagement, when people are still scoping out an assignment,” he said.

And, he added, “when circumstances make sense for a client.”

Now, I know that clients don't care how a firm chooses to compensate its lawyers for their work (and many don't like to see the continuing escalation of associate salaries). But maybe firms that really want change could be vocal about scrapping billable hours as a metric for evaluating associates.

Would that send a message to clients about its utility?

In the News

They may not be ready to part with the billable hour, but more firms do seem willing to rethink the need for offices. I'm thinking “virtual” law firms—those widely dispersed operations that largely have lawyers working out of their own homes. Turns out they might be a little better than others at promoting gender parity in their ranks, according to my colleague Patrick Smith.

My conversations about Brexit have shown that law firms with significant U.K. operations have found plenty of opportunity amid the uncertainty. Their peers in the management consultancy arena have too, unsurprisingly. According to the FT, they were able to pin a figure to it. The Management Consultancies Association's 2018 report found an 8 percent increase to £10.6 billion ($13.3B) in fees.

I keep hearing that U.K. firms are ahead of their U.S. when it comes to adoption of legal technology. Here's another data point in favor of that thesis. From Legal IT Insider, Clifford Chance has selected opensource contract analytics platform ContraxSuite, which was purchased by Elevate in late 2018. It's the second international law firm to publicly choose the product in the last year; Baker McKenzie got on board before Elevate stepped in.

Back again next Thursday! What do you want to hear about? Tell me at [email protected]. Sign up here to receive The Law Firm Disrupted as a weekly email.