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Four years ago, Richard Susskind published the first edition of “Tomorrow’s Lawyers: An Introduction to Your Future.” With the rapid changes in the legal profession, tomorrow is now today.

The second edition of “Tomorrow’s Lawyers,” widely considered a must-read for business of law and legal education professionals, focuses more sharply on how artificial intelligence, alternative business structures, low-cost law firm service centers, legal tech startups and evolving in-house roles are changing the way legal services are delivered and how law schools are educating students to meet those changes.

You’ll recall from Susskind’s first edition his credibility as a futurist: He’s devoted his career to theorizing about and planning for the legal profession’s long term. (You might also remember he predicted in the first edition a relentless march by the Big Four accounting firms into the legal services market, a prediction proven accurate last month when we broke the story that PricewaterhouseCoopers is launching a D.C. legal services office.)

With a doctorate in law and computers from the University of Oxford and as the author of nine books on the subject, Susskind has worked in legal services and technology for more than 30 years. His first edition of “Tomorrow’s Lawyers,” was published by Oxford University Press in 2013. The second edition came out this year.

In the preface to the second edition, Susskind said that his main purpose of the book is “encouraging open-minded debate and reflection, with a view to improving our legal systems.”

To that end, ALM during October is publishing excerpts across several of our brands from the second edition to spark thought and conversation about the industry’s future among the legal profession’s leaders. ALM editors and reporters have solicited reactions—positive and negative—to Susskind’s ideas from law firm chairs, top legal educators, general counsel, law students and industry analysts to get their take.

Below, you can read an excerpt from Susskind’s latest edition that focuses on the concept of “charging less.” The American Lawyer’s Roy Strom then spoke to key industry leaders about the concept. Read his related story here. Look for additional excerpts from the book and related articles on The American Lawyer in the coming weeks.

From Richard Susskind’s “Tomorrow’s Lawyers: An Introduction to Your Future”

Charging Less

It might be thought that the best way to meet the more-​for-​less challenge would be for law firms simply to charge less. For businesses that enjoyed almost uninterrupted yearly growth in profit and turnover for the 20 years leading up to 2007, the suggestion of charging less is not normally greeted with unbridled enthusiasm. Nonetheless, law firms like to show willing and so many have recently been proposing ‘alternative fee arrangements’ (sometimes known as AFAs) to their clients. The ‘alternative’ that lawyers have in mind is to ‘hourly billing’ which has been the dominant way of charging for legal services since the mid-​1970s. In truth, hourly billing is not simply a way of pricing and billing legal work; it is a mindset and a way of life. Lawyers charge for their time—​for their input and not their output. And, until not long ago, most clients have seemed comfortable with this approach.

The shortcomings of hourly billing are well illustrated by an anecdote involving my daughter. When she was 12, she asked me for a summer job. I needed some administrative work carried out and she agreed to take on the task. She asked me how much I intended to pay her and I responded, unreflectively, that I thought I would pay her a certain amount per hour. She thought about that for a few seconds, smiled, and then said: ‘Well, I’ll take my time then. ’ If a 12-​year-​old can see the shortcomings of hourly billing, then it puzzles me that major international corporations cannot also see the problem here. Hourly billing is an institutionalized disincentive to efficiency. It rewards lawyers who take longer to complete tasks than their more organized colleagues, and it penalizes legal advisers who operate swiftly and efficiently. All too often, the number of hours spent by a law firm bears little relation to the value that is brought. A junior lawyer who expends 50 hours on a task can sometimes provide much less value than half-​an-​hour of the work of a seasoned practitioner (drawing on his or her lifetime of experience).

The dominant culture in so many major commercial firms, however, is still for lawyers to churn out as many chargeable hours as possible. Underlying this practice is a business model for professional firms that has ruled for several decades—​the ideal, in theory and practice, is to have a pyramidic structure at the top of which is the equity partner (the owner) of a law firm, beneath whom are junior lawyers whose efforts bring far more revenue to the firm than they are paid as salary. On this model, the broader the base of the pyramid, the more profitable is the firm. And so, in major U.S. firms, for example, many associates are expected to work around 2,500 chargeable hours each year, a set​up that ensures great profitability for law firms but one with which clients are increasingly disillusioned.

In passing, I might add a word or two about rates and incomes. In those large commercial firms where partners’ hourly rates exceed, say, £900 per hour and their associates’ charges are about half of this, this yields very significant profits for these partners. There are over 70 firms in the world in which many of the partners earn over £1 million per year and, in some, their take is much greater than this. Many of these partners confess that when they entered the law they never dreamt of such incomes and that they had not chosen the law as a career because it would be well remunerated. In contrast, many high-​powered law graduates today enter the law precisely because of the promise of considerable wealth. They may be disappointed. Although a handful of these global practices are likely to continue earning very substantial incomes, it may well be that the golden era for many law firms has passed. Over time, the more-​for-​less challenge will drive down profitability.

The scales of income just mentioned understandably give rise to media and public characterization of lawyers as ‘fat cats’. However, the overwhelming majority of lawyers around the world earn much more modestly. In most large jurisdictions, approximately 30 to 40 percent of the law firms are run by sole practitioners and about 75 percent have four partners or fewer. In these practices, the profits are considerably lower, in line with senior public sector workers rather than private bankers.

For more on this subject, read Roy Strom’s piece on whether firms are charging less or just making less.

 


Excerpted with permission from Tomorrow’s Lawyers by Richard Susskind. For more information, click here.