The 2011 Futures Conference was held recently at the Illinois Institute of Technology Chicago-Kent College of Law, so I start by thanking Dean Harold Krent and his staff for letting me audit this very practical discussion among in-house counsel, law firms and consultants. This was a dynamic conference that hit on the major changes in how legal work is getting done, ranging from disruptive technology innovation to project management discipline to the use of alternative service providers.
I will focus on what I believe is the essential take away message from this conference, and by far the most relevant to anyone who practices law for a living: Hourly billing as the predominant model for buying legal services may finally be on its deathbed.
The client may be Pfizer, featured at the conference for its use of an Alliance network of “BigLaw” firms that are retained on a fixed fee basis. The client may be a next door neighbor paying $99 to use software from Legal Zoom to compose a will. Whether a matter is complex or simple, litigation or transactional, clients are embracing value billing models that offer price certainty.
What are the ramifications of value billing for legal careers? I believe compensation, job satisfaction and performance metrics will all change significantly.
For attorneys at law firms, the change in performance metrics will be dramatic. Associate bonuses will no longer be tied to hours billed. Partner compensation will align with net profitability figures, not gross revenue totals. That’s significant, but it’s just math. The most dramatic impact will relate to job satisfaction. I spoke with an outside attorney from Pfizer’s Alliance network, and she describes the non-hourly orientation as life changing.
Think about what hourly billing does for one’s mindset. The treadmill of chasing hours never stops, justifying hours becomes a defensive exercise and the lifestyle of tracking hours causes a tremendous amount of stress. Removing the almighty hour as a business objective frees a good lawyer. Focusing on results and net profitability leads smart people to engage in behavior that is efficient, creative and at times even experimental. All of a sudden, daily work life in a law firm becomes less of a grind. I really believe that value billing offers a structure that can make life in a law firm more pleasant and ultimately more rewarding. We may even hear the word “fun” used on occasion by law firm attorneys when describing their jobs.
If I am right, and value billing models result in happier lives within law firms, then it logically follows that fewer law firm attorneys will run toward the exits. We all know that most attorneys who move in-house do so for reasons other than compensation.
In the short term (maybe another 10 years), law departments can hire top notch talent from law firms that struggle with the transition to non-hourly models. And the sad but very real oversupply of JDs generally will allow companies to pick from the best among unemployed attorneys. Long-term, however, successful value billing law firms should stabilize around service teams in a way that we have not seen historically. Turnover percentages will shrink dramatically. And the unemployed ranks will get down to folks who lack the training or pedigree that companies want to hire.
Likely ramifications for inside counsel include glass half-full and half-empty outcomes. The impact of a non-hourly future on in-house compensation should be positive. Law departments will compete for candidates who understand how to create and manage value billing relationships. And when law firms stabilize around service teams with lower turnover, companies will face lateral recruiting challenges that should drive salaries up.
The potential glass half-empty ramification would be a reversal of the current march toward taking more work in-house. When enough quality law firms feature lower cost value billing models, then outsourcing more daily legal tasks may look attractive. I think we are many years away from facing a tipping point in that direction, but it’s certainly worth considering when looking into the crystal ball.
Please come back next month for my take on law department hiring in 2012. Thank you for reading my column, and please enjoy a very happy holiday season.