Why law firms should burn their clocks before they must
The managing partners of law firms should burn publicly, and with photographers present, a full-colour printout of a screenshot, appropriately redacted, of their most recently billed hour.
Then they should issue a press release, complete with the clock-burning pictures, stating that they have billed their final billable hour and that from thenceforward they will negotiate with customers on a case by case basis a fixed fee for providing specific legal counsel and processes which help their clients achieve their objectives. Statement ends.
When I suggest this to managing partners, their CFOs and sales and marketing directors the reaction I receive, from all but the most innovative amongst them, must be similar to the look received by that hapless person of old who suggested the world was round: a mixture of disbelief, horror and borderline disgust.
Those who do not turn away but engage with me on this matter bring all the force and power of their litigation training to bear in defence of their clocks.
Their skeleton argument consists of three parts. First, they are keen to come across as “disrupters” and acknowledge “that something must be done…yes, the billable hour probably has had its day…fixed fees are the future…in fact, we do blended pricing already…”
When I ask if they’re going to go the whole hog, they then roll out the second part of their argument with gusto: “…we will, absolutely…we are after all a leading edge firm…but we’re not bleeding edge, and we need to find a solution which ensures that we know the cost of work delivered or else how can we drive margin?…this is a journey, not a destination…”
So, I ask, if the only thing stopping them, therefore, is internal cost control and not the fact that the billable hour is linked to remuneration, PEP, and law firm rankings? At which they wince, briefly, and then they wheel out their final, and to them, their killer argument:
“…no, no, it’s the market that keeps that system in place, not us. The best lawyers cost the most and clients want the best because they’ll get into trouble with their bosses if they don’t and in any event, it’s about individual relationships with the brightest lawyers…and brightness costs, a lot…”
I see. It’s the customer’s fault. Those annoying customers keep on insisting on paying massive fees. Consequently, the lawyers must keep track of billable hours since that’s what’s measured. And people will deliver what’s measured. It’s the way it is, or so the argument goes.
My counter-arguments are as follows. First, since they agree that the number of disenchanted customers is growing, then the “Big Mo” cannot be far off. That is, the irreversible momentum achieved when the number of disgruntled customers is more than the number willing to stay quiet about a system that is agreed by all to be dysfunctional.
What, I ask, will your firm do if it finds itself on the wrong side of the Big Mo?
Second, many professional services firms who manage perfectly well to track, sensibly, all the direct and indirect costs of delivery are not obsessed by it because it’s not linked to their remuneration. Instead, they are obsessed with helping customers achieve their objectives. They’re selling pain relief, not time.
Moreover, an increasing number of senior executives in professional services firms are not “on the clock”. They are nevertheless part of the cost of delivery.
No one asks the CEO or the CFO to account, precisely, for their time about each contract because the best PSFs have fixed overheads which are recovered in multiples.
They drive deep value from their fixed overheads by investing over the long term in relationships. Their people are trusted to use their instincts to ensure that customers feel that “delivery” is not underresourced. If anything, the current cheese pairing system leads to inconsistent quality of delivery.
Even if billable hours were not linked to remuneration the tracking of internal cost of delivery on a contract by contract basis, to manage margin, would still be of limited value, if the firm is maximising profit over the life of each relationship, which every modern professional services firm should be doing. The customers want relationships over time, not piecemeal deals that support PEP.
Finally, what if in due course the market comes to believe that a significant proportion of billable hours are overpriced while acknowledging that some lawyers on some matters should, rightly, be paid top dollar?
This is what happened in the airline sector. Once upon a time, British Airways was “the world’s favourite airline”, with eye-watering seat prices, until one day a few disrupters decided that it was possible, enabled by new online booking technology, to deliver the same value – transporting someone safely from a to b – at a fraction of the price charged by BA.
British Airways almost collapsed, and the low-cost carriers even managed, in time, to compete with each other with premium offerings.
Their strategic challenge was “to train” the market not to expect anything other than a safe flight. This they achieved by taking a no-nonsense if, at times, a downright offensive attitude to the travelling public. The strategy paid off.
I’m not suggesting that no-frills flying and legal services are comparable. Heaven forbid. But the context is identical: an unhappy market, sustained by entrenched behaviour until one day someone says: “We can deliver the same value at a significantly lower price for non-premium activity by training the market what to expect in a manner – unlike low-frills airlines – they will tolerate, and that we can also provide premium services at premium prices which are still less than the current “rip-off” prices”
The “market training” required in legal services lies in the gap between the needs of General Counsel and the needs of the businesses they serve.
If a law firm can insert themselves into that conversation and add value by helping the GC manage their relationships with the CEO and the board better, then they can find out how to reduce costs substantially on non-premium services and noticeably on premium services in that particular organisation which will have its unique target operating model.
The problem is that many lawyers don’t understand what a TOM is and why they should care. The winners in this game will have the humility to acknowledge what they don’t know about business and listen to those who do. It’s isn’t rocket science, but equally, it’s not law. And lawyers mainly know about the law. Not business.
This does not mean that law firms should do, as many have done, which is to collude with the commoditisation of services by demeaning them using terms like “BAU matters”, “low-value activity” and the “crap we don’t want to deal with”. This sort of language has been a huge own goal.
“Risk-sharing” arrangements which sound pleasingly disruptive, are also unwise, except where a law firm wants to experiment with new services with the support of the customer as an R&D project. You can only share risk if you are allowed to share control of all the inputs and, especially, behaviour and few if any law firms would be allowed or able to do that.
The low-frills airlines never demeaned their offering: they continued to honour the challenge of getting tons of metal up into the air and down, safely.
So, don’t say “we can automate your NDAs”. You don’t need fancy technology to do that. Just duplicate them in a photocopier, if they are boilerplate. But as soon as an NDA needs marking-up, you are adding value. Don’t demean that value. But don’t overprice it either.
The question now is: which few law firms will muster the courage to confront their internal demons, break ranks and give the market what it craves: problems solved, not billable hours?