5 Arguments Against the Billable Hour
The name Beyond Billables pretty much gives away our opinion on the billable hour paradigm. So, the title of this article will come as little surprise. The thing is, we’re far from alone in holding this dinosaur of an economic model in disregard. On a recent episode of the Beyond Billables podcast, we spoke with Tim Corcoran - a consultant specialising in helping law firms embrace change, up their efficiency and become more profitable. Tim is on the front line of how the practice of law is evolving, and he had this to say:
‘What we’re facing now is a market that’s pushing us towards a model that every other business relies on, and that is: you should profit from experience, not inefficiency.’
In a large way, billing clients by the hour encourages you to do things slowly. It’s another case of ‘show me the incentive and I’ll show you the outcome’.
If you can charge for five hours, why streamline a process down to two hours?
Well, there are good reasons to do this, and we’ll explore them a little more below.
This point is additionally highlighted in a piece from a few years ago in the New York Times by Steven Harper: ‘The billable-hour system is the way most lawyers in big firms charge clients, but it serves no one. Well, almost no one. It brings most equity partners in those firms great wealth. Law firm leaders call it a leveraged pyramid. Most associates call it a living hell.’ This is a solid indictment and not an unfair statement in our opinion.
Skipping back to the previous point, the obvious answer to the streamlining question is that you should embrace the more efficient method and still charge the same rate or pass some of the savings onto clients.
To quote Tim again,
‘The goal should be to reward partners because we’ve aligned their self-interest properly with that of clients and the firm. Very few big law firms are fully embracing the approaches of LPOs and other legal disruptors (who have largely moved away from hourly billing) - and this needs to change’.
So, change is needed - this is obvious and news to exactly no one. And that change is happening already, but it’s not happening fast enough. Large portions of the legal establishment are willing to pay lip service to change, but fundamentally still resist many things (billable hours being one of them).
Here’s a refresher outlining five reasons why the billable hour method needs to become thing of the past - and soon.
Selling time discourages investment in productivity and skills
Any lawyer who’s worked in a corporate firm knows the frustration of putting in a hard, full day of productive work and feeling like the day was wasted once they added up their billable hours. Unless the billable tally looks good, a day can end up feeling like a total waste. A lawyer might have prepared a marketing presentation, written an article, attended a networking event or spent extra time understanding a client’s needs, but if the time is non-billable it doesn’t count. This creates the wrong kind of focus for many people and can stunt growth in unforeseen ways.
Billable hours rewards lawyers for inefficient processes
As noted above, having an economic model designed in this way doesn’t align a lawyer’s agenda with that of his or her clients. In fact, it almost pits them against the client and creates a strong driver for inefficiency. In the age of smart contracts, software eating the world and automation, this type of dynamic is truly on life support and those clinging to it must move on.
Charging clients on an hourly basis creates unnecessary stress for both parties
Dealing with legal issues can be stressful enough, so there’s no good reason to add stress to that through a billing arrangement almost guaranteed to cause conflict or discord. This also tends to foster unhealthy cultures of micromanagement where people constantly feel defensive and tied down. Having an attorney-client relationship without strife, where you’re both feeling like you’re on the same team, is a powerful tool for all concerned.
Law firms often promote based on time billed rather than skill
The problem here is so obvious it’s painful. At the end of the day, a law firm exists to make a profit, so it makes sense that benefits are given to those who bring in more money. But this destroys any chance for a true meritocracy and gives rise to any number of other issues. This approach is an obvious telltale sign of a short-sighted manager.
It creates a system that focuses on quantity over quality
If a lawyer constantly has one eye on the quota they need to hit for a month, quarter or year, you can also be assured that other things will suffer in the name of that goal. Including their mental health. The technical work of a lawyer is much better done when left unfettered by tight economic controls.
What will come after the final nail goes in the billable hour coffin? Well, that’s still to be experimented with, tweaked and developed. But the key to a more successful and efficient future legal practice is finding the right interplay of incentives and making sure there is flexibility to be had. Join people like us at Beyond Billables and Tim Corcoran in forging the future of the legal industry.