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Abe Lincoln got it wrong

Why lawyers should sell their product, not their time

By Alice Armitage | @theprofarmitage

“Time is an attorney’s stock in trade” were Lincoln’s words, and lawyers took it to heart. The foundation of current law firm management, the billable hour, is based on that principle. “The service the lawyer renders is his professional knowledge and skill, but the commodity he sells is time,“ said Reginald Heber Smith in 1914, when he created he billable hour and the attendant timesheet (already divided into six-minute increments) as the best implementation of Harvard’s “Science Management” principles for the legal profession.

What has been the result of this focus on time as money? Supreme Court Justice Stephen Breyer supplied one answer in 2002. “{T}he profession’s obsession with billable hours is like “drinking water from a fire hose, and the result is that many lawyers are starting to drown.” The legal profession did not listen, and today attorneys in BigLaw are routinely expected to bill 2200 to 2300 hours each year.

Let’s drill a little deeper into those numbers. Yale Law School estimates that, to bill 2200 hours a year, a lawyer with a one-hour commute must follow this schedule:

On weekdays: 7:00am to 9:00pm Monday-Friday for 47 weeks
On weekends: 9:00am to 6:00pm three Saturdays a month for 10 months.

This doesn’t leave much time for a life outside of work, which, as new productivity research shows us, can impact organizational behavior far more than a few burned out associates.

Yet the billable hour still persists. Why?

I think there are three reasons:

  • Continued client acceptance of it as a billing method, despite their knowledge of technological advances that could drive down costs;
  • Willingness of associates and junior partners to put in the required hours to get BigLaw on their resumes or to advance (possibly) to the level of wealth enjoyed by senior partners;
  • Failure to recognize that attorneys don’t sell their time, they actually sell a product (legal services).

In many ways, the first two reasons depend on the third. If lawyers understood that legal services are a product on which they can compete, then they would not bill on the basis of their time, but on the excellent product they deliver in a technology-savvy and efficient manner. There are several factors, however, that encourage attorneys to continue to monetize their expertise on the basis of time spent.

The American Bar Association, which regulates the practice of law in the United States much like a medieval guild might regulate blacksmiths or merchants, restricts who can profit from the delivery of legal advice to lawyers only. The ABA created rule 5.4 in 1928, supposedly to prevent nonlawyers from influencing the practice of law, but spurred in part by the recent formation of several corporations for the purpose of providing legal services. One opponent of this development vividly described the sharing of legal fees with nonlawyers as giving large retail organizations a license to build law offices in every one of their stores, thereby putting all independent law firms out of business. This image has become so pervasive that the argument against allowing lawyers to split fees with nonlawyers now has a nickname; the “Fear of Sears.”

A downside of this prohibition against sharing the profits from legal services is that law firms may not raise capital in the form of investment from outside parties. The only funds available to law firms to fund research into new technologies for practice management or for new methods of delivering legal services are from bank debt, a practice that resulted in bankruptcy for many firms during the Great Recession. While this is most likely an unintended consequence, Rule 5.4 restricts law firms to a business model that does not lend itself to innovation.

Rule 5.4 has another serious downside for lawyers. They are not regularly exposed to outside perspectives or the business forces impacting other industries. For example, law firms have not done what virtually all other industries have done in the twenty-first century: focus on the needs and desires of the customer in how their product or service is delivered. In other words, lawyers forget that the legal services are a product from the point of view of the client, and that more effective and updated delivery of that product is a competitive edge that could generate even more profits than the amount of time required to produce the product.

Yet law firms will only to be forced to behave like the modern businesses they actually are if the rules that apply to legal practice change and allow nonlawyers to share in the profits generated by the delivery of legal services. This concept is already under consideration in California, where “{t}he Task Force on Access Through Innovation of Legal Services is charged with identifying possible regulatory changes to enhance the delivery of, and access to, legal services through the use of technology, including artificial intelligence and online legal service delivery models.” However, the task force report is not due until December of 2019, and changes to the rules, if any, will occur months later.

Nevertheless, California’s task force is a step in the right direction. In the meantime, law firms should keep a wary eye on new structures for law firms, such as the one in use by Atrium LLP in San Francisco. Atrium LLP works in close collaboration with Atrium Technology Services (ATS), which designs new and innovative methods of delivering technology-savvy legal services. Atrium LLP aims to compete against traditional law firms on cost transparency and service excellence, with all legal operations, marketing, and technology development handled by Atrium LTS.

Two things to note: 1) Atrium LLP charges its clients (to date, over 250 of them) on a fixed fee basis for either an all-you-can eat legal services plan that varies from $2000 to $10,000 according to the client’s needs; or for a customized fixed dollar amount for a complicated transaction; and 2) ATS, which is not a law firm, just received a capital infusion of $65 million from venture capitalists to fuel its R & D into innovative technology for better support of Atrium LLP’s delivery of legal services.

BigLaw should be very, very afraid!