Boston Law Firm Beats the Clock
The Boston Globe newspaper ran a front-page article on October 8th, 2007 entitled: Beat the Clock. Here are some excerpts from that article written by Sacha Pfeiffer.
The comments are particularly relevant if you are questioning whether your income truly reflects the real value, you have delivered to your clients; and if clients are reluctant to consult you for legal advice because of the issue of fees.
I have noted key points through the article and provided my footnotes.
It has been called the cockroach of the legal world. It has been labeled a "villain" by a justice of the US Supreme Court. Its impact has been described as "corrosive" by the American Bar Association.
The target of this vitriol: the billable hour, which is used by most law firms to calculate how much they charge clients, and which detractors say encourages bill-padding, promotes quantity over quality, and forces lawyers - who are typically required to bill 2,000 hours a year in six-minute intervals - onto a speeding treadmill that drives many of them out of the profession.
Now a Boston law firm has banned the billable hour, refusing to take clients who insist on paying on an hourly basis. And both the firm and its clients say the alternative works in their favor.
Several major law firms have been pressured by large international clients, such as Cisco Systems Inc. and Pitney Bowes Inc., to accept fixed-fee arrangements for certain types of legal work. But the Shepherd Law Group is one of the few firms to voluntarily abandon the billable hour system entirely.
Shepherd, a firm that specializes in employment law, charges its clients a flat annual fee or flat price per task. Clients can call the firm as often as they want to discuss legal issues, although some services, such as training and litigation, cost extra. The new approach helps clients determine legal costs in advance and often prevents legal problems from escalating because clients are no longer reluctant to seek advice out of fear of incurring a hefty bill, said Jay Shepherd, the firm's founder.
"Hourly billing is wrong and it's anti-client," Shepherd said. "There's a disincentive to be efficient since you get paid more if you take longer to finish a matter - even though the client wants it to be finished as fast and efficiently as possible."
The American Bar Association concluded in a 2002 report that hourly billing is at the root of much that is wrong with legal practice: brutal hours, lack of collegiality (since time spent chatting with colleagues is time not spent billing), fraudulent billing, lawyers who intentionally stretch the time it should take to finish a matter, unpredictable costs for clients, little time for friends and family, little time for community service, and a system that rewards lawyers for quantity over quality.
"Nobody is happy with it," said Robert E. Hirshon, the former ABA president who commissioned the 2002 report. "The attorneys who are practicing law don't like it. The clients don't like it. And yet everybody seems to believe that they're stuck with it."
Law firms did not always bill hourly. For most of their history, lawyers considered the difficulty of a matter and the results obtained when charging clients, and often sent bills for an unitemized dollar amount marked "for services rendered." In the 1950s and 1960s, timekeeping became routine and hourly billing was promoted as a way to increase profits; to make more money, firms could increase hourly rates or increase hours worked.
Hirshon, the former ABA president, also acknowledges that the current system is entrenched in law firm culture. Many lawyers benefit handsomely from hourly billing, he noted, especially senior partners whose paychecks are fattened by hours logged by young associates. And some clients are wary of trying a new system, despite being dissatisfied with the existing one.
Still, Hirshon said, "clients, especially clients of the megafirms, are saying, 'We have to control these costs, and the only way we're going to control them is with fixed fees.' "
Shepherd, too, thinks change is possible.
"Can it be done? Yes," Shepherd said. "Will it be done? I think other firms will be dragged along kicking and screaming."
When enough groundswell rises, systems change. The ocean swell is gaining momentum; the question is: who will be ready to ride the waves and who will get dumped by the breaker? Those who catch the breaks and surf the face will always be in front of the game. Successful business people are not jelly fish floating aimlessly, at the mercy of the tides and winds. We have propulsive power to not get left behind.
Hourly rates are not what the client buys, as hourly rates only measure inputs, tasks, activities; but not what matters most for the client … results. There is a maximum to how many hours you can work in a day. Fees should be based upon the value delivered.
Deliverables, time and materials are low-value commodities. ‘Perceived value’ by the client is the foundation of professional fees. Ric Willmot has pioneered Value-Based Billing in the professional services arena in Australia. Ric consults to and assists transition legal firms, accountancy firms, financial planning practices, recruitment & HR firms; all around Australia and in New Zealand, Dubai, Jakarta, and the USA.
Executive Wisdom Consulting Group has developed the “Professional Services College” for those in the professional services arena to grow and market their firms. The College is three days of intensive interaction with Ric Willmot and a very small group of colleagues. The College focuses on pricing, strategy, marketing, negotiations, interpersonal relationships, customer service, staff, etc.
Then we provide you with six months of mentoring to assist you implement!
Comprehensive details about the Professional Services College.
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