First, the background to this debate. Shepherd's post is response to a post by Tom Kane a few days ago in Tom's Legal Marketing Blog. Tom's post was in response to an ABA Journal article that I alerted him to entitled "Taming the Billable Beast" in which Shepherd's Boston law firm was featured for its move to entirely alternative fee billing. In the ABA Journal article, it was reported that Shepherd's firm does not internally keep track of time spent on each case for which it charges an alternative fee.
Tom found that to be incredible, stating that Shepherd was "foolhardy" for not recording his time "based on the following simple reasoning:
- You can’t make a profit on fixed fees unless you know what your costs are;
- You can’t know what your costs are unless you know how much time (and other dollars) are consumed by the matter; and
- There is no way to know how much time is being spent on matters if you don’t keep track of hours!"
Shepherd's responsive post, which cites heavily to Ron Baker of the VeraSage Institute (dedicated to eliminating billable hours in the accounting profession), makes the point that law firms should price their services based upon the value of those services to the client, not based upon the forumula of the law firm's typical or average cost for that type of matter + some profit margin.
What's fascinating to me about this debate is that is not an "apples to apples" comparison. Tom Kane and Jay Shepherd aren't even really talking about the same thing. What Jay Shepherd is talking about is a complete paradigm shift in how lawyers (or any professionals, for that matter) should think about pricing their services.
Not that I'm discounting Tom Kane's mindset. To me, a law firm (like mine) that uses alternative fee arrangements but still uses timesheets internally is still much better than a law firm that bills all its clients by the hour. Indeed, if we ever move the profession to that brave new world without the billable hour, doing it this way will probably be the transitional phase to Shepherd's wholly value-driven approach. But it certainly makes you want to learn more about Shepherd's way of pricing his law firm's services.
3 comments:
There are a couple of problems with no tracking hours at all. The biggest one is if you have multiple attorneys working on a case, and you are trying to figure out how each attorney is doing (to set salaries, etc.) It's a little tricky if you don't know whether they spent 10 hours on a brief of 100.
In a solo or small firm practice where all projects are worked on together, and the managing partner knows everything that's done by everyone, it's not a problem. But in a larger environment, I wonder how you would suggest performance is evaluated.
Before commenting, my disclaimer is that my firm does continue to keep timesheets. Part of the reason for it is that we have some cases for certain corporations and institutions on the plaintiffs' side in which it is possible that our clients could be awarded fees by the court. Courts still typically want to review your time in a matter, so unlike Jay Shepherd's firm, we still keep timesheets.
That having been said, I think Jay would agree with me in saying that even in a larger firm context, you can evaluate performance without reports on billable hours. Remember, the monthly billable hour report all the partners get only measures raw time spent on a task or a case (or the raw time billed by an associate for the preceding month). It does not measure efficiency (in fact, billable hours encourage inefficiency), nor does it measure the quality of a lawyer's work. Isn't a lawyer who can get a task done very well and done quickly more valuable to you (and to your client) than a lawyer who comes to the same result but takes 20% more time to do so?
I think the problem is that most lawyers are either bad managers or too busy lawyering to properly manage other lawyers (or sometimes both). There are many other contexts in the business world in which a supervisor has to evaluate his/her subordinates' work and he/she does not have a billable hour report in front of them. In many situations in our profession, the partners' monthly billable hour report has become a management crutch, substituting for true evaluations of the quality and efficiency of younger lawyers' work.
Your point about solos or small firms using this approach is well taken, but even larger firms are subdivided into smaller units. Why couldn't the managing partner in charge of the Litigation Department of a large firm spend the time to truly evaluate the quality of the work and the efficiency of the work of the lawyers under his or her supervision? If the Department was too big for him or her to effectively do so, why couldn't he or she further administratively subdivide the Department with other partners in charge of supervising a lesser number of lawyers?
My bottom line is that I believe it can be done, but as I said in my post, it takes a wholly different mindset to get there. You can't think of yourself and your firm as selling your time. You have to think of it in terms of selling a result. I hope that helps.
Hi Nice Blog .If your time is less valuable, then it is probably less worthwhile to online timesheetsr.
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