Articles Posted in How Lawyers Deliver Their Services to Business

On July 10, 2018 U.S. Bankruptcy Court for the Central District of Illinois Judge Mary Gorman issued a 54-page opinion explaining why she cut a law firm’s requested total hourly fee of $1.8 million down to an approved total hourly fee of $670,000.

Judge Gorman was responsible to approve or disapprove legal fees charged to the debtor by the debtor’s law firm because those fees are paid out of the bankruptcy estate’s assets.

The judge’s explanation of her drastic fee cut offers a case study in the perverse incentives of the billable hour.

Notes on format and content:

1. The text in this and the following two posts doesn’t refer to the law firm or its attorneys by name — but to the Law Firm, or to Attorney A, Attorney B, etc. This post’s purpose is to make a point about cost control and management of legal work — not to embarrass anyone.

The Law Firm ranks among the American Lawyer magazine’s “AmLaw200” — the 200 largest U.S. law firms by gross revenue and other key metrics.

2. While I don’t wish to embarrass anyone, I do need to substantiate what I say by reference to objective sources. Therefore the law firm and lawyers named in Judge Gorman’s 54-page opinion can be readily identified in it. Also, I consulted other court filings on the electronic docket (pay wall) for In re: Earl Gaudio & Son, Inc. at Case No. 13-90942.

3. Unlike this blog, Judge Gorman’s opinion did not address the wisdom of pricing lawyers’ services by reference to billable hours versus an alternative fee arrangement. To the contrary, when a lawyer seeks approval of legal fees from a federal court, the billable hour is the standard because that is the conventional model of the legal profession. (I followed this practice myself three years ago after winning a judgment for my client in a civil rights lawsuit — because I had to.)

4. My argument is not that use of the billable hour necessarily leads to excess costs and wasted effort — but that it creates incentives that make those bad outcomes more likely.

I begin with Judge Gorman’s summary offered at the end of her 54-page opinion — with underlined headings that I’ve provided:

 

Failure to “Focus on this Case as Required”

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With this post I conclude a 4-part analysis of positive alternatives to the status quo in legal services presented by the Big 4 accounting firms to U.S. businesses.

In Part 1 I addressed survey results from law firms in which 69% of responding law firm leaders reported that “partners [in law firms] resist most change efforts”.

The reason? 59% of responding law firm leaders stated that their partners “resist most change efforts” in the way they deliver services to clients, because:

“We are not feeling enough economic pain to motivate more significant change.”

… 

Businesses — speaking through 55% of chief legal officers surveyed — reported that they don’t negotiate better price and terms of service with their law firms because they:

“Believe that they do not have enough buying power to negotiate more effectively.”

… 

The fact that law firms report such complacency and that businesses feel stuck which what law firms are giving them prompts a question: Are there any good alternative sources of legal services available to U.S. businesses?

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Earlier this month Lucy Endel Bassli wrote an article entitled: “Big 4 Are Not a Threat. They are a Reality”.

In the post immediately preceding I described Ms. Bassli’s experience and credentials as former Assistant General Counsel of Microsoft and as founder of a new law firm and consultancy focused on innovation in the delivery of legal services. Her views depart from — and are better informed than — conventional wisdom.

Conventionally-minded business lawyers talk a lot about the “threat” that the Big 4 present to traditional law firms. By “threat” they mean future competition.

Ms. Bassli — based on firsthand experience buying and managing the work of law firms and other legal services providers — argues that the Big 4’s offerings for U.S. business are not confined to the future. They’re a present day reality.

What follows are the first 5 of 10 attributes of Big 4 accounting firms’ offerings in legal services that Ms. Bassli identified:

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To summarize some of the positive alternatives that the Big 4 accounting firms offer U.S. business owners and executives in legal services, I’ve chosen the writings of a trusted guide — Lucy Endel Bassli.

In these writings she’s described how the Big 4 accounting firms offer choices to businesses in the U.S. that might well be more efficient — and for some jobs more highly skilled — than what traditional law firms and traditional in-house departments have to offer.

When I first heard Ms. Bassli speak on these subjects at academic and legal conferences she was Assistant General Counsel of Microsoft — a business where she practiced in-house for 13 years.

Microsoft is — well — it’s Microsoft. And Ms. Bassli until January of this year was a senior leader of its legal department.

And in addition to being an iconic company, its legal department is a leader in innovation. For instance, a year ago Microsoft’s legal department announced that it was moving 90 percent of its outside counsel work away from hourly fees — toward alternative fee arrangements. This would be up from 55 to 60 percent at the time of the August 2017 announcement.

This at a time when — despite hype about alternative fee arrangements — the vast majority of law firms still bill by the hour.

Earlier this year Lucy Endel Bassli left Microsoft to found InnoLegal Services, PLLC, with the following outlook:

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For business owners and executives in the U.S. who contend with increasing legal and regulatory demands — there’s good news. Through the Big 4 accounting firms you might find more efficient — and for some jobs more highly skilled — choices for the conduct of your company’s legal affairs.

Most law firms seem complacent — and many of their business clients seem to feel stuck with what they get from those law firms. Consider:

The 2018 Altman Weil (consultancy to law firms and corporate legal departments) survey of law firm leaders reported:

In 69% of law firms, partners resist most change efforts“.

Why do those partners “resist most change efforts”?

59% in those law firms answered: “We are not feeling enough economic pain to motivate more significant change.”

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