On killing the billable hour

The WSJ Blog has an interesting interview with Cravath, Swain & Moore managing partner Evan Chesler on killing the billable hour paradigm in legal services. Here’s an excerpt:

 

Evan Chesler, a Cravath lifer and the firm’s presiding partner, has become the most recent high-profile lawyer to call for the end of the billable hour. In the upcoming issue of Forbes, in an article called “Kill the Billable Hour,” he writes: “The billable hour makes no sense, not even for lawyers. If you are successful and win a case early on, you put yourself out of work. If you get bogged down in a land war in Asia, you make more money. That is frankly nuts.”

Chesler’s bold prose makes for a good read. Intrigued, we rang him up.

Hi Evan. How’d we get stuck with the billable hour to begin with?

Somewhere, someplace, once upon a time, somebody said to a client, “I’m going to charge you for each hour I spend on your matter.” And that client said, “OK.” And from that a seed was planted, and a tree grew. I believe it’s time to plant new a new seed.

Many have called for the end of the billable hour. Have you seen any indication it could really happen?

Our firm has been doing alternative-billing arrangements. But you have to have an agreement with clients who are interested in doing it. At the end of the day, clients have the power of the purse.

At many firms associate bonuses are tied to billable hours.

That’s just a function of how law firms are doing it now. We don’t have any such quotas here. We don’t pay bonuses based on hours. I read in the papers that some firms do. I suppose that some firms, if they went to this kind of new paradigm, would need to change those metrics.

How would they do it otherwise?

The metrics should have always been: How well is a lawyer doing? How attentive to detail is she? How thoughtful is she? How creative? The good thing about what lawyers do is that educated observers — which is what a partner supervising an associate should be — can measure it. I don’t mean who wins or loses. The thought is that you should be rewarded for success.

In this new paradigm could we see contingency arrangements for corporate lawyers, such as a fee arrangement that rewards the firm for successfully defending company X against a suit?

That’s one of many models. Once people begin to think creatively about this, I have no doubt that the marketplace will foster many variations. A fee component tied to outcome will be one thing people consider.

So what do you think would be the highest hurdle to achieving a billable-hour-free world?

One is inertia. People tend to continue doing what they‘ve always been doing. Change requires the application of force. Another is the difficulty of defining what constitutes success. Because in large, complex cases, that’s not a question with a simple answer. It’s easy to think of it in terms of a jury foreman standing up and announcing who won. But the world is more complicated that that.

So you need to have open communication with clients about expectations and value. What’s this matter worth to the company — in terms of its bottom line, its culture, its reputation in the relative community? For instance, there are matters of principle that don’t necessarily have a big impact on the bottom line. There are matters of reputation — companies want to be considered good corporate citizens. And there are matters that can affect stock price, and creditworthiness with lenders.