Bruce MacEwen takes issue with the NYT's death knell for the billable hour, which I discussed yesterday. Since Bruce's judgment on such issues deserves a lot of weight, it's worth an additional comment.
Bruce reviews the pros and cons of the billable hour. The cons, as discussed yesterday, include the perverse incentive to run the clock. Moreover, Bruce notes that there are better ways to charge for legal services – flat fees on certain types of litigation, set with actuaries' help; negotiated fees set with reference to clients' expected results (as discussed yesterday). Yet Bruce says:
Are we, then, about to witness in some grandiose fashion the "death" of the billable hour, much less its dropping back into the shadows of small-beer practices or quaint and creaky backwaters? As you can tell by how I phrased the question, I see no such incipient revolution. And the primary source of life-support I would cite is clients, not law firms.
Clients gain, Bruce says, because it helps them explain lawyer fees to "their financial green eye-shade types."
Let us start with the following gambit: All of you out there who think that the dominance of the billable hour for legal work – as opposed to any other kind of work – reflects inherent unique qualities of legal advice raise your hands.
As for those of you who are still wagging your hands, I would wager you think there's something special about work that might end up in court. But keep in mind that what happens in court is also up to lawyers. It might be that if we solve the billable hour we could also bring down basic litigation costs.
Ok, now that we've disposed of that one, we can ask why the billable hour persists. Can it be clients? To be sure, it's a convention that's easier to monitor, which is important when you're lazy about monitoring. But if legal work would be better value to the client if charged some other way, then this monitoring convention is basically an agency cost issue within clients as well as between lawyers and clients.
As I suggested yesterday, we come back to the monopoly status of law work under licensing laws and ethical rules, and the effect of these rules on law firm structure. These rules do not make all lawyers better off than they would be without the rules. Rather, like any cartel, they make the group as a whole better off. Cartels break up when the gains to individuals of splitting off become big enough. And, as I suggested yesterday, client cost pressures may force them to reevaluate their relationships with lawyers.
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