The “organizing principal” and basic building block of law firm economics is the billable hour.
For the most part, law firms usually charge their clients by the hour, and whether or not the client is billed by the hour, law firms measure and reward the productivity of their lawyers based upon the billable hours that they produce.
Paying more to lawyers who produce a lot of billable hours than lawyers who produce fewer billable hours rewards productivity, which is probably a good thing.
Not surprisingly, lawyers who consistently produce many billable hours tend to be invited to become partners in their firms more readily than lawyers who do not.
Terminating lawyers who do not produce a minimum number of billable hours is probably a necessary thing.
After that, it becomes a bit murky.
Let’s say a firm has two associates, both of whom are 34 years old and have been qualified as lawyers for 6 years, all of which have been spent at the firm.
Lawyer #1 either has no domestic partner or children, or has children but also has a domestic partner who takes care of the lion’s share of the childcare responsibility. Lawyer #1 has never taken a parental leave and manages to produce 2,000 billable hours per year.
Lawyer #2 has 2 children and has taken 2 parental leaves of 1 year each. This lawyer shares childcare responsibilities equally with his or her domestic partner or does more than his or her share. Lawyer #2 produces 1,600 billable hours per year.
All other things being equal, at most firms, lawyer #1 is a shoo-in for an early partnership, having consistently produced 2,000 billable hours a year without interruption. At some firms perhaps lawyer #2 will also be invited, but possibly only after he or she has worked the equivalent number of full-time years as lawyer #1.
There may also be a lawyer #3 at the firm who only bills 1,100 billable hours because he or she is taking on most of the childcare responsibilities and has the audacity to make time for fitness and leisure. Let’s not even talk about that lawyer’s partnership prospects.
When it comes to compensation, again with all other things being equal, you can expect that lawyer #1 will earn more than lawyer #2 who will earn more than lawyer #3. And perhaps that is as it should be. The partners would say that it is a business, after all. And some firms will leave it at that, which may not make principal caregivers “equal” to those whose personal lives revolves exclusively around professional achievement, but maybe that is okay.
But other firms will look at the lawyer billing 1,100 hours and see office overhead which is being used by that lawyer which could support a lawyer billing 2,000 hours if only the career path of the lower billing lawyer could be redirected, and the lawyer could be replaced with a lawyer who can produce more hours. And that would increase partnership profits.
It is not difficult to imagine the pressure to conform (i.e., to work more hours and bill more) that may be brought to bear in some firms against lawyers who, whether by choice or necessity, must spend a great deal of time taking care of children or other dependents or who choose to take the time required for fitness and leisure.
In my experience, this pressure results in some negative consequences.
In some cases, lawyers may feel pressure to overestimate the time spent on client matters. (I do think this is not the norm, because most lawyers I have come across are very ethical. However, it is far from non-existent.)
In many cases, lawyers cut back or eliminate the time that they should be spending on childcare, fitness, and leisure.
In some cases, marriages or domestic partnerships suffer. In some cases, children suffer. Lawyers may also suffer and as a result, ultimately clients may suffer as well.
In many cases lawyers leave the private practice of law or the profession entirely, feeling that they have failed, much like an abused spouse may feel that they have failed due to their inability to please the abuser.
We often read in the business press how the continuing crusade of corporations to increase shareholder returns causes suffering to the workers at the bottom of the pyramid (not to mention wreaking havoc in other ways, such as to the environment.)
On a different scale, perhaps, the organization of law firms around the principal of the billable hour also has its consequences on lawyers and their families.
But surely the silver lining, especially for partners of law firms, is that by focusing on expanding the number of billable hours produced by lawyers in the firm, the profitability of the firm is increased. Isn’t it?
There is an old business expression to the effect that, “you can’t manage what you can’t (or don’t) measure.” In my experience, law firms are surprisingly good at counting billable hours and often at fostering a competitive environment among their lawyers to increase billable hours. What I have not seen talked about much (let alone measured and managed) are many of the indirect costs that may be incurred as collateral damage from the narrow focus on optimizing billable hours. In my time in the profession, I have seen or heard about all the following, all of which have negative financial consequences:
- Lawyers giving up and moving on in search of a work environment that they can balance with their personal lives, with all the attendant costs of lost productivity, lost clients, recruiting costs, training costs for their successors, etc.;
- Lawyers turning into bullies and making the lives of their junior lawyers and support staff miserable, again resulting in lawyer and staff turn-over, lost productivity, lost clients, recruiting costs, training costs and the occasional harassment claim;
- Overworked (or psychologically compromised or addicted) lawyers and staff making mistakes which turn into claims or repair costs or dropping the ball on client service;
- Lawyers coping by focusing solely on billable hours and delivering excellent client service, but at the cost of participating in client development, mentoring of junior lawyers or practice management;
- Early retirement of experienced lawyers; and
- Lawyers not having the time to make the required effort to transition the clients of a retiring partner.
It is said that every law firm has its own culture, which is absolutely true. I have heard many expressions used to describe the culture of various law firms. The most positive descriptors tend to be “collegial”, “professional” and “cooperative.” I have never heard of a law firm describe its culture as “a happy, healthy and relaxing place to work.” I dare to think that a partner of most law firms who had the guts to suggest that the firm should strive to develop such a culture would soon be an ex-partner of that law firm (once the laughter had subsided).
Perhaps it is time for law firms to put more effort into measuring and managing the negative results of having too great a focus on billable hours, and for lawyers to seek out law firms which do so.