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Law Firm Management

Write-Downs and Rip-Offs

I have two stories to tell.  One of them is 40 years old.  The other is 4 weeks old.  They are remarkably similar and do not reflect well on law firm cultures.  Unless, of course, you think that these two stories are atypical.  I will leave that to you to decide.

First, for the very old story.  An associate joins a law firm.  In her first year of practice, a very senior partner gives her a file to work on.  She spends many hours working on it.  Somehow the billings do not show up in her fee credits. 

She eventually figures out that the partner entered his own docket on the file for a large amount of time that he did not spend, but which approximated what he thought the final bill would be.  He then billed the file for that amount and took all of the fee credits, writing off the associate’s time.  Perhaps he thought that since the associate was on salary and he was compensated based on his billings, there was no harm done.  

Of course, he did not have to put up with the complaints which she received from management about her poor billings.  (If I was cynical, I might attribute a misogynistic undertone to this story given how few women were practicing law at the time and some of the other attitudes which this young associate had to face, but that would distract from my point.)

Now for the very new story.  A small number of partners work with a fairly senior associate on a number of files.  The partners in question bill the files and frequently write off time.   The firm policy is that all time write-offs are to be proportional to the time recorded, and that is the default treatment programmed into the billing software.  However, that treatment can be overruled by the billing lawyer, and often is. 

According to the firm’s policy, disproportionate write-offs are only allowed when the time does not represent value to the client.  We call that ‘soft’ time.   Such write-offs are supposedly subject to oversight by the billing committee. However, for some reason, the write-offs consistently result in the partners taking full credit for their time and the associate’s time being reduced.  At the same time, the associate is under constant pressure about his billings, feels that he is treated unfairly and eventually leaves the firm.

The firm policy requires that partners writing off an associate’s time disproportionately to their own are supposed to notify the associate that this is being done and explain why the associate’s time was considered to be ‘soft’.   A teaching moment, if you will, or a chance for the associate to argue their case.  But that does not happen.  You know, everyone is too busy.

Now, in both of these stories, the fairness of the bill to the client is not in question.  In fact, in the latter story, the write-offs are being made with a view to ensuring that the bill to the client is reasonable.  The allocation of the write-offs among the lawyers is an internal matter, relevant only to the compensation of the lawyers involved. 

Every time a partner allocates a write-off that affects the billings of an associate, there is an opportunity to be scrupulously fair and thus demonstrate the character of the partner and the values of the firm.   And, every time a partner errs in their own favour, there is an opportunity to demonstrate the opposite.  To tell the associate that it is every person for themself.  To chip away at a little piece of the loyalty that the associate may have felt toward the firm.

Law firm partners are business owners who know how important firm morale is and how much it costs when associates jump ship. They are also fully conversant with the equitable principle that ‘justice must not only be done, but it must be seen to be done.’  You would think that if anything, they would err on the side of allocating the write-offs to themselves instead of to their associates in order to build up trust and goodwill with their associates.  So, why do they often do the opposite?  The obvious answer is greed. The more fee credits allocated to the partner, the more that they earn.

But there is also a less obvious answer.   Determining whether time is ‘hard’ or ‘soft’ can be subjective, and there is a tendency of partners to value their own talents and abilities more than they value those of their underlings.  Since the partners are usually more experienced than their associates, that tendency is often justified.  On the other hand, it sometimes results from partners who have been removed from the trenches for quite some time having forgotten how much time it takes to get things done.

Of course, someone has to decide how time is going to be written off and it makes sense for it to be the partner’s call.  But there need to be some rules.  After all, if an associate is being paid a fixed salary, time billed will impact future increases in compensation.  And if an associate is being compensated in whole or in part based on a percentage of their billings, every write-off is money out of their pocket.

You may think that the answer is that all write-offs should be proportional to time recorded, no matter the circumstances. That would fix the problem but would likely create other problems.  It might lead to partners being reticent to write-off ‘soft’ time, resulting in clients being over-billed.  Or it may lead to partners hesitating to spend time training associates, thinking that the more non-billable time that they spend teaching an associate, the more money that it will cost them.

There really is no simple fix to the problem unless you can figure out how to eliminate both greed and egos, but transparency would go a long way.   Here is how I think it should be done:

  1. Partners should explain to their associates that they do not want the time that they spend teaching their associates to reduce their own compensation, and that if the associate’s time is ‘soft’, the write-offs will be allocated to the associate;
  2. In exchange, partners should commit to their associates that they will train them properly, so that eventually there will be no reason to write off any of the associate’s time;
  3. Partners must also carefully consider whether any of their own time is ‘soft’, and if so, they should allocate the write-offs to themselves; and
  4. Transparency is crucial.   Partners must always tell the associate how and why they propose to write-down the time and give them an opportunity to remind the partner why the associate’s work on the file was more time-consuming and valuable than the partner recollects.

Of course, partners will say, that is all fine and good, but they are super busy, and they just don’t have the time to do all of that.  They are, after all, the boss, and they know that they are acting appropriately, and they certainly don’t have the time and energy to constantly massage the ego of every young lawyer coming up the ranks.  Then, the very same partners will lament that they cannot keep their associates. The damn associates just keep quitting after all of the expense incurred to recruit them and the effort put in to train them.   Those ingrates.

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