An AmLaw 100 senior executive talks about the implications of alternative fees

In the LegalBizDev Survey of Alternative Fees, AmLaw 100 chairmen, senior partners and C-level executives talked frankly about issues that will help and hinder the growth of alternative fees.

Here’s how one AmLaw 100 senior executive (who is also a lawyer) sees the future:

There are a lot of law firms that are sitting back and waiting for the world to return to the way it was in 2006 or 2007.  Our view is that the world is fundamentally changed....We think that there is a fundamental shift, and that the concept of clients being willing to pay for inefficiency is...unlikely to come back.

I think we are in the second inning of that development as an overall industry.  I think it is going to go significantly further along, and well beyond just the fact that we’re seeing clients taking advantage of the greater competition among law firms today....The days of paying $400 an hour for first-year associates to pore through documents on major litigation matters is largely gone.

In this expert’s opinion, alternative fees are an important part of this new environment, and can be used in almost any situation:

There really is something that will work for every client....[When we are] able to sit down in a very open dialogue with our clients regarding their needs, what works best for them, and what works best for us – including how staffing impacts our economics and how we focus on trying to put the right person on the right task at the right cost – we believe that we can tailor a fee arrangement that will work for our clients and will work for us.

Note that does not imply that the billable hour is dead, only that non-hourly billing will grow in importance:

I don’t foresee a world in which there will be no more hourly billing. There are a lot of circumstances where hourly billing makes a lot of sense. A lot of clients prefer...discounted hourly rates, even in many situations where we believe that a different model may be more in their interest. But I think that this overall sea change is leading to a world that sees less inefficiency being borne by the client and shifting more risk to the law firms.

Like the AmLaw 100 chairman quoted a few weeks ago, this expert believes that when alternative fees do grow, firms will need to operate differently, starting with the way they manage projects:

For most of the past decade, I was a senior executive at a publicly-traded real estate company. And I like to say that the two most important people we had in the company were the estimator and the project manager. And law firms historically have had no one play either of those roles. It’s very dangerous to move into a world of fixed fees if you don’t have somebody who’s capable of estimating and you don’t have somebody who’s capable of project managing it.

I think that a movement towards alternative fees without a cultural shift, and without putting tools in partners’ hands to effectively project manage, will have dire economic consequences to law firms. It’s a lot easier to come up with an alternative fee than it is to teach somebody to project-manage.

For more from this interview, and 36 other interviews from AmLaw 100 decision makers, order your copy of the LegalBizDev Survey of Alternative Fees or Download LegalBizDevSurveySummaryZ.  For background on the issues behind the survey, see the third edition of our free LegalBizDev Guide to Alternative Fees.

Comments

[Kristin Abele]

Jim,

I wanted to congratulate you on having this post selected to be part of November's Carnival of Trust, hosted by Jordan Furlong. You can find the Carnival at http://www.law21.ca/2009/11/02/carnival-of-trust-november-2009/

The Carnival of Trust is held monthly and highlights the best blog posts touching on the subject of trust in business, politics and society. Jordan pulled together a fantastic selection of writers this month and your points on what alternative fee structures could do for the billable hour were insightful and helped flesh out Jordan's overall perspective on creating trust in business.

Congratulations again.
Best,
Kristin Abele
www.trustedadvisor.com/trustmatters