Renovating or tearing down?

I grew up in a small city of about 80,000 and went to law school in a similarly sized town, so my first experience of a major metropolitan center was when I began working in downtown Toronto. I remember being a little overwhelmed by the massive bank towers in the financial district — not a patch on New York, obviously, but still impressive to someone who’d not seen many buildings above eight floors high. But I also remember thinking — and this might give you some insight into the sometimes skewed and contrary way my mind works — “How are they ever going to get those buildings down?”

It seemed to me at the time (and still does now) that putting up a very tall building, while an arduous and lengthy task, is also a pretty straightforward and orderly one. While traffic might be rerouted and the noise pollution might be substantial, still it’s a planned, supervised, rational process with a fixed start and reasonably fixed end date. But if you ever need to take that building down, what do you do? I’ve never seen anyone erect a scaffolding superstructure around a skyscraper and deconstruct it floor by floor. Generally speaking, buildings aren’t dismantled gradually, their component parts carefully carried off to be reused and rearranged for new or better buildings; they come down all at once in a destructive collapse. Sometimes they videotape the implosion, to be replayed at the end of a half-hour news cycle.

This brings me, in a roundabout sort of way, to the billable hour — specifically, a recent wave of articles that suggests a serious challenge to its lengthy rule is underway. Famously, Cravath Swaine & Moore managing partner Evan Chesler published an article in the Jan. 12, 2009 issue of Forbes titled “Kill the billable hour,” in which he sets out clients’ (and lawyers’) unhappiness with and alternatives to the billable hour. As you might imagine, that got a lot of people’s immediate attention. The AmLaw Daily noted a number of resonant examples in the U.S. profession, while lawyers in London piped up that they’re already ahead of that particular curve, thanks.

Around the same time, The American Lawyer named as its Litigation Boutique of the Year the Chicago firm of Bartlit Beck Herman Palenchar & Scott LLP, a crack litigation team remarkable in no small part for not billing by the hour and keeping few associates on hand. Based on all this and more, Legal OnRamp‘s Paul Lippe suggests we’re witnessing an actual, real-time change in the legal profession’s billing mindset. And Michael Grodhaus wonders if those who switch away from the billable hour during the recession will ever go back.

Me, I keep thinking back to those towers. Just as they took a long time to go up and won’t come down without a lot of noise and debris, so too the law firms inside them took many years to build, and if they ever need to be, um, re-purposed, it won’t be easy or painless. Buildings are demolished when their structural underpinnings become unstable or their basic design is rendered obsolete by new advances; occasionally you’ll see a retrofit, but most often you’ll see the wrecking ball, because something that big and rigid just can’t be reduced, reused or recycled.

I was prompted in this direction after reading a series of insightful posts by Toby Brown and Greg Lambert at 3 Geeks and a Law Blog. Toby started it by asking a really important question that hasn’t been asked often enough: how, exactly, does an existing law firm move away from the billable hour to a broader, more rational billing and compensation system? Let’s assume we all agree that the billable hour must go — what’s the next step?  How do you make that kind of fundamental change — and it is fundamental, striking to the core of many firms’ cultures and business models — in practical terms?

In my opinion, this is the challenge. Sitting down and talking with clients about value and price may be a new thing for lawyers, but it is not a particularly daunting task. In contrast, changing the entire way a firm functions will be a monumental challenge. Law firms’ entire structure is built on the billable hour. The way we intake business, the way we manage our knowledge, the way we hire and ‘train’ our people and most importantly the way we compensate our lawyers. The last point is especially important because “you get what you pay for.”

Toby followed this up with another post on the risk/reward split between lawyers and clients, and then Greg chimed in with some key observations about the many people in a firm who don’t bill by the hour. What they’re driving at, I think, is that the practical implications of shifting a law firm away from a billable hour system are enormous.

It’s not as easy as simply saying, “Okay, we’re going to adopt a more sophisticated, client-focused way to bill clients and compensate lawyers that better reflects value and rewards productivity.” That’s a great idea and every law firm should be set up this way; but how does an existing firm with massive institutional momentum actually accomplish that? How do you replace the engine, rewire the electrical system and change all the tires on a fully-loaded 18-wheeler thundering down the highway? How do you rebuild a office tower from the ground up with people still working inside? I’m coming to suspect that the answer, in many cases, might turn out to be: you can’t.

Look at the successful firms that have adopted innovative billing and compensation models, the likes of Summit, Valorem, Exemplar, Shepherd Law Group, and Bartlit Beck: small or midsize boutiques founded within the last decade or so, often by lawyers who left large firms. It’s much more feasible to adopt a better and more rational financial structure when starting a firm from scratch than it is to take an existing, legacy law firm and completely replace its financial foundation. The business and cultural costs of the latter approach just seem like they’d be extraordinary. The best-intentioned and most wisely led legacy firms might be able to pull it off, but surely those are the exceptions within the profession, not the rule.

A few months back, I wrote a post about innovation that suggested the options available to lawyers could be classified as “Repainting or renovating.” As a declining economy and demanding marketplace continue to tighten a vise grip around the profession, I’m starting to think that might underestimate the enormity of the challenge facing many firms. I’m starting to think that in a lot of cases, there’s only one way to re-purpose large structures that have been standing around for a long time.


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