Dewey, Cheatham and Howe

Payback is a bitch.

Last blog, I suggested that many business academics were naïve for not noticing the level of fear in the corporate world.
Well, apparently I’m beyond naïve when it comes to legal billing practices.

I was shocked—not in the Claude Rains sense, but honestly, shocked—to read the Wall Street Journal’s Law Blog of May 1, Study Suggests Significant Billing Abuse.

William G. Ross, a professor at Samford University’s Cumberland School of Law…polled 5,000 attorneys from various walks of life throughout the country, and 251 responded…

Two-thirds said they had “specific knowledge” of bill padding ─ a finding virtually identical to one reached by Ross in a 1995 billing survey. Also, 54.6% of the respondents (as compared with 40.3% in 1995) admitted that they had sometimes performed unnecessary tasks just to bump up their billable output.
Ross says that bill padding involves invoicing a client for work never performed — or exaggerating the amount of time spent on a matter—- while unnecessary work is that which “exceeds any marginal utility” to a client.

…the percentage of attorneys who admitted that they had double billed rose from 23% in 1996 to 34.7% in 2007. And only 51.8% regarded the practice as unethical in 2007, as compared with 64.7% in 1995.

I spent 20 years in the large general management consulting firm business. I’ve consulted to Big 4 firms for several years (that’s not double-counting). I’ve worked with a dozen or so law firms and internal law departments. I should not be surprised.

But I am. I don’t recall ever invoicing a client for work I didn’t do. I’m not saying I didn’t, but I don’t recall it. More importantly, in 20 years in consulting, I don’t recall ever hearing of anyone in that business charging for time not spent. I’m not saying they didn’t—but I don’t recall it.

As for accountants, it’s hard to get them to bill actual time, they’re in such a rush to discount.

I’m aware that lawyers are different. Many charge you for their secretary’s time drafting up the retainer agreement they hit you with when you walk in the door. Ridiculous hours get billed. I know that.

I also know some work is charged at a flat rate, which can occasionally cost less than the “standard cost” of that product. I know that.

But this—half the industry with its thumb on the scale? Half the lawyers in the country think it’s not unethical to charge the same hour to two clients?

I just do not get it. Am I hopelessly out of date? Do consultants and accountants do this too nowadays? Or is it really true that There’s Something About Lawyers?

The ethical principles I lived by still seem fine to me:

1. Envision it on the front page of the Times.
2. If the client saw this, would (s)he be okay with it?
3. If another client saw this, would they be okay with it?

When the night lights were on in consultants’ offices, consultants were working—but often not billing beyond the standard 8-hour day.  We called it the quality variance, and it went to the client. At law firms today, if the lights are on, are they charging time-and-a-half plus utilities?

I hate being naïve, but I clearly am. I just didn’t know this was going on at such scale.

How many of you did? And what do you think of it?

How do people in Abraham Lincoln’s profession end up this way? I know some fine, exceptional people who are lawyers; even a good firm or two. I’d like to think there is a reasonable explanation for the results of this survey—other than the obvious one screaming at us.

Is there a reasonable way to explain this? Or is it really just simply, flat-out, plain and simple, a case of a money-grubbing, anti-client, unprofessional, unethical industry?

And if the latter—how did this happen?

I’ve got a few theories, but I’d far rather hear yours. Please speak up.

0 replies
  1. David (Maister)
    David (Maister) says:

    Yes, it’s incredibly common, Charlie. Part of the reason is that the  INTERNAL control systems of law firms are financially very unsophisticated. There’s no monitoring or reward for what you delegate or hand over to another department (because the client would be better served by that department.)

    All many law firms have as a reward metric is bookings and billings: how much business did you bring in personally and how much did you DO personally.

    THE pressure on people to show good personal numbers is nigh irresistable.

    Reply
  2. Barbara
    Barbara says:

    Charlie: Ditto on your amazement. As a former billable consultant, we worked many hours without charging clients, and frankly so did all of my colleagues and staff. Perhaps one culprit that may have lead to this behavior is the time & expense system that nickels & dimes a client and frankly, doesn’t offer incentives for economies of motion or scale. That said, let’s highlight the major "elephant in the parlor", billable hours as the metric for advancement in those organizations. Perhaps those firms should consider profitable revenue & client satisfaction instead of billability as a means for identifying Talent. The third "also ran" contributor is a generation of employees that somehow believe (probably via role modeling) that every ounce of what once was considered sweat equity, requires direct & immediate compensation. Wow, am I sounding like a curmudgeon or what? Thoughts?

    Reply
  3. Maureen Rogers
    Maureen Rogers says:

    To say that I’m slack-jawed in amazement at the number of lawyers who, in Charlie’s words, have had their thumb on the scale understates my reaction. I think Barbara’s probably right about the time tracking systems: a one-minute phone call no doubt rounds to 15 minutes, which rounds to a half hour, etc.  All those one minute hours add up. For us solo consultants, I think it works in the other direction: a lot of those one-minute phone calls, quick e-mail responses, etc. – which add up – are likely to end up as free to the client.

    On the lighter side, remember the one about teh 32 year old lawyer who gets to the Pearly Gates and asks St. Peter why he was struck down at such a young age? St. Peter’s answer: I saw how many hours you’d billed and I thought you were 80.

    Reply
  4. Bruce MacEwen
    Bruce MacEwen says:

    As if we needed additional confirmation that the billable hour has deplorable consequences, here we have it. 

    That does not remotely answer the ethical question Charlie rightly poses:  Have we as a profession lost our souls?  I have no ready answer for that, not having the gift of peering into others’ inner-most hearts, but my limited and mostly second- or third-hand exposure to evil (let’s call it what it is) tells me that the key operative phenomenon is almost always a slippery slope.  One starts by rounding the one-minute phone call up to a tenth of an hour, because that’s what "the system" demands, then rounding up the 25-minute phone call to half an hour because, after all, you really got a lot done, and so on.

    But:  So long as there’s such intense pressure on getting one’s own billable hour totals up–and the pressure ranges from losing bonuses to losing raises to losing your  job–people will defend themselves by all available means. 

    The only way to fight this, in the long run, is by clarion calls from senior management in these firms that padding is a career ender.

    Reply
  5. Charlie (Green)
    Charlie (Green) says:

    Thanks to all.  And welcome to Bruce MacEwen, author of the terrific blog AdamSmithEsq, which is nominally about law firm economics, but in factabout much more.

    I’m hearing common themes.  All four commenters identify the glorification of the billable hour as the sole metric for performance and compensation as being at the heart of the problem.

    Bruce and Barbara describe the "slippery slope" of minute gradations.  David and Bruce point to the un-sophistication of the measure.  Maureen and Barbara share my surprise somewhat more than David and Bruce.   David describes that narcotic  effect that over-reliance on billability produces.  And Barbara and Bruce point out the need for some kind of higher ground in order to get out of the muck.

    It doesn’t hurt to repeat, this is not meant to be lawyer-bashing; I and all of us know some great lawyers who have resisted this stuff.  But it is a soul-rotting environment to live in.

    Reminds of the convenience store client who kept giving lie detector tests to store managers to see if they were stealing.  After about 9 months on average, the managers decided someone must be getting away with it, maybe they should give it a shot.

    Thus environments drip drip drip away on us all.

    Reply
  6. Ted Preston
    Ted Preston says:

    There is a lot of information on this subject. See Professor Ross’ first publication on this subject, The Honest Hour: The Ethics of Time-Based Billing by Attorneys. And for a discussion of the problems with billing by the hour, see the ABA report of  its "Commission on Billable Hours", available on line at http://www.abanet.org/. I cite these  and many other sources in  my just-published book Judging the Lawyers: A Jury-Box View of the Case Against American Lawyers. But, I also present the rebuttal. Professor Ross concluded that the majority of overbilling was due to zealous representation, not intent to cheat. And most firms now are very sensitive to  the possibility of an audit. Firms are aware of client pressures to stick  to budgets and sometimes will actually cut time in order to stay within  budget. 

    But in the meantime, the public hears many anecdotes about bill padding, double billing, etc. Billing practices have contributed to  the negative perceptions that many Americans have of lawyers. 

     

    Ted Preston

    Reply
  7. Charlie
    Charlie says:

    Ted, thanks for the additional references; it’s good to have more data in a situation like this. 

    While "zealous representation" sounds better than "intent to cheat," to me it feels like pleading down to a misdemeanor.  Lawyers are not the best of professions when it comes to keeping clients up to date and revising estimates, for the simple reason they’re more conflict-avoiding than other professions.  In my humble experience, that is.

    Also, it seems to me that double-billing is a separate issue, and one not subject to dismissal on grounds of zeolatry.  I suppose it’s possible to make a case for double-billing, but I don’t think I’ve heard it.  I’m not aware of it being done in the other professions; and certainly not to the tune of nearly 50% of the survey condoning it.

    That said, I look forward to reading the ABA survey, and good luck on your book; come back here and give us a link to it.

    Reply
  8. Ted Preston
    Ted Preston says:

    Charlie, of course double  billing cannot be excused. Same for simply padding hours. A lot of overbilling may indeed come from simply spending excessive time on matters,  to make sure that you aren’t out-lawyered or don’t miss something, ie, in the interests of zealous advocacy. But there is no excusing out and out padding.

    You can find out more about my book at http://www.judgingthelawyers.com. That web site contains a jury verdict form that the reader is asked to  fill out after reading the book….sort of interactive.  The book’s format is a six count trial, presenting the arguments for and against lawyer practices to the reader, who sits in the position of a juror. The fifth count gets into lawyer billing practices. The object is to inform the general public, not just lawyers, and to examine where complaints about lawyers are justified and  where not. There is no verdict (that is left to the reader/juror), but there is a plea for people to speak up for constructive reform of lawyers’ practices where appropriate but also to support the bar where needed (such as better funding for judges’ salaries).

     

    Ted

    Reply
  9. Jim
    Jim says:

    Dear Charles: This is all too true. Hired out of law school to a large firm, the young associate soon learns that promotion and even his continued employment depends on his generating what the firm calls "billable hours." This means that any time spent by this attorney on any legal matter is to be billed to some client somewhere and the sooner the better. To be sure nobody likes wasted time and law firms do use business practices based on time studies and efficiency models which helps them be competitive. What the young associate soon discovers is that the last associate to make partner and thus have some job security at this firm generated a truly amazing number of billable hours in the year before he made partner. While there is some variation and the precise number is never committed to paper, the number 5,000 is in the ballpark. That is about the equivalent of 100 hours per week which is why you hear stories about some young lawyers working incredible hours and others burning out. To keep the new associates in line, such firms clean house on an annual basis; that is to say that associates who have been employed for several years but who are not going to make partner are let go or in some cases out-placed. The associates who get to stay have lots of billable hours, a fact the new associates quickly absorb. Since all associates are competing for a limited number of partner positions, just about anything goes except getting caught fleecing the client which could cost the firm the client and the associate his job. This Darwinian competition may produce some smart, tough lawyers who will work well for you for a fee; but it is obviously open to abuse and perfectly capable of producing cunning scoundrels as well. The partners are unlikely to change this system for a number of reasons, the most important being that the partners annually divide the firm’s profits, which profits flow from all those billable hours. Do excuse me for not using my full name; but I am disabled and no longer practicing law.

    Reply
  10. Pat
    Pat says:

    Anytime an attorney can post the product of his work on the pages of the local newspaper or public bulletin board at the State Bar Association or the ABA and feel proud of his work, he/she can be assured that it is a good job, worthy of the effort, and of the fees.

    If that case doesn’t exist, and cannot pass peer review of other ethical attorneys, the object speaks for itself.

     

    One thing is always a given:

    People are infinitely capable of putting themselves in the shoes of the donor and of the donee – and that identifies the justice.

    In fact, Judges don’t usually have a problem doing that either.

     

     

    Reply

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