The billable hour is bad for your law business. It’s also bad for your career, it’s bad for your clients, and, yes, it’s bad for your soul.
The billable hour is the basic economic unit of most corporate law firms
From the traditional law firm perspective, billable hours are what they sell. Sure firms advertise the skill and pedigrees of their lawyers, the depth and breadth of their practice areas, their geographic reach, their success stories, and their best clients. (And, of course, every law firm is responsive, cost-effective, and client-centered.) But, let’s face it, law firms are hours factories. To ordinary business people “productivity” might have something to do with the volume of product or service per unit of human input, and “efficiency” might relate costs to output. But as far as I can tell, to the law firm, “productivity” refers to an aggregate number of billable hours, and “efficiency” speaks to minimizing non-billable time clocked by an attorney in proportion to hours that are actually billable.
From the perspective of individual attorneys, their worth is measured in billable hours. How many hours do they produce? How many are written off? How many are collected? Salaries, bonuses, raises, and non-financial benefits such as job security, promotions, and political influence are all measured by billable hours, whether worked or “originated.”
Is this good for law firms, their clients, and their attorneys? I don’t think so.
Selling time discourages investment in productivity and skills
All lawyers who have worked in corporate firms know the frustration of putting in a hard, full day of productive work and feeling like the day was wasted once they added up their billable hours for the day. They might have prepared for an educational or marketing presentation, written an article, spent time with a client or prospect, or attended a networking event, but all that non-billable effort feels somehow less valuable than billable work. Although the non-billable work is beneficial to the attorneys, their firms, and their clients, the only metric that truly matters is billable time.
That reality discourages investment in productivity and in lawyering skills because it’s economically irrational at a basic level both from the perspective of the individual attorney and that of the law firm.
Let’s say a hypothetical lawyer can draft a contract unit in one hour. Let’s also say that if he were to invest ten hours in process and documentation improvements such as producing checklists and document automation templates, he could increase his productivity to 1.2 contract units per hour. Should he spend the time increasing his productivity?
Probably not. Assuming he’s already working a full schedule, the ten hours of non-billable time means fewer billable hours to his credit for purposes of internal law firm rewards. It also means a loss of revenue to his law firm since the firm will bill ten fewer hours. Plus, the increased productivity means that every contract unit going forward will be worth less than one billable hour both to the attorney and to his firm. Why would an attorney spend time working for free to increase his productivity and why would a firm incentivize its attorneys to do so when the end result is a reduced number of billable hours produced, billed, and collected?
The same dynamic is at work with investments in attorney skills improvements. Reading cases and articles, researching, attending seminars, and other activities that improve an attorney’s lawyering skills are also often non-billable. Since non-billable activities aren’t as financially valuable to firms and their attorneys as billable work, attorneys are less likely to invest their scarce time resources in becoming better lawyers, and firms are less likely to provide training and other educational opportunities that would produce better attorneys.
Increased productivity is good for clients (e.g., it can increase quality and reduce cycle and response times, as well as lower fees). And improved lawyering skills are good both for attorneys and their clients. But the billable hour renders investments in productivity and skills improvements economically undesirable from the point of view of attorneys and law firms. That’s bad for law firm businesses, their clients, and their attorneys.
Is the billable hour really bad for your soul?
What I’ve described might not literally harm the souls of attorneys, but selling time isn’t exactly good for the soul either. Most attorneys I know work as much for job satisfaction and fulfillment as for the paycheck. But that satisfaction is reduced when they don’t sharpen their skills, spend time with clients and prospects, share what they know with others, and do other things that don’t happen to be billable.
The practice of law is going through a sea change that goes well beyond the client frugality that was intensified by the recent recession. Clients are doing more legal work themselves, and non law firm vendors are performing tasks that were once the province of lawyers. This is resulting in a shrinking pool of work for private firms and a more competitive landscape overall.
The billable hour has been pronounced dead many times. But it’s also still being proclaimed alive and well. In any event it’s difficult to envision a scenario where it won’t continue to dominate law firm economics well into the future. But the billable hour has a damaging effect both on law firms and their attorneys because it encourages us to focus on certain activities to the exclusion of other, very important, activities, like building a better mousetrap and developing better trained attorneys.