by Noel Bagwell
for Executive Legal Professionals, PLLC

May 12, 2015

“Incentives matter.”

[1] This phrase is subtly powerful, for its message is so simple, yet its applications to human decisions of all kinds are universal. “Incentives matter,” is a key principle of economics, but—perhaps on a deeper level—it is a philosophical statement about the way we, as people, approach all kinds of decisions. While I could write a lengthy paper (maybe a book) about this phrase, I want to focus on why incentives matter when choosing which lawyer to hire.

Plainly stated, my thesis is this: you should hate your attorney’s billable hour. In order to understand why this is true, let me share a few—by no means a comprehensive list—of the reasons why, as an attorney, I hate the billable hour. I believe, while these reasons certainly are compelling to me, they should be persuasive to you, too.

1. The Time-Value Disconnect.

People value results, profits, achievement. These things add value to an enterprise. Traditionally, however, lawyer’s have not sold added value to businesses; rather, they sell time. There is an old adage: “Time is a lawyer’s stock in trade.” “‘Putting in your time’ is a universal indictment. Productivity is better. … As bargained-for exchange, the billable hour reigns supreme.” [2]

Please notice I am not saying lawyers have not added value to businesses. I am saying lawyers have not “sold added value to businesses;” they have sold their time, and the time and effort a lawyer or firm expends on a matter for a client may or may not add value to the client’s business. There is a disconnect between time and value. Time is not money. Only what we do with our time may be valuable, but our time, itself, is not inherently valuable to others.

Prospective clients—even those who need preventive legal services—will often refrain from hiring a lawyer until they have an apparent, immediate crisis which requires a lawyer’s assistance, because such clients have not encountered an attorney who will enter into a business relationship with them based on the value the lawyer can reasonably be expected to add to the client’s business, not just the time the lawyer spends working for the client.

Billing for time, instead of value, throws into stark relief how little prospective clients actually value most of our time! Billing for time creates an incentive to wait to hire a lawyer until there is an expensive legal crisis to manage. However, many such crises are cost-effectively preventable, but only when lawyers are willing to sacrifice the billable hour, and adopt a value-based fee arrangement.

2. Credibility and Knowing What Cannot Be Known.

It is possible to know what cannot be known. This seemingly contradictory statement requires a certain degree of abstract reasoning. You might be able to know, for example, the kinds or types of things you cannot know, even when you cannot know the specific items in those categories. For example, I cannot know the names of all Chinese people, but I can know all Chinese people have names. I know, therefore, that there are categories of things which exist, even when I cannot have personal knowledge of the specific things in those categories.

If you were to tell me a Chinese man’s name is Hami Saari, I might believe you. It is possible there is, among China’s more than 1.3 billion people, at least one Chinese man named Hami Saari. It might be more likely that name would belong to a person of Finnish descent, but it is nevertheless possible; and I may trust you, if you told me you knew a Chinese man named Hami Saari. Because I know that I cannot know the names of all Chinese people, I know that I must trust others, to a certain degree, if I want to learn more about the things I know I do not know.

The law is like this, too. “The law is mysterious to the uninitiated. The language is archaic. The process is arcane. … Lawyers are often as inaccessible as the law that they practice.” [2] To further complicate this problem, people perceive many lawyers as dishonest. One of my favorite lawyer jokes is: “Ninety percent of lawyers ruin it for the rest of us.” Because clients have to trust lawyers in legal matters, and because lawyers are seen as dishonest, people tend to avoid hiring lawyers unless they feel they have no other choice, because they know that they cannot know whether the fee the lawyer has charged, is charging, or will charge them is reasonably likely to add to the client’s enterprise a value commensurate with its cost.

Building credibility is difficult, especially for lawyers. Perceptions, cultural biases, and other social and economic factors all have some bearing on distrust of lawyers. Lawyers should establish and cultivate trusting relationships with their clients by using transparent business practices, which help clients to understand how both their incentives and their lawyers’ incentives are aligned. When the client can easily see that doing what is in the client’s best interest is also in the lawyer’s best interest, clients find it easier to trust their lawyers, and lawyers find their credibility is that much greater in their clients’ eyes.

3. The System Keeps Me Down, Man.

The greatest hurdle, however, is that lawyers tend to force clients to meet them on the lawyer’s terms, rather than meeting clients on client-oriented terms. There are several reasons for this.

The archaic Rules of Professional Conduct [3] for the legal profession and professional licensing schemes shackle attorneys, preventing them from participating in a free market for legal services, which would make legal services far more affordable for everyone. Some attorneys use that as an excuse for adopting the status quo, what they perceive to be the safest billing model—the billable hour—because it is widely recognized, and least likely to lead to professional discipline. In other words, it’s what’s best for them; never mind what’s best for the client.

Lawyers have a duty to put their clients’ best interests before their own. How, then, are we to interpret the implications of adopting a business model which creates incentives for prospective clients to avoid using our valuable services until they are desperate, and then charging them a fee that, in their eyes, is so high they would never pay it, unless they felt they absolutely had no other choice? I believe lawyers have a duty to innovate, to be creative, to be problem-solvers, and to find ways to cost-effectively provide legal services to as many prospective clients as possible. In my mind, that is part of putting our clients’ best interests before our own.

Lawyers have to make a living, too, of course. Like most attorneys, I do a bit of pro bono work here and there, but I would rather do a lot of lower-cost preventive legal work on a regular basis than intermittently charge high hourly rates or dole out pro bono services, whenever I found it convenient to do so. I prefer to meet my clients where they are, to charge them rates they can afford to prevent their legal risks from becoming legal problems, to save them money, to add value to their businesses. Why? Because that is in my best interest.

Sometimes, a fast nickel is worth more than a slow dime, but two guaranteed nickels are worth more than one risky dime. By innovating with respect to the way I provide legal services to my clients, I have made the cost of my services predictable, I have lowered my clients’ costs, I have increased the value I have added to their business, and I have increased the likelihood I will maintain a consistent pool of the same or similar clients over a longer period of time, reliably providing me with a good living.

Incentives matter, and minimizing use the billable hour has brought my incentives in line with my clients’ incentives and improved my ability to add value in the matters for which they have hired me. I never could have done so much for so many at such reasonable rates using the billable hour. That’s why I hate the billable hour, and you should, too.


CITATIONS

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[1] Gwartney, J., Stroup, R., Lee, D., & Ferrarini, T. (2010). Twelve Key Elements of Economics. In Common Sense Economics: What Everyone Should Know About Wealth and Prosperity (Rev. ed., 1st ed., p. 3). New York, NY: St. Martin’s Press.

[2] Rowley, D. (2000). The Matter with Lawyers. Retrieved May 12, 2015, from http://preventivelawyer.org/main/default.asp?pid=essays/rowley.htm

[3] Model Rules of Professional Conduct. (2015, February 4). Retrieved May 12, 2015, from http://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct.html


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