Billable Hours

Tom Wallerstein

Starting a new firm is daunting. Many lawyers focus on their expenses, and are pleasantly surprised that the overhead and other necessary expenses are less than they expected. But the real difficulty arises on the other side of the ledger because accurately projecting income can be so elusive.

If you’re starting with guaranteed clients, then making projections is easier. But otherwise, you really can’t project your income unless you know the extent to which your business plan in general (and your business development plan in particular) will succeed.

Even if you can accurately project how much potential business you will have, it’s still easy to slip by overestimating your expected income…

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Biglaw lawyers are a late-arriving crowd compared to their banking counterparts. It’s one of the few perks of the job. Lawyers work hard and have to be at the beck and call of their clients, but in this age of wireless connectivity, they don’t have to punch into a physical plant every morning like a common dock worker. Yay?

Grown adults can usually be trusted to manage their own time efficiently, but occasionally partners decide to crack the whip and demand that associates be physically in the office during “business hours.” Why? Who knows. Partners at MoFo did this a few years ago. It’s an office, dammit. People should be in theirs so I can sit in mine and say “come here,” and then I can hand them a document because I’m a partner and .pdfs frighten and confuse me!

Whatever, it’s the partners’ world, associates are just living in it. That’s why associates at the D.C. office of one Biglaw firm received two “demoralizing” emails this week — one that was kind of boasting how the entire firm was slammed, another that seemed to have no knowledge of the first one that instructed all of these slammed people to be tied to their desks….

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Tom Wallerstein

By the time I graduated from law school in 1999, I had become rather risk-averse. For example, several of my friends were excited to enter the dot.com world with hopes of becoming uber-wealthy. I eschewed those prospects for the security of a more regular, albeit more modest, Biglaw paycheck. Eighty thousand per year struck me then (and now) as a generous starting salary.

Of course, forming and managing a new law firm is a risky business proposition. But to the extent that I now am fully responsible for generating my own work, I feel like I actually have greater job security than I did when I was beholden to working for other rainmakers on their cases. So even though starting a firm was risky, it didn’t really portend a fundamental shift in my natural inclination to prefer security over risks even if that means foregoing potentially bigger gains.

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* “[T]hese senators decided to do nothing. Shame on them” Yesterday, the Senate blocked gun-control legislation that could have saved lives, and Gabrielle Giffords, a victim of gun violence, wrote a powerful op-ed in reaction. [New York Times]

* DLA Piper won’t be churning that bill anymore because the firm managed to settle its fee dispute with Adam Victor, but it’s certain that the firm’s embarrassment over the overbilling incident will know no limits. [DealBook / New York Times]

* Ahh, best-laid plans: Kim Koopersmith, the first woman to serve as Akin Gump’s chair, never thought that she’d be working in a law firm. In law school, she wanted to work in public interest. [Bloomberg]

* You’ll never guess which firm has the best brand in Canada according to the latest Acritas survey, but that’s probably because you don’t care. Come on, it’s Canada. Fine, it’s Norton Rose. [Am Law Daily]

* Oopsie! Burford Capital claims that it would never have funded plaintiffs’ representation by Patton Boggs in the Chevron case if it weren’t for a partner’s “false and misleading” statements. [CNN Money]

* The wife of a former justice of the peace has been charged with capital murder after she confessed to her involvement in the slayings of Texas prosecutors Mike McLelland and Mark Hasse. [Reuters]

* Baltimore Law has a beautiful new building that cost $112 million. Just a thought: perhaps more of that money should’ve been spent putting the class of 2012 to work as lawyers. [National Law Journal]

Biglaw competition is getting intense. Everyone is chasing the same clients, while also deploying rearguard actions to protect institutional clients from being poached. Forget about lateral partners taking clients for a moment. I am talking about overt approaches from competing firms regarding existing matters, bearing promises of handling things more cheaply and more efficiently. In-house lawyers, under pressure to contain costs, almost have to listen. They may not act right away, but with each such approach another dent has been made in the Biglaw client-maintenance bumper.

It is no secret that in the face of declining overall demand (especially for the profit-pumping activities like mega-document reviews that were Biglaw’s joy to perform in the past), firms need to aggressively protect market share. While also seeking to grow market share. In an environment where more and more large clients are either (1) reducing the number of firms that they are willing to assign work to or (2) embracing an approach that finds no beauty contest too distasteful to engage in. So partners, at least those tasked with finding work for everyone to do, are falling back on a tried-and-true “sales approach” — putting things on sale.

How bad has it gotten?

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The fact that the billing rates of contract attorneys are in excess of what the law firm pays them is not unusual or untoward. That’s to cover overhead and have a profit built in.

Ira Press, a partner at Kirby McInerney, offering commentary on the Citigroup billing frackas that’s made headlines of late. On average, the firm billed out contract attorneys who worked on the matter at about $465 an hour, but likely paid them just $60 to $75 an hour for their “special expertise” and services. Ted Frank, aka the Class Action Avenger, is not happy about all of this.

[Think of hourly fees] as the equivalent of a sticker on the car at a dealership. It’s the beginning of a negotiation…. Law firms think they are setting the rates, but clients are the ones determining what they’re going to pay.

Ward Bower, a principal at the legal consultancy Altman Weil, commenting on the ever-growing price tag for the Biglaw billable hour — and the deep discounts that are available to clients who simply refuse to pay full freight.

If you follow the world of large law firms, then you are probably familiar with the incisive and candid commentary of Steven J. Harper. Over at his blog, The Belly of the Beast, Harper offers excellent insights into the world of Biglaw.

Harper knows so much about that world because he spent his entire legal career in it. He joined Kirkland & Ellis after graduating from Harvard Law School in 1979. He practiced litigation at the firm for about 30 years, until his retirement in 2008, at the early age of 54 (which you can afford to do when you’re an equity partner at a firm as lucrative as K&E).

In addition to blogging, Harper has written four books. I spoke last week with Harper about his latest book, The Lawyer Bubble: A Profession in Crisis (affiliate link), and about his views on the worlds of Biglaw and legal education….

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Folks (including those who wrote the Federal Sentencing Guidelines) think that “tone at the top” matters. And those folks are right: If senior executives include the words “with absolute integrity” in their elevator speeches about the company, other people in the organization will catch on. People will come to believe that ethics matter, and ethics will thus come to matter.

But there’s another aspect of “tone at the top” that the Federal Sentencing Guidelines don’t compel: What are we trying to achieve as an institution? What’s your organization’s “tone at the top” on issues apart from obeying the law?

Does a drug company want to “discover and manufacture new substances to help people live longer, healthier lives”? Or does it want to “deliver maximum return to shareholders”?

Or maybe it’s all the same thing. As the (perhaps apocryphal) story goes: An interviewer asked Itzhak Perlman what he wanted out of life. Perlman said he wanted to play the violin. The interviewer was shocked: “Don’t you want to be happy?” “I want to play the violin. If I play the violin, I’ll be happy.”

Maybe if you develop drugs that improve and prolong lives, your shareholders will be rich. (And you’ll probably be happy, too.)

What’s the goal of your professional services firm: Do you want to strive for perfection? Or do you want to generate revenue? Or do you bill by the hour, so it’s all the same thing?

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* Can you DIG it?! Well, SCOTUS can’t, at least when it comes to the Prop 8 case, but perhaps that’s what the conservative justices planned all along. You can probably expect a judicial punt on this one. [New York Times]

* The case for cameras at the high court became even more compelling last week, because people just now realized that having to “spend money to see a public institution do public business is offensive.” Damn straight. [National Law Journal]

* Justice Sandra Day O’Connor’s new book, Out of Order (affiliate link), didn’t exactly get a glowing review from the NYT’s Supreme Court correspondent, Adam Liptak. It’s a “gift shop bauble”? Ouch. [New York Times]

* Oh, Lanny Breuer, you tried to be all coy by saying you were interviewing elsewhere, but we knew you’d return to Covington. That “vice-chairman” title is a pretty sweet new perk, too. [Legal Times]

* DLA Piper’s bills may “know no limits,” but in-house counsel claim that while the firm’s emails were “flippant,” they won’t have an impact their already meticulous billing review. [New York Law Journal]

* The true love’s kiss of litigation: Bingham McCutchen’s Sleeping Beauty may have found her prince in Judge Vincent O’Neill Jr., because he ruled that the firm won’t be able to compel arbitration. [Recorder]

* It’s really not a good time to be a prosecutor in Texas. Two months after the murder of ADA Mark Hasse, DA Mike McLelland and his wife were gunned down in their home. RIP. [Dallas Morning News]

* Good news, everyone! The class of 2012 — the largest on record, according to the ABA — was only slightly more unemployed than its predecessors. Cherish the little things, people. [National Law Journal]

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