Biglaw, Billable Hours, Money, Partner Issues, Partner Profits, Technology

Creative Billing: Biglaw’s Perennial Profit Engine

Anonymous Partner wonders: Is the Biglaw problem of padding bills getting worse, not better?

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Two weeks ago, I wrote about one of Biglaw’s most pressing issues: the failure of senior partners to pass along clients to younger partners. But that is not the only problem some of Biglaw’s senior partners are causing for their firms and the industry as a whole. Unfortunately, a measurable portion of senior partners, those of the august titles and stratospheric billing rates, are among the worst offenders of one of Biglaw’s most notorious shortcuts to extreme profitability: creative time entry and billing.

While I hate to acknowledge, even though I have seen it firsthand, that partners make up time entries wholesale for work never performed, it is not hard to realize that in this age of the multimillion-dollar partner there exists a tremendous incentive for such behavior. Or at least for partners to “round up” time entries, a tacitly accepted practice within Biglaw.

Incentives matter, and the more richly compensated a senior partner is, the more pressure there is on them to put down a solid four to five hours for “reviewing and revising” a draft brief on Tuesday, only to make a similar entry when they review a more robust version of the same brief a few days later. And because senior partners are frequently responsible for a horde of timekeepers below them, the tone set by the lawyers at the top of the pyramid has an impact on the behavior of those lower on the chain….

Junior partners, associates, paralegals — no timekeeper is immune from the temptation to squeeze a few more hours out of a project. While such behavior is understandable, particularly in the brutal Biglaw of today, it does not make that behavior any less shameful. Of course, with fewer associates, and an increase in the billable expectations for partners at many firms, there is more pressure for everyone to extract the maximum profitability from every engagement. Padding is a key tool in Biglaw’s toolbox to achieve that goal, terrible as that sounds.

I have no interest in passing moral judgment, but at the same time it seems at least to me that padding is a problem that is getting worse, not better. With an increased focus on the bottom line at many firms — including institution of daily billable “minimums” and penalties for failing to enter and release time regularly — it is no surprise that cavalier attitudes toward honest billing practices are widespread. Improved technology and smaller legal teams both contribute to the problem. Tasks simply take less time nowadays, but you would never know it from some of the billing entries I am aware of. An easy example. Preparing and serving interrogatories and document requests is a routine matter for any litigator. With the technological tools at our disposal nowadays, one can access (via court decisions and submissions) examples of those documents from similar cases in minutes, prepared by leading firms. But good luck explaining that to the associate who somehow finds a way to stretch such a routine assignment over two weeks, and bills dozens of hours as a result to a task that can be knocked out in a few hours. His livelihood depends on hours billed, you know.

What do you expect when associates are told (as I, and my fellow junior associates, were by a senior partner during our firm orientation) that associates were incapable of determining what deserves to be billed to the client? And as a result, failing to put down each and every minute that was billable was a serious infraction. Couple such teachings with a system that measures your success (and bonus, in the good old days) by your billable hour, and it is not shocking that many associates took an expansive view of what was billable.

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Everyone who has practiced in Biglaw (and probably in any service business that bills by the hour) has seen and heard, if not engaged in, padding. And everyone has their own “line” in terms of what they consider harmless, egregious, or justified billing practices. I have seen partners publicly justify billing an entire day to a case or deal, based on a tenuous opportunity cost “analysis” underpinned by the fiction that there is demand for every minute of their time at the highest rate a client is willing to bear. The same dubious logic is often used to justify double-billing or other creative strategies. Another favorite argument of serial padders is that the clients know what is going on, but do nothing to stop it, and therefore consent to Biglaw’s billing abuses. Or that by squeezing Biglaw firms for discounts and the like, clients are inviting padding in response. I have never worked in-house, but I can imagine that even the most pro-Biglaw in-house counsel has a sense of responsibility to their employer’s resources, and would instantly claim that they do not sanction padding when it comes to their bills.

Biglaw firms are generally opaque when it comes to disclosure of performance data such as profitability. At the same time, they are generally very skilled at forecasting performance. Despite such talents, there is an extreme indifference pervading Biglaw when it comes to rooting out padding and other sketchy profitability boosters. I doubt there is anyone in Biglaw who can say how much padding adds to their own firm’s bottom line. Tellingly, no one seems to even want to find out. Of course, the people within the Biglaw framework who actually have the power to do something about cleaning up their firm’s billing practices are the ones who benefit most from the “abuse in the name of profit” that exists. That leaves whistleblowers (an extremely rare Biglaw phenomenon), clients themselves, or other outside forces to advocate for a change.

I tried once, in my own limited way. Some years back, after reading Freakonomics (affiliate link), I reached out to Dr. Steven Levitt with a suggestion that he look at the issue of padding in Biglaw firms. After all, Biglaw is a multi-billion dollar industry, so the potential savings if an algorithm to identify cheaters could be developed would be significant. My thought was that if even one Biglaw firm gave Levitt or his team access to billing records from prior years, some suspicious billing behavior could at least be identified. Maybe associates who had an off-year were rebounding a little too strongly the next year, for example. Or maybe a drop in realization rates could be correlated to an increased reliance on padding by a partner. I did not know what the inquiry would yield, but I felt (and still do) that it would be a worthwhile one. And that any firm brave enough to participate would be deserving of acclaim.

At bottom, bill padding and similar behaviors are symptoms of wider problems, such as misaligned incentives, poor employee management, and unhealthy client relationships. In the absence of an industry-wide effort to acknowledge and correct the problem, each and every Biglaw lawyer is forced to engage in their own internal moral struggle regarding the line between proper and abusive billing practice. It is unfair, and an abdication of leadership, for firms to put their partners and employees in such a situation. But no one seems to have the courage to take a stand, so the best I can do is to suggest that this is a conversation that needs to happen. And nothing will happen unless clients demand change. I know some have, but many have not yet. Until then, they are paying the (inflated) price.

Does Biglaw incentivize or discourage bill padding? Let me know your thoughts by email or in the comments.

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Earlier: Biglaw’s Sticky (-Handed?) Seniors

Anonymous Partner is a partner at a major law firm. You can reach him by email at [email protected].

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