Wednesday, March 18, 2015

More Conflicting Opinions on the Billable Hour – "Unkillable Business Poison"?

Several stories this week on economic matters touching risk issues. Following the article on business intake, client selection and revenue, yesterday we posted on "bombs waiting in our files," and today we continue the trend of pointing out provocative industry commentary, with a story in the Canadian Post: "The unkillable billable hour: How Canadian corporations are clinging to legal business ‘poison'" --

As detailed in the above article: "the Ontario Court of Appeal issued a ruling that questioned the traditional practice of hourly billing."
  • "'There is something inherently troubling about a billing system that pits a lawyer’s financial interest against that of its client and that has built-in incentives for inefficiency,' wrote Madam Justice Sarah Pepall in a decision that reviewed the size of a legal bill in the receivership of a London, Ontario-area cattle farm. The appellate decision confirmed a lower court ruling that had cut to $157,500 from $328,000 a bill that law firm Borden Ladner Gervais LLP had sent to PricewaterhouseCoopers for work done on a relatively simple matter that took two months to complete."
  • "Billable hours are 'poison' to the legal business because they’re an incentive for inefficiency, Mr. Carayiannis [head of Conduit Law PC, a firm specialising in AFAs] says. It makes more rational economic sense to connect the price of legal services with the value they bring to a client’s business... There is an inherent conflict of interest,” says Mr. Carayiannis of Conduit Law. 'It pits our clients’ interest in getting a fair value at a fair price for our services directly in conflict with the lawyer’s interest in maximizing his financial gain.'"
  • "Clients generally aren’t fussed about hourly rates if they’re content with the dollar amount at the bottom of the bill, Mr. Milstone [Cognition LLP] says. That might look okay on the surface, but it masks a problem. A firm’s hourly rates are typically based a firm’s need to cover overhead plus the profit expectations of the firm’s partners. Missing from the equation is the value the work is supposed to bring to the client. Mr. Milstone says an hourly rate might be a tool that helps begin a discussion on what a legal service should cost, but it shouldn’t be the only thing that goes into the mix."
  • "Amar Sarwal, vice president and chief legal strategist with the Association of Corporate Counsel, a Washington-based group that represents in-house lawyers at corporations around the world, believes Canadian in-house lawyers are in a unique position. With a small number of top-flight Bay Street firms serving Canada’s relatively short list of blue-chip financial institutions and corporations, the country’s in-house lawyers should have the marketing clout to bring rapid change to the legal industry. “Canada has a more concentrated legal market, and because of that, it has an opportunity to change faster than perhaps the U.S. market,” Mr. Sarwal believes."

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