The State of the Legal Industry

A year ago, Ingram’s magazine staged its Legal Industry Outlook roughly a week after what may have been the single most jittery day in a very jittery year for the U.S financial markets.

In Washington, the House had rejected a bailout plan for Wall Street, and in New York, the Dow Jones Industrial Average responded with a remarkable 777-point plunge.

The theme last October, then, was what the legal industry could do to help restore order to the business community.

Although many problems remain, and some may have even been aggravated, this year’s Industry Outlook un- folded in a much calmer environment. 

 

Rate Structures

As an opening question, George Wolf of Shook Hardy & Bacon asked his peers whether there was indeed a shift by law firms away from the billable hour as the primary mechanism for assessing fees.

“I went 20 years, and no one ever asked me what my rates were,” said Pete Smith, president of McDowell, Rice, Smith & Buchanan. “Now people ask, ‘What are your billing rates?’ Smith saw the wisdom in educating clients in how billing works and how high rates do not necessarily translate into higher costs. 

“I think the demise of the billable hour is overrated because there is certain type of work that lends itself to the billable hour,” said Joel Voran, the CEO of Lathrop & Gage. On larger cases, however, his firm does make some flat-fee arrangements, but these, he argued, require a good deal of attention to price right and manage right.

“We have had some success convincing clients that a flat fee isn’t really a fair way to estimate how much [a case]

is going to cost,” affirmed Ben Mann, managing partner of the Kansas City office of Husch Blackwell Sanders.  Mann elaborated that firms cannot anticipate what a case is going to cost, particularly in litigation, because the opposition is always attempting to undo what has been done. “Clients seem to get that when you explain it in those terms.”

Russ Jones, chairman of the Midwest Business Litigation Practice Group for Polsinelli Shugart, noted that his firm had used flat fees on small corporate and intellectual property projects. “Litigation is a lot harder to do flat fees on,” he added.  What the firm can do is estimate what each increment in a case is going to cost, and in some cases even work out incremental billing with clients.

McAnany, Van Cleave & Phillips uses what shareholder Larry Greenbaum calls “blended rates.” In his experience, it is not the higher-end rates that give the clients pause, but rather the rates of a second- or third-year associate.  “We sit down and map out a plan how to blend the rates using lower rates as well as senior rates,” said Greenbaum.

“When we sit down and talk with our clients,” offered Doug Reagan, past partner in charge of the Kansas City office of Foulston Siefkin, “we point out that alternative fee arrangements are not necessarily cheaper. Like alternative energy, it may end up being more expensive for them.” At the end of a given discussion, he noted, a majority of clients conclude that the traditional billable-hour rate is usually the best way to estimate the value of the services.

Stinson Morrison Hecker gets good results by describing to clients the circumstances that might occur, setting some threshold of what the bill is likely to be, and developing trust. “That is where we get traction,” explained the firm’s deputy managing partner, Mark Hinderks, “the good old attorney-client relationship of trust.”

“I have been a shift denier,” said Ed Spalty of Armstrong Teasdale, but he acknowledged that a shift was indeed under way.

 

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