Mimesis Law
21 October 2017

Can $1,500 per Hour Be Good Value?

Apr. 14, 2016 (Mimesis Law) — The Guardian recently reported that senior partners at Magic Circle firms now charge 1,100 pounds an hour— that’s $1,500 plus an expensive lunch.  U.S. firms average a bit less, but their rates are not for the faint-of-budget, either. The National Law Journal reported that for 2014 the top 14 U.S.-based firms had a $980 average partner billable hour rate. Senior partners charge well above that and top out in the same zip code as their Magic Circle competitors.

But is the flat demand for law firm services reported by Georgetown Law’s 2016 Report on the Legal Market attributable to the top-end rate or other rungs of Big Law? A December, 2015 report by Citi Private Bank suggests that the productivity decline of lawyers due to less work is not about top end work but “support” lawyers. The National Law Journal’s 2014 survey reports the average associate rates for the top 14 firms are between $290-$670 per hour. That is where the cost/value divergence occurs.

Cost and Value

Two common phrases at opposite ends of the cost/value spectrum come to mind. “You get what you pay for” implies attractive pricing can lead to poor value. “No one gets fired for hiring IBM” provides the rationale for paying top end price for gilt-edged brands- regardless of value (or, more precisely, that part of the value is the job security that comes from “going with the best” regardless of outcome). Let’s apply these phrases to legal buying decisions that are now commonly made on a value rather than relationship basis.

Lack of Meaningful Metrics

There is a lack of quality metrics in the legal industry. Sure, there are “Super Lawyers,” “AV” ratings, and other things that pass for lawyer ratings. But lawyers – not clients – are the principal judges of quality, and everyone knows how enamored of pedigree they are. Here’s how it has worked for decades: graduates of elite schools funnel into certain firms who, in turn, are reputed to be the best.  Senior partners at those firms are regarded as “the best of the best” by their peers – and that has historically included their lawyer/corporate clients.  Are those lawyers really the best?  Who knows? But since the mid-1980’s when The American Lawyer introduced PPP as the measure for ranking law firms, that has been the gold standard.

Are firms with the highest PPP “the best” and are lawyers that charge the highest rates – and there is a correlation between the two – the best? Who knows?  Results are not a criterion. Nor is value- until recently.

Value in Legal Delivery

Clients are demanding greater value from legal providers. This has become a keener focus since the launch of the Association of Corporate Counsel’s (ACC’s) “Value Challenge” that coincided with the global financial crisis of 2008. Technological advances, globalization, disaggregation, and the proliferation of legal service providers have created a new market dynamic for legal buy and sell. Lawyers no longer sell exclusively to lawyers. Nor are law firms the only game in town. This has cast a harsher light on what lawyers – and the law firms that bundle their services – do. Is it any wonder that the days of associates billing upwards of $700 an hour are fast coming to an end? Likewise, the $400 an hour document review is in the rear view mirror. The law firm structure is no longer required to deliver those tasks.

Back to $1,500 Per Hour

Lawyers that command the high end of the rate structure generally tend to deliver highly specialized services. That usually involves major trial, complex tax, or high-stakes merger and acquisition expertise. And though the firm lawyers who provide support may not- on a stand-alone basis- be good value at their rates, they are viewed as “the price of access” for the “rock star” lawyers they work under.

And while there is scant data to support this “price of access” thesis, there is a surfeit of anecdotal evidence. Over the last several years, I have met with approximately three hundred GC’s or AGC’s of Fortune 500 companies (many while I was a co-Founder of Clearspire). The overwhelming consensus was that they did not mind paying elite lawyers their hourly rates, but they did object to paying the high rates charged by their subordinates. Translation: $1,500 an hour can be good value but the firm’s top-to-bottom high rates are not unless the matter is price insensitive.

Even superstars need support. That might explain why a growing number of “superstar” lawyers are peeling off from large firms to form their own boutiques (conflict avoidance is another factor). It’s also the reason why new delivery models and competitors – most notably the Big Four – are making moves.

It’s not the top-end rates but the delivery structure that matter. Superstar support can be drawn from many quarters.

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