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Wednesday, January 6, 2010

Ribstein on "The Cloudy Future of Big Law"

Yesterday, over at Ideoblog, Larry Ribstein had another in a series of thoughtful musings on the future of Big Law. His post, "The Cloudy Future of Big Law" responded to this post at Above the Law, which primarily focused on the unprecedented layoffs in 2009 and went on to suggest that "[t]here is reason to be hopeful that 2010 will be much better than 2009."

Professor Ribstein is somewhat more pessimistic, pointing out that "there are also reasons not to be hopeful." Indeed, he believes that, although the economic "crisis may be over and there may be a lot of regulatory and other work for lawyers, . . . that doesn't necessarily translate into a rosy future for Big Law."

This is territory Professor Ribstein has covered beforehere he is in the abstract from his article on the subject, The Death of Big Law:

Large law firms face unprecedented stress. Many have dissolved, gone bankrupt or significantly downsized in recent years. These events reflect more than just a shrinking economy: the basic business model of the large U.S. law firm is failing and needs fundamental restructuring.

I’d like to focus on just one of the trends Professor Ribstein believes to be "very relevant to the future of Big Law." In his post he points to:

The pressure on hourly billing, which has been a major profit generator for big firms. Although I keep hearing that reports of its demise are premature, don't bet on that.

Professor Ribstein may be right. Perhaps the recent push to replace the billable hour reflects more than just a shrinking economy and will continue even after economic conditions improve. If so, it could certainly be a blow to the current Big Law business model.

But I wonder if this is really a trend rather than a temporary response to current circumstances. Here are a few headlinesguess what they have in common:

  • The Vanishing Hourly Fee, ABA Journal

  • The New Value Billing, The American Lawyer

  • The Rise and Fall of the Billable Hour, New York State Bar Journal

  • Time to Question the Billable Hour, Connecticut Law Tribune

  • Value Pricing: The Billable Hour Death Knell, Accounting Today

  • Preparing a Requium for the Billable Hour, New York Law Journal

The first 3 were written following the economic slowdown of 1991-1992 and the last 3 were written following the bursting of the tech bubble in 2000, in each case following the unprecedented stress faced by law firms at the time. In hindsight we now know that, in each instance, the death of the billable hour was greatly exaggerated. Once demand for lawyers recovered there was less pressure on fees and, consequently, less focus on how they were calculated.

I’m not saying this time will be the same.  I just think it’s a little too early to tell.

MAW

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Comments

Michael, I agree on the billable hour. I can see a lot of tinkering around the edges, but I've been on both sides of this, and the reason the billable hour has legs is that it remains as a decent low transaction cost surrogate for value over the long run, and that's what the market keeps telling us. So it will likely remain as the base, with the rates negotiated more tightly, and incentives, discounts, caps, some fixed fee, etc. added on.

Posted by: Jeff Lipshaw | Apr 25, 2010 3:20:28 AM

Although the billable hour does not seem to be dead as yet, its days are definitely numbered. Clients are increasingly demanding reduced legal costs, forcing the law firms to innovate. One solution to the high legal fees problem is legal outsourcing.

With the advent of legal process outsourcing, legal work is now being done at a fraction of the cost in countries like India, without compromising in quality. Legal outsourcing providers are helping buyers of legal services in the U.S. reduce costs dramatically by providing cost effective legal solutions.

Posted by: Legal Dodo | Dec 13, 2010 1:24:16 AM

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