Aric Press, always worth reading, has an especially subtle column out this month, Why Pricing Billable Work May Be Too Important to Leave to the Lawyers.
Here’s his key insight, which I envy for its astuteness:
Lawyers have trouble talking about money. That’s a gross generalization, but it’s one I’ve come to after spending the last month listening to partners, in-house counsel, and the latest breed of expert who is helping firms, the pricing specialist. Some of this is personal: Embarrassment, anxiety, introversion, and habit all play their parts. Together they help explain why the hourly rate thrives and why so many arguments about legal costs are beside the point. It’s easier to quibble about marginalia—why is there a third second-year on this file—than to address the heart of a matter: What’s this worth to me.
In the last year I’ve been present at more meetings and conversations focused on pricing than I have been in the rest of my career combined. Almost invariably, they’re entirely inconclusive and therefore deeply disappointing.
The usual suspects are trotted out as to why the firm can’t intelligently figure out and propose alternative fees:
- (a) We don’t have the data on what it costs to do X, Y, or Z;
- (b) We’re not against alternative fees: In fact we’re prepared to give the client a discount off our hourly rates with an optional success fee at the end if they like the work;
- (c) It would be too risky to quote a fixed fee—things could blow up.
(a) is true for most firms but the more telling question is whether they’re working on updating their financial reporting systems to collect the information; most aren’t doing it and aren’t even talking about starting to do it.
(b) keeps the firm within its comfort zone and is therefore fundamentally cowardly.
(c) copies (b) and implicitly insults the client by assuming they’re too dense or narrowly self-interested to understand that things can blow up and to make a reasonable accommodation if they do.
Aric, fairly, notes that lawyers on both sides are calling in reinforcements. Inhouse departments have long had procurement officers and other green eyeshade types, but law firms are increasingly investing in people whose function, if not title, is Chief Pricing Officer. Toby Brown at Akin Gump (disclosure: a friend), whose official title is Director of Strategic Pricing & Analytics, is, per Aric, “one of the leading exemplars,” and Toby now estimates there are 130 people in BigLaw offering advice in some form or another on pricing.
But back to the lawyers. Why exactly is that we seem to be allergic to honest, clear-eyed conversations about price?
Well, to state the obvious, it makes us uncomfortable, but that’s merely a way of re-stating the problem. I think there are three inter-related reasons: First, our emotional makeup is about as ill-suited to these conversations as could be; second, we don’t have a firm grasp on what “alternative fees” really means; and third, we are loathe to value what we do.
Emotional makeup? Compared to the general white-collar population (forthcoming generalization alert), lawyers are, despite all our bluster when donning our zealous advocates’ hats, remarkably insecure; we suffer from shockingly low emotional intelligence; and we take setbacks very hard and don’t recover from them quickly.
Also on the emotional makeup side, we’re introverts who hate to bring up issues where we may not have all the answers. We’re trained not to ask questions that could lead into unknown territory, or venture into conversations that strike us as frighteningly open-ended. All things considered, the safest course is, when in doubt, keep your mouth shut. And when discussing pricing, it all seems to be “in doubt.”
Second, what does “alternative fees” really mean? If you think it means anything that does not begin life as a function of the billable hour, I’m with you. In my book, discounts and blended rates don’t really qualify as alternative fees since they’re just local arithmetic variations on the billable hour. But semantics aside, once you venture into the territory of non-billable-hour pricing, you encounter a menagerie:
- Fee caps
- Fixed fees for single engagements
- Fixed fee menus
- Fixed fees for a portfolio of work
- Partial contingencies
- Unit pricing
- Full contingencies
- Risk collars
- And I’m sure I’m missing many others.
This is problematic for us because we prefer roadmaps, checklists, and decision trees. The wide variety of options under the “alternative” roof is not something we view as liberating and an opportunity for creative mix and matching; we view it as simply confusing and perilous. “What if I pick the wrong one? How will I even know until it’s too late?”
This brings us to the nub: We hate to discuss the value of what we do.