How much should companies pay for work from first-year associates?

The war against lawyers has begun.  Well, more specifically, its a fight against over-priced legal services.  According to the Wall Street Journal:

More than 20% of the 366 in-house legal departments that responded are refusing to pay for the work of first- or second-year attorneys, in at least some matters.

Many corporate counsels are arguing that they should not have to pay $300 per hour to have a newly-minted lawyer learn how an asset purchase agreement works.  This was less of a problem in the past when the rates for junior attorneys was low and competing resources sparse.  But with the "businessification" of the legal industry over the past couple of decades, hourly rates for associates have skyrocketed along with ballooning salaries (and increased per-partner profits), as the Internet and mobile technologies have empowered corporate counsel to find pragmatic alternatives.

At the same time, companies are spending more than ever on outside counsel for their legal services, even as the economy struggles to recover.  In this article from the ABA Journal, corporate counsel are seeing legal bills rise.  What's even worse:

The dramatic increase in attorney fees and other litigation costs came despite reports of a decline in litigation last year from the same group of respondents.

That is why many are taking a practical approach and looking for alternative fee arrangements and more sensible billing.  And some law firms are hearing the call (including my firm).  However, a system that has been entrenched in our society for generations is not going down easily.  As noted in the WSJ article, the chairman of K&L Gates LLP, a law firm with over 1900 attorneys around the world, says that corporate counsel are blowing this out of proportion and should resist the urge to change:

“It’s a bargain made throughout the generations that has served democracy and capitalism well.”

Yeah, good luck with that.

Can Law Firms Act Like Startups?

Listening to a great webinar by Brian Halligan and Dharmesh Shah about "Money, Marketing, & Management with the HubSpot Founders", I was reminded about a discussion that has been floating around the Web recently and on this blog as well.  Can law firms act more like startups? One of the themes in the webinar was how companies (particularly a tech startup like HubSpot) should change the typical management philosophy in order to grow and thrive.  Among other things (and to paraphrase a bit):

1. An organization should break down the pyramid and flatten the org chart.
2. Extend the "open door" policy to eliminate doors altogether.
3. Trust your employees and don't try to over-structure company policies.
4. Be transparent and include your employees.

So everyone sits together and moves around every three months.  Online collaboration tools allow employees to contribute to tools, products, and presentations.  Employees are given latitude and flexibility, drive productivity.  These things work well in a tech startup where the emphasis is on agility and growth, but does that lend itself to a more "traditional" setting like a law firm?

Why not?

Large law firms have traditionally employed a pyramid structure - from the large pool of new associates at the bottom up to the few very managing partners on top.  Nothing is transparent and firm policies are monitored very closely.  Deals at large law firms get staffed with a range of partners and associates, which is sometimes more beneficial for the growth of the law firm (and higher bills) than for the sake of the deal.

Recently though, driven in part by a changing economy, clients, VCs, and even lawyers have reacted negatively to this seemingly outdated structure and have called for some changes.  As companies evolve, shouldn't their law firms?

I have seen a number of new firms pop up in the last few years that seem to embrace this new model - my firm, Trinity Law Group is one of them - by leveraging technology to focus on clients rather than high-rent office space, billable hours, and expensive marketing.  By emulating the companies we represent, law firms can provide better value while adapting to a 21st century business model.

What do you think?  Have you noticed a change in they way you interact with your lawyers?

Trinity and Me

A quick aside from my regular posts to bring you some news on my practice.  As you can see by reading the updated sidebar on the right, I have recently joined Trinity Law Group LLC, a boutique business law firm in greater Boston.  Trinity is made up of some of the best lawyers (and people) I have had the chance to work with and I am very excited to be a part of the team. Watch for developments and more news throughout the social sphere as we intend to utilize some great new technology to better provide value to our clients.  You can read more about my move and about Trinity generally at www.trinitylg.com but you can read the press release in full below.

NEWS RELEASE

BUSINESS LAWYER DAN RYAN JOINS BOSTON’S TRINITY LAW GROUP

January 1, 2010 WESTWOOD, MA – Trinity Law Group LLC, a greater Boston law firm, announced that Daniel J. Ryan has joined the firm as an attorney and counselor at law.

Mr. Ryan will focuses his practice on the organizational, operational, and transactional needs of entrepreneurs, startups, emerging and mid-sized companies as well as angel and venture capital investors. He has counseled and represented clients ranging from the Fortune 500 companies and elite venture capital firms to solo entrepreneurs throughout the business and investment life cycle – from inception and formation, to franchising, licensing and other contracts, to growth and investment, and liquidity strategies. Dan Ryan previously practiced with large, international law firms, first in Denver, Colorado, and then in Boston.

According to Walter Wright of Trinity Law Group,  “We are thrilled to have Dan Ryan join us at Trinity Law Group. His substantial training, experience and competence, client commitment and passion for effectively using technology in the law fit perfectly with Trinity Law Group’s progressive and innovative approaches to working with clients and practicing business law.”

The author of THE BUSINESS LAW BLOG, “A business lawyer's thoughts on business law”, Mr. Ryan also presents on business and corporate law topics to attorneys, entrepreneurs, and other professionals, and has been a recurring guest speaker at the University of Colorado.

Daniel Ryan is a graduate of Boston College Law School (J.D.) and the University of Michigan (B.A.) and is licensed to practice in Massachusetts and Colorado. He is a member of the Massachusetts and Lawrence Bar Associations and is active in local organizations in North Andover and the Merrimack Valley. You can follow Dan Ryan on twitter @dryanesq.

About Trinity Law Group LLC. Trinity Law Group LLC is a greater Boston law firm that practices a broad range of business, corporate, and securities law throughout New England, United States and the world with well-recognized attorneys of stellar academic and professional accomplishment who leverage technology and relationships.  Founder Attorneys Walt Wright and Daniel Clark are business savvy and entrepreneurial lawyers who started the firm in 2007 after serving in leadership positions in the Boston law firm Rich May, where Mr. Wright served as Managing Director and Mr. Clark served as President. Trinity Law Group attorneys leverage relationships, technology and strategy to create a competitive advantage for its clients in the business law sector. Trinity Law Group LLC attorneys share a “trinity” of values as cornerstones of professional life: competence, commitment and communication. Trinity Law Group holds the distinction of being named a “Preeminent Law Firm” for its legal ability and ethical standards in the Bar Registry of Preeminent Lawyers. Additional information on the firm and Attorney Ryan is available at www.trinitylg.com.

"The paradigm has changed" for the billable hour

As a follow up to my previous post about how the economic environment is affecting law firm economic models, and the Wall Street Journal brings one more example:  companies the likes of Pfizer, Cisco, and American Express are demanding that law firms ditch the billable hour structure in favor of flat-fee contracts.

Companies have long complained that legal fees are inflated by a business model in which law firms have high-priced junior lawyers who must be kept busy billing for work that could be handled more efficiently. With the recession, companies have the leverage to force changes, say some lawyers at both client companies and law firms.

And while this shift is welcomed by the companies, the law firms are facing new challenges:

The shift could further squeeze earnings at top law firms. The past 18 months have been brutal for some big law firms as work that hinges on vibrant credit markets, such as deal making, has flat-lined.

In fact, as reported on Above the Law, some law firms, in addition to the seemingly endless list that have laid off attorneys over the past year, are now turning to pay cuts for associates that are still employed.  One law firm in Boston is cutting associate salaries by as much as 35%.

It certainly gives some business owners new leverage in the relationship with their lawyers.  But is this new power reserved only for the biggest companies?  How has the economy affected the way you work with your lawyer?

Not too big to fail: the end of BigLaw?

Recessions typically force businesses to tighten their belts and make some temporary changes as they wait out the storm.  But doesn't this one seem different?   Doesn't it feel as though it is reaching formerly untouchable sectors of the economy and encouraging a willingness to completely rethink the way things have always been done? One such example is big law firms.  Check out Douglas McCollam tearing down the current big law firm model in the WSJ:

At bottom, what’s in question is the whole economic edifice of the modern American law firm. Like the pharaohs of old, big firms are enamored of constructing pyramids with an ever-widening base of associates and nonequity partners toiling on behalf of a narrowing band of equity partners at the top. Increasing a firm’s “leverage”—as expressed through the billable hour, one of the most pernicious creations in the annals of commerce—has been the key metric driving profitability at big law firms over the last generation.

Along with the growth and "hubris" that has created international legal institutions that rival the size of some of their larger clients came excess:  now junior associates in Boston and other major cities are making $160k to start, plus bonus, and are often billed out at $300 - $500 per hour -- rates which used to be reserved for partners -- making million dollar partner salaries commonplace.

I am certainly not suggesting that the big law firms are going away.  However, businesses are rethinking the model in light of this deep recession and what they want out of their relationships with their lawyers.  There will certainly be some changes going forward.

This is particularly pertinent to startups and small businesses.  Jason Mendelson, co-founder and Managing Director of Foundry Group, has written extensively and convincingly of the effect on startup companies from a venture capitalist's perspective in an entire series of blog posts called Law Firm 2.0.  These are definitely worth a read; there are a lot of lawyers out there - myself included - who are seeking new ways to accomplish our clients's goals from their perspective, not the lawyers's.

What do you think?  What would you most like to see from your lawyer?

UPDATE:  It seems McCollam's Op-Ed and the discussion about Law Firm 2.0 has struck a nerve.  Is there actually a big difference of opinion here?  Having worked at big law firms, I have seen a variety of views.  Few were in favor of maintaining the status quo, but each had a different perspective for "fixing" things depending on where they sat on the pyramid.

What do you see as the real debate, and where do you see the fault line?