"Suicide Pricing" & the coming law firm crisis

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thesealocust
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Re: "Suicide Pricing" & the coming law firm crisis

Postby thesealocust » Sun Dec 02, 2012 8:35 pm

Here's what many people seem to be missing: It's not about the hours, it's about the matters.

A partner gets a matter. They have to complete that matter quickly and efficiently, and there's an amount of revenue they'll be able to wrest from their client's hand for that matter. It is NEVER equal to the number of hours billed. Partners will write off time when it's excessive, clients won't pay for first years, matters get bundled, the firm issues percentage discounts to institutional clients, deals that don't close won't get collected, and clients will sometimes just refuse to pay/go under before they pay.

Firms need associates to complete matters quickly and effectively. The high-stakes and fast-turnaround nature of biglaw are what kill the "hire 4 people to work 9-5 for 40K/year" idea. You need somebody who can be dedicated to a matter and available as necessary. This is why large amounts of the labor and staff ARE either 9 to 5 (secretarial staff, etc.) or hourly (paralegal positions, outsourced doc review jobs). But some work needs either a professional's license, a professional's judgement, or a professional's skill. Not every hour requires all (or any) of the three, but enough do at enough weird times that associates have to exist.

As for the pay, it's all about retention and attraction. The job can really suck. If you dig under the hood, you'll find the lock-step curiosity fades quickly when you factor in bonuses, job stability, salary advances, and lateral/exit opportunities. Cravath and Dewey needed to attract students from the same pool, but the actual all-in compensation + career trajectory will not be fungible, and for the most part all parties involved are aware of that fact.

So what brought us to $160,000? Three things: Simpson Thacher, mortgage backed securities, and exit options. The booming economy, lead market-wide and in firm work by real estate, gave partners and their firms many matters to work on. Exit options meant that as work got busy, associates left.

Do you want to know how bad it was? Try losing 30% of the firm's associates per year [FN1]. You lose your professional labor and you cannot complete as many manners. You turn down work or complete lesser quality work or finish work slower.

Enter the bonus and the lockstep raises. Salaries shot up because firms needed professionals and they were hemorrhaging them. The job sucked, expenses were rising, and alternative career paths were widely available. So firms ratcheted up their salaries and bonus structures. Simpson Thacher was the first to bring it to $160,000 [FN2]. Others followed suit because the problem trickled down stream - firms need professionals and they also replenish their ranks (and eventually their partnership ranks) with professionals, and they do want high-quality candidates. Firms are also very fungible, and to many young students even location is, so if starting salaries start to diverge the ability for the firms on the less lucrative side of that gulf plummets and plummets quickly. But as I said above, it's often only short term - look up the salary charts for a firm outside of a major city and you might find it starts at or near 160 but doesn't raise nearly as high after a few years and often doesn't come with the hope of large bonuses.

This explains most of it, and it does so without mentioning hours. Hours are just a symptom of the business model. Firms are NOT profitable BECAUSE their associates bill more hours. It's simply not under an associate's control. The partners bring in the business, and it's up to them and their colleagues to get it done quickly and correctly. But no matter how much caffeine and eagerness an associate brings in the front door with him, that young associate can NEVER do ANYTHING to earn more money than the matters which the partners brought in will eventually get paid out from the client.

Billing too little may mean you're lazy, or worse incompetent and thus not being staffed on matters partners bring in. Billing a lot might mean you're a gunner, or better that you're getting relied on because you produce work that meets client objectives. Again, your hours themselves are NOT the thing earning the firm money. As a young associate huge numbers, sometimes even all of them, are being written off when the partner sends a bill. If the deal didn't close or the client lost the litigation and went bankrupt the bill might never get paid. And if you personally weren't putting in the hours, the odds are overwhelming that somebody else at the firm was.

The hours are a necessary evil, especially given the unpredictability that comes with being a service industry. But trying to puzzle out the biglaw model by focusing on the billable hour is backward. It's not the tail that wags the dog.

The more associates willing to put in long hours, the more matters partners can plausibly complete. Thus firms want associates willing and able to bill many hours, and don't want lazy or shitty associates, but you can't correlate one person's time chart with firm profits. Firm profits begin and end with partners handling the business side of things, hour charts are just the tool by which work brought into the firm can be done without dropping any balls.

FN1: http://blogs.wsj.com/law/2007/01/24/sul ... te-morale/

FN2: http://abovethelaw.com/2007/01/breaking ... -salaries/

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Re: "Suicide Pricing" & the coming law firm crisis

Postby Pokemon » Sun Dec 02, 2012 8:50 pm

Thesealocust said all there is need to be said. This thread needs to be locked. If you have further questions, opinions etc... etc... just re-read thesealocust.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby dingbat » Sun Dec 02, 2012 8:51 pm

As an aside, anyone interested should read this wikipedia article

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Re: "Suicide Pricing" & the coming law firm crisis

Postby Objection » Sun Dec 02, 2012 8:53 pm

I have been explicitly and clearly instructed to work more slowly on a matter because we were outpacing the work coming in, leading to a lot of dead time. Furthermore, I was told that this was the only matter on which I could work.

Not sure how that fits with what sealocaust said other than I don't think all matters, firms, or partners work that way (need to be completed quickly and efficiently).

Furthermore, what sealocaust said doesn't really preclude the idea that firms could get better work product and happier, more willing associates by incentivizing long hours (so the firm can complete more matters) not by minimum hour requirements, but by merit based compensation.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby dingbat » Sun Dec 02, 2012 9:08 pm

Objection wrote:I have been explicitly and clearly instructed to work more slowly on a matter because we were outpacing the work coming in, leading to a lot of dead time. Furthermore, I was told that this was the only matter on which I could work.

Not sure how that fits with what sealocaust said other than I don't think all matters, firms, or partners work that way (need to be completed quickly and efficiently).

Furthermore, what sealocaust said doesn't really preclude the idea that firms could get better work product and happier, more willing associates by incentivizing long hours (so the firm can complete more matters) not by minimum hour requirements, but by merit based compensation.

by merit based compensation, or by time-based compensation?

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Re: "Suicide Pricing" & the coming law firm crisis

Postby Objection » Sun Dec 02, 2012 9:12 pm

dingbat wrote:
Objection wrote:I have been explicitly and clearly instructed to work more slowly on a matter because we were outpacing the work coming in, leading to a lot of dead time. Furthermore, I was told that this was the only matter on which I could work.

Not sure how that fits with what sealocaust said other than I don't think all matters, firms, or partners work that way (need to be completed quickly and efficiently).

Furthermore, what sealocaust said doesn't really preclude the idea that firms could get better work product and happier, more willing associates by incentivizing long hours (so the firm can complete more matters) not by minimum hour requirements, but by merit based compensation.

by merit based compensation, or by time-based compensation?


Merit, which I think would ideally look at both time spent and quality of work produced.

Something like short performance evaluations for each assignment which gets incorporated into formula with hours worked to determine bonuses (perhaps even by comparing it to those with similar hours worked). More hours worked, average work product = lower bonuses. Average hours worked, average work product = average bonuses. More hours and better work product = higher bonuses. Lower hours worked and better work product = highest bonuses.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby bdubs » Sun Dec 02, 2012 9:21 pm

Objection wrote:Not sure how that fits with what sealocaust said other than I don't think all matters, firms, or partners work that way (need to be completed quickly and efficiently).


I think thesealocust is referring to client willingness to pay. Generally the client has a need that they are willing to pay X for, sometimes the work can be done for much less than X. The firm gets brownie points if it comes in below X, but brownie points don't pay the bills so the number of tasks/time required to complete the tasks will expand to come in much closer to X. When the firm exceeds X, it will generally have to try to negotiate with the client to get additional fees. Those negotiations generally result in the firm writing off a substantial part of the excess billings.

It's much more common for the client to come in with a budget that is close to right or a bit too small for what they want accomplished, rather than a budget that is much larger than necessary. A few practice areas have much more clients with overly large budgets than others (Private Equity/M&A tend to be a % of the transaction value).

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Re: "Suicide Pricing" & the coming law firm crisis

Postby thesealocust » Sun Dec 02, 2012 10:03 pm

Objection wrote:I have been explicitly and clearly instructed to work more slowly on a matter because we were outpacing the work coming in, leading to a lot of dead time. Furthermore, I was told that this was the only matter on which I could work.

Not sure how that fits with what sealocaust said other than I don't think all matters, firms, or partners work that way (need to be completed quickly and efficiently)..


I think that experience matches perfectly with what I was trying to convey - that the matters partners have available dictate the billing, and either not or to a much less extent the associate's eagerness/pain tolerance.

Objection wrote:Furthermore, what sealocaust said doesn't really preclude the idea that firms could get better work product and happier, more willing associates by incentivizing long hours (so the firm can complete more matters) not by minimum hour requirements, but by merit based compensation.


Certainly true, and you do see it - Quinn, Kirkland, Jones Day and probably other less publicized firm tie compensation (in the form of bonuses) to a hybrid of hours and merit/quality. Such systems rely on partners bringing in work to enable associates to grind, and are really just shifting the grind to the people most willing to do it once that work has come in the door.

I'm not sure if you can make a value judgement based on the fact that it's a minority compensation view amongst the major biglaw firms for associates but a majority view for partners (i.e. associate salaries are usually lockstep while partner takes are merit/hours based, but there are exceptions to both).

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Re: "Suicide Pricing" & the coming law firm crisis

Postby Objection » Sun Dec 02, 2012 10:18 pm

thesealocust wrote:
Objection wrote:I have been explicitly and clearly instructed to work more slowly on a matter because we were outpacing the work coming in, leading to a lot of dead time. Furthermore, I was told that this was the only matter on which I could work.

Not sure how that fits with what sealocaust said other than I don't think all matters, firms, or partners work that way (need to be completed quickly and efficiently)..


I think that experience matches perfectly with what I was trying to convey - that the matters partners have available dictate the billing, and either not or to a much less extent the associate's eagerness/pain tolerance. -


There are tons of other matters available at the firm -- that I'm sure of. I was instructed not to work on anything else because there was a lot of work on this case, but when I (and my fellow first years) worked much faster than expected (at an equivalent quality level as the previous people working on the case had done), we began outpacing the work to be done on that matter and doing it in several less hours per person per day than those working on it before we started. We were subsequently told to slow down on the work we were doing. If what's important at a firm is the number of matters that can be completed, wouldn't it have made more sense to instead allow us to continue to knock out work at the fast rate, and use our "extra" time to assist in other matters?

This is what I mean w/r/t incentives being misaligned. We did the work very well, but too the firm what mattered is that we did it too fast, even though as people who desire a work life balance, we're incentivized to do it fast so long as it doesn't sacrifice quality.

Certainly true, and you do see it - Quinn, Kirkland, Jones Day and probably other less publicized firm tie compensation (in the form of bonuses) to a hybrid of hours and merit/quality. Such systems rely on partners bringing in work to enable associates to grind, and are really just shifting the grind to the people most willing to do it once that work has come in the door.


I see this last sentence as a good thing.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby Julio_El_Chavo » Mon Dec 03, 2012 12:47 am

Bigbub75 wrote:
sadsituationJD wrote:
Law is most comparable with a B.S. in Chemistry.


Um, no. Chemistry, esp. organic chemistry, is among the most difficult subjects in all of academia. Comparing it to legalese nonsense like offer-acceptance and Civ. Pro makework hogwash is patently absurd. The stupidest MD from an offshore school is an intellectual powerhouse compared to ANY lawyer.


I kinda disagree with the notion that MD = intellectual powerhouse. My two best friends are both physicians (Vascular surgeon & ER Doc). The surgeon is far from an intellectual. He is a very hard worker, and can lock himself in the room and study for hours. He's pretty good at memorization, but not even he would consider himself an intellectual. When he discusses anything outside of medicine this is very apparent.


Great law students are fast typers and good at kissing law prof ass. What's your point? It's not like "legal analysis" is some kind of higher form of thinking. If you're a good writer and you can understand a handful of basic concepts, you have a chance of ending law school in the top 10%. Oh, and being a hard worker doesn't hurt either.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby Mr. Jones » Mon Dec 03, 2012 2:33 am

dingbat wrote:
Mr. Jones wrote:Here's a very long interview question that was posed to me during the interview.

"Law school is pretty expensive...most students take a lot of debt out to go, hundreds of thousands of dollars in debt with a high interest rate. I mean, law students basically have mortgages that can't be discharged, have super high interest rates, and they don't even get a house. So why was it a good business decision for you to go to law school? Why should I, or our clients, trust your advice given the poor legal market and high cost of attending?"

Quick answer: I give legal advice. If you want financial advice the business school is next door.


He was getting at two things: (1) why would, or should, anyone trust your logic if you can't figure out law school is probably a poor investment. (2) How are you going to defend against this i.e. how well do you think on your feet in a difficult situation.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby JCougar » Mon Dec 03, 2012 3:54 am

Despite all the trolling in this thread (mine included), this is turning out to be a pretty decent, interesting, and informative discussion.

I really don't buy what thesealocust is selling. I've heard too many stories of firms having associates revise stuff that's already been revised, putting 5 attorneys on a conference call when they only needed one or two, filing for an extension to do more research because something is a "novel question of law," etc.

I used to work in some pretty large businesses, and even without billable hours, people were doing a lot of meaningless work just to fill downtime, to make the department superficially look good, or to fulfill some manager's internal political agenda--producing reports that were never read or used, going back and forth on revisions to documents on a manager's whim, etc.

A huge problem with "white collar," information economy jobs is that it's hard to objectively value and measure the real utility of the things you do on a day-to-day basis. Upper-level management has no way to track whether what their hundreds or thousands of underlings are currently working on is providing value for the organization. The intended outcomes are often long-term, sometimes abstract, and very hard to objectively measure. And a lot of times, they don't even know what people are actually doing beyond one level down on the org-chart.

So I'm extra skeptical that, on top of all this, with the economic incentive to invent busywork and draw out tasks, that firms aren't taking advantage of such.

It would be nice if all white-collar work were like sales or manual labor; it's really hard to dispute whether what you're doing provides utility or not. Either you bring in the money or you don't, or either you make a certain amount of pieces per hour or you don't.

From the "Socratic method" of the law school classroom, to the "case method" of learning law, to the law exam which rewards word count and superfluous analysis, to the legal "scholarship" that you see on a law journal, legal education actually seems to train you to do the exact opposite of be efficient from day 1. The point of legal education seems to be to take forever to get to the point. That's the main reason it frustrates me so much. I don't mind working long, crazy hours. But I have this urge to be efficient and effective, and to "get the job done" and solve problems as quickly, accurately, and efficiently as possible--with little verbosity and BS.

So I'm a bit skeptical about this field in regard to firms simply abiding by the "honor system" of not over-billing cases when there is economic incentive to do so. I'm sure some firms are a lot better than others in this regard, but I still think it would be better for everyone if this were changed.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby dingbat » Mon Dec 03, 2012 7:12 am

JCougar wrote:I've heard too many stories of firms having associates revise stuff that's already been revised, putting 5 attorneys on a conference call when they only needed one or two, filing for an extension to do more research because something is a "novel question of law," etc.

1) they could have missed stuff (we often checked things 5 times or more)
2) Often it's useful when the entire team is on a call, even if only 1 person is speaking. Fucking sucks when you're not on the call, getting information second-hand, and not getting it right
3) I'm gonna give you this one; when it happened to us, it was always legit, but we were assholes about the bill and we were doing very technical shit, but I can imagine this being overused.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby Objection » Mon Dec 03, 2012 8:04 am

JCougar wrote:Despite all the trolling in this thread (mine included), this is turning out to be a pretty decent, interesting, and informative discussion.

I really don't buy what thesealocust is selling. I've heard too many stories of firms having associates revise stuff that's already been revised, putting 5 attorneys on a conference call when they only needed one or two, filing for an extension to do more research because something is a "novel question of law," etc.

I used to work in some pretty large businesses, and even without billable hours, people were doing a lot of meaningless work just to fill downtime, to make the department superficially look good, or to fulfill some manager's internal political agenda--producing reports that were never read or used, going back and forth on revisions to documents on a manager's whim, etc.

A huge problem with "white collar," information economy jobs is that it's hard to objectively value and measure the real utility of the things you do on a day-to-day basis. Upper-level management has no way to track whether what their hundreds or thousands of underlings are currently working on is providing value for the organization. The intended outcomes are often long-term, sometimes abstract, and very hard to objectively measure. And a lot of times, they don't even know what people are actually doing beyond one level down on the org-chart.

So I'm extra skeptical that, on top of all this, with the economic incentive to invent busywork and draw out tasks, that firms aren't taking advantage of such.

It would be nice if all white-collar work were like sales or manual labor; it's really hard to dispute whether what you're doing provides utility or not. Either you bring in the money or you don't, or either you make a certain amount of pieces per hour or you don't.

From the "Socratic method" of the law school classroom, to the "case method" of learning law, to the law exam which rewards word count and superfluous analysis, to the legal "scholarship" that you see on a law journal, legal education actually seems to train you to do the exact opposite of be efficient from day 1. The point of legal education seems to be to take forever to get to the point. That's the main reason it frustrates me so much. I don't mind working long, crazy hours. But I have this urge to be efficient and effective, and to "get the job done" and solve problems as quickly, accurately, and efficiently as possible--with little verbosity and BS.

So I'm a bit skeptical about this field in regard to firms simply abiding by the "honor system" of not over-billing cases when there is economic incentive to do so. I'm sure some firms are a lot better than others in this regard, but I still think it would be better for everyone if this were changed.


I tend to agree with this.

I think sealocaust makes valid points as well, but to my 6:00 AM brain, it would only seem to hold true if firms hired only the number of associates they actually needed to effectively and efficiently complete a matter. I don't know that this is the case, and those "extra hires" get put on cases billing hours that really don't need to be billed. If there are just enough, then things are more likely to be staffed leanly and efficiently. If there are too many, a lot of associates are going to be thrown into cases where they're not actually needed, doing work that doesn't really need to be done or helping with assignments that don't need to be helped. I know the argument is that first-years get written off because a lot of times clients don't want to pay for them, but this may be why you see a lot of first-years stuck on document review projects, where it seems to make more sense to have a first year do it than someone with a higher billing rate and more vital expertise. If first-years are immediately profitable, it makes sense to overhire, in which case it makes sense to overstaff and overbill. At the point clients stop paying, cases will stop being overstaffed. I have to imagine firms have figured out which clients push back the least on first years, and funnel them to those cases accordingly.

I also suspect that big law firms are much better able to bully or convince companies that certain work needs to be done or that certain work is necessary than we are giving them credit for, limiting the amount that is shed. I would wager that the cases where you get serious pushback from the client are outweighed by those huge, decade-long cases where somehow we keep finding work to do because the client is easily persuaded.

Sealocaust is painting a picture of a law firm that has 50 matters, each which take 2 people to do efficiently and effectively, where all 50 clients are rational and willing to push back, and the firm only has 100 attorneys.

What I'm seeing, at least in my firm, is a firm that has 50 matters, each which take 2 people to do efficiently and effectively, where maybe 40 clients are rational and willing to push back, the firm has 400 attorneys, and those extra 300 are thrown at the 10 less rational clients.

The question the current big law billable hour pimp-prostitute model seems to ask is not how can we effectively and efficiently complete matters, it seems to be which matters must we complete effectively and efficiently, and which can we overstaff and milk.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby thesealocust » Mon Dec 03, 2012 11:33 am

Couples things:

(1) Nearly all major corporate clients are interfaced with via a legal department, and nearly all major corporate clients staff their legal departments with former big firm attorneys. They're actually sophisticated counter-parties when it comes to fee negotiation and have experience generating billable hours. From a game-theoretic point of view, the big firm is usually designed to be full service or close to it, which means you want clients happy enough to send your firm matters that you as a partner wouldn't handle, and you want them to continue sending business after the matter is completed. So there are strong incentives to not milk clients for short-term gain, and because they've been at firms it's not likely you can steamroll them on the bill.

That doesn't mean you don't want your people busy, and it doesn't mean you won't be overly thorough if you have the resources available. But what's critical is that you will never, ever collect every hour billed. A partner with available associates may have them stretch things out which will generate more hours, but there's a wide gulf between that and collecting on those hours.

(2) I will readily admit that the model I'm painting is aspirational, and while I believe it's how most firms try to run their business there will certainly be day-to-day / on the ground exceptions - firm wide or in pockets within firms. Objection's point that firms are more likely to over-staff on matters they can get away with over-staffing probably isn't false, it's just hard to say from our perspective how common it is.

(3) As to:

JCougar wrote:I've heard too many stories of firms having associates revise stuff that's already been revised, putting 5 attorneys on a conference call when they only needed one or two, filing for an extension to do more research because something is a "novel question of law," etc.


Two things: first, firm reputations can be built from being perfectionists. Second, it assumes what I'm trying to argue against: that you can draw conclusions about how much a firm earns based on how associates are staffed. The battle for PPP happens above the heads of associates. A decision which may seem inefficient to an associate has a good chance of actually being inefficient when it comes to receivables. But there is value both in a firm being a perfectionist to the client and in utilizing its labor pool to the max even when that is decoupled from the ability to actualize fees.

It's a case by case thing, but per my point above about the sophistication/experience of clients I do not think it's fair to assume big firms can get away with throwing hours at the wall and then bringing home a check.

(4) I've tried to cite sources for my opinions here, which generally come from a mix of research and experience. Some also comes from a close family member who was a partner at a big firm. This doesn't make me correct in any one case much less all cases and is not a trump card, but I'm throwing it out there because a lot of these thoughts aren't just my musing and speculation.
Last edited by thesealocust on Mon Dec 03, 2012 11:44 am, edited 1 time in total.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby dingbat » Mon Dec 03, 2012 11:40 am

thesealocust wrote:a lot of these thoughts aren't just my musing and speculation.
And that's where you're going wrong. Never let facts get in the way of the truth

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Re: "Suicide Pricing" & the coming law firm crisis

Postby thesealocust » Mon Dec 03, 2012 11:44 am

dingbat wrote:
thesealocust wrote:a lot of these thoughts aren't just my musing and speculation.
And that's where you're going wrong. Never let facts get in the way of the truth


:lol:

You're growing on me, dingbat.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby dingbat » Mon Dec 03, 2012 12:10 pm

thesealocust wrote:
dingbat wrote:
thesealocust wrote:a lot of these thoughts aren't just my musing and speculation.
And that's where you're going wrong. Never let facts get in the way of the truth


:lol:

You're growing on me, dingbat.

Maybe you should see a doctor for that

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Re: "Suicide Pricing" & the coming law firm crisis

Postby Objection » Mon Dec 03, 2012 12:21 pm

thesealocust wrote:
(2) I will readily admit that the model I'm painting is aspirational, and while I believe it's how most firms try to run their business there will certainly be day-to-day / on the ground exceptions - firm wide or in pockets within firms. Objection's point that firms are more likely to over-staff on matters they can get away with over-staffing probably isn't false, it's just hard to say from our perspective how common it is.


Just responding to this coupled with the idea of sophisticated counter-parties: all certainly true.

Where I think you run into problems is when you truly have a huge, bet-the-company situation. When someone's livelihood is on the line, they're going to be much more amenable to thoroughness, even when thoroughness blends together with purposely fabricated inefficiency in the name of thoroughness. I believe it often does so.

Firms are incentivized to be as inefficient as they can get away with. This is the problem. The most they need to do is meet the minimum acceptable efficiency on a client to client basis. Some clients, of course, will run a tight ship, but not all will, and a not insignificant number will allow for runaway billable hours.

Milking 50 matters for 10 years is going to pay roughly the same and be less work (no need to bring in more) as finishing all 50 matters in a year and having a 100% matter turnover rate. This leads to a race to the bottom of sorts: clients that force efficiency get taken care of quickly, leading to higher turnover of those "high efficiency" matters. There's a chance that each time a matter or client goes away, that matter or client will be replaced with one that doesn't require as much efficiency. Meanwhile, less strict client matters drag on for years or decades.

I'm rambling now, but to distill what I'm saying:

1. Firms are incentivized to be as inefficient as the client permits. "What is the most work we can do before doing more work creates diminishing financial returns?" I don't think this clashes with what sealocaust is saying, but it's still a problem.

2. Associates, particularly first and second years, are going to be staffed on these inefficient matters whenever possible, so as to maximize the amount of money the firm actually makes off of that associate. There is also incentive at the equity level to get these associates to be inefficient.

3. Beyond "do it or you're fired," most associates have no incentive to be artificially inefficient. They lose time off, time with family, they see no additional financial gain, etc.

4. In my experience, this leads to a shitty work experience at the associate level in big law. It leads to burn out, frustration, etc. Of course, this is counted on by big law firms so they can bring in the next batch of bright-eyed, bushy tailed law grads.

5. Bright-eyed, bushy tailed law grads are evil.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby JCougar » Mon Dec 03, 2012 4:32 pm

thesealocust wrote:(1) Nearly all major corporate clients are interfaced with via a legal department, and nearly all major corporate clients staff their legal departments with former big firm attorneys. They're actually sophisticated counter-parties when it comes to fee negotiation and have experience generating billable hours. From a game-theoretic point of view, the big firm is usually designed to be full service or close to it, which means you want clients happy enough to send your firm matters that you as a partner wouldn't handle, and you want them to continue sending business after the matter is completed. So there are strong incentives to not milk clients for short-term gain, and because they've been at firms it's not likely you can steamroll them on the bill.


This may be true, but it's a stretch to call it a "game theoretic" point of view. In fact, I don't see what game theory has to do with it at all. Game theory isn't about long-term thinking versus short-term thinking. It's about strategic, interactive decision-making.

thesealocust wrote:
JCougar wrote:I've heard too many stories of firms having associates revise stuff that's already been revised, putting 5 attorneys on a conference call when they only needed one or two, filing for an extension to do more research because something is a "novel question of law," etc.


Two things: first, firm reputations can be built from being perfectionists. Second, it assumes what I'm trying to argue against: that you can draw conclusions about how much a firm earns based on how associates are staffed. The battle for PPP happens above the heads of associates. A decision which may seem inefficient to an associate has a good chance of actually being inefficient when it comes to receivables. But there is value both in a firm being a perfectionist to the client and in utilizing its labor pool to the max even when that is decoupled from the ability to actualize fees.


Some of the stories I heard about above came from a corporate in-house counsel, not an associate. He also never worked Biglaw. He worked for a small firm and then lateraled in much later in life. The fact that Biglaw associates make up a lot of in-house counsel, though, makes me more skeptical that efficiencies are being valued. In a small firm, you have to be efficient, or you don't survive. My guess is that small firm work trains you far better regarding the utility of certain legal tasks. Also, Biglaw alumni are probably more likely to give their alma mater favorable treatment regarding billing. At least that's what I suspect.

It can obviously work both ways, and I'm sure each individual, each firm, and each client are different. The real problem is that I don't see any disadvantages with going to a more fixed fee system. The one major drawback is that the firm (rather than the client) assumes the risk if things get drawn out or the case taking an unexpected or lengthy turn. But my guess is that these unexpected turns can be adequately dealt with via contingency agreements, etc.

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Objection
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Re: "Suicide Pricing" & the coming law firm crisis

Postby Objection » Mon Dec 03, 2012 4:42 pm

One of the better models I've heard is fixed-fee task based billing, with a negotiated, significantly reduced hourly rate for work that exceeds the time predicted by the fixed-fee. Something like that. May be stating it wrong, but you get the idea.

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IAFG
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Re: "Suicide Pricing" & the coming law firm crisis

Postby IAFG » Mon Dec 03, 2012 4:49 pm

JCougar wrote:Some of the stories I heard about above came from a corporate in-house counsel, not an associate.

Know what doesn't make a very good story? "Several gentlemen engaged in business with one another, each treated the others fairly, a favorable outcome was reached and each was quite satisfied with the endeavor."

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thesealocust
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Re: "Suicide Pricing" & the coming law firm crisis

Postby thesealocust » Mon Dec 03, 2012 5:11 pm

JCougar wrote:
thesealocust wrote:. . . From a game-theoretic point of view, the big firm is usually designed to be full service or close to it, which means you want clients happy enough to send your firm matters that you as a partner wouldn't handle, and you want them to continue sending business after the matter is completed. So there are strong incentives to not milk clients for short-term gain . . .


This may be true, but it's a stretch to call it a "game theoretic" point of view. In fact, I don't see what game theory has to do with it at all. Game theory isn't about long-term thinking versus short-term thinking. It's about strategic, interactive decision-making.


I mean this is just dorky and pedantic, but the idea I was going for is that it's like iterated prisoner's dilemma. Your strategic behavior towards your client matters not just for your payment on the matter, but for your later interactions with the client.

Put another way: CHECK YOU TIT FOR TAT

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dingbat
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Re: "Suicide Pricing" & the coming law firm crisis

Postby dingbat » Mon Dec 03, 2012 5:35 pm

Objection wrote:One of the better models I've heard is fixed-fee task based billing, with a negotiated, significantly reduced hourly rate for work that exceeds the time predicted by the fixed-fee. Something like that. May be stating it wrong, but you get the idea.

There are some tasks that are very well-suited to fixed fee. There are other tasks that are absolutely not suitable for it. I agree that for tasks where it would be suitable, it's an excellent idea

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JCougar
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Re: "Suicide Pricing" & the coming law firm crisis

Postby JCougar » Mon Dec 03, 2012 6:00 pm

thesealocust wrote:
JCougar wrote:This may be true, but it's a stretch to call it a "game theoretic" point of view. In fact, I don't see what game theory has to do with it at all. Game theory isn't about long-term thinking versus short-term thinking. It's about strategic, interactive decision-making.


I mean this is just dorky and pedantic, but the idea I was going for is that it's like iterated prisoner's dilemma. Your strategic behavior towards your client matters not just for your payment on the matter, but for your later interactions with the client.


But the bolded above is only incidental to the game-theoretic nature of the Prisoner's Dilemma. The thing that makes the Prisoner's Dilemma game-theoretic is the fact that one actor's optimal decision depends on his theory of what the other actor's strategy is. There's plenty of circumstances where reputation has an effect on your strategy that don't involve game theory.

It's not a big deal, I just felt the need to nitpick.




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