Like a wounded bull

Stephen Warne has drawn my attention to an interesting article in Justinian, a subscription only journal for lawyers. In the article, the author draws a comparison between pirate ships and law firms:

US economics professor Peter Leeson…recently wrote a paper on The Law and Economics of Pirate Organization.

Pirates created highly successful criminal organisations, and Leeson says that:

“Contrary to most people’s images of pirate crews, they were quite large. Based on figures from 37 pirate ships between 1716 and 1726, it appears the average crew had about 80 members … crews of 150-200 were not uncommon…

“Unlike the swash-buckling psychopaths of fiction, historical pirates displayed sophisticated organization and coordination… They successfully cooperated with hundreds of other rogues. Amidst ubiquitous potential for conflict, they rarely fought, stole from, or deceived one another.”

Leeson also observes that pirates considered theft aboard their ships especially heinous, and he quotes an observer who said, “great robbers as they are to all besides, [pirates] are precisely just among themselves”.

Modern law firms invite comparisons with these pirate organisations, with law firms appearing to have improved the business model.

Modern lawyer piracy is not constrained by the law either, but for different reasons.

Lawyer/pirates control the wording of the law. They make sure it can’t easily reach out to them.

On top of that they are in charge of decisions to prosecute. Better still, unlike ordinary pirates, lawyers CAN rely on the judicial institutions to help them.

The judiciary is full of “successful” former lawyer pirates, who find it difficult to criticise others for doing what they themselves used to do.

There is a lot of camaraderie and “collegiality” in the legal profession, but perhaps the best devices of the lot are “disciplinary tribunals” actually dominated by current or former lawyer pirates, which contain a smattering of “lay” people to support claims of independence from the profession.

When lawyers are caught committing lawyering crimes, they can be shunted off to friendly tribunals instead of the ordinary criminal courts.

Last month NSW lawyer Leon Nikolaidis was sentenced to two years jail for criminal fraud, having been found guilty by a jury in an ordinary criminal court.

Unusually, this jailing of a lawyer was not for a trust account defalcation. NSW Legal Services Commissioner Steve Mark…said it was one of the few occasions when a solicitor had been convicted of criminal fraud within a legal practice. He said:

“There is a perception that a lawyer acting in a professional capacity attracts conduct charges, but not criminal charges… Even serious misconduct issues almost never lead to criminal prosecutions.”

There is one big exception. As with those old time pirates, thieving off other lawyers is regarded as particularly heinous.

Theft by lawyers from trust accounts is a bit like thieving off other lawyers, since it frequently results in claims against fidelity funds which the other lawyers have to keep topped up from their own pockets.

This fits in precisely with a discussion Stephen and I were having in the comments section of a previous post, wherein we noted that the ethical breach which is seen as particularly heinous by the profession is the trust defalcation. Our theory was in part that such breaches are easy to prosecute, dealing with numbers rather than thorny questions of ethics, and the prophylactic nature of the fiduciary obligation ensures that any defalcation will be a clear breach. But this article provides another explanation for the prevalence of trust defalcations as an ethical breach: essentially, lawyers who defalcate from trust funds steal from other lawyers, and therefore are treated particularly harshly.

Whereas lawyers stealing from clients…well, who is to judge? Other lawyers.

Services are a hard thing to give a monetary value. And the situation gets particularly thorny when one represents a client, and the client loses. Strangely enough, the client doesn’t feel like paying the bill any more, even though the lawyer may have done the best possible job in the circumstances.

I think a lot of the problems with billing arise from six minute billable units, which were the subject of my second post on this blog, so obviously they’ve been a bugbear of mine for a while. I was trying to explain the concept to some non-lawyer acquaintances who were simply agog at the notion. “What, you charge for every six minutes you spend on a file? Doesn’t that rack up awfully quickly?” said the non-lawyers. Well, yes. And that’s the idea. But further to that, one’s promotion within a law firm depends on the number of billable units one racks up.

So six minute units provide an incentive to:

(a) be inefficient;

(b) be a workaholic and work insane hours to get ahead; and/or

(c) lie about how long something took you.

Unfortunately for me, both (a) and (c) are totally against my world-view. And once I had a family, I had no desire to keep on being a workaholic. So I quit being a solicitor.

I’m sure there are a lot of lawyers who are less scrupulous than I with regard to fudging the figures. They figure everyone does it, and if they just massage it up a little bit, who’s going to notice? The satirical book Hell has Harbour Views features lawyers who routinely bill 27 hours a day (even if they’ve stayed up all night, it has to be false, think about it). I couldn’t laugh too hard at this – too close to the bone.

The difficulty is in judging when a bill is too large. Little increases are hard to pick up. Of course, as I noted in my earlier post, the Legal Practice regime in Victoria seeks to ensure solicitors go into an immense deal of detail in their bills. And it requires solicitors to offer an effective invite on the face of the bill for the client to complain or sue. This doesn’t really fix the problem. A poor old client has to get involved in further litigation. Why not try to stop the incentives to overbill by abolishing six minute billable units?

Obviously, there’s a need for something to change. As I said in another very early post, I think legal services are beyond the range of many ordinary people. And this may lead to the high volume of litigants in person in the court system, who believe that they are better off running their own case. In some instances, they may be right: I’ve seen some terrible lawyers out there.

If the legal profession wants respect in the community, it has to look at legal ethics as more than just trust defalcation. Good legal ethics also means charging clients a fair price, and doing a good job. I believe that if we deemphasise billable hours, this would improve morale and efficiency in law firms, and take away the incentive to “fudge the figures”.

Any comments welcome.

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9 Comments

Filed under jobs, law, law firms, law reform, Legal, litigants in person, management, morale, morality, solicitors

9 responses to “Like a wounded bull

  1. Oh, I couldn’t agree more! A major factor in my leaving the legal profession was timesheets. I couldn’t beleive how liberated I felt when I later had a job with no timesheets. I remember as a 4th year lawyer having a billable target of something like 7 hours a day, which, as you’d know, actually meant working at least 10 hours a day. And that’s just to meet target, of course, the pressure was to exceed your target to prove your worth. I never got any credit for being involved in recruitment, training junior staff, being on Law Society Committees, working on loss leaders, etc. I once suggested to some of the partners that it would be more practical and appropriate to bill clients for tasks completed (eg a set fee for completion of discovery) because clients would know up front how much it would cost. There could still be a scale for more complex matters and if the fees were set properly they would make as much money (maybe more?) compared with the unit billing system, plus this would actually encourage efficiency in the staff. But of course, I was met with blank stares and the response “that’s what the client expects”. Of course they do since the legal profession has created the expectation! I’m sure a lot of clients would be happy to have fixed costs rather than the uncertainty of unit billing. How many other industries operate this way successfully? As you say, all that fudging the figures can’t be good for the industry or the clients (particularly if its done at each step – by the lawyer doing the work and the person signing off on the bill). In the end the partner signing off on the bill makes a decision on a “fair price” for the work done, which is not so different from fixed fees, so the timesheet is then just a tool for partners to crack the whip on their junior staff. I remember sitting in a performance review one year where my supervising partner attended with one single sheet of paper – a printout of my billings for the year. At the end of a year of long hours and hard work, everything I had given to the firm was reduced to one sheet of numbers – if my time didn’t directly result in money made by the firm, it was of no interest to them. (I was already drafting my resignation letter in my head during that performance review!)

  2. Madame Eagle, I am not so sure that 6 minute units are the cause of high charging. The cause of high charging is rapacity. However it is not easy for a lawyer to set up a quality business which does not earn much. To get good people you have to pay high salaries. Furthermore, lowering your fees does not attract more quality clients; on the contrary.

    The pressure on lawyers to make money for employers is not really associated one way or the other with recording time and charging accordingly. As the commenter says, partners do engage in a lot of writing off and even writing on at billing time. A great deal more value billing goes on than people realise. Those who win well subsidise their lawyer’s clients who lose or don’t win so well. Inefficiency is winnowed out at the partner review stage, at least to the extent that the partner considers the inefficiency likely to be noticed and cause a problem, articulated or not.

    What the commenter is railing against is the short-sightedness of the way her firm crunched the numbers. Recording of time is in fact one way in which non- or longer-term financial contributions can be measured, and given credit for. If there is equal opportunity to do billable work, and budget performance does mean promotion in the kind of unsophisticated manner suggested, it should not be forgotten that it is an essentially meritocratic system, if you accept that the purpose of a law firm is to make money. Promotion is not so much based on intangible factors which promote discriminatory or just plain wrong thinking. As always, the devil is in the detail, of the application of the theory.

    Having said all that, I am delighted not to be recording time so much these days. Since going to the Bar, I have done most of my work on a fixed fee basis. I generally ask the solicitor how much they had in mind and then agree on that figure. Even for long advices. In setting the fee, the amount at stake is part of the consideration. I don’t count the time it takes me to do the work, and no matter how long it takes, I am happy (my expectations are not too high at the start of my career at the Bar, and my estimates have not been too bad, half the time because I’ve put myself at risk by doing half the work before giving the estimate), whereas if I were to bill by the hour, I would start getting tangled between a kind of businessman’s desire to bill my time with approximate fidelity and a more personal desire not to put out a fee slip which I perceive to be above the tariff or beyond the reach of my client. To put it another way, having set the fee and got that over with, I feel quite content to keep going until I think I’ve got it as right as I can, regardless of how much that would have cost at my hourly rate. Within reason of course, by which I mean when I am doing days of notionally unpaid work it starts to irk.

    Professor Dal Pont, who wrote a book on legal costs and a book on lawyers’ liability, and whose thinking and writing I admire, has written cautioning against seeing value billing or event-based billing as a panacea to the ills of legal billing.

    The market for legal minds is astounding. I have no doubt that there are people whom it makes excellent sense to pay $15,000 a day to do an appearance. There are QCs who can command $8,000 a day who represent good value for advice. Clients generally do not mind paying for good work. They generally dislike paying for young lawyers to be trained. Clients with enough work demand to be able to speak to partners, and purport to ban 1st and 2nd year lawyers and ACs from working on their files. But ignorance of the legal market, the absence of any lawyer directories useful for most clients, and ‘the IBM factor’ (it’s not my money; get the best and I won’t be criticised / I don’t care how much it costs; I want the best: I hate the bastard) give rise to untold waste.

    Value billing has its own unfairness. A tax lawyer might think up a loophole, and then ‘sell’ the idea over and over to various clients for a very high fee proportionate to the amount of tax saved. There is no duty to be candid about how long the work you are negotiating the value-based fee for is likely to take you. A client who pays $45,000 for an advice which the lawyer rewrote from another advice in 15 minutes is likely to feel peeved even if they have got a considerable net benefit. If the work product was a brilliant idea borne of much prior thought and study, that’s one thing. But often enough, you stumble across ideas by happening to be at the intersection of two different trains of thought in two different matters, or simply by reading two new and interesting cases at once.

    The point I intended to make is that prosecutors like prosecuting trust account defalcations, not that lawyers see such defalcations as more heinous than other ethical offences. No doubt equity is behind it all somewhere, but the prosecutions are very much based on breach of statutes and statutory rules. So the rules are all there in black and white, and so are the numbers. And if they don’t match up, the cases kind of win themselves.

    In relation to 27 hours a day: not impossible at all. Units are not 6 minutes but 6 minutes ‘or part thereof’. Keep jumping between different matters on small tasks, and you bill an hour before the hour is up.

  3. I wonder if there is a comparison to be made between state protection of law firms and state-sanctioned pirates (e.g. Drake during the time of Elizabeth 1).

    A statistical analysis of the spread of minutes on cases would be interesting. Is there a skew to times that are 1 minute into a new billing period verses 5 minutes 59 seconds into the new period? Has such a study been done?

  4. marcellous

    I’ll second Stephen Warne’s cautionary words about the 6-minute unit and whether time-based billing is in itself the root of all evil. Geura’s comment shows that one aspect of time-sheets is to put the squeeze on employees. As Guera mentions, not all time is billable and much time is actually written off. Time based billing is attractive to lawyers because, at its heart (even if governed by limiting factors of the value of the job or what size bill can realistically be issued) it involves deflecting the risk of time blow-outs in legal work from the firm to the client.

    Stephen talks about time being written “up.” If any partner were to “write-up” time on an ostensibly time-based bill, that would be wrong. More importantly, it would be very foolish as there would certainly be a documentary trail. That, however, is not the same as charging an amount which exceeds the “value” of the time taken where the basis of the bill is not time-based charges (as in some transactional work).

    The analogy to pirates is pretty cheap and not especially illuminating. Lawyers must be second only to hairdressers in their capacity to criticise each other. They display far less professional solidarity than, say, medical practitioners. The analogy also doesn’t seem to have anything much to do at all with the paper cited, which deals with how pirates regulated their affairs in the absence of any state-imposed legal sanctions. (A quasi-legal system for which the author coins the wonderful word “an-arrgh-chy.” Leeson does not consider it is only the absence of state-imposed legal sanctions which makes the situation distinctive, although the other main distinguishing feature, the lack of absentee owners, is in my opinion not unrelated.)

    I also think the claim that trust defalcations are pursued because they are a wrong against fellow lawyers is a furphy. Primarily, these wrongs are committed against the client, and it is only secondarily (by reason of the protective regimes set in place – even if they have come into being because of self-interested protection of the “brand” by the “profession”) that they are an injury to fellow lawyers. Trust account defalcation is the easiest and most tempting wrong for a solicitor to commit and also, as Stephen points out, the easiest to prosecute.

    Finally, the reason why some professional wrongs are prosecuted as such rather than as criminal wrongs is because the system of professional regulation enables proof of these by essentially inquisitorial procedures which would not be allowed in a criminal context – and because the required standard of proof is lower.

    Disciplinary systems aside, though, this is not unique to legal practitioners. Many commercial sharp practices probably amount to some kind of criminal fraud, but mostly the person wronged is keener on recovery than punishment and the police are not really interested or will not get involved on the evidence available.

  5. Courts should operate independently of lawyers, not rely on them. If this means people (means tested) pay a slightly higher fee for their use, but in turn judges have more associates, or time, or colleagues on the bench- whatever it takes for them to take responsibility for the conduct of the matter, then that is not unthinkable to anyone … except lawyers.

    The entire idea that law, a sphere of public power, can be so flagrantly bought and sold would be repugnant if we hadn’t had it so strongly embedded into our belief systems.

  6. I actually disagree somewhat with your central thesis (and the central thesis of the excerpt you quote), which is that law firms and lawyers are corrupt, excessively greedy organisations.

    Compare a law firm to a bank, for instance. A bank takes your money, gambles with it to make more money, gives it back to you with maybe a 10% cut of the profits it has just made, and then charges YOU fees for the privilege. A law firm, on the other hand, provides you with the extremely high level expertise required to navigate the very difficult and complex range of legal problems which the democratically chosen parliament has chosen to impose on the ordinary citizen/company. It is hardly the lawyer’s fault that the laws are as complicated as they are – but the comparison with piracy makes it sound like law firms take big fees for nothing.

    Just like any other very specialised profession, lawyers take big fees for doing something that is very hard to do – and of course, if it was easy, then many more people would offer those services and the price of legal advice would drop.

    I am yet to see any evidence that:

    1. lawyers have any influence over or deliberate role in creating the challenging legal environment which necessitates the obtaining of expensive legal advice; or

    2. there is any kind of ‘conspiracy of lawyers’ which protects and propagates the current system.

    In any event, people who think that (commercial) lawyers are expensive should perhaps consider the amounts of money thrown around by large commercial interests. Legal fees are substantial, but they are a drop in the pool compared to other things big business will spend money on at the drop of a hat. It would not be uncommon to see legal fees in the $1-10 million range relating to a dispute over hundreds of millions of dollars, which most people would say is a very worthwhile investment.

    Personally, I think a better comparison than that with pirates is with top medical practitioners. Are they expensive? Yes. Would it be better if more people could afford them? Absolutely. Is their scarcity and high cost part of a conspiracy to deny people the opportunity to get their services for less? Unlikely.

    However – billable units are the worst innovation possible from a solicitor’s point of view. They absolutely reward inefficient work, and punish those with integrity and intelligence who refuse to exaggerate their time or take longer on a task than they need to. They also create an incentive to take on easy but time consuming work, and breed resentment when the plodders get promoted rapidly for high billing when much better lawyers (from a legal perspective) struggle to make budget. Yes I am bitter about this state of affairs.

  7. Wow, LE, you’ve certainly prompted a spirited discussion. There is obviously 2 issues here arising from the 6 minute unit timesheet system – how the firm determines fees to charge their clients and how they use the information recorded to manage their staff. The two issues are often quite separate. I don’t dispute that the purpose of a law firm is to make money, nor that it is appropriate to charge high fees for high quality work or for services of high value to the client (the example of $10 million legal bills for $100 million+ disputes). On reflection of the post and comments, including my own, it seems as if partners are trying to play the billing system both ways. If the time recorded for a task is higher than expected by the client, they can point to the record to justify the fees. If the time recorded is low, or the client “wins well”, the partner switches to effectively a value based system of charging. Yet the legal industry prides itself in the accountability of its billing system (and holds this up as evidence of fidelity).
    My previous comments relate to the separate issue of how the partners use timesheets as a performance evaluation tool. As I’m sure LE has posted before there is a high attrition rate amongst junior lawyers in large part due to a dissatisfaction with working conditions. Yes, lawyers are paid high salaries and this is one way firms attract and retain staff, but the rate at which young lawyers defect to other industries or employers other than private practice is evidence that money is not the most important motivating factor. What so many law firms fail to realise is that encouraging productivity and loyalty in staff is so much more than salary. Many young lawyers feel that their contribution is not valued, they have little control over their working day (eg when forced to work late because a partner dumps an “urgent” matter on them at 5.30pm – one that that the partner has been sitting on for 2 days), and their life outside of the firm is of no consequence. There is still such an outdated attitude from partners that “you will suffer the same hardships I did in my day”, with no real effort to change. In my situation, the firm’s half-hearted efforts to boost morale around an increasingly depressing office environment were rendered pointless when no “time credit” was given for being involved in any non-billable activities. The message was clearly – “yes, get involved in initiatives to improve working conditions (and by extension productivity), as long as you make up the time with billable work”. This was effectively a punishment for trying to make things better. This is not to say that all young lawyers just want to work less and still get paid well for an “easy job”. Of course, the goal of all people involved in the joint enterprise of a law firm, both partners and employees, should be to run a successful business, which in its essence means to make money, but many partners are indeed short-sighted in their methods to encourage the most efficient and productive work from their employees. A tired, disgruntled and often-times abused employee will not be working at their full capacity and producing their best work for the firm. The timesheet and the expectations created by 6 minute units are counter-productive efforts in boosting staff morale.

  8. Yes, indeedy, I didn’t expect to get such a response! It’s quite exciting really.

    I should clarify that I don’t agree with the proposition which the Justinian article seems to put forward: that all lawyers are pirates out to rob people of their money. There are many lawyers out there who provide valuable service for which they deserve every cent of payment. Indeed, sometimes a good legal opinion is worth its weight in gold. It’s easy to put the boot into lawyers…until you get into trouble… But then on the other hand, I’ve seen people charged good money for shoddy work – again, not something unique to lawyers, but it makes me cringe when I see it.

    Also, again unlike the Justinian article, I would not say that the problem is unique to lawyers. As many people have commented, doctors occupy a similar position. And indeed, plumbers or electricians or anyone with a specialised knowledge who provides a service to the community.

    But I do maintain that billable hours are a disincentive to efficiency. Like Paul, I am somewhat bitter, and perhaps this coloured my post. Like Guera, I also found that non-billable activities counted for naught (even if they raised the profile of the firm or raised morale) and legal skill and efficiency was also irrelevant. All that mattered was the sheet of monthly bills at performance review time.

    A barrister friend was appalled when I got passed over for promotion. “But your briefs are so thorough, you have settled some big matters, and you have an extensive legal knowledge,” she said. It didn’t matter. What mattered were that my bills were less, because I tended to spend less time on simple matters than others. I am a speed reader and extremely fast typist.

    While most people may not actually lie about how long they took to do a task, billable hours mean that there’s no hurry to do it. Further, I think sometimes people do “write up” bills.

    Furthermore, billable hours are not good for young practitioners. They are onerous. I have tried being a solicitor a few times, and each time I give it up, I’m surprised by how free I feel when I realise I don’t have to record what I’m doing for every 6 minutes. Secondly, billable hours mean that if you want to get ahead, you’ve got to spend more time at the office. And the fabled “work/life” balance is a dream.

    In terms of the trust account defalcation issue, upon further reflection, I think that Marcellous’ comments are right. Really the lawyer is stealing from the client, and that is what is wrong with it. The notion that the lawyer is stealing from other lawyers is secondary and not the reason why such breaches are prosecuted with vigour. First, there’s the prophylactic nature of the fiduciary duty, and secondly, such breaches involve paper trails which can easily be traced. Other ethical breaches are not so easily pinned down.

    In the matter about which I consulted the LIV Ethics Committee, it would have been difficult to prove that this particular partner had done a bad thing, because when the articled clerk in question spoke out about it, she was ostracised and bullied, and the whole firm turned on her. This is the real reason why such ethical breaches are not prosecuted – it’s not nearly as easy as a trust defalcation. It’s not because there’s a “conspiracy”, but sometimes I do think there’s an attitude problem amongst some members of the profession (present company excluded of course). The message I got was that there was a kind of macho “boy’s club” where such things are regarded as just an unfortunate side effect of practice: meh, well, shit happens, AC shouldn’t have questioned dodgy behaviour by partner. The AC turned to me as a more experienced friend and practitioner. I guess I still feel bad that there wasn’t more I could do for her. And that probably colours my posts on this topic too.

    But that’s not to say that the profession is full of unethical shonks and pirates: some of the most ethical and best people I know are lawyers, and damn good ones at that. Many of us are deeply concerned about the human existence…and that’s why we got into the job. Even though I rail against my former firms, I respect some of the partners and solicitors there, and many provide good service to clients.

    I forgive them for making me record billable hours in 6 minute blocks. Well, maybe I do. Glah. Gee, I don’t miss that.

  9. Pingback: skepticlawyer » “The Elephant in the Room”: work practices of solicitors

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