Trust Me Capitalism

The hourly billing system is built on the “trust me” model. The clear incentive is to bill as many hours as possible, which is never in the clients interest. Law firms are designed from the top down to add as many workers as possible. Those workers have to be kept busy. Minimum billable hour expectations or mandates are put in place. The unstated premise between the law firm and the client is “trust  me, I wont let my self interest in business model get in the way of making sure we identify and meet your goals.” Of course, one of those goals would be to achieve a solution as quickly and cost effectively as possible. “Trust me, we won’t let our business model and incentives get in the way of our ethical duty to do right by you.”

I do not believe in any economic model that contains a “trust me” component. There is no need for trust in capitalism. Capitalism is all about incentives. Isn’t it time that we built an economic model for lawyers that aligns the clients goals with the attorney’s incentives?

Comments

[Yeoman]

That's true, and has been pointed out for a long time, but what would you suggest as an alternative?

I'm not suggesting it is a good system, it isn't, but they are all problematic.

At one time, lawyers quoted a case, much like you would to build a structure. Then, I suppose, you incentive is to come in under the bid in terms of the work, which isn't a good system either.

[GAL]

Thanks for the comment to this important issue. You are correct that flat fees, without more, can provide disincentives as well. There are two ways to make sure incentives are aligned throughout the process. First, the project has to be adequately documented on the front end. If a lawyer defines what he/she is going to do as part of the retention process, then there is less chance the client is going to get short changed. This approach also requires careful strategy, and a phased approach so that the client’s goals are spelled out and tasks identified early. This is different that the win at all costs approach. it involves making intelligent decisions early and only engaging in tasks which fit within the goals and budget.

The second approach is to reserve part of the flat fee until the need of the case, to be negotiated between the lawyer and client based on results. This approach was described earlier as a flat fee with a kicker. OF course, a lawyer must be willing to take a risk that you will win, however winning is defined.

It takes a little creativity, but incentives between lawyer and client can be better defined than in a straight hourly system. For those lawyers willing to experiment, I encourage them to start with a budgeting process on their hourly cases, where maximum budgets are set, and adjusted as the case moves forward. Actively engaging clients in budget discussions early seems hard, but is really not as awkward as it might seem. Clients appreciate it far more often than not.

[Maturin]

First, I generally agree with your ideas about alternative billing arrangements. I too think that the billable hour can be abused and is often times an inappropriate fee system.

But I'm curious why you think alternative billing arrangements are really any different when it comes to a "Trust Me Capitalism" mentality. Aren't you asking the client to "trust you" that the flat fee you set for the project is fair? Aren't you asking the client to "trust you" that he or she should part with 20,30, or 40% of their recovery if you succeed? Aren't you asking the client to "trust you" when it comes to establishing the value of your service, no matter what fee model is used?

True, in a billable hour system you are asking the client to trust that you won't overbill or overwork a file. But how is that different from a client trusting that you won't place an overvalue on your service if offered on an alternative billing arrangement. Couldn't you pad the premium like many associates pad their hours? After all, how is a non-lawyer client really going to know?

Don't get me wrong, I like alternative billing arrangements. I just think your criticism of the billable model in this instance can apply equally to any number of alternative arrangements.

Great blog, by the way.