The More Things Change . . .

The first time I learned the phrase, "the more things change, the more they stay the same," I was a teenager reading an article in "Circus" magazine, a periodical devoted to the music scene of the late '60s and early '70s. (The article included the French version of the phrase, but I won't embarrass myself by trying to set that out here.) I don't remember the point of the article today, but that phrase and one other stuck with me. The other, which sometimes applies to the way I approach blogging, is "How do I know what I'm thinking until I see what I say?" Wisdom for the ages.

A year ago at this time, America voted for change, and change was badly needed. We were stuck in two wars, the economy was in shambles, and we were as divided politically and culturally as we have ever been since the 1860s. Although some progress has been made under the current Administration, our basic condition has not changed. We remain in Iraq and Afghanistan, our economy, although no longer in free fall, remains on shaky ground, and the voices of extremists who seek to divide us have only gotten louder. More fundamentally, 21st century America is no less vulnerable to the human condition than any other nation now or throughout history. Some will crave power and resort to violence to attain it. Some will crave wealth and resort to deception to attain it. And some, thankfully, will take a stand against war, combat injustice, and promote healing within our society. Some things change, yet everything stays the same.

Although far less significant, the push for change in the legal marketplace displays the same paradox of change accompanied by sameness.  When I entered private practice in 1980, and for a few years thereafter, law firms customarily sent bills to clients that were one short paragraph long, and began "For legal services rendered . . . ." Although the bills were based on the billable hour, firms did not provide, and clients did not demand, an itemization of the time. There was an unspoken trust between lawyer and client that said that itemization was unnecessary, and requesting it would be undignified.

Over time, as legal services became more expensive and the legal marketplace became more competitive, clients began demanding that law firms provide a breakdown of the time for which they were being billed. Itemized billing empowered clients to monitor their law firms and to reject charges that they believed to be unnecessary or excessive. The practice of itemized, hourly billing also gave rise to such methods of cost control as client audits of legal bills, and corporate billing policies that identified approved and unapproved categories of charges.

Despite the transparency of itemized billing, there has always been the potential for abuse.  Billing by the hour creates a financial incentive for lawyers to put more time into a case than is necessary or, at times, than the case is worth, to prolong a matter unnecessarily, and to continually increase hourly rates. Although one hopes that most lawyers record their time honestly and strive to align their incentives with their clients' goals (the best way to develop a favorable reputation and attract and retain business), some no doubt do not. And the potential misalignment between the lawyers' interests and the clients' interests has the unfortunate consequence of breeding mistrust, the greatest threat to the attorney-client relationship.

This problem of mistrust, combined with the increased costs of legal services, has given rise to a call to replace hourly billing with alternative fee arrangements. Many clients and law firms have experimented with alternative fees for years, with mixed success. In my experience, many clients have preferred to stay with hourly billing because it is easy to administer, and incentivizes lawyers to devote time to the clients' matters while enabling clients to monitor and question the time spent by each biller. Maybe some clients are loyal to the billable hour simply because it's the devil they know.

The question today is whether the billable hour will survive the pressure within corporate law departments to reduce legal spend. Some corporate counsel, faced with the need to reduce legal expense, are now renewing the cry for alternative billing arrangements, and the cry is getting louder. The Association of Corporate Counsel is promoting "The Value Challenge," which seeks to move law firms away from hourly billing to flat fees and variations on flat fees. These corporate counsel feel more empowered than ever in this economic climate to demand reform from their legal service providers, and some see the current efforts as a revolution in the legal business model.

The swinging of the pendulum away from law firm adherence to billable hours and towards client insistence for alternative fee arrangements, while perhaps resulting in some reduction of legal costs, does not change the fundamental issues driving the economic relationship between attorney and client. Both hourly billing and alternative fee arrangements are subject to abuse, by private lawyers seeking to maximize their profits and by corporate counsel seeking to minimize their expenditures. While hourly billing creates incentives that are not fully aligned with client goals, so do flat fee arrangements, which can reward firms that pay less attention to client matters or that downstream work to the least experienced lawyers.  Although one would hope that the interests of attorney and client are always more or less aligned, it is unrealistic to expect complete alignment. No matter how legal services are priced, the underlying tensions that provide support for movements like The Value Challenge will be with us always.

Amid the hue and cry for change in the pricing model, some things truly do stay the same.  Of the constants underlying the attorney-client relationship under any economic model, perhaps the most important is that the relationship between attorney and client is fundamentally a relationship of trust.  While this may sound naive, I truly believe that if the trust is there, the economics will work themselves out.  A corollary to this principle is that trust is not a given, but must constantly be earned and re-earned throughout the relationship. That means that lawyers must, as closely as possible, align their interests with their clients' interests, and align their performance with their clients' expectations. Lawyers who do not take the time to understand their clients' goals and expectations, or who overcharge for their services in order to maximize their short-term profits, will have difficulty surviving the new world order, and shouldn't survive it.

Clients also need to understand that trust works both ways. Just as the lawyer must earn the trust of the client, so must the client earn the trust of the lawyer. If a corporate client abuses its power by making the representation economically unviable for the law firm, the law firm may ultimately choose to walk away from the relationship. The client may then have to start from scratch in building a relationship of trust and familiarity with a new law firm, which requires an investment of time and a certain amount of risk. Attorney and client must both treat each other fairly to strike the optimal balance that will serve all parties well.

In the final analysis, it is the client's money that is being spent, and the client is entitled to direct how much is spent and in what manner. If the client wants a flat fee, the attorney will have to, and should want to, deliver.  Clients are right to demand value in their legal services, and few lawyers would disagree.  The demand for value is nothing new.  The ways that lawyers bill may change, but the rewards of building relationships of trust, thankfully, remain the same.