During the holiday season, I think of Santa evaluating who is naughty and nice. Like Santa, senior lawyers in law firms make end-of-the-year determinations when deciding on bonuses, salary increases, promotions, and distributions. Unlike Santa who judges the character of children on his list, law firm partners may focus more on objective measures of worth. In law firms this often amounts to billable hours collected and business generated. In firms, new lawyers quickly learn what is valued within the organization and many shape their conduct to maximize their income and promotion possibilities. As explained by Eliyah Goldratt, the Israeli physicist and management consultant, “Tell me how you measure me and I will tell you how I will behave.”1
In their recent article, Virtuous Billing, Randy D. Gordon and Nancy B. Rapoport, recognize the role of incentives and performance management in law firms. The authors examine firm conduct and billing practices through the lens of virtue ethics. I especially like the article and commend it to you because it provides positive recommendations on steps that firm leaders and other interested parties can take to improve the quality of work for clients and the quality of life of lawyers.
This article was published in connection with the Conference on Psychology and Lawyering hosted by the William S. Boyd School of Law, Las Vegas, Nevada. In tackling the topic of organizational dynamics in law firms, the authors use the classical concept of “virtue” to demonstrate how we develop habits that shape character. To put the discussion in context, they explain how the changing business model of law firms has resulted in “metrics myopia” in which firm partners focus on originations and collected billable hours in making compensation and promotion decisions. This contributes to lawyer mobility and a culture in which the “internal goods of the practice (being an excellent lawyer who serves clients well) are held hostage to the external (money and prestige).” (P. 708.) The authors suggest that the devolution from the internal to the external undermines the Aristotelian virtue of “friendship” that holds together institutions. (P. 708.)
With this background, the authors apply principles of virtue ethics to law practice generally and billing specifically. They explain that people are virtuous when they create and follow habits of excellence. With this approach, they examine the following categories of virtues, considering what habits would make a lawyer a virtuous biller: judgment, empathy, integrity/honesty, passion/engagement, diligence, and creativity/innovation. Following the discussion of billing virtues, the authors outline corresponding “billing vices” in a table.
Table 1: Billing Virtues and Corresponding Vices
|Billing virtue||Billing vice|
|Billing judgement||Billing everything to the client, even wasteful work or make-work|
|Billing empathy||Not describing work done for the client at all, or not describing it in a way that the client will understand what the lawyer did|
|Billing integrity/honesty||Putting the lawyer’s own needs (to make a billable hour quota or to jockey for position within a firm) above the client’s needs; misrepresenting work that’s been done|
|Billing passion/engagement||Not paying attention to what’s being done on a matter, and not scrutinizing the bill before sending it to the client|
|Billing diligence||Not recording time contemporaneously|
|Billing creativity||Adhering rigorously to the billable hours model, without instructions in how to bill time and without absorbing the costs of training associates|
This table could serve as a self-examination tool for lawyers.
In this self-examination, lawyers can consider their own individual practices and assumptions. For example, associates may not exercise billing judgment, understanding that their supervisors will write-down the associates’ time when the supervisors determine that the billing is excessive or otherwise inappropriate. Unfortunately, this approach does not recognize the traps associated with one lawyer billing another lawyer’s time. In my article based on the findings of an empirical study on law firm culture and the billable hour derby, I identified the following difficulties with relying on the “write-off” approach:
First, it assumes that the supervisor possesses enough information on the client’s legal matter to evaluate intelligently the amount of time expended. Second, the approach assumes that the supervisor can ably sift through associate time sheets, which may be “propaganda piece[s].” Finally, if the firm compensates a billing partner for the amount collected from billed clients, the billing partner may be reluctant to write off associate time.2
Rather than assuming that the supervising attorney will write-off time, the authors suggest that the virtuous attorney should develop the habit of billing judgment.
Interestingly, the contrasting billing virtues and vices underscore how billing practices may reflect a short-term versus long-term approach to client work. Short-term the billing vices, such as billing everything to the client and not scrutinizing bills, may financially benefit the lawyer. In the long-term such practices can potentially hurt the attorney-client relationship and cost the lawyer and the firm the client. Such heavy-handed billing can be detected by clients who closely monitor bills. Even if a client does not audit the legal bill, unnecessarily high bills can contribute to clients finding other counsel. In discussing the ethics of billing with law students, I try to make this point in suggesting to the students that long-term that they are better off by being efficient and judicious in billing clients, even if the fee charged does not violate applicable disciplinary rules. Such conduct can help attorneys cultivate client relationships that provide attorneys more autonomy than heavy-handed billing.
Rather than just bemoaning the tyranny of billable hour practice, the authors suggest practical steps for firms to encourage ethical billing practices and motivate lawyers to develop habits that are beneficial to the firm and its clients. The recommendations include avoiding “willful blindness” by creating systems to detect questionable practice and providing meaningful training on billing.
Above all, the article underscores the importance of firms rethinking the incentives within firms and messages sent to professionals within the firm. For example, firms should not narrowly base salary increases and bonuses on numerical benchmarks.3 In the evaluation process, firm leaders should consider the conduct that their current systems reward. Although law firms may be reluctant to abandon compensation systems that heavily rely on billable hours collected and business generated, in the long run the desire to attract and retain clients may contribute to firms restructuring incentives to encourage ethical practices and motivate lawyers to act in ways that benefit the firm (as opposed to individual lawyers) and firm clients. For attorneys who recognize the deleterious effects of emphasizing billable production and business generation over quality and client concerns, Virtuous Billing provides ethically enlightened attorneys with arguments for engaging their peers in discourse on the type of conduct that the firm should incentivize and support.
- Eliyahu M. Goldratt, Wikiquote, (citing the Haystack Syndrome (1990)), available at https://en.wikiquote.org/wiki/Eliyahu_M._Goldratt.
- Susan Fortney, Soul for Sale: An Empirical Study of Attorney Satisfaction, Law Firm Culture, and the Effects of Billable Hour Requirements, 69 UMKC L. Rev. 239, 252 (2000) (citations omitted).
- See e.g. ABA Commission on Billable Hour Practice Report 46 (2002) (noting that any compensation system that rigidly ties compensation to billable hours is a “worst practice”).