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The Freehills Career-Killable Billable Unit; Is Industry Change In The Air?
Posted by The Spy | Posted in Firm Gossip, Freehills | Posted on 5.02am
The irrepressible bane of corporate professionals, billable units are a topic we have seen feature prevalently in recent press. Commentators from across the world are presenting a united front against the billable unit, criticising it as a means to gorge massive profits from corporate clients. And we agree.
A few weeks ago, WA ex-Chief Justice Wayne Martin told the ABC:
“It’s time to have another look at alternatives to time billing. There are some serious problems with time billing. It rewards inefficiency, it encourages lawyers to spend more time, it doesn’t focus on value and outcomes and so I think there are more efficient ways of lawyers charging for their services.”
In an interview with the AFR earlier this year, US Supreme Court judge Antonin Scalia chimed into the debate, describing the modern dynamics of law firm profit maximisation as “a terrible thing”. Scalia said:
“When I got out of law school, we were only just beginning to adopt the principle that the most ethical way to bill clients was by the hour… there have been huge changes in the business of lawyering - it has become much more of a business.”
Meanwhile, in the AFR (21/5), the legal affairs team of Rachel Nickless, James Eyers and Alex Boxsell took a very welcome (but unfortunately uncharacteristic) swipe at Freehills by noting:
The extent to which big firms have embraced business thinking was made clear when Freehills chief executive Gavin Bell emailed staff last week to announce the firm’s uncapped “Lawyers’ Bonus Plan”, allowing “those who perform exceptionally to be rewarded accordingly…there will be no artifical limit on what an appropriate reward might be.”
So the incentive to crunch the clock even harder has just arrived at Freehills. We wonder what recently retired Victorian Supreme Court Judge David Byrne would think of the new arrangments. His Honour, who believes that the most urgent issue facing the legal community is the cost of access to justice, told The Age Byrne on the weekend that:
“The cost [of commissioning lawyers and litigating] is just appalling, and we have made considerable efforts to reduce it…there’s no incentive in our cost structure for lawyers to be more efficient. You depend so much on their own integrity that they will not just make a meal of it.”
The article goes on:
In a case that still makes Byrne seethe, he lambasted Allens Arthur Robinson’s $3.7 million bill for costs in a case that ran for six years before it went to trial. The final bill was expected to hit $8 million, but this sum could not be recovered anyway because the opposing party sank into receivership. At the time, Byrne described AAR’s bill as ”a great reproach on the legal system” and said ”some restraint, some proportionality and perhaps less greed should be shown”.
Opaque billing narrations - like the hillarious alleged Minter Ellison “strategy advice” - make it almost impossible for clients to know what they’re paying for. But we all know that. What time is it… fudge o’clock? What is interesting though, is that we’re finally seeing fixed-fee structures creeping into legal retainers. And it is coming from the top. Mallesons Stephen Jaques has now confirmed that it is on a fixed-fee agreement with Australia’s best client Telstra. This follows on from Telstra’s alleged one-million-a-month deal with Gilbert + Tobin. We received the following comments from an anonymous Mallesons spy several weeks ago, suggesting that the fixed-fee contract with Telstra may be here to stay:
The Firm Spy’s hypothesis that the fixed fee arrangement between Mallesons and Telstra would force lawyers to work even harder has been widely shot down in flames by people in the office. I think the view from most is that the new arrangement has taken significant pressure off Mallesons staff. For example we no longer have to create fee estimates on a daily basis.
But the question arises, how is Mallesons going to respond to Freehills’ uncapped “Lawyers’ Bonus Plan” in circumstances where it has a fixed fee arrangement? When the money is already in the bank, the incentive to flog your lawyers sort of evaporates, doesn’t it? And what will happen at Freehills if clients ask for fixed billing arrangements?
Could too many units of billables be career-killable?
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Dexda is willing to consider alternatively billing on the following fundamental terms: all clients agree to pay and must pay their bills by the due date irrespective of the outcome. Hence, if the matter settles before the budgeted event, too bad! Secondly, clients are prohibited from the Costs Assessment process and agree to indemnify their solicitors (paid weekly) from any future claims, actions, suits that they may wish to make.
Please provide an appropriate fee level arrangement for the following:
you act for 5 corporate clients as trustee for their respective family trusts in partnership under a managed partnership deed with another corporate entity as its management agent. The yearly revenue exceeds $20M and with corporate and personal liabilities exceeding $7M. You have saved a solvent company from being wound-up under the partnership laws within 12 months, saved $20M in revenue, saved over 100 employees nationally from being terminated by the immediate appointment of the Bank’s Receiver, maximised the profit distribution for all existing partners/directors, expelled the unproductive partners without incident or any future claims, saved each client from personal liabilities, and substantially reduced future tax liabilities considerably under the settlement deed. Would $1M be an acceptable fee arrangement?
[…] We reported a couple of weeks ago that judicial commentators were criticising the corporate billable…. Well, the chorus of condemnation directed at the profiteering of major law firms became a little louder on 4/6 when the AFR reported that: I WANT ALL OF THE CHEESE Victorian Chief Justice, Marilyn Warren, is concerned that mounting commercial pressures may be causing lawyers to forget their primary duty to the court. These include alliances between firms, incorporation, firms listing on the stock exchange, the use of litigation funders and the current national profession reforms with a focus on consumer rights. …Warren told an ethics forum recently that firms have become ruthless money-making machines that force out experienced partners as young as 50 while young lawyers “are actively pursued or recruited”, only to be “exploited by the firm as reflected in their high attrition rates, especially young women…In the middle of the law firms are the associates, senior associates and prospective partners struggling to meet the profit demands of the modern practice… Their incentive for unfailing, relentless commitment to the firm’s profit is that they too may be made a partner, one day.” […]
[…] would argue that the “uncapped lawyer bonus plan” promulgated by Freehills, as well as the “unratcheted performance pay” in the […]