A New Legal Paradigm?

This blog is typically devoted to all things conservative, but I think the other authors would agree that it is more generally devoted to ideas of all shapes and sizes on a wide range of policy ideas. Thus, this post.

I, like many of my confreres, am in the midst of the summer job search. In past years, the process was rather clear: apply beginning in August/September of your second year of law school to firms that are hiring summer associates for the following summer. That job, if done well, likely turned into an offer of employment after graduation. There was security for you and the employer–they had filled a position with a talented up-and-coming law student and you had secured summer (and likely post-graduation) employment within weeks of starting your second year.
This year, things have changed and many employers have scaled back their summer programs by half or more. Many firms, even here in Arizona, are laying off seasoned attorneys as a way to cut costs.
In thinking about how to market myself to firms that might be going through a difficult financial spell, I wondered if there wasn’t a better way to lawyer. I’ve spoken to others in law school who want to change the business model of law firms as well. The law firm structure is burdened by a heavy overhead: high rents for offices, high salaries for attorneys, etc. The savings for law firms that fire an attorney can be tremendous, about $250,000 per lawyer. Given that roughly 85% of law firm expense comes from rent and personnel costs, cutting the number of attorneys is the most logical–and efficient–way to lower the overall cost of doing business.
Unless you change the model (e.g., Axiom Legal). Why are law firms tied to the traditional model when it seems so terribly inefficient?
In our fall hiring cycle, firms in Phoenix advertised starting salaries between $120-135K/yr. and those in Los Angeles offered $160K/yr. When a wide-eyed law student starts to think of the possibility of making that much money, paying off loans in a flash, and perhaps sticking around for a partnership salary well beyond those starting figures, the traditional firm route may seem like the best option. But the law firm structure seems fundamentally flawed in its conception and operation. The high overhead requires firms to bill clients three times what they actually pay attorneys in compensation. The other two-thirds of the billable hour goes to paying staff, rent, and funding the partnership pot.
I suppose there will come a time, if it is not already here, when clients will not be willing to pay exorbitant hourly fees for a lawyer to work on routine (or even complex) matters. Outside of litigation, perhaps, it seems that the costs of lawyering can be rather fixed. For example: After 10 years of writing contracts, a lawyer is a rather good judge of how long it will take to write a particular type of contract given the complexity of the issues, the type of parties, etc. He can easily come up with a flat fee that would adequately compensate him for his work, but also provide the parties with a cost-effective means of handling the day-to-day business transactions that require a lawyer. An initial flat fee for writing contracts may be based on an hourly rate–such contracts take 10 hours to write, I want $X for an “hourly” rate, so the whole contract cost is $10X. But after the initial calculation, you would know that Contract Type A will cost $10X, Contract Type B will cost $10Y and so on.
This type of arrangement has some distinct advantages: If you were a solo practitioner or not otherwise burdened by firm overhead costs, you could lower your rate considerably compared to firms, thus providing your client with a quality product at a price lower than a firm would charge, and providing yourself with a salary (or fee) that compensates you more than you actually were compensated at the firm. (So, if the firm charges a client $150 for an hour of your work, you are likely receiving $50/hr. in compensation. In my contract hypothetical, you could in effect charge $1000 to write a contract that takes 10 hours to write and you make $100/hr.–double what you made when you were paying the firm. And, there are no six-minute increments to record.) Both you and the client benefit from the lack of high overhead while maintaining the quality of work the client expects. You benefit even more by not being tied to the billable hour and the demands of face time at the firm, client development, etc. (An interesting theological critique of the billable hour is here.)
The current financial crisis is a prime opportunity for the legal world to reconsider its basic model. What is the practice of law all about? To me, it’s about doing interesting work that I thoroughly enjoy. It’s a happy coincidence that such work often pays a very nice salary. But there are other things to life than an 80-hour work week. What is the future of law firms? Will Axiom-like groups take over? I hope so.

2 thoughts on “A New Legal Paradigm?

  1. They should consider it and look to utilize a more user friendly and cost effective model that suits their clients and keeps them honest.Try a membership model and that way if you don’t perform your disatisfied customers stop paying you.On the flip side if you do give them value you can build a heck of a revenue stream.

  2. Aaron- Good thoughts last week. Sorry not to have read them sooner. I often think about the costs of lawyering in terms of their human toll – how long hours affect family life, how they affect leisure time, how they curtail time spent investing in the community, etc… There’s a lot to be said for a new way of doing business in the legal field.

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