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January 6, 2009 1:16 PM

Cravath's Chesler: Time to Kill the Billable Hour

Posted by Aric Press

In an opinion piece in the current issue of Forbes Magazine, Evan Chesler, the presiding partner at Cravath, Swaine & Moore, calls for the end of the billable hour. "The billable hour makes no sense, not even for lawyers," Chesler, a prominent litigator, writes: "If you are successful and win a case early on, you put yourself out of work. If you get bogged down in a land war in Asia, you make more money. That is frankly nuts."

In his Forbes piece, Chesler analogized lawyers to building contractors. He wrote that when he hired Joe, the contractor, to renovate his kitchen (Joe, the plumber, evidently was booked on a cable television show), he and Joe decided on what the job was worth and agreed on a price. When Joe finished the work three weeks ahead of schedule, Chesler paid him a bonus.

In an interview, Chesler says that he would prefer a system where a lawyer and client assess the value of the job, agree on a price, review progress quarterly, and have a success fee for a victory or a favorable settlement. "Clients know when they've achieved a successful resolution," he says. "The point I'm trying to make is that at the start we should define what the goals are and what the value of the matter is to the client. We need to create an alignment of interests between the client and the lawyer."

Chesler says that he’s been raising this issue with clients and in private talks for the last few years. Thus far, he says that he has "just a few situations, in the single digits" with clients who have abandoned the billable hour. "There's a lot of inertia, a lot of the devil you know in this area," he says.

Client fees have been an issue for Cravath recently. In December, when the firm announced it was cutting its associate bonuses to roughly half of the 2007 payments, Cravath made a point of announcing that its fees would be frozen in 2009. This was not completely helpful to corporate customers as the firm refused to publish its fee schedule. The only publicly available fee information from the firm was filed in mid-2008 as part of a long-running employment discrimination case. In that matter, a mid-career litigation partner posted his billable rate at $875 an hour, a $205 an hour increase since 2004.

Chesler's Forbes essay is the latest entry in a growing conversation about the prospects for change in the way big firms do business. (See, for example, Susan Beck's recent Innovation Agenda reports, available here, here, and here.) The debate over the billable hour has ebbed and flowed over the decades. It has picked up recently, stimulated in part by an article in the August 2007 edition of the ABA Journal, "The Billable Hour Must Die," by the novelist Scott Turow, who is also a litigation partner at Sonnenschein Nath & Rosenthal. Similarly, efforts aimed at promoting fixed fee and/or value billing arrangements have been discussed periodically, too.

This time it may be different: Talk is cheap, Evan Chesler isn't.

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This article, like so many we've seen recently in the trade press, is in my view another example of piling-on by journalists looking for material to feed their news machines. Journalists find isolated instances or events from which they extrapolate to conclusions not necessarily accurate. Whenever I read such articles, I like to see who is writing them and what their particular angle might be. Often the persons quoted are questionable in terms of being barometers for what's going on in the legal field and whether what they have to say has any relevance to the experience that others may have. Sometimes it's an outside lawyer in a solo practice, or it could be an in-house lawyer quoted for his/her opinion and a little investigation shows that they are part of a law department of one person with little legal work to send out.
In this case, Aric Press is editor-in-chief of American Lawyer. Attacking hourly rates sells papers. Here he uses an eye-catching headline ("Cravath's Chesler: Time to Kill the Billable Hour"), and an exaggeration of events (Cravath freezing its rates) while also noting that Cravath's rates are not public and that what little information is available is that a mid-career litigation partner charges $875/hour, up $205 from 2004. What's good for Cravath may not necessarily be good for all law firms, especially if they haven't increased hourly rate 31% over the past 4 years. It's easy to freeze rates when they are already at the top of the profession.
Chesler's advocacy for the end of the billable hour seems a lot like Sky Masterson's professed love for Miss Sarah Brown of the Save-a-Soul Mission in Guys and Dolls. There's a reason for everything.

Our Interested Observer is certainly entitled to his views. IO however is not entitled to mess with Guys and Dolls.
When the curtain falls Sky and Sarah march off happily together.

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