The Elephant in Oldlaw

While Ist July marked the start of a new financial year here in Australia, most Law firms had the weekend off so it was Monday 3rd July when it all really began again.

3rd July might have appeared on the surface to be just like any other day but rest assured it was not.

Armed with information and "surveys" from the industry, the legal press, the benchmarkers, HR consultants and the like, and following remuneration and career discussions with staff, 3rd July represented the culmination of months/weeks/days of seemingly endless meetings at executive/management/partner level involving any number of revised spreadsheets and arithmetical exercises, negotiations and compromises.


What the new financial year means for Oldlaw* lawyers

So what did most lawyers who work in Oldlaw find when they turned up and turned on their screens Monday morning?

Most found an email from their Managing Partner/CEO/COO congratulating them on last financial year's performance but reminding them today is a "new dawn" and that they can find attached their new hourly rate, expected recorded daily billable hours target and a new (increased) budget for 2017/18.

Most lawyers, simply because another 12 months had passed, received some increase in their hourly rate, while those who were fortunate enough to receive a promotion and a title change (and by the looks of social media last couple of days promotions were rife in most firms), they received a larger increase in their hourly rate and their budgeted fee targets, commensurate with their promotion and new status.


What the new financial year means for Oldlaw clients

Many clients might not notice much difference in their dealings with their Oldlaw firms at least in the first week of July, except they may open their (e)mails to read through Tax Invoice narrations that the firms would have been feverishly preparing on 29 and 30 June.

Some clients will be receiving emails or newsletters from their Oldlaw firms informing them of the various promotions made at the firm.

Some clients may also receive an email informing them that due to CPI and other cost increases and/or promotion of lawyers (impliedly indicating that with promotions comes higher salaries), and/or as hourly rates have not increased since ........(fill in time period), the new hourly rates effective 1 July will be as follows........(fill in reverse competition rates).

Some clients may not be informed of any such changes (even if changes were made) and may not notice any rate increases until they receive their first Tax Invoice for any work undertaken from 1 July.


So what?

So what's the big deal you may well ask? Oldlaw firms have been doing this for eons (in Australia at least for the last 30 years) and everyone- clients included-understands that hourly rates cannot remain static when costs to run a firm are rising all round. Indeed that is the very basis of the principles of cost plus pricing-price your services or products you sell above the costs to produce them.

The hourly rate, so the Oldlaw mantra goes, is a mix of the cost to keep the doors of the firm open plus something added for profit.No one of course is quite sure what exactly is the cost component and what exactly is the profit component for 2 reasons.

Firstly the hourly rate is not a cost plus exercise for most firms but really an exercise in reverse competition ( what are our competitors rates? what are the market rates? where do we want to sit in the market place? what can we get away with? etc).

Secondly an hourly rate does not equate to any cost of production (even excluding some arbitrary profit component) because in Oldlaw firms, time is not a cost.Period. It is the B.S. of 20th century that this is still peddled and believed by Oldlaw and their consultant/advisers. It is simply untrue, has been proved to be untrue and has no justification whatsoever in economic theory.

Read and listen to this if you do not believe me.

It is another lie Oldlaw tells and one I used to tell myself (to be fair I didn't understand it to be a lie 15 years ago- Oldlaw now know it is a lie but still tell it anyway).


So what about value to our clients?

So from the stroke of midnight 1 July each year a miracle occurs. Oldlaw has defied all economic theory and logic, such that magically the value being provided to Oldlaw clients increases proportionately to the increased cost and title being arbitrarily allocated to each lawyer.

Add to this that clients do not care one iota about your costs (they have their own costs to worry about) and that the amount of time a lawyer spends on anything for a client bears no resemblance to the value provided to the client, and you can see what a bind Oldlaw has got itself into.

As my friend Matthew Burgess co founder of Viewlegal so eloquently put in in this post  "Tyre pumping, timesheets & The Force"  when commenting upon the hourly rate increases in Oldlaw firms:

"Best wishes for the new financial year ahead, particularly if you have suddenly been asked to be somewhere between 5% and 23.6% (depending on your firms definition of current CPI rates**) more valuable to your customers …"


So who should care?

Thank goodness in Australia we work in a (largely) democratic society and legal environment where many choices are open to law firms and their clients as to how they both sell and purchase legal services. No longer it is a case "you can have any colour you like so long as it is black" (i.e. pay my hourly rates or else) which predominated for so long.

So these days, in response to market forces and to be perceived to be innovative like their competitors ( i.e the same as their competitors), most Oldlaw firms offer all sorts of billing options to clients-hourly rates, capped rates, blended rates, fixed fees, and some even offering value based fees.

Sounds great in theory for Oldlaw to be offering all these options but there is just one (big) problem Oldlaw has. Whatever Oldlaw may say about being innovative, overwhelming they would still prefer to bill- not price- their services ( billing occurs after the work is done whereas pricing occurs before the work is done).When they do (reluctantly) offer a price, for so long as they continue to measure and reward time, Oldlaw will always relate what they do back to time and their pricing will inevitably reflect little more than "billable hours in drag".

You only have to have to read those Monday morning emails to know what I write is true.

Timesheets remain the elephant in the firm for Oldlaw.


* I define Oldlaw as any firm that leverages people x time x hourly rate



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