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Category: Billing Rate Survey

Federal Judge: Midwest Lawyers, Stuck with Midwest Rates

August 6, 2018

A recent American Lawyer story by Scott Flaherty, “Midwest Lawyers, Stuck with Midwest Rates, Federal Judge Tells Arent Fox,” reports that a lateral move to a firm with roots in a more expensive city doesn’t mean a judge is going to award that lawyer a bump in attorney fees in litigation, even if some of the work then gets done in that pricier hub, a recent court ruling shows.

Ruling on a fee request by Arent Fox after a $130,000 settlement with the U.S. government on behalf of a group of Florida landowners, U.S. Court of Federal Claims Judge Patricia Campbell-Smith held that the firm deserves attorney fees based on the St. Louis market rates the lead attorney initially charged while working out of St. Louis-based Lathrop Gage’s headquarters.  She rejected the argument that he should earn the higher rates charged by Washington, D.C.-based Arent Fox after the lawyer switched to that firm’s St. Louis office.  Arent Fox had sought more than $1.1 million in fees plus more than $14,000 in costs.  As the judge explained in her opinion, the fee issue arose in a “rails to trails” lawsuit that dates back to 2009.

A team from Lathrop Gage, led by Mark “Thor” Hearne II, served as plaintiffs lawyers in the suit, representing a group of Florida landholders whose property included railway tracks formerly used by CSX Transportation Inc.  CSX stopped using the railroad lines in 2004, and soon after, a federal agency proposed to set aside a strip of land near the tracks for recreational trails.  The landowners alleged that amounted to an unlawful seizure of their land and sought compensation, according to court documents.

Shortly after the suit was filed, Hearne and his team moved to the Arent Fox, still working primarily from that firm’s St. Louis outpost.  The litigation started as a putative class action, but was winnowed down to a smaller case with some 14 landholder plaintiffs.  Following a summary judgment ruling in the government’s favor, the case was narrowed further to claims from three plaintiffs.  In 2013, the two sides struck the $130,000 settlement.

Since then, they’ve been litigating Arent Fox’s potential fees in light of a settlement in favor of its clients.  The firm has argued for an award based on current market rates in Washington, D.C., while the government has urged lower St. Louis rates, adjusted to take account of the years in which the work was actually performed.  Campbell-Smith awarded $14,362 in costs to Arent Fox.  But her ruling, made public on Aug. 1, faults the firm’s fee request for $1.1 million in part because it relied on the legal market rates in Washington, D.C.—where the firm is based and the federal claims litigation took place.

Instead, the judge ruled, most of the lawyers’ work happened in St. Louis, and since there’s a significant difference between billing rates in Washington and St. Louis, the St. Louis rates should win out.  To illustrate the differences in billing rates between the two cities, Campbell-Smith pointed to the proposed hourly rate for the lead partner in the case, Hearne.  Arent Fox sought an hourly rate of $826 for Hearne, while the likely St. Louis market rate would be more like $504 per hour for a partner with Hearne’s amount of experience, the judge wrote.

Campbell-Smith detailed several reductions she would impose when figuring out what to award Arent Fox in the case, according to her decision.  Still, she didn’t set a final fee award, concluding that the firm and the government needed to provide more information about the average St. Louis market rates for lawyers at different seniority levels, as laid out in billing rate surveys conducted by the publication “Missouri Lawyers Weekly.”

The Federal Claims judge also sided with the government on another key issue related to Arent Fox’s fee request—whether the award should be based on current or historical market rates for legal services.  “The attorney billing rates shall be calculated based on the average hourly rates as reflected in the ‘Missouri Lawyers Weekly’ surveys, and shall be awarded historically,” Campbell-Smith wrote.

Law’s $1,000-Plus Hourly Rate Club

July 23, 2018

A recent Wall Street Journal story by Vanessa O’Connell, “Big Law’s $1,000-Plus an Hour Club,” reports that leading attorneys in the U.S. are asking as much as $1,250 an hour, significantly more than in previous years, taking advantage of big clients' willingness to pay top dollar for certain types of services.  A few pioneers had raised their fees to more than $1,000 an hour about five years ago, at the peak of the economic boom.  But after the recession hit, many of the rest of the industry's elite were hesitant, until recently, to charge more than $990 an hour.

While companies have cut legal budgets and continue to push for hourly discounts and capped-fee deals with their law firms, many of them have shown they won't skimp on some kinds of legal advice, especially in high-stakes situations or when they think a star attorney might resolve their problem faster and more efficiently than a lesser-known talent.  Harvey Miller, a bankruptcy partner at New York-based Weil, Gotshal & Manges, said his firm had an "artificial constraint" limiting top partners' hourly fee because "$1,000 an hour is a lot of money."  It got rid of the cap after studying filings that showed other lawyers surpassing that barrier by about $50.

Today Mr. Miller and some other lawyers at Weil Gotshal ask as much as $1,045 an hour.  "The underlying principle is if you can get it, get it," he said.  "Not many attorneys can command four figures hourly, and I do have trouble swallowing that," said Thomas L. Sager, general counsel at chemical maker DuPont Co. Still, he added, DuPont pays more than $1,000 an hour to a "select few," particularly for mergers-and-acquisitions advice.

Janine Dascenzo, associate general counsel of General Electric Co. said that her company is willing to pay what it must when it needs a lawyer with "unique" expertise.  "We'll keep paying them a lot of money, because they're worth that," she added.  Industrywide, attorneys in finance-related practices such as M&A, bankruptcy law and taxes, tend to command a premium to their peers in other specialties.

One of the priciest attorneys over the past year, according to court filings, has been Kirk A. Radke, whose specialty at Kirkland & Ellis LLP in New York is advising clients on leveraged buyouts and forming private-equity funds.  As of early 2010, Mr. Radke, whose clients include private-equity firm Avista Capital Partners, had an hourly fee of $1,250.  Mr. Radke and Kirkland & Ellis declined to comment, as did Avista Capital.

Such rates are contributing to inflation across the $100 billion-a-year global corporate-law industry as the slow economic recovery has left many law firms struggling to finance the hefty pay packages they award their stars.  Since most law partners bill roughly 2,000 hours, those asking $1,100 hourly will bring in $2.2 million, a few million short of the $3 million or $4 million in annual compensation star attorneys get at many big firms.

To help fill the gap, the firms rely on the profit they often reap on the work of junior attorneys, or associates.  Dozens of associates at a time can work on a single case, and some firms bill as much as $700 an hour for their time, according to Valeo Partners, a Washington consulting firm that maintains a database of hourly legal rates in fields such as litigation, corporate law and intellectual property.  That strategy can fuel tensions with clients. "We are much less willing to pay an army of associates at the ever-increasing rate," said GE's Ms. Dascenzo.

"Plenty of clients say to me, 'I don't have any problems with your rate,' " said William F. Nelson, a Washington-based tax partner at Bingham McCutchen, who commands $1,095 an hour, up from $1,065 last year.  "But there is price pressure for associates, especially junior lawyers.  A small but growing number of top lawyers are using other arrangements in place of hourly billing.  David Boies, chairman of Boies, Schiller & Flexner and a prominent trial lawyer, charges $960 an hour, a spokeswoman for the firm said.  But just a third of his time is devoted to matters that are billed hourly.  More often his deals with clients involve alternatives such as pegging fees to his success, she said.

More typically, big law firms' managing partners dictate hourly rates annually, often studying what their rivals charge, according to disclosures in their attorney-fee filings in corporate-bankruptcy cases, which provide a rare public peek at the industry.  Such cases involve more than just bankruptcy lawyers; they frequently draw in a range of attorneys, including specialists in such areas as taxes, product liability and environmental and intellectual-property law.

This year, top litigators at Morgan, Lewis & Bockius LLP, a Philadelphia-based firm, are asking as much as $1,200 an hour.  A spokeswoman for the firm said "less than 1% of our partners are at rates of $1,000 or more."  Gregory B. Craig, a former counsel to the Obama White House who joined Skadden, Arps, Slate, Meagher & Flom LLP a year ago as a Washington-based litigation partner, is asking $1,065 an hour, according to a court filing last month.

M&A lawyer John M. Reiss, from White & Case in New York, started billing $1,100 an hour last year.  "Some clients do focus on the hourly rate, but in the end what really matters is their total cost and whether they got a fair price," said Mr. Reiss.  In recent years, pressure from clients for discounts has made it increasingly difficult for law firms to increase their lawyers' fees across the board.  Hourly rates for partners rose by an average 3% in 2009 and 2010, and 2.3% this year, compared with an 8% increase in 2008, according to Hildebrandt Baker Robbins.  The average law-firm partner now asks $635 an hour and bills $575, the firm said.  But a small group of attorneys in some specialties command significantly more.

Nearly 2.9% of partners at a group of 24 large U.S. and British law firms asked for $1,000 an hour or more in U.S. cases last year, up from 1.5% in 2009, according to Valeo.  London-based lawyers have tended to charge higher per-hour rates than their U.S.-based counterparts.  However, London attorneys typically don't bill as many hours on a case as do U.S. attorneys, some lawyers say.

NALFA Featured in ALM Article on Billing Rates

March 20, 2018

A recent Daily Business Review story by Samantha Joseph, “Spoiler Alert: Most of South Florida’s Top Law Firm Billers Are Men,” reports on gender disparity in billing rates in South Florida.   The story reads:

No one on the list is talking, but new research on billing rates speaks for itself: Most of the attorneys commanding top dollar in South Florida’s bankruptcy bar are men.

In the latest annual study of billing rates by ALM, the parent company of the Daily Business Review, only one woman appeared among the 10 highest South Florida billers: Leslie Cloyd, a Berger Singerman Boca Raton partner who represents debtors and others in complex Chapter 11 cases and workouts.

That’s no surprise to many who follow financial disparities in the industry.

“Law firms don’t want to admit it, but there is gender inequality,” said Terry Jesse, executive director of the National Association of Legal Fee Analysis, a nonprofit that undertakes fee analyses for courts and private clients. “People say, ‘We don’t do this at our law firm.’ They don’t see it, but it does come out in surveys.”

ALM researchers used federal court billing data from bankruptcy cases to compile compensation lists for attorneys and other billers in 20 U.S. jurisdictions. The top spot in this year’s South Florida data belonged to Paul Keenan, a Greenberg Traurig Miami shareholder shown charging $765 per hour to clients in the firm’s restructuring and bankruptcy practice.

At No. 2, Michael Goldberg of Akerman commands $655 per hour. Cloyd is next at $625 an hour, and is the only female attorney among the 34 lawyers in the ALM data who billed at more than $400 per hour. Her Berger Singerman colleague, Jordi Guso, showed a rate of $610 per hour.

Two Jacksonville attorneys billing $575 per hour, Guy Bennett Rubin and I. Mark Rubin, appear next on the list, trailed by David Softness of David R. Softness P.A. in Miami at $550; Peter Bernhardt of McDonald Hopkins in West Palm Beach at $530; and Jeffrey Bast of Bast Amron and Paul Singerman of Berger Singerman, each based in Miami and charging $525 per hour.

Rounding off the top 10 are Ehrenstein Charbonneau Calderin’s Robert Charbonneau and Seese P.A.’s Michael Seese, who each charge $515 for an hour’s wor

“Really Disheartening”

“Diversity is an important topic,” said Silvia Hodges Silverstein, executive director of New York-based Buying Legal Council, an international trade organization for legal procurement. “But until we had billing data that was also tracking gender, we really couldn’t say anything about it.”

Silverstein’s own research in March 2014 found similarly bleak results. At that time, she led a Sky Analytics Inc. national gender study based on $3.4 billion in corporate legal billings for 40,000 lawyers and time keepers across 3,000 law firms.

Her data uncovered “profound differences” between realized rates—the amount paid—for male and female attorneys at the same career level. Among her findings: Female associates made $27 less per hour on average than their male counterparts with similar experience.

“What was really disheartening was that you have the difference right out of law school, and it continues as women advance in their careers, even as they become equity partners,” said Silverstein, who now also lectures at Columbia Law School. “Women aren’t able to make up the difference over time. His hourly rate goes up. Hers goes up, but not as much.”

At the top of the profession, Silverstein’s research found six percent of male lawyers commanded more than $800 per hour, while only two percent of their female counterparts ever reach that rate. And no women in her data set surpassed the $1,000 hourly rate, while two percent of male lawyers did.

“The pay gap got even wider as attorneys moved up,” Silverstein said.

The good news: Silverstein found that women at small firms fared better than their counterparts in Big Law or at midsize firms. Lawyers at firms with 25 or fewer attorneys billed at the same rate for comparable work, and increased their prices at the same pace, regardless of gender.

NALFA’s Jesse attributed the difference to the “culture” at many big firms.

“There’s less gender inequality at the midsize and solo level,” he said.  “At the very large firms it’s just kind of a system. … A lot of it is task-based. Male partners are given more leadership roles in litigation, and female might be assigned lesser tasks—more research-based.”

Women’s Work

Joe Ankus, a Davie, Florida-based consultant who’s spent more than 20 years recruiting talent for law firms, said niche specialties are key when it comes to determining what attorneys can demand. He said years of specialization often separate the top billers from counterparts with lower asking rates.

“You need to be viewed as the go-to lawyer, or at least one of a handful of go-to lawyers,” said Ankus, president and founder of Ankus Consulting Inc. “The way to stay at the top: You can’t be a good practitioner. You must be excellent.”

A focus on debtor-side Chapter 11 work combined with related in and out-of-court restructuring expertise appears to have helped propel South Florida’s top female bankruptcy biller into the male-dominated top tier.

Cloyd and others named in the ALM billing data’s top 10 declined to comment or did not respond to requests. But Cloyd’s law firm profile shows her work has included serving as debtor’s counsel to Ruden McClosky in the law firm’s Chapter 11 case, representing Florida Power & Light in a Chapter 11 case filed by Gator Generating Corp., and representing tax collectors for Indian River, St. Lucie, St. John, Glades and Hendry Counties.

Beyond the realm of law firm partners like Cloyd, Silverstein’s data, which includes legal staffers as well as attorneys, showed that women were more likely than men to bill time for lower-skill tasks.

“What we found was that there were certain ‘female’ jobs and they were not necessarily strategic,” Silverstein said.

In analyzing standardized billing data using Uniform Task-Based Management System coding, Sky Analytics isolated litigation billing codes, or L-codes. It found female billers outnumbered male counterparts for codes indicating low-level tasks, such as data-processing, as opposed to administrative or investigative roles.

Plus, men staffed the majority of large projects requiring teams of at least 20 billers or timekeepers. They accounted for 93 percent of that litigation, while women shepherded smaller teams. While their male colleges handled large suits, female timekeepers made up the majority of workers assigned to 81 percent of small cases, according to the Sky research.

Silverstein’s data also showed women occupied entry-level positions, accounting for 75 percent of paralegals and 46 percent of associates, but only 22 percent of partners.

Firms “need to be mindful of how they staff matters,” Silverstein said. “Do they give women the same exposure to important matters as men?”

And even if they get the work, researchers say women face more pressure to discount their time—offering discounts on 37 percent of their bills, compared to 26 percent for men.

“Males in the legal profession are considerably more likely to bill through without any adjustments,” Silverstein said.

That’s good news, at least, for most of the South Florida attorneys on the billing list.

Why Elite Law Firms Should Raise Hourly Rates

March 5, 2018

A recent Law.com article by Hugh A. Simons, “Why Elite Law Should Raise Rates,” reports on hourly rates at elite law firms.  This article was posted with permission.  The article reads:

Elite law’s self-confidence has taken a beating. First the great recession hit, and now talk of disruption abounds. But the recession is over and disruption is far from an existential threat. It’s time for elite law to rediscover belief in the value it provides and start to raise rates as it did before the recession. Specifically, elite firms should:

Raise rates across the board.
Discount from the higher rates where necessary.
Increase rates more for partners.
Increase rates more for more distinct practices.
Exit, or leverage up, practices where realized rates (i.e. after discounting) don’t rise.

Raise rates across the board

Billing rate increases have been on a roller coaster, see Figure 1. Before the onset of the great recession, standard rates rose 7 to 8 percent annually with realized (collected) rates rising 5 to 6 percent. When the recession hit, the standard rate increase dropped to between 1 and 2 percent and, as economics would predict, realized rates actually declined. Thereafter, things have steadily improved. The market now trundles along with standard rates rising at 3 percent and realized rates at 2.5 percent, comfortably above inflation at 1.5 percent.

The fact that realized rates have gone from declining to rising at a steady rate indicates that bargaining power has shifted back from clients to law firms. The question becomes: must the new steady-state rate of increase be lower than it was before the onset of the great recession? If law firms have the bargaining power to raise standard rates an average of 3 percent, and realize a rate increase of 2.5 percent, then do they have the power to raise rates at, say, 7 percent and realize a 5 percent increase?

Three conditions must be met for increasing rates to work for law firms. The first is that growth in the value clients derive from a firm’s offerings should exceed the increase in rates. On this, the value a client derives is formally equal to the change in the risk-weighted expected value of the outcome of a client’s business venture, or legal-proceeding, that results from the law firm’s services. As the business world grows more uncertain, complex, and volatile, then services which mitigate these new risks create greater value for clients. Mitigating these emerging risks is what the leading-edge offerings of elite law firms do. Hence, these firms are at liberty to raise rates.

The second condition required for raising rates to be effective relates to competition. If Firm A raises rates and Firm B offers the same service at the pre-increase rate then, in theory, clients turn to Firm B. However, in the elite law world, firms’ offerings are not that fungible—in the highly-specialized segments where elite firms play, there simply aren’t that many viable “Firm B” providers. Even where there are other technically-capable firms, different firms offer different levels of reassurance because of clients’ varying history and comfort with the idiosyncratic perspectives of individual lawyers. A related observation is that firms tend to raise rates at comparable rates. Thus, even where there is a viable Firm B, there may be little cost saving incentive for the client to switch firms.

The third condition is evidenced by the historical data: rate increases only stick when the economy is humming along. While there is always much uncertainty about the economy, and by historical standards we are overdue a recession, today’s economic fundamentals look fairly robust. Firms should be assertive in benefitting from today’s strong economic tailwinds, emboldened by the knowledge that they’ll be buffeted by the headwinds when the economy turns.

The reason elite law firms have not been increasing rates assertively may have more to do with the emotional than with the rational. Elite law firms’ belief in the value of the services they provide took a battering through the great recession, and gets beaten down daily by dire warnings of the industry’s imminent disruption. But the recession has ended and disruption is not an existential threat to elite law firms. Nor is it an existential threat to the differentiated service lines within the portfolio of services offered by the broader group of preeminent firms. Yes, it’ll hurt the commodity-only firms and commodity service lines within other firms, and it will require changes in how all firms operate, but it won’t destroy the core of the elite law firm profit engine: big bucks for bespoke mitigation of major risks.

Discount from the higher rates where necessary

When I suggest raising rates assertively some partners respond that their clients won’t pay any increase. True, some clients won’t. But many will and many more will bear part of the increase. Thus, it’s normal for an increase in standard rates to be accompanied by more discounting and hence a decline in realization (i.e. the ratio of realized, or collected, rates to standard, or rate card, rates). This is not of itself a problem as it’s realized rates that drive a firm’s economics. The important point is that, other than in the aftermath of a recession’s onset, the effect of an increase in standard rates is a significant, albeit lower, increase in realized rates. For example, standard rates rose by 33 percent from 2007 to 2017 and, although realization declined from 89 to 82 percent, realized rates still rose by a healthy 22 percent.

It’s instructive to take a closer look at the above realization decline. As shown in Figure 2, by far the biggest component of this decline was in the ratio of worked (i.e. negotiated or agreed) rates to standard rates—5 points of the 7-percentage point fall. This reflects growth of the volume of work being executed not at standard rates but at client or matter-specific discounted rates.

The dynamics of discounts are a competition between two irrationalities. On the one hand, clients have an irrational liking for discounts. They make clients feel they’re getting a bargain and they’re easy for the legal department to explain to management. The irrationality, of course, is that the focus should be on the discounted rate not on the distance between it and some putative standard rate.

On the other hand, firms have an irrational dislike for discounting. Too many firms still think of realization rate as a measure of profitability. It can be absurdly hard to get lawyers to internalize that, in order to assess profitability accurately, you have to look at the combined effect of leverage and realization using measures such as margin per partner hour.  Indeed, higher-leverage and higher-discount work is often more profitable than lower-leverage and zero-discount work. But partners have been conditioned to think of discounts as a demerit, and partners hate demerits. This unhelpful conditioning gets reinforced by finance departments reporting on hours and realization but not on leverage or margin per partner hour.

The look at realization in Figure 2 also shows that two percentage points of decline are due to increased billing write offs. These write offs reflect quality-of-work issues and budget overruns. As quality issues are probably fairly constant, it’s reasonable to attribute this increase to more budget overruns, in turn a reflection of more work being done under fixed, capped, or other alternative fee arrangements (AFAs). But here again, lower realization doesn’t mean lower profitability—increased leverage can more than offset the realization decline. Indeed, over 70 percent of firms say AFAs are as profitable, or more profitable, than work billed at hourly rates, (data source: Altman Weil’s 2017 Law Firms in Transition report).

Increase rates more for partners

Partners are often reticent to raise their own billing rates assertively. This is a problem of itself but also has severe second-order consequences. First, it effectively sets a cap on the billing rates of counsel and senior associates as there has to be headroom between their rates and those of partners. This becomes a constraint not just on revenue but on profitability. While typical businesses have their highest markup on their highest-value offerings, this billing rate cap leads many law firms to have a lower markup (i.e. the number of times a lawyer’s billing rate exceeds their comp on a cost-per-hour basis) on senior associates and counsel than they realize on their relatively low-value junior associates. By compressing markups in this way, firms are leaving money on the table. There’s consistent market feedback that indirectly corroborates this perspective: clients object most to the billing rates of junior lawyers.

Holding back on partner billing rates also makes it harder to raise leverage. Part of the reason some partners push back on raising their own rates is they feel some of the work they do is not truly partner level and hence shouldn’t be billed at full partner-level rates. This underlying failure to delegate is a disservice to clients (by not letting the work flow to the lowest-priced lawyer capable of doing it), to associates (who are left bereft of experience), and to other partners (who contribute disproportionately to a firm’s profit pool by leveraging more). Hence, part of the logic for raising partner rates is to realize the benefits of improved leverage.

Increase rates more for more distinct practices

If you offer customers something they need that you alone can provide then you can set the price close to the value they derive from your service. If, on the other hand, you offer customers something that many others offer, then you are constrained to pricing it at the level set by others. In reality, a law firm’s various offerings fall at different points along a spectrum between these theoretical extremes. This simple observation has a pricing implication that many law firms effectively ignore: billing rates, and hence billing rate increases, should vary markedly across the range of a firm’s offerings. In particular, the billing rates for a firm’s offerings that are most distinct from those competitors can provide should be priced more aggressively than those for its less-distinct offerings.

The low billing rate growth we’ve seen of late may well be a manifestation of firms adhering to a philosophy of a single firm-wide billing rate increase and having this increase be set by the rate that is appropriate for the less-distinct offerings. The reality is that market dynamics have evolved in recent years to the point that a firm’s pricing power varies sharply across its practices; adhering to a single increase set by the less-distinct offerings is now leaving serious money on the table. If internal firm harmony requires a single rate increase, then better to raise standard rates strongly across the board and discount from these as necessary for the less-distinct offerings.

Exit, or leverage up, practices where realized rates don’t rise

There is an old adage in strategy consulting: 80 percent of strategy is deciding what not to do. The ‘what not to do’ for elite law firms is offer commodity services. How does one recognize commodity services? By definition, commodity services are offerings that many other firms can provide. By extension, commodity services are those where a firm effectively cannot set the price but must adhere to the price level set by rivals. This translates to commodity offerings being those where the realized rates (i.e. after discounting) don’t rise following a standard rate increase.

To adhere to a strategy of differentiation, firms should exit practices where realized rates can’t be increased above the rate of inflation. In some circumstances, so doing is more than the fabric of a partnership can bear. Where this is the case, an alternative that may buy some time is to operate the practice at greater leverage than the rest of the firm. So doing mitigates the effect of a commodity practice on per-partner profitability. However, it is really only a holding measure as leverage can’t be increased indefinitely and managing businesses with dramatically different fundamental strategies requires an ambidexterity that few trained business leaders, let alone lawyers, possess.

Action implications

Most people make decisions based on objective facts interpreted through a lens of emotional biases and personal predispositions. Partners are alike most people in that they employ such a lens; partners are unlike most people in that they refuse to recognize they employ such a lens. There is nothing to be gained by leaders trying to get partners to recognize what they’re doing; however, there is value in leaders shaping the lens through which partners interpret the world.

At many firms today, this lens says lawyers are of declining value and the market is stagnating. While this is true perhaps at the middle and lower tiers, this is objectively untrue for elite firms and for the differentiated practices within the broader swath of preeminent firms. This lens issue needs to be addressed first before partners can analyze robustly the case for billing rate increases. Specifically, the lens should be reshaped by restoring and bolstering partners’ confidence in the value of their offerings. To this end, firm leaders should talk to clients (many of them really value you!), share more of the positive client feedback with partners, highlight firm recognition and awards, have clients come and speak at partner meetings, host alumni roundtable discussions of the value of outside counsel, etc. The forthcoming 2017 Am Law results will probably help too: despite the pervasive gloom and doom, the top end of the market is prospering; I suspect we’ll see double-digit percent increases in profitability at most elite firms.

Having reshaped the lens, the next step is to create opportunities for partners to discuss billing rate history, profitability, and future billing rate policy. The key here is to give partners the data and let them chew on it. Don’t lecture them or tell them what to do; rather give them the parameters and let them figure it out for themselves—so doing is the first step toward adoption of the desired changes.

Partners’ deliberations should perhaps start with a review of the firm’s billing rate history and dynamics, including firm-specific versions of Figures 1 and 2 here, supplemented with the same views for individual offices, practices and key clients. It would also be useful to profile how partner rates set a cap on rates for counsel and senior associates, leading to markup compression and, perversely, a firm having the lowest markups on the time of its highest value lawyers.

Partners should then discuss some of the less-obvious dynamics around billing rates. These could include, for example: the connection between leverage and partner billing rates (particularly how low partner rates suppress leverage); the pervasive observation that leverage varies more with individual partners than with practice or client type; and, in cultural contexts where it would help, partners could debate the relationship between compensation and billing rate—the two tend to correlate at professional services firms although it’s sort of misleading as it’s not a causal relationship; rather both are separately reflective of the economic value of a partner’s practice, so proceed with caution.

The final element is for partners to discuss the process by which billing rates are set. While most partners prefer control of their own rates, many recognize that having an abstract committee set the rate allows them some plausible deniability in conversations with clients.

All this is to say it’s a new billing rate world out there. Law firm leaders would do well to buy the option of increasing billing rates assertively at year end by starting to prepare partners for such increases now.

Hugh A. Simons, Ph.D., is a former senior partner and executive committee member at The Boston Consulting Group and the former chief operating officer at Ropes & Gray.

Sorry Clients: Higher Hourly Rates Really Do Pay Off

February 21, 2018

A recent American Lawyer story by Miriam Rozen article, “Sorry Client: Higher Law Firm Billing Rates Really Do Pay Off,” reports on the findings from the recent analysis by Citi Private Bank’s Law Firm Group.  The story reads:

Law firms do better when they raise their published billing rates at a faster clip, even if those increases result in a widening gap between published and realized rates, according to a recent analysis by Citi Private Bank’s Law Firm Group.

“The analysis we have is how the consistently most successful firms have increased rates versus the broader industry during 2010-17,” explained Gretta Rusanow, head of advisory services for the group.

Top-performing firms increased their rates at an average annual rate of 4.4 percent, compared with an increase of 3.3 percent for the broader sample, Rusanow said in an email. While those top performers saw a wider gap between their published and realized rates, their realized rates nonetheless grew faster than at the other, less aggressively priced firms.

At top-quartile law firms—grouped by Citi based on profitability, contribution per lawyer averages and net income margins—“realized rates grew at an average annual rate of 3.5 percent, compared to 2.8 percent for the broader industry,” Rusanow said.

“The key takeaway,” according to Rusanow: Firms continued to increase published rates while taking deeper discounts. That’s how the top echelon of firms “widened their rate advantage.”

The trend persisted in 2017. Citi’s most recent survey of law firm performance showed that for the most successful firms, published rates increased 5.6 percent, versus 4.2 percent for the broader sample. At the same time, realization rates increased 5.7 percent for the most successful firms, versus 2.9 percent for the broader sample, Rusanow said.

Billing rates overall have continued a steady climb in recent years, despite pressure from clients insisting on discounts, decreases and other cost savings.

For law firm consultant Janet Stanton of Adam Smith Esq., the Citi analysis confirms that the elites have a built-in advantage.

“This is more of the same,” Stanton said. “There has been a pulling away of firms with a stronger performance. To me it also says something about the greater value of brand strength.”

NALFA Conducts Custom Hourly Rate Surveys

December 15, 2017

Hourly rates are the engine that drives attorney fees.  Hourly rates are the most important factor in determining attorney fee awards.  As such, establishing the prevailing market hourly rate is...

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NALFA: The Four Hourly Rate Factors

December 6, 2017

Hourly rates are the engine that drives attorney fees.  Hour rates are the most important single factor in determining attorney fee awards.  There are several factors that determine hourly rates. ...

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NALFA Analysis: Partner Bankruptcy Rates

October 27, 2017

NALFA conducted a survey of partner hourly rates in bankruptcy cases.  NALFA examined dozens of court filings in bankruptcy cases over the past couple years.  The following results of our survey are...

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