Change in values needed as firms shift away from billable hour targets

Friday, June 09, 2017

The news that global giant Linklaters, the archetypal bastion of lockstep compensation and individual billing targets, is moving away from these cornerstones, is both welcome and depressing news for the profession.

It’s welcome because it signifies that even the most intransigent of traditionalists are recognizing the reality of an evolving profession. It’s depressing because its narrow focus indicates just how slowly and tediously lawyers are moving, perpetuating if not widening the gap between the profession and reality.

Let’s be clear, it’s not that individual billing targets are taking to the trash heap. Rather, Linklaters will now assess partner performance by also including factors such as business development, marketing and innovation.

This, of course, is not news to Canadian firms, where “share of the pie” has long been determined, at least nominally, by “other factors,” colloquially described as “merit.” What makes me skeptical about this, however, is whether individual targets have been displaced or de-emphasized in any meaningful way. For example, when’s the last time billing or “book of business” have not been the primary considerations in determining the feasibility of a lateral transfer? When’s the last time a lateral transfer has been hailed as providing the lawyer’s new firm with a “team player?”

Naturally, Linklaters’ move has been client-driven. The firm cited the de-emphasis of individual targets as a bid to improve teamwork. And teamwork is what clients want, even if all it means to them is that law firms staff files with the lowest feasible hourly rated denominator and, somewhat counterintuitively, spend as little time as possible using chargeable time to talk to their colleagues.

Famously, responding to clients’ needs is now a routine prerequisite for increasing revenues. Indeed, as Legal Week put it, Linklaters’ “move is aimed at boosting revenues by fostering more entrepreneurial spirit and encouraging partners to collaborate, rather than focus on their own financial targets.”

Unfortunately, Linklaters, like many firms, remains mired in the lockstep system. The latest “reforms” are little more than the tinkering that has taken place in the past. A 2016 partners’ vote to reform the system merely allowed exceptional partners to advance beyond the local cap.

So it’s unlikely that the most recent restructuring at Linklaters will prove more successful than the three instituted between 2002-2012. The endeavours failed so badly that the managing partner at the time, Simon Davies, initially failed to achieve the 75 per cent majority required for re-election despite being the sole candidate. The firm’s leadership team ultimately had to apologize for the way in which the restructuring was handled.

But Linklaters seems to have learned little from the experience. There’s little in the new proposal to suggest that billing targets, which still remain rooted in billable hours, will lose their influence.

Perhaps management takes solace from the fact that the firm is not alone. Other British firms’ repeated attempts to re-order lockstep has had mixed success at best, perhaps because they too refuse to recognize the connection between the continuing role of the still-ubiquitous hourly billing system and the focus on individual billings.

As recently as early May, Clifford Chance introduced reforms to its lockstep system aimed at attracting and retaining the best performers. And what did the firm perceive as a best way to do that: make changes that allow the biggest billers to earn more.

There’s more hope in the changes that are occurring in the performance review arena. Linklaters, Allen & Overy and Hogan Lovells have all announced that they’re transitioning from annual reviews to ongoing feedback. Baker & McKenzie did so at the end of its last financial year. Berwin Leighton Paisner is reviewing its process with a view to a greater emphasis on career development through more regular feedback.

That’s great: but it’s hardly quantum change. It’s hard to imagine that the feedback from big billers as to the importance of billings and docketed hours will change; and it’s hard to imagine that those who perceive their value in other forms of contribution will not continue to hype their achievements.

What I don’t get is this: in their efforts to adapt to clients’ focus shift from hourly rates to value, don’t law firms realize that their internal notions of value also need to change?

Certainly, Canadian firms are, again in theory, far removed from lockstep and more focused on “merit.” Until internal notions of “merit” mirror clients’ perception of “value,” however, merit will continue to be nothing more than more or less modified lockstep.

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