Abolish your partners' billable-hour requirements

Associates are suffering from billable-hour demands, caused partly by the scarcity of available work. Billing targets for partners exacerbate that scarcity and waste partners' time and effort. Enough.

It’s time for me to air one of my longest-standing grievances about the way law firms operate. It is silly, pointless, and counter-productive for law firms to set billable-hour targets for their partners. As Generative AI infiltrates the legal sector, maintaining such targets will endanger firms’ viability. It’s past time to abolish these targets and put partners’ time and efforts to much better use.

Let’s start with a brief recap of Law Firm Business 101:

• Lawyers make money by selling legal services to clients. Sometimes they price their work by multiplying the number of hours they worked on the client’s matter by an hourly rate. Sometimes they price their work by setting in advance a fee for all or parts of the client’s task. Either way, lawyers turn a profit if the revenue they generate exceeds their costs of doing business.

• Law firms make money by gathering a bunch of lawyers together to sell services to clients, and they too profit if overall revenue exceeds costs. But firms have an additional vector of profit: Lawyers who bring in more business than they can perform hire other lawyers to do this extra work, and they bill those lawyers’ services at an amount well in excess of their costs (typically salary, benefits, and overhead). This is associate leverage, the basis of the old law firm pyramid.

• Associates (and you can include all non-equity lawyers here) are required to bill a minimum number of hours monthly or annually. The firm sets the precise number according to myriad factors, but most relevant are the associate’s costs to the firm and the hourly rate at which their work is billed. What matters is that there is a baseline billable-hour total beneath which the associate fails to generate profit and even loses the firm money. The associate must bill that total or more.

I’ve been having a lot of conversations lately with law firms whose associates are complaining about their billable-hour requirements. In many cases, these targets are actually lower than what firms were demanding about 5 or 10 years ago — firms have mostly been increasing their profits by raising rates through the roof. But today’s associates know very little about what firms used to demand, and they care even less. What they know is that their billable requirements feel heavy to the point of draconian, and they are deeply stressed and unhappy about them.

I’ve become curious about the source of this stress. I’m not interested in “explanations” that ascribe the problem to young people today being soft, entitled, or other such nonsense. If you take your associates seriously as people, then you take their concerns at face value and you try to address them.

I think some of the stress comes from associates not understanding the Law Firm Business basics I set out above and assuming their targets are set arbitrarily and greedily. And why would they understand those basics, if no one in the firm ever explained it to them? So the first step is to show the associates how and why the firm makes money, including the critical role that’s played by the leveraged billing position they currently occupy. That insight alone could lower their stress levels noticeably.

But I think there’s more to it than that. The current and coming generations of lawyers seem to feel the weight of expectations more heavily than those who came before them. They arrived in law firms already carrying the burden of obligations, some financial (student loans), but most emotional — parental hopes, family needs, professional self-doubts, and above all, the spectre of being cast loose into a permanently thin and heartless job market. The fear of failure, and its consequences, absolutely haunts them. And so their first real encounter with productivity conditions for their continued employment — conditions they’re not sure how to fulfill, or even why — triggers their fight-or-flight instincts.

Law firms have to work harder to reassure and gain the trust of lawyers from these generations. Partners need to train them more thoroughly, provide them with more instruction and feedback, explain the big picture more frequently, and describe remedial processes in more detail than those partners needed (or at least received) in their day. That doesn’t make the older lawyers right and the younger lawyers wrong, or vice versa. It just means things are different now, and even halfway-capable law firms have to adjust to different situations as the need arises.

But there’s one source of billable-hour stress over which associates have little or no control: actually getting the hours. In many of those law firms that complain loudly about associates’ billable totals, I hear quiet side admissions that a number of partners hoard billable work (or dole it out only to their favourites, which is a separate problem for another day), making it difficult or even impossible for associates to meet the conditions of their employment.

Again, there can be myriad reasons why partners refuse to delegate much or any work to associates. Some clients are so enthralled with the partner that they demand personal performance of all their tasks. More often, the partner enjoys doing the work and doesn’t want to give it up — such that on the rare occasions when work is pushed down, it’s usually repetitive drudgery that the associates hate just as much as the partner does, further worsening their morale. Or the partner doesn’t trust the associate’s competence, which brings us back to training — an investment of time and effort that many partners don’t feel like making.

Many of these factors can be alleviated with patient and continued efforts on the part of the firm’s management. But one factor, I think, often outweighs all others: Partners also have billable-hour targets, and they feel just as much pressure to meet them. This is an entirely self-inflicted wound, and law firms everywhere systematically inflict it on themselves every day.

I’ve been saying for years that setting billable-hour targets for partners makes absolutely no sense. Go back to Law Firm Business 101: Of course you set targets for associates, because leveraging the labour of employees is the primary source of profit in any law firm with more than a few lawyers. But partners aren’t employees. They’re owners. They’re the ones who split the profits, not the ones who personally generate them. Why would you keep acting like an employee after you become the employer? Why would you leverage yourself?

There are a lot of reasons why an associate might wish to become an equity partner in a law firm — more money, higher status, greater power, and so on. But surely, among the top reasons has to be finally getting off the billable-hour hamster wheel after all those years. It doesn’t make economic or psychological sense to maintain billable-hour targets for lawyers after they become partners. It doesn’t make sense to keep serving pie to the winners of the pie-eating contest. I promise you, they really are sick of pie.

This doesn’t mean that partners need to, or even ought to, stop performing and billing work for clients. Of course they shouldn’t, for all the reasons set out a few paragraphs above. These efforts should still be tracked throughout the year and considered as part of the partner’s contributions to the firm’s growth and profitability.

But billing hours is among the least important things a partner can do for their firm. Anyone can bill hours. But only a partner, an owner, and a firm leader can consistently generate new business, make important decisions about the firm’s strategy and growth, oversee and aid in the development of younger talent, strengthen the firm’s reputation in its key markets, act as a firm ambassador through community and pro bono work, and more. That’s why you need partners. That’s what you want to incentivize.

Instead, by incentivizing partners to bill hours, law firms drive all the wrong behaviours. They encourage partners to hoard work for themselves, putting to lesser use time and effort that could have been spent on firm management and associate development. They create “billable hour scarcity” within the firm, forcing associates to go hunting for work to sustain their continued employment and contributing to their stress and unhappiness. They discourage partners from making the critical transition from “worker” to “owner” upon which the firm’s future prosperity depends.

And if all those reasons weren’t enough, here comes Generative AI to clinch the argument. It’s becoming common knowledge that AI is going to shred the billable-hour profit model by vastly accelerating the performance of most legal tasks. The day will come, sooner than you might think, when your firm simply can’t generate enough revenue through hourly billing to keep the doors open. We’re going to need new pricing and compensation measures in a hurry. But the very first step towards making that incredibly challenging transition must be to stop requiring the firm’s owners to maximize a measure of productivity imminently destined for history’s trash can.

There are very few “silver bullets” when it comes to solving law firms’ problems. Those problems invariably are complex, interlocked, systemic, and deeply resistant to simple remedies. This is not one of those problems. And this is as easy a solution as you could wish to find for a number of gnawing and growing difficulties, most especially for associate retention.

Abolish any and all billable-hour requirements for your equity partners. Reorder the priorities that you want partners to really concentrate on and incentivize partner behaviours that will accomplish those priorities. Free up thousands of hours of work to be distributed to the associates who desperately need them. You can get this started next week and have the new system up and running by the new year. Go.