Larry Bodine Law Marketing Blog

From the April 18 Chicago Tribune:

Hourly legal fees under attack
Traditional billing by time spent is standard at most big law firms, but McGuireWoods is advertising alternatives

By Ameet Sachdev, Tribune staff reporter

Year after year, the most pressing concern for in-house corporate law departments is controlling skyrocketing legal costs.  While most law firms pay lip service to helping companies address this issue, at least one is staking its reputation on it.

In an advertising campaign to begin Monday, McGuireWoods LLP will market its ability to tailor fees for its legal services that go beyond the traditional hourly rate. The ads, to appear in Crain's Chicago Business, the Midwest edition of Fortune magazine and other local publications, is expected to create a stir in the Chicago legal community because the Richmond, Va.-based firm is taking shots at the competition.

In one ad, a pudgy, balding, middle-aged man in a business suit leans back in a chair and blows bubbles into the air. The caption reads, "Law firms that charge strictly by the hour are about to have their bubbles burst."

In the genteel world of corporate law firms, this sort of edgy advertising is highly unusual. Most big law firms rarely advertise, and when they do, they usually brag about big verdicts or how hard they work.

McGuireWoods also is attacking one of the sacred cows of the legal world: the billable hour.

McGuireWoods is challenging conventional wisdom, in part, to raise its profile in the highly competitive Chicago legal market.

The marketing campaign comes nearly two years after the firm made a big splash in Chicago by acquiring the 101-year-old Ross & Hardies.  While the merger more than tripled the size of McGuireWoods' office, to about 175 lawyers, the firm still is trying to establish a name in a city with nationally prominent players like Kirkland & Ellis, Mayer Brown Rowe & Maw and Sidley Austin Brown & Wood.

One way to do that, McGuireWoods' leaders say, is to be more responsive to clients.

Survey after survey of in-house law departments shows that their top priority is reducing the money they spend on outside law firms.  Some of the growth in legal expenses is out of their control, as companies deal with more lawsuits and regulations and turn to outside lawyers to handle these matters.

But one of the biggest factors in the rise in corporate legal spending is tied to the hourly rate.  Billing by the hour inevitably creates incentives for lawyers to be less efficient, legal experts say. Mergers between law firms also have created upward pressure on hourly rates, as larger firms tend to charge higher rates.

It's no surprise, then, that calls for alternatives to hourly billing have fallen on deaf ears inside law firms.

Less than 3 percent of in-house counsel reported that their law firms offered alternative fee arrangements, according to a 2003 survey of corporate counsel that was performed by Serengeti Law, which sells Internet-based billing systems to companies.

"Some firms don't have any inclination to do [alternative fee arrangements] because they can get all the work they want at the rates they are charging," said Craig Hunt, senior vice president and general counsel at Smurfit-Stone Container Corp., a Chicago-based packaging company.

But companies want more predictability in their legal costs that hourly rates don't offer, Hunt said.

Several types of legal work, Hunt said, lend themselves to fixed, upfront fees, such as filing patent and trademark applications.

One Chicago firm has found that alternative arrangements work in handling large, complex lawsuits. Bartlit Beck Herman Palenchar & Scott, a boutique litigation firm, typically charges a flat fee, payable in monthly installments. The client retains a percentage that it pays only if the firm is successful. Otherwise, the client keeps the money.

"We like to get paid for results rather than the hours," said Sidney "Skip" Herman, Bartlit Beck's managing partner.

McGuireWoods has been offering alternatives to hourly bills for years. About 35 percent of the firm's annual revenue of about $300 million comes from alternative billing arrangements.

Now it wants its lawyers to spend more time talking about fees with clients to come up with the best solution, which could be an hourly rate.

"We want to be a cutting-edge law firm," said partner Robert Pristave. "We think this will help us better understand our clients' needs and provide better service."