Partners should not spend so much time on billable client work
To our experience about 95% of law firms are heavily focusing on the partners’ own billable hours when it comes to KPI’s by which partners are evaluated. In most law firms partners are expected to make 1500 billable hours or more. Missing that target could have serious consequences and could eventually lead to demotion or even ousting from the firm. The number of billable partner hours is also internally used as a measurement of success and often of influence. Partners who make the most billable hours are considered to be the most successful and are listened to as it comes to decisions within the firm.
All this might seem very logic. However, in reality it might be the wrong thing to do. Pushing partners to primarily focus on making billable hours might prove to be a costly mistake. Allow me to explain why: In order to understand we first need to establish how many working hours there are in a normal working year. Looking at non-lawyers, so ordinary people having a 9-to-5 job in an ordinary office, 1900 hour annually would be considered normal. This takes into account not working during the weekend, about 4 weeks of paid holiday and an additional number of 4 national bank holidays. Numbers do vary slightly between countries but the number would hover around the 1900 mark.
Ordinary office workers work 1900 hours annually, so could lawyers
The average office worker handling insurance claims, doing secretarial work, doing administrative work and so on, is expected to work 1900 hours without any overtime. If ordinary office workers are expected to work 1900 hours, why couldn’t lawyers be expected to do the same? If we assume each lawyer would spend 50 minutes every day on non-billable activities, there still would be 1700 hours left to spend working on client matters. Every single associate in any law firm could easily work 1700 billable hours in a year without having any stress or without it affecting work-life balance. Just by being equally productive as any other office worker. If that is the case, why are most lawyers only doing 1500 today?
The problem is that associates simply do not have enough work to fill their week. Partners are so focused on reaching their own billable target, that they are not bringing in the optimal amount of work. It is key for any partner to better understand the economics of the business of law. Understanding the business means understanding the nature of fixed costs. For law firms 95% of all costs are fixed. So if associates make 1700 instead of 1500 hours, there are no extra costs involved. This means that the 200 additional hours are 100% profit. Please let this sink in: the additional hours come at no additional cost and are pure profit. If we would assume a leverage of 3 (3 associates per partner) and a blended rate of 250 for the associates, 200 additional hours would lead to 150.000 extra net-income for each partner at the end of the year. Letting your associates work like ordinary office workers pays off big-time!
Partners should focus on filling the pipeline
So if the economics are so simple, why are partners not focused on providing their associates with sufficient billable work? Part of the answer is that law firms measure partner performance in the wrong way. Utilization of associates should be one of the most important metrics. One of the KPIs for partners should be how well they succeed in enabling ‘their’ associates to reach the 1700 hour target. It is in the interest of the firm that partners are incentivized to provide for the associates before providing for themselves. However it is not only the KPIs that are to blame. Many partners rather sit behind their desk diligently working on complex client work, than go out and find new clients. These lawyers often are outstanding lawyers, but poor businessmen. Too many partners avoid having to go out for new clients by burying themselves in work. Also the inability to delegate comes into play.
Being a law firm means being a business. Today’s legal sector has become highly competitive. Clients are demanding better value, competing law firms are hunting each other’s partners and there is a growing army of Alternative Legal Service providers eating into the market. The law firm that does not get its business together might fall casualty to the market forces. Partners need to be more focused on the business than ever before and still many act like in the good old days.
It is time for law firms to start adapting their partnership criteria. For decades now law firms have promoted brilliant lawyers to become equity partner in the firm. For decades now partner promotions have been the play-ball of internal politics and defensive moves. All this has created many partners that have weak business skills. Law firms should recognize that the most important characteristic of a successful future equity partner is the ability to bring in new matters and new clients. Lawyers that do not have that ability should remain employees and not become equity partners. Partners have a responsibility for filling the pipeline.