Lawyers are expensive, but many aren’t charging you enough – how could technology change things?

23
Oct
2023

Hugo Seymour

The law is a tough place to make it, particularly for young ‘hotshots’. Even in fictionalised versions of the profession, newly qualified legal talent always has a mentor or senior level support. For fans of Suits, every Mike Ross needs a Harvey Specter. The trouble is that the rates for senior and junior legal counsel are not always clear and don’t reflect the fact juniors rely heavily on their more experienced peers. In this piece, we will examine the relationship between the two rates and look at how technology might impact this going forward. 

The current status quo

The typical structure for a law firm is pyramid shaped. At the bottom of the pyramid, you have a mass of trainees or newly qualified (NQ) lawyers (at least we do in England) with decreasing numbers of lawyers filling senior roles at each stage. Typically, in a partnership firm model, promotion is an up-or-out ‘tournament’, where the best lawyers, arguably those capable of bringing in the most revenue, rise to the top by skill, savvy, and raw determination. Remuneration and per-hour rates initially increase. However, there is a massive disconnect between seniority and per-hour rates when we get to partner level, where per-hour rates plateau. 

With a newly qualified lawyer, their charge out rate is going to be something like £500 per hour. A senior partner in the same group will be charging something like £1000 per hour. As the client, would you rather have a partner spend an hour on reviewing your contract or the NQ spend two at the same cost? Any rational client would involve the partner as much as possible. In fact, most clients would take the senior lawyer even if they spent a lot less time. Barristers are much clearer about their value proposition – Jonathan, now Lord, Sumption apparently charged just shy of £8 million for representing Roman Abramovich in his case against Boris Berezovsky. 

In comparison, the value ratio between junior lawyers and partners in law firms seems to be hugely out of sync. Could it be that senior partners in UK law firms are subsidising their junior colleagues as they gain more experience? 

Value for money?

Assuming that the overall costs of legal services are what clients are generally willing to pay for, and that overall fee levels are tolerable, despite the current economic climate, this suggests that many law firm clients are overpaying for junior time and are getting a great deal more on experienced legal counsel. In some ways, that makes sense. When you hire a lawyer, you hire a firm and all the people, processes and technology that come with it. The hourly rate is not just for an individual’s time, it includes a firm’s offices, knowledge base, and their myriad support services.  

That explanation is interesting as it suggests that simpler matters or even simple parts of a complex matter are cross-subsidising more difficult ones. Tricky matters will require a greater proportion of a partner’s rather than a junior’s time, and for more simple matters, the opposite is often true. If we stick with that theory, it suggests that clients are getting a good deal on the counsel they receive for complex issues, and a worse or bad deal for more trivial matters. 

The net effect is almost a ‘smoothing’ of legal costs, as firms try to balance covering their risks with their client’s willingness to pay. Whether their clients are aware of that is another matter.

Could technology help?

Technology is beginning to help individuals, businesses and organisations drive efficiencies and realise value in multiple ways when it comes to legal services spend. And rapid improvements in AI and other systems means that technology is getting closer to being able to take a ‘first cut’ at reviewing a set of legal contracts, for example, which allows senior lawyers to concentrate on higher value tasks and getting more productive work done. 

By the same token, some ‘junior’ work is getting closer and closer to being broadly automated. Due diligence is frequently tool-assisted, and template document suites are now common, for example. 

Perhaps law firms could respond by charging their clients for off the shelf legal ‘products’, where they carry out simpler work at a fixed fee, and then start charging more for providing legal ‘counsel’ on more complex matters? Navigating that menu of options will likely fall to in-house teams and knowing which suite of options to use and the right time to use, could become an even more crucial part of an in-house lawyer’s skillset.

Reports of the death of the billable hour have been greatly exaggerated and the debate around its impact on the legal profession will continue. Perhaps the solution is not getting rid of the system, but to lean into it instead and start to make it clear how valuable some of the people who are global experts really are. This would make it clear where the value of legal advice really comes from, and which areas of legal services are more suitable for automation or disruption. For the clients, it would be great to feel that you’re getting real value out of your legal budget.