Bye-Bye Billable Hour

Cisco General Counsel Mark Chandler doesn’t mince his words when it comes to law firms and their addiction to the billable hour:

As Cisco gets bigger, the share of revenue devoted to legal expense needs to gets smaller. Letters from law firms telling me how much billing rates are going up next year are therefore totally irrelevant to me… I don’t care what billing rates are. I care about productivity and outputs.

His speech to the Northwestern School of Law’s 34th Annual Securities Regulation Institute conference describes a fundamental misalignment between most law firms (who want to sell billable hours) and most clients (who want to buy information, documents, etc, at low cost), which is leading to unhappy lawyers and unhappy clients.

But Chandler isn’t just talking about the problem, he’s changing things. He lists at least four areas where Cisco is now buying legal services on a fixed fee basis: patent prosecution; review of license offers; corporate secretarial work; US corporate, securities and M&A work; and US commercial litigation. In some cases, these fixed fees are structured to go down each year, not up. Cisco has also pioneered the use of internal productivity tools, like online contract drafting, so that many contracts can be created by front line staff, without the need for costly legal review.

The other way to respond to cost-cutting pressures is simply to get rid of some lawyers and stop checking low-value deals. But as Coles is discovering, this can lead to claims that you’re dropping the ball on compliance.

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