Charge-out rate
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A charge-out rate is a form of lexophysical constant.
You can plot it through time on a graph, as a straight line rising at more or less the steepest possible gradient at which an independent observer’s eyes will not involuntarily water.
The average magic circle partner charge-out rate passed £1,000 in 2016, escaping the surly bonds of economic plausibility, and streaking out past the heliosphere into the deep frozen blackness of interstellar gall. Ordinary commerce has now lost all contact; the last photo it sent back was a blurry image of a blob of dust suspended in a sunbeam: our budget; a lonely speck in the great enveloping cosmic billingness.[1]
And yet this rising line will continue inevitably, inexorably and without variation, like the performance of a Fairfield Sentry fund, regardless of market condition, geopolitical angst, or the softness of the labour or investment market, until the very end of days.
Here the “apocalypse” really means the ultimate limit of space-time however that might happen to be described (if at all) under prevailing cosmological theory, for the inevitability in the growth of magic circle revenues and charge-out rates is one of the most persistent and predictable phenomena in the known universe.
Every other indicator will have its ups and downs: dotcoms will boom, unicorns will bust, credit bubbles will burst, hedge funds implode — but the hourly rate of the equity partner of a global law firm will constantly, happily, and irresistibly rise. It is a wonder why no-one is trying to harness it as an exhaustible source of clean, renewable energy.
A bit too much hot-air and methane, I suppose.
“The end of the charge-out rate is nigh”
Around the marketplace of ideas, you will see the occasional sandwich board-donning lunatic preaching through wild hair and crazed eyes, that the end of this tyrannical regime is nigh.
“Death to the billable hour!” they shriek, to whatever patient, spittle-flecked audience they can find. This argument, proceeding as it does from the purest precepts of cold logic is, on its own terms, unimpeachable and therefore, in the real world, utterly hopeless. For no matter how much “everyone” hates them — and not everyone hates them: everyone with an opinion on LinkedIn hates them, and that’s different — and no matter how compelling the logic against them, charge-out rates are a brute fact of life. They have survived, and flourished, until now. As brute facts tend to, they have proven adept at resisting the cold hypothetical theorising of modernisers and thought leaders.
It’s a means of account
Essentially, the billable hour is an internal unit of account: means for those who like to measure, manage and monitor things to make sure the firm is properly sweating its assets. The six-minute unit is not an end in itself. If you got rid of it that would not stop big law firms sweating their assets. Massacring associates is what they do: it is in their nature.
The point is mainly to make as much money, as consistently as possible, and like it or not, over a long period that is a function of time spent. Yes, you might have moments of ineffable genius but, in the more industrialised parts of the capital markets, opportunities for these are few. For the most part, it is a grind. Part of what makes a successful private practice lawyer is the ability to relentlessly grind.
So part of the point is to weed out the ones who can’t hack it. This is elite sport. Remember: these winsome little lambs whom big law is now tenderising? Short days ago they were elbowing each other in the eye and clambering over their grandmothers’ graves just to snag that summer internship. Getting monstered is part of the deal: if you don’t accept that, don’t do it. There are plenty of other things to do with your time.
Outrage might be informed, too, by how much big law firms charge for their attorneys’ time, and how little of that gets back to the poor, put-upon attorneys. But, again, this is the faustian deal young Tarquin strikes when he accepts that TC. Always has been. If you have the game, and the match fitness, to stay with the game, you’ll get yours soon enough. But if you think Coward Slaughter LLP is going to agree, any time soon, to make less money off the back of 25-year-olds it hires as cannon fodder, in the name of respecting their work-life balance, we humbly suggest you might like to think again.
Alignment of interests
Anyone who has spent any time in the trenches during a full-scale financial services transaction will know what uncontrollable monsters these things can be. Not only is there the extreme over-complicatedness of the legal documents,[2] but the unmanageable interests of all the conflicting interests and agents.
The law firm holding the pen has no control over how idiotic its own client is, how convoluted its instructions, how contradictory, how often it will change its mind, and who is really steering the ship. (No-one is steering the ship. It is a kind of transactional ouija.) It has less over the attitude of other counterparties to the deal, and none at all over their legal advisors.
Much of modern legal practice involves disentangling stupid questions, trying to make head or tail of gnomic pronouncements from some senior luminary in the client’s upper management who doesn’t have the first clue about the deal or for the business, waiting fruitlessly on clear news of what is meant to be happening, and fending off frustration techniques from opposing lawyers that are precisely designed to run down the clock and rack up legal expense.
All of this takes time, and imposing an hourly rate is a neat, effective, and sobering hedge for a law firm against being taken advantage of by other participants with their own agendas. Fixed fees, conditional fee arrangements, percentages and caps are necessarily blunter tools, inviting more after-the-fact complaint, than actual hours spent. “You obliged my associate to spend seventy five hours re-writing legal docs because your original instructions were unclear” is quite hard to argue against.
Lawyers in private practice secretly quite like them
There is something of the labour theory of value to hours clocked up. Native private practitioners actually like the feeling of accomplishment and self-worth that comes from spending 2,500 hours a year slogging away at meaningless textual rockfaces. Those who argue against them are talking their own book: mainly technologists and other refugees from “big law” — lazy people like yours truly with no stomach for the paper-war pantomime — but in any case you will not find senior partners of white-shoe law firms — or, really, those who aspire to being partners of white-shoe firms — railing against charge-out rates.
The time-and-attendance model is embedded deep in the cultural layer of legal commerce. It will, we predict, long outlive trendy types who predict its demise.
Whither the great revolution in legal services?
And if, as we suspect, the charge-out rate is a bellwether, those trendy doom-sayers have even more post-fact rationalisation to do.
Now, it is a truism that one should judge a market by what it does, not what its thought leaders say, and here the irrepressible rise of the charge-out rate presents quite the conundrum for legal futurologists.
For, if it is really true that legal practice is on the brink of revolution[3] — that alternative legal providers are progressively eating big law’s lunch and that, generally, we will all have more leisure time in the future — then we should expect the overall vector of elite law firm fee recovery to point downward.
But, if the charge-out rate is any indication — and there is surely none clearer — it does not. It yearns to the unending Cosmos. The elite law firms are in the rudest of health. Banker bonuses may have long since been crimped, the two-and-twenty model consigned to history’s dumpster, but the white shoe of international legal practice has steadfastly neglected to drop. We hear tell of mid-Atlantic boutiques paying graduates six figures just to sign onto a training contract. Magic circle partners complain bitterly how hard it is to attract staff with any kind of work ethic.
So what is going on?
Readers, deeper forces are at play. The crumbling superficial logic of our thought leaders has no hope against the fundamental laws of worker entropy that frame the space-tedium continuum. We would respectfully draw the reader’s attention to the ninth, tenth and eleventh laws of worker entropy:
The JC’s ninth law of worker entropy: As the number of people involved in negotiating a contract goes up, its brevity, comprehensibility and utility goes down. The longer a negotiation continues, the more compendious, and tedious, will be its“fruits” — the verbiage, in the vernacular — even as its meaningful commercial content stay constants (or, more likely, declines to vanishing point).
The JC’s tenth law of worker entropy (also known as the “rule of collective agency”) states:“One agent’s accommodation of another’s pedantry in the service of a common principal is equal, opposite, and reciprocal.”
The JC’s thirteenth law of worker entropy (also known as the “optimal complication theorem”): Over time, a given template will tend to a point of “optimal” complication, (c), which is a function of:
- (i) the highest plausibly chargeable fraction of the typical value, (vf), of contracts concluded on the template,
- (ii) the time, (t), required to manipulate the template so it reliably works to the satisfaction of one having the patience, skill and hubris to understand it, and
- (iii) the professional charge-out rate, (r), of such an unusually abled person.
The relationship between c, vf, t and r is as follows: c ↔ vf = tr.
This is where we should start our inquiry.
See also
References
- ↑ Apologies, of course, to Carl Sagan.
- ↑ Curious? Have a look at this 370-page beauty.
- ↑ The future of the in-house legal function, Allen & Overy thought leadership.