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Summary: Is GlaxoSmithKline ushering in an era of alternative fee arrangements?
It turns out eradicating billable hours was not a hard pill to swallow. British pharmaceutical company GlaxoSmithKline has been requesting law firms no longer bill them by the hour, and it appears as if their wish has been granted. In 2015, 84 percent of legal work done for the multi-billion dollar company was performed under an alternative fee arrangement (AFA). This is a huge jump from 2008 when 97% of GSK law firm work was completed using the traditional billable hours model, according to Law.com.
GSK’s campaign to end hourly billing was credited to the company’s general counsel Dan Troy. After arriving from Sidley Austin in 2008, he advocated GSK to seek legal representation using AFAs. According to GSK associate general counsel Bob Harchut, “The mission was to dramatically change the paradigm by which GSK paid for legal services. It was pretty radical to say we’re going to move every new engagement around the world, whenever feasible, to an alternative fee arrangement.”
Despite Harcut’s initial skepticism, he told Law.com that Troy insisted that AFAs would be a win-win for GSK and the law firms they worked with. So far, law firms view the change as positive, according to Harchut. He said the biggest challenge for everyone involved is ensuring GSK negotiates the fairest flat rate up front.
“How can we make sure we aren’t over or underpaying for value … that has been our Holy Grail,” Harchut said.
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Busines of Law said that GSK’s high percentage of work performed using an AFA was “impressive.” In 2015, AFAs were only used in 9.4 percent of all legal matters, according to the Enterprise Legal Management Trends Report.
While GSK’s almost entire annihilation of billable hours is rare, it comes during a time when some experts are advocating that kind of change within the legal community. Because law firms operate by the billable hour structure, associates are expected to bill 2,000 to 2,500 hours a year. This leaves attorneys unhappy, unhealthy and burnt out, and it is said that this business model is a leading factor as to why women eventually phase out of the profession.
Harrison Barnes of BCG Attorney Search has advocated for more law firms to modify their current 60 hour work weeks to fit young attorneys’ values.
“Changing demographics in the United States over the last several decades have created a need for alternatives within the practice of law. Responsibility for the care of children and elderly parents has mandated that women create flexible arrangements; men also have either assumed or been forced to take on such responsibilities,” Barnes said. “Societal values have also changed immensely over the last few decades, contributing to the need for change within the practice of law. Concerns about health, fitness, and quality of life have made us into a nation of emerging “life-stylers”-people with interests beyond the immediate demands of our profession. Psychological testing and self-awareness tools also have enabled individuals to determine their own talents and needs, and they are acting on this information by creating or seeking work arrangements suited specifically to their personal situations.”
Photo courtesy of Bloomberg Finance
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Do you think law firms should do away with billable hours? Let us know in the comments below.
