With more than 25 years’ experience as a leader in professional firms, John Chisholm established his own consultancy in 2005 to share his expertise and experience with firms looking to move beyond the traditional firm model. John is a strong advocate that firms of the future be defined by:
1. finding or rediscovering their purpose,
2. moving away from pricing their services solely by time
3. stop using ineffective performance management ‘tactics’, and
4. implement alternatives to the partnership model.
John believes that for those firms willing to do so, the result is a knowledge firm rather than merely a product or service firm. Such firms tend to have far happier clients and employees than traditional firms – as well as a pricing strategy that is no longer limited by people or hours.
Law firms have long relied upon the same model of pricing their services – the billable hour model. What are your thoughts on this model?
Lawyers of course didn’t always charge by time. I am old enough to remember TBBH (Time Before Billable Hour). Prior to the 1980’s in Australia at least most lawyers billed by scale (which is still retrospective billing), fixed fees (upfront) or what I would call value billing (after the work is done an assessment is made by the lawyer of what the lawyer thinks matter worth/client will pay). Even though time based billing was first introduced to the legal profession in 1919 (um 100 years ago) in the USA it was not until post WW11 time billing started to take off and in Australia it was primarily accountants to law firms that introduced time billing to lawyers, and lawyers of course introduced it to their clients. It was never a client led billing model.My views on the billable hour model (and any retrospective billing model) are well known. I think it is suboptimal, outdated, inaccurate, non-transparent and unethical. It is also demeaning to lawyers-especially good lawyers-that what they sell to clients is solely calculated by reference to time. Clients do not buy a lawyer’s time- if you don’t believe ask your best client what they buy from you and I bet they don’t say “time”-and isn’t about time we stopped selling something our clients don’t buy? The delirious effects of the billable hour and its partner in crime, time recording, on our profession (for example on a firm’s culture, measuring and rewarding smart young lawyers by time billed rather than metrics that really matter, tempting otherwise ethical lawyers to do unethical things, damage done to client relationships especially though bill shock to name a few),are enormous-but the majority of the profession just views these delirious effects as simply collateral damage in the quest to making money from this flawed business model.
You are a leading advocate for professional firms to become “firms of the future.” What does this mean? What is a firm of the future?
Well for me I first heard the concept of the “firm of the future” from a (now) mentor and colleague of mine Ron Baker who has written many books on value-based pricing and is the world authority of value-based pricing in professionals without peer. One of his books that he cowrote with Paul Dunn in 2003 was titled “Firm of The Future” and is (still) a great read. In essence Ron & Paul made, in my view, an irrefutable case that professional firms can be-and are- better off by making a complete paradigm shift away from what I call their Oldlaw business model which essentially leverages their people x time x hourly rate. It’s now 2019 and it is almost unimaginable we are still using the billable hour to the extent we do. Real change happens glacially in our profession notwithstanding the hype around legaltech innovation.
What is value-based pricing?
In its simplest form value pricing is a pricing model whereby the lawyer as a professional, has a value conversation with their client agrees with their client a scope ofwork and quotes a price (or prices) to the client before starting the work. The price is based on the perception of the value to be created for the client, as a result of the lawyer executing the work. If the client accepts the quote, the deal is enshrined in a fixed price agreement. As all value is subjective,it is about pricing your client not your work.
How did you end up being a consultant to firms?
Good question. After I left mainstream law as a partner, Managing Partner and CEO at the end of 2004 my wife and I took 4 months off driving (part way) around Australia and the only thing I was sure of for the next stage of my professional life was that I was not going to run another law firm! When I returned from this trip and was still deciding what I was going to do next I had a couple of colleagues who were MP’s of law firms ask me if I would help them out on a couple of projects. I guess as they say the rest is history. Interestingly when I was asked how much I was going to charge for such projects I really had no idea what I should charge but I certainly was not going to charge by time as that would mean I would have to fill out a timesheets-and I think I became an MP of a law firm so I didn’t have to fill out timesheets but make everyone else fill them out! For my first couple of consulting jobs I just said, “I trust you, just pay me what you think I am worth”. Again, interestingly I subsequently was paid more than what I would have priced my own services at if really pushed. Hmmm? It could have been that the MP’s that used me felt sorry for me or it could have been I didn’t fully appreciate the value I brought to those firms? This stimulated my interest in pricing and value but that is another story in itself.
For any young lawyers seeking to change the status quo, either in terms of their individual practice or within their firm, how would you advise them?
LOL! The easy answer would be to say don’t bother trying to change your Oldlaw firm,start your own firm or join one that has already made a paradigm shift. Seriously I do not for one moment underestimate how hard it is for large Biglaw/Oldlaw firms to make a business model change such as I advocate. Such firms on the whole are still financially successful so why would they change? And they have invested heavily in the time-based business model not just in their billing, but in their measurements, rewards, compensation, practice management systems, etc. In my experience most enlightened lawyers in Biglaw/Oldlaw that have tried to change the model have spectacularly failed and finish up leaving and starting their own firm .It is easier to start afresh. It’s not the “learning” of this new model that is difficult it is the “unlearning” of their current model. For incumbent firms that have made the change to date they have tended to be smaller firms, not just because it is easier to influence the minds of a few rather than many, but most smaller firms are probably pretty average/undisciplined at time recording anyway. Having said this there will come a tipping point and I am hoping that the tipping comes from younger lawyers, from the innovators, the risk takers, the legal entrepreneurs who “get it” and not because of client pressures. We as a profession made the business model change once before and we can- and we will do it- again. I just hope I am around to see it.