More About $1,000 an Hour Lawyers

I have had some off-line discussions about my post on $1,000 an hour lawyers.  One lawyer friend from Pittsburgh wrote to ask me where he can find clients willing to pay him $1,000 an hour.  I wrote back that all he has to do is advertise that he is charging $1,000 an hour and clients will find him!

Actually, my facetious answer to his facetious question is not far from the truth at least according to an “expert” I spoke to a few weeks ago.  This expert regularly consults with large law firms and corporations on litigation management issues.  I asked him for his opinion on why it was that some corporations were willing to pay such high rates for services that could be capably performed by lawyers who charge far lower rates.  One of the reasons he gave me was that lower rates are actually viewed as a negative by large corporations.  

Also, the expert opined to me there could be a problem for a GC who suddenly decides to shift work to lawyers who charge lower rates. For instance, an alert CFO might starting asking some embarrassing questions  such as “why didn’t you do this sooner and before we overspent for legal services by several millions?” 

While many in the insurance industry (where high rates most definitely are viewed as a negative) may be reading this post with mild interest and asking “what do $1,000 an hour lawyers have to do with me?”  Well, as one insurance defense lawyer in Chicago once told me, higher rates at larger firms tend to have a ripple effect downstream on smaller firms.  This is because all firms have to compete for experienced associates and  support staff.  (A rising tide lifts all boats?)  He said that it is similar to what occurs when the minimum wage is raised.  The effects of the increase tend to ripple upwards throughout the business community.

If you have other theories on why some corporations are more willing to pay higher rates for legal services when capable attorneys are available at much lower rates or you disagree with me, please let me know either by your comments to this post or by sending me an e-mail.

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2 Responses to More About $1,000 an Hour Lawyers

  1. Richard says:

    There are elements of risk-aversion in the decision-making process, while no-one wants to be taken advantage of, of possibly worse consequence is the nagging doubt that had you spent more, your attorneys might have that little bit extra that could have won you the case, or settled for that much extra.

    Or equally, when you discover your opponent has hired one of those firms, as a CFO would you gamble on employing a ‘lesser’ firm when if the case is lost, the CEO is going to ask “why didn’t you spend that litle extra?”

    A study here is a case in point – http://tinyurl.com/4lp78kv

    In a market of attorneys charging say, $600 an hour, there is a certain cachet of charging “$1,000 an hour” – you are proclaiming that you are unashamedly expensive, because you are the best – and risk-averse companies and consumers respond positively to that confidence (though a heavyweight reputation is needed to avoid sounding transparently boastful)

    That said, those attorneys are also very reliant on maintaining that reputation and winning. If they lose the case, or lose the client’s trust, the backlash will be far greater as the client will not only question the value for money on its own merits but with the additional question of whether they have been deceived into paying over the odds.

  2. Paul Drake says:

    It is important to delineate between the delivery of excellent customer service and satisfactory outcomes of litigated cases. An attorney and/or firm can deliver great service but, sub-standard settlements or trial outcomes. With regards to Richards’s example, CFO’s generally do not possess the skill set necessary to select proper counsel. The reasons they are willing to pay high fees is because:
    1. They continue to use the firm their company has always used
    a. If they take a chance on another firm they risk being criticized for a poor result that the “Tried and Proven Firm” would have averted.
    2. They are willing to pay high fees for the very reason Richard cited in his comments.
    a. The correlation between high fees and better outcomes in a misnomer.
    3. They generally don’t know the going rates for the services they desire and don’t have the time to conduct research to identify the firms that consistently deliver great results at reasonable rates.
    4. They rarely audit these high dollars firms to confirm they are receiving real value.
    5. They lack sufficient litigation guidelines to avoid the above.
    Yes, this may seem harsh but, you cannot expect to improve by avoiding the reality of what is required to do so

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