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The Inherent Conflict of Interest in Traditional Legal Practice

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Yvonne Wakefield 12:2018.2Law is about justice and fairness. It really is, I keep telling myself. For me, justice and fairness were the driving force behind years of work, collecting degrees and professional qualifications. They have to be what law – and legal practice – are about.

I love the law, the definitiveness of it, and the evolving nature of it.

The black and the white.

The grey. And the scope of the grey. What it can hold. Opportunism in all its forms.

But I digress. Back to black and white: Legal practice, despite what many lawyers think, is a service. Lawyers are service providers. Sorry folks, but you/we are service providers. Our customers/clients (I’ll call them customers), should be at the forefront of our decision-making. I worry that this has slipped our minds.

There is a phenomenon that has defined legal practice, particularly attorneys’ practice, for years, that to my mind places attorneys in a position of conflict every day – the fee target. A fee target (or ‘budget’) is a monthly amount of money that an attorney is required to bill his customers, consistently, in order to remain in favour with his bosses and move through the ranks in his firm. In order to meet the target, said attorney needs to work a certain number of hours (for which he invoices a (usually) hourly fee). If he meets his targets, he is promoted to positions with higher pay, but also with higher fees and higher targets. If he consistently fails to meet his targets, he misses out on promotions, is demoted or even retrenched. So he needs to reach his targets.

Who sets the targets and why are they there? Targets are set by the leadership at the firm (‘the bosses’ who are senior attorneys), who weigh up the overheads that need to be met every month and benchmark the expected profits. The sums are then done, and ‘budget’ is allocated across the firm for collection, taking into account the number and seniority of its members, their specialisations, their hourly rates etc.

What are the overheads? Overheads are expenses that need to be paid for out of the fees earned. In the case of a traditional law firm, the main overheads are the use/purchase of impressive buildings, salaries of lawyers and staff who don’t earn fees like secretaries, receptionists, and HR and marketing personnel, books and online resources, insurance, office supplies, marketing costs and such like.

Who decides what the overheads should be? Overheads are typically imposed on each generation of lawyers in a firm by the last. The problem with this scenario is that the existence of each overhead isn’t regularly challenged, so firms keep having to meet them, and add new items to the list over the years. For example, most law firms globally still operate out of opulent and expensive buildings despite the fact that technology allows lawyers to effectively work from wherever they want to. Is the retention of the buildings in their customers’ interests? How many customers like the idea of getting into their cars and traveling to their lawyers? I think most customers would like to stay where they are and have their lawyers (the service providers) come to them. So why do law firms continue to house themselves in expensive buildings and pass the cost of them on to their customers?

Fee targets are set by the bosses and are aligned with the bosses’ own personal interests. When taking on a brief, attorneys are incentivised not to do what is right and fair for their customers, but what will take the most timeto do and allow them to bill the highest possible amount (so that they can reach their targets).

Obviously some, in fact many, do not just work as much as they can to bill as much as they can. But some, in fact many, do. Because they simply have to.

So in the mind of a lawyer in a consultation with a new customer, he is thinking not what will bring about the most efficient solution for the customer as quickly as possible, but what course of action will string the matter out for as long as possible.

To be clear, this is not the attorney’s fault. It is simply the playing field of his livelihood. The fault lies with the bosses, many of whom are not even practically on the playing field. They have inherited or built opulent buildings, hired teams of non-professional staff, hosted lavish events, and somewhere along the way forgotten the customer completely.

The bosses, of course, justify fee targets on the basis that attorneys should be incentivised to sell/build their practices/bring in work themselves. This an important and valid point. Lawyers should bear some responsibility of attracting customers and work should be generated throughout the firm, but surely not at the peril of its uninformed customers.

Be that as it may, the reality is that, because of the misalignment of incentives, the lawyer sits every day with a very real conflict between the customer’s interests (in finding a quick and viable solution) and his own interests (in continuing his livelihood).

That is not fair. It is not fair on the attorney. It is not fair on the customer.

There’s an inside joke in the profession: Lawyer A and lawyer B walk into the lift together. A says to B “I see you’ve been briefed in that high profile matter”. B chuckles to A “I have. Properly managed, the matter should go on for years”.

This attitude, and the practice that causes it, needs to stop. The longer the traditional players in our industry allow it to continue, the more they open themselves up to disruption.

Yvonne Wakefield

Founder & CEO

Caveat Legal