One of the largest firms in the country, Howrey LLP, voted to dissolve itself yesterday. In an interview with The Wall Street Journal yesterday, the firm’s final CEO Bob Ruyak blamed Howrey’s demise on “alternative fees.” (You know how I feel about that ridiculous term.) He also blamed discovery vendors (those vicious law-firm assassins), impatient partners, and, of course, The Economy. Funnily enough, he failed to blame a creaky, outdated business model or, you know, himself for the collapse of the firm. But trust me when I tell you that the story going forward will be how those dastardly alternative fees killed Howrey dead.
I mean, give me a break. It’s not as if Howrey was on the cutting of edge of trying to get rid of the billable hour. In a nationwide survey by the National Law Journal showing larger firms’ use of so-called alternative billing, Howrey declined to participate. (See “The numbers behind the lip service: Part One.”) In an article on their own website, their Northern California managing partner Henry Bunsow whinged about how hard it was to do litigation without the billable hour, and doubting whether clients really wanted it:
Howrey bills about a third of its work with alternative fees and is trying to grow that number. But he said it is a somewhat difficult task because “in the highly important types of cases, [clients] probably don’t want a fixed fee arrangement.”
Bunsow’s observation is one echoed by many: Nonbillable-hour fee arrangements often cease to be effective in major litigation, especially in matters that go to trial.
(My emphasis.) Not exactly a revolutionary.
In a November 2010 article in The American Lawyer, “The Story Behind Howrey's Very Bad Year,” writer Julie Triedman explained the problems Howrey had in pricing its services:
Over the past couple of years, notes Ruyak, clients have insisted on more alternative billing agreements, success fees, and extended payment plans, making cash flow lumpier, financial reports more confusing, and projections less accurate. In 2008, some $35 million in contingency fees helped drive profits to record highs, but last year, notes Ruyak, the firm had negligible contingency revenue and was plagued by “poor pricing.” Last year’s dip “was a big swing,” Ruyak says. “I understand many partners’ psychological anxiety. But I can’t really do a whole lot about that.”
(Wow, way to channel your inner Shackleton.) Triedman also says that when Howrey was trying to tweak its old business model, “some experienced and independent advisers would have come in handy.”
In a May 2010 American Lawyer article, which discussed how fluctuations in Howrey’s contingency fees affected its bottom line, Ruyak conceded that they didn’t really know what they were doing:
Ruyak says that even with limits in place and years of experience with these types of billing arrangements, the firm is still in the process of “figuring out how to do them well.”
So we’re starting to see the real problem here. It’s not that “alternative fees” killed Howrey; it’s that Howrey didn’t know how to change their business model and price the knowledge that was their stock-in-trade. And you really can’t blame them. The billable-hour model was invented in 1919, and big firms like Howrey have known nothing else. As Triedman pointed out, some experienced advisers would have come in handy.
Let me put it to you another way: When I first played golf, I sucked at it. But I didn’t blame golf. And over the years, if I tried a different approach to my swing and it didn’t work well right away, I didn’t decide that the new approach was bad. Just that I hadn’t figured it out yet. (And never actually did.)
When it came to alternative fees, Howrey was a duffer.
Changing a hundred-year-old business model isn’t easy, but done right, it can work. And I’m here to help.
I take no pleasure in yet another BigLaw firm shutting down. A lot of excellent lawyers are now out of work. And changing the way you've always practiced is scary. But just because the change is scary and difficult doesn't mean you shouldn't do it.
If Howrey had learned how to price, it would be atop the Am Law 100 list today, instead of being its latest casualty.
What do you think? Do you think “alternative fees” killed Howrey? Or that video killed the radio star? Share your thoughts in the comments.
Ruyak’s finger-pointing interview is unfortunately behind Rupert Murdoch’s paywall, but the ever-awesome Ashby Jones has kindly pulled back the curtain to show some of the better bits on the WSJ Law Blog. (See “CEO Ruyak Partly Blames Contingency-Fees, Discovery Vendors, for Howrey’s Fall” and “What Else Happened to Howrey? Here’s More From CEO Ruyak.”) And see the excellent continuing Howrey coverage over at one of my many other jobs, Above the Law.