What goes up, but never goes down? The answer to the old riddle is "age", but it could just as well be "Big Law's hourly rates".

If you have ever received a Big Law bill, you will have experienced the bewilderment of valuing someone's time at CAD$900 per hour. Or CAD$850. Or even CAD$590. Last year, CounselLink reported that American Big Law's median billable rates were US$706 for M&A files and US$608 for general corporate and tax work (https://counsellink.com/trends/). This situation is about the same here in Canada.

Big Law's black magic has always been pulling rabbits out of hats - for its own amusement, and not the audi­ence's.

But aside from sticker shock, where does that money go exactly? One might assume that it goes to cover­ing Big Law's higher cost base. That is what we always thought. A few years ago, we would have guessed that per­haps 40-50% of a billable hour would go to cover Big Law's ex­pensive tastes (e.g. high lease payments, fancy offices, a large support staff, etc.).

But boy, were we wrong. As mentioned in our first Big Law post, we created an econom­ic model for a typical Big Law firm under a set of very fair assumptions.

The model completely upend­ed our expectations, with the following breakdown of each dollar of Big Law revenue:

1009278a.jpg

Wow. Big Law is an 80% margin business. For every hour that a Big Law Chad or Karen works on your file at $850, they are directly or indirectly pocketing $680. Big Law actually pulls two rabbits from the hat every time it bills a client.

After the twin crises of Low Oil Prices and Covid-19, is this a reasonable estimation of a professional's value?

While some folks will always overpay for things, we think the situation is about to change. Deeply and quickly. Companies are fighting to preserve liquidity, while pivoting to survive in a long-term low revenue environment.

With that burden, would companies even want to feed someone else's 80%-margin busi­ness?

Would a general counsel even politically risk that call when her fellow VPs are slashing budgets?

Is it even decent for Big Law to make that ask? Should Big Law instead downgrade its ex­aggerated self-worth – if not for years to come, then permanently?

While the need for change is clear, we suspect from experience that Big Law's self-inter­est will almost always trump its desire to really change in the hope that the good times will return again.

If they do, perhaps there is a third rabbit in that hat?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.