images-17.jpg You will see the story gets all excited about Benjamin R. Civiletti, now chairman of the Venable law firm, for reaching the lofty threshhold of a $1,000 per hour hourly billing rate. If that $1,000 rate for Mr. Civiletti is serving a well conceived strategy to differentiate by being obnoxiously expensive, I fully respect that. If not, publishing high hourly rates clearly causes more harm than good. Don’t get me wrong, Mr. Civiletti appears to be an extraordinary lawyer (reference his bio) Wachtell, Lipton, Rosen & Katz is ignored until the the very last paragraph of a story from Bloomberg News today that appears in the Vancouver Sun in Vancouver Canada of all places, titled “U.S. lawyer charging $1,000 an hour“. $3.5 Million per partner for Wachtell, Lipton, Rosen & Katz demonstrates just how ludicrous it is to look at hourly rates as a measure of profitability. Hourly rates do not tell the client (or the law firm) what the matter is going to cost. When I began the practice of law in 1973, my 100 year old firm’s managing partner had a terrific formula for determining an hourly rate: “tell me how much the lawyer billed and the number of hours recorded last year and I’ll tell you that lawyer’s hourly rate.” Today we would define that as the effective rate, of course. So what is a Wachtell partner’s effective hourly rate? You guess the average number of hours worked by Wachtell partners and I will tell you the rate. Notice, I didn’t even say recorded, I said worked. If you speculate that Wachtell partners are maniacs who work an average of 3,000 hours a year they still beat the highest published hourly rate in the USA. What if they actually work a civilized 2000 hours? That would make their realized rate (not billing rate) $1,750 per hour. That includes their weakest and laziest (or distracted) performers. Don’t go arguing that Wachtell’s profits are the result of leverage – their web site confirms (look in “the firm”):

We operate with a ratio of partners to associates of one to one, and matters undertaken by this firm are afforded the direct personal attention of partners having expertise and sophistication with respect to the issues.

Conclusion #1: Hourly rates are a stupid way to price work for clients in the first place and an even dumber way to compare lawyers. The really smart ones have figured this out and are profiting hugely by their discovery. Conclusion #2: Don’t be impressed by hourly rates alone – they are only part of the story — the obnoxious part (at least from the client’s perspective).