The Law … fitting a profession into “the business model”

GUEST: Mark C. Zauderer
VTR: 09/15/2008

I’m Richard Heffner, your host on The Open Mind. And sometimes I think that perhaps I’ve done quite so many programs about the law – and with lawyers – over the past half century and more just because I wish so much that I had myself had the good sense to go to law school.

Whatever, it’s always fun to have my distinguished lawyer friend Mark Zauderer here join me on The Open Mind, as he first did to discuss “The jury system on trial” when he had just Chaired New York State Chief Judge Judith Kaye’s Blue Ribbon Commission on the Jury.

Later, as President of the Federal Bar Council, Mr. Zauderer had chaired the New York State Bar Association’s Special Committee on Age Discrimination in the Legal Profession … and I reminded our viewers that Shakespeare had said only “First, let’s kill all the lawyers”. He hadn’t said anything about forcing them to retire. My guest did, however, at this table and in no uncertain terms.

But today I want to talk with attorney Zauderer about a Presidential Federal Bar Council article he wrote a while back on professionalism in the law. His query then was: “Where Has All the Professionalism Gone?”

A good question. But what’s the answer? What is the answer, Mark, where has it gone?

ZAUDERER: Well, it’s not gone in a, in a good direction. And I think the first thing we have to do is understand what a professional is. I mean a professional by virtue of training and education and experience has a special skill or talent that does a number of things.

First, it gives the person who has it great pride in what he or she does. Someone like that, for that person money is not the coin of the realm, it’s pride in the work, in the work ethic, in the work skill. And at the same time it gives society the benefit of that great skill.

I mean we see that not only among lawyers traditionally, among accountants, doctors and in a way this professionalism is the successor to the guild system we had in the medieval world where people of special crafts and interests, whether they be watch makers or glass makers or wood workers had a kind of skill and a guild and a sense of importance of what they did that made their product very good for society.

What has happened today in the legal profession and what’s happened in the accounting profession and the medical profession … for some of the same reasons … is that that professionalism has been lost.

There are factors both outside the professions and within the professions that have caused this. We’ve seen the commoditization of services. Clients, corporate clients … they once had a long time relationship with their lawyers … are often looking at it as though the lawyer is a vendor. The vendor then is someone who will produce a product or a commodity at the cheapest price.

And there are pressures on law firms to be more focused on the price at which they could perform the service, deliver it without concern about the quality or making sure that “the product” (in quotes) is produced with the professional skills that were once important to the profession.

Now at the same time, the professions are responsible for some of the diminution of the pride that lawyers take and the way in which they are viewed by the community.

The law firm that we knew 50 years ago, even the quote … big law firm … was a law firm of perhaps 50 people. And it functioned in one office and people knew each other. And they took pride in the name of the firm. They took pride in the way in which they performed their, their law, the way in which they trained young people … to mentor them.

We’ve seen law firms grow by leaps and bounds, often by aggregations of people who are viewed in terms of what they can bring as an economic resource to a law firm. So we have law firms with 3,500 lawyers.

So individual lawyers are measured through a very narrow template at to their worth. Typically how many hours they work, the dollars they produce in terms of client relationships. And that can have very, very bad effects both on the lawyers and on the society.

I’ll give you an example of where that has … it’s been very pronounced. In the accounting profession … I saw an ad recently on TV … or an accounting firm was advertising … of course advertising for law and accountancy has helped bring about these changes.

The idea originally was it would help make services open to people, it would make them more competitive, but there’s another negative side of that which I think is to diminish the, the … both the integrity and the way in which the profession is viewed by the public.

But the example I was going to give you is … look at the Enron case. Which we had this massive failure of a company and their auditors Arthur Anderson and Company, which are now defunct … where many have said that we had people in charge of the Enron account at Arthur Anderson whose compensation was so directly tied to the business that was generated from that account.

Now that was not true 50 years ago. A fine firm like Arthur Anderson compensated its accountants based on a whole range of factors, the quality of the work they delivered, whether they performed in accordance with the standards of the founder of the firm. And we see that in other professions as well.

Look what happened to doctors. Because of the HMO system … you know if you picture in your mind’s eye, you know, the doctor who made a late house call and took whatever time was necessary to tend to you need, well not only is that gone, but when you come to the office that doctor may be paid … who’s paid by a third party person, on a per capita basis.

We treat Dick Heffner for the year, we get “x” dollars for him, so it’s our incentive to see him as little as possible. And even where a doctor is paid per visit, it’s a relatively small amount.

So the doctor is now viewing himself or herself as a provider of a commodity, whose value is being assigned by sometimes a clerk at an HMO.

Again all this contributes to the diminishment of professionalism both from without and from within.

HEFFNER: Mark, somebody said to me recently, the curse of our lives among doctors and accountants and lawyers is the billable hour. What do you think about that, which I identify with the legal profession?

ZAUDERER: Right. Well, the billable hour was originally thought of as a fair way of charging for legal services. Fair to the client and fair to the lawyer because these tasks tend to be very much like making a custom suit. You know you don’t know exactly how long it’s going to take, how complicated it’s going to be.

So there is virtue in it. There’s no question that the amount of time is in some sense a fair measure of the value of the services. On the other hand, it can create the wrong incentives for lawyers.

And by the way, contrary to some of the popular notions, I think by and large lawyers, as well as other professionals hold themselves to a very high standard of integrity and honesty.

I think if you looked at the mean … if you could, if you could quantify or assign a quantification to the values that we assign to integrity, you’d see that professionals rank very high.

You know lawyers typically do not lie, for example. There are some people in some fields for which lying is just part of a day’s work.

But the billable hour, as I say, is fair in the sense of measuring the amount of work required. On the other hand it can create incentives to do unnecessary work.

And sometimes those can be unconscious motivations. You know if a lawyer has to bill in some other way, he may have to take into account, you know, the value of the project.

And by the way, some lawyers do. You know the billable hour for most good lawyers is a starting point. There are times when the lawyer will discuss with the client both a premium and sometimes at the beginning of the engagement, certainly where we serve business clients … that if certain agreed upon objectives are achieved the lawyer will charge a fee above the hour and often that’s left to the client’s discretion, in a good relationship.

By the same token it’s not uncommon for lawyers to cut the bill. That is render a bill that’s lower than would be the case if it was simply based on the number of hours. You have a … someone doing research, a junior lawyer … maybe a very, very well trained person … but took a wrong path in the research that turned out to be not only not producing results, which isn’t the lawyer’s fault, but maybe down the wrong path. He may not charge for that time, or give a discount for any reason to a … to a client of long standing with whom you have a good relationship.

HEFFNER: But this question of professionalism, which is where we began. Isn’t it your gut feeling that the billable hour in a sense runs counter to the notion of a profession?

ZAUDERER: Yes. I think it’s, it’s not completely inconsistent with it, but it’s not a good fit. It’s not a good fit because it tends to direct our attention away from “How am I going to render this service professionally? And what is a fair fee for it?”

The tough question is “Well, how do we figure out a fee?” And, unfortunately, the billable hour is often a … you know, a poor stand-in for a perfect method.

HEFFNER: Doesn’t it undermine the potential sense of being in a profession of the young lawyer. You’ve got to produce so many billable hours.

ZAUDERER: That’s a very, very good point. We find in large law firms with the emphasis on productivity a template in which they say, “Look, we’re going to pay you this for a starting salary and you can earn a bonus. But the bonus only kicks in over a certain number of hours.”

Now you don’t have to be a lawyer or an accountant to understand that if you’re a lawyer working in a large organization … shall we say your assessment of the time you put into a task, your judge of how many hours in the day you worked on that may be somewhat different than someone else who’s not under that pressure to bill a certain number of hours.

If somebody is reviewing a document or documents for five days in a warehouse in Kentucky, you know, with breaks and sometimes one will stay later or leave earlier or take a longer lunch. Now how many hours is that? Is that 8 hours, if you’re working on a brief. Is it eight, is it ten, is it seven?

You know even these matters of judgment can be influenced by a compensation system that relies on the demands of billable hours. So I agree with you.

HEFFNER: What ticks off your concern about where has professionalism gone in the legal profession?

ZAUDERER: I see it in lawyer jokes. I see it …

HEFFNER: In lawyer jokes?

ZAUDERER: Yes. The, the jokes, you know, that relate to, you know, how much money a lawyer makes or, ahhh, we see it in … sometimes in politicians. We had a President of the United States who, I think, slipped and said, “I’ll call my lawyer”, or something about tasseled loafers.

You know, creating the stereotypes of lawyers who are only interested in money. I think that creates in the public’s mind an inaccurate image of what motivates most lawyers. But not all, there are some who are solely concerned with that.

I think what happened a decade ago, or more, was some lawyers began to view themselves or see themselves in relation to investment bankers. Now they saw investment bankers making a fortune. And the lawyers figured out that, “Yeah, well we want to make … we want to do very well.” I mean after all these pieces … these people get a, a piece of the action that amounts to millions of dollars in a transaction … or more. And lawyers wanted to see how they could do it, too.

And so they began to impose on the law firm what we call a “business model”, which I think is an ill-fitting template for many professional organizations. Again, coming back to the individual lawyer … many of the lawyers, by the way, who I know, in my generation, who are with very large firms and they may be very fine firms in some ways, are very unhappy. They’re waiting out their days until they have to leave.

They are judged by an executive committee in a corporate model in another city where the firm … management is centered who look only at that lawyer in terms of the business produced, the billable hours …

HEFFNER: The numbers.

ZAUDERER: … and the numbers. They know nothing, as was the case fifty years ago where everybody worked in the same office … of how that lawyer contributed to associate advancement, to morale, to pitching in when, when necessary to relieve a colleague … all the things that make a professional who’s primary interest is doing the work for the client and for the firm and not “what do I get out of this?” And unfortunately the firms have encouraged that because people are evaluated so narrowly.

HEFFNER: Question.

ZAUDERER: Sure.

HEFFNER: Not a hostile one … just a question …

ZAUDERER: I’m used to those.

HEFFNER: What do you leaders … people who lead the legal profession doing about this? Is there anything that you can do?

ZAUDERER: Well, for one thing we talk about it and we write about it, something I wrote apparently caught your attention …

HEFFNER: MmmHmm.

ZAUDERER: … so hopefully your, your audience will think about this issue. So I think public discussion and public education, as with many other issues may not produce immediate change, but they begin to contribute to a … cross currents of ideas that at the right time produce changes in the profession. Sometimes we get …

HEFFNER: What would the changes be?

ZAUDERER: … well, I think we would, we would begin … the lawyers in, in large firms would begin to speak up and speak out against the environment in which they’re practicing. And say, “Look we want more say or more democracy in the law firm in terms of how we function.”

You know some of these firms, the management committees are self-perpetuating. Some of these firms … each partner … you think of a partner in the professional sense. If someone has a stake perhaps, not necessarily an equal economic stake in a venture, but participates in decision making … well, in some cases in the firms, the lawyers don’t even participate in the decision making in any meaningful way. Not only does the management committee control the operation of the firm, but the financial information, what other partners are making in that venture is not even known to other partners … only the people on the compensation committee know that.

That’s not a professional organization, by the estimation of many. And I think if the lawyers who are involved in this had the courage to speak up, if bar associations have the, the courage to take this on, I think it would be important.

I’ve suggested this as an issue for, for the current … for someone who’s now seeking to become President of the New York State Bar Association.

I want of just recount to you one sort of footnote on this issue I was thinking about as I was waiting. Several years ago I attended a New York State Bar Association Annual Meeting at one of the big hotels, with thousands of lawyers there. You know and everybody wears name tags that says “Bar Association” and I was coming down in the elevator and somebody from out of town, not a lawyer … businessman, I suppose, or a group of them, looked at us, saw the badge and said, “You lawyers are having a convention.” I said, “Yes”. He said, “Are you learning about how to make a lot of money?” And I thought about it, I said, why would he ask that question? Because, in fact, all the programs that we were having that week, had nothing to do with making money.

They had to do with update on ethics, had to do with update on specific areas of practice, such as Wills and Estates and litigation. That’s what the lawyers were interested in, learning their craft, like the medieval craftsman, or the professional. And I think that if we can help lawyers maintain their pride in their profession to resist, when organizations tend to diminish their professionalism, we may produce a push-back over time. And I think talking about it like this is an extremely important part of it.

HEFFNER: “Push-back”. You know it’s funny, at this table today, in taping three programs in a row, I’ve heard my guests talk about “push-back”, we must be in trouble in many different areas. One was about medicine, and one was about basically education … and now the law … talking about “push-back”. Do you think that says something about the larger problem?

ZAUDERER: Yes, I think it does and I think it’s interesting because I didn’t see the other programs and apparently I used a phrase that they did and I’m not sure I’ve seen that used on TV recently, so we must have all thought about that independently and perhaps it has some truth to it in law as well as in other professions.

HEFFNER: Where is there, in the organization of the law in this country, in our country, is there some pivotal point where a beginning might be made in the changes that you would like to see take place?

ZAUDERER: I’d like to see an emphasis on the value of the individual lawyer. The lawyer whom we picture sitting as a single practitioner in his office … you know, papers piled on his desk. You know, always behind, never enough time, but with clients who are loyal and that lawyer …he or she … is loyal to the clients and there’s … there are relationships … sometimes life-long relationships just as though … as though you were dealing with your doctor, which today we don’t have as much because we go to a doctor on a list from our HMO.

I think that if lawyers think of themselves that way … you know, we, we perform no better than the way we think of ourselves.

And I think if we have that pride in what we do, we’re able to handle ourselves whether we’re in a large firm, a medium firm, or working on our own … to tell ourselves that we are worthy of respect, we are worthy of being well treated and we should treat others well in our profession. That, that’s the height of professionalism.

HEFFNER: All I can say is, that everyone at this table today basically is saying, “lets turn the hands of the clock back.” Doesn’t happen, does it?

ZAUDERER: No, we can never turn the hands back, but hopefully we can learn from some of the mistakes we’ve made and unfortunately we only see these when the mistakes have serious consequences and sometimes we correct …look, what’s gone on in Wall Street for example.

Anybody would agree that mistakes were made. But we only know that when there’s been suffering. Right? Well, maybe we’ll learn something for the next time.

Maybe … either if it’s not new regulation, maybe the Regulators will focus on the right things that will help prevent what’s happened on Wall Street.

Same thing in the professions. You know I think that we’re going to see Macy law firms collapse of their own weight at some point.

HEFFNER: There have been some collapses.

ZAUDERER: There have …there have been … there have been. And, of course, what’s happened … I happened to be one of several beneficiaries of this phenomenon … is there have grown up as a result of these mergers of firms, niche practices, such as mine, which is … sometimes it’s called kind of a shop worn word, but a “boutique” practice.

One because these large firms are unable to handle many matters because of conflicts. The New York office of a law firm may want to take on a matter against a company, but that company is being represented by the same firm in, in Europe or Asia. So they will recommend people who are known in a particular field, such as litigation … who are in smaller firms … typically don’t have the conflicts and can handle the matter. So that niche has become more important.

I think those niche law firms will become more important in the next decade or two as these large firms become, become unable to serve many clients … they are very often interested in serving fewer clients because they have to … they’re conflicted from serving others. And they look for only the very, very largest clients in America to increase their work with those clients.

Now … some of these law firms will work in many cases … some cases, they may fail. Because growth and size does not necessarily increase profitability.

HEFFNER: What’s the role here that should be played by those who let you enter the legal profession, the medical profession, education … the schools …the law schools … don’t they play a major role here? Shouldn’t they play a major role here?

ZAUDERER: They do and I think they are doing more than they, than they once did. When I went to law school there was no mandatory course in ethics.

Your training in ethics was haphazard when you came out of law school. Your first confrontation with the subject might be an unhappy experience.

It’s part of law school training. What we’ve done in New York State, as have other states, is we have education post-law school, mandatory education … CLE … continuing legal education, for which lawyers who practice are required to take in order to renew their registration every two years.

So I think the, the law schools, have taken in within their curriculum some of the subjects that are important to professionalism … the practice of law, ethics … not merely the nuts and bolts of legal principles, but those that relate to who we are as lawyers.

There’s something called the law of lawyering. You know the ethics principles that apply, the court decisions that have developed pronouncements on what lawyers can or should do or may not do in certain circumstances.

So I think that’s a very good trend. We’ve become much more sensitive to that. I wish the public understood the extent to which lawyers and the legal profession is policing itself. And is concerned that lawyers operate on the highest standard of ethical … of ethics at all times. And I think that’s under … misunderstood and underrated.

HEFFNER: Come on, Mark, all they have to do is pick up a newspaper. And see that there are so many instances in which that doesn’t seem to be true.

ZAUDERER: Yeah. And that’s the nature of newspapers, they’ll focus on … you know, the one, two, three … four times that that occurs. Think of the, you know, the seventy, eighty thousand member just of the New York State Bar Association who are practicing and there are other lawyers who aren’t part of that group in New York.

You know, we’re reading … what … about a half a dozen cases of lawyers who have, who have gone astray. We can say the same about doctors, or about policemen, you know, or judges or politicians, for goodness sake.

HEFFNER: What about admission to the Bar?

ZAUDERER: Yeah?

HEFFNER: Where does that come into this? Are there no ways in which the kinds of characters that you feel … few or many as they may be … or few as they may be … as, as you might say … that we don’t admit just everyone to the practice of the law.

ZAUDERER: Well, would that we had system. But … although the screening system is better than … for many, many jobs … you know, if people have not demonstrated, you know, a moral or a legal failing at the time of their admission … it awfully difficult to predict what will happen in the future.

And if a lawyer is going to go astray or do something dishonest or immoral, and has not done so of record at the time of admission, I don’t think there’s much we can do about that.

HEFFNER: Make a bet. When you come back here … will the situation be better, will it be worse? Do you … are you expressing optimism about change in this area?

You took the time and the trouble to write an article … a major article on professionalism … and you weren’t very positive about it. What do you think going to happen?

ZAUDERER: Well having been not positive about it, I am cautiously optimistic. Because I believe that when these issues are aired and discussed, there comes a time and a place when either the profession or the society will cry out for it because the society will benefit from it.

Lawyers will not forever practice if they’re treated as commodities. And clients will find that if they treat their lawyers as commodities they’re going to get let down in the quality of service that they receive, often in a way that’s that’s very costly and destructive.

HEFFNER: Do you think in a market based society such as our own, that’s a realistic prediction?

ZAUDERER: I think it’s a possibility. I think it’s a probability, but, as I said, I’m only cautiously optimistic.

HEFFNER: Mark … retain your cautious optimism and we’ll talk about, I’m sure, at another time. Thank you for joining me today on The Open Mind.

ZAUDERER: Pleasure. Thank you.

HEFFNER: And thanks, too, to you in the audience. I hope you join us again next time. If you would like a transcript of today’s program, please send $4.00 in check or money order to The Open Mind, P. O. Box 7977, FDR Station, New York, New York 10150.

Meanwhile, as an old friend used to say, “Good night and good luck.”

N.B. Every effort has been made to ensure the accuracy of this transcript. It may not, however, be a verbatim copy of the program.