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Can Lawyers Keep Charging Top Rates?

Though law firms believe that premium pricing is appropriate for complex transactions like mergers, their clients may think otherwise, as Above the Law's David Lat describes in this New York Times article, When $1,000 an Hour Is Not Enough. Lat describes that while 25 or 50 percent premiums over total billings is not uncommon, now some companies have started complaining. 

What I found interesting about Lat's piece is that despite what clients think, the lawyers handling complex transactions believe that they bring immense value to the table. Consider these quotes: 

“In large, intense, demanding M.&A. deals, the hourly rate is probably not a good proxy” for the value of legal work, said Morton A. Pierce, the chairman of the mergers and acquisition group at Dewey Ballantine.

John C. Coates, a professor at Harvard Law School and former Wachtell Lipton partner, said that setting legal fees for merger advisory work was more art than science. “How do you quantify the headache, the scrambling, the ingenuity and the innovation that happen in the course of the deal?” Mr. Coates asked. Victor Lewkow, a partner at Cleary Gottlieb Steen & Hamilton, suggested that innovative legal approaches could be worth far more than the time it took to think them up. “If one brilliant light bulb went off,” he said, “but it took only an hour, there’s no hourly rate that will reflect that value added.” And another law professor pointed out that: “It’s not the appropriate time to price-shop when you’re doing an M.& A. deal with lots of zeros,” said William Henderson, associate professor at the Indiana University School of Law. “In the transactional context, you’re buying a reputation.”

Of course, law firms can value their services as much as they want. The larger question for firms is whether clients will keep paying. So far they have. But will they continue to do so?

Posted by Carolyn Elefant on October 3, 2007 at 05:36 PM | Permalink | Comments (2)

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