A couple of times a year I give a talk to small business owners and prospective owners about legal risk management. We say “legal risk management,” and we do talk about specific kinds of legal risk that are present, but what we really do is have a conversation about proactive versus reactive problem solving. One of the most difficult things to discuss and manage for clients is this notion of reactive legal risk management.
When we look at the billable hour for lawyers as a business model, it is cost inefficient and difficult to manage proactive problem solving. If you pick up the phone to call your lawyer and its a five-minute phone call, you’re likely paying $30 for that call. A string of five-minute phone calls quickly becomes expensive and that is before the lawyer does any substantive work. Such a billing arrangement becomes a disincentive to make those calls when you get a bill at the end of the month.
Lawyers and clients have forgotten one fundamental truth. Clients are not paying for the lawyer’s time. Clients are paying for a lawyer’s advice.
The billable hour and charging people for these short phone calls becomes a disincentive to proactively address problems. I believe that there is no legal issue that has ever risen that did not start as a question that needed to be answered. The mindset of proactively asking questions is not well incentivized by the billable hour.
Thus, more often than not, small business owners will not consult a lawyer until the legal question has become a legal problem. Unfortunately, when you wait until your “quick questions” become real problems, you’ve actually cost yourself more money.
Let’s take a relatively common problem: employee troubles. You’ve now gotten to the point where your employee is not coming to work on time and they are insubordinate or rude to customers, but for whatever reason you have not fired them. Then something happens, such as an incident of sexual harassment. You end up terminating this employee and now the employee is either claiming retaliation or harassment. You are now looking at a far more expensive problem.
By waiting until it was a problem, you are going to contact and spend the better part of three to five hours explaining the entire history of this employee – everything from tardiness or poor performance. You are going to spend all of this time, up to five hours, thus spending $1,500 just to bring your lawyer up to speed before they can start solving the problem that you now have. On the other hand, a small business owner working with general counsel can prevent the escalation of that problem by comfortably picking up the phone, consulting their lawyer, and taking preliminary steps as needed.
I believe that the best solution to any problem is avoiding the problem in the first place. While it may sound conflicting, you can resolve an issue before it becomes a problem. As a business owner you may have dozens of things everyday competing for your attention. I own a business and it happens every day. Having somebody whose sole job is to help you address and avoid those problems – that is far more valuable and useful than anything else.
If you’re addressing the issues and doubts before they become problems, you will in turn save money over the long haul.