Thesis
Lawyer valuation and pricing of legal services in corporate law firms
Southern Cross University, Faculty of Business and Computing
Doctor of Philosophy (PhD), Southern Cross University
1997
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136 Record Views
Abstract
The valuation of services by lawyers in large professional firms and the pricing of those services in the exchange market is an important issue for society. Concerns about legal service efficiency in the context of the larger economic system have been highlighted recently in Australia with a number of public inquiries concerned about the pricing of legal services and the costs of justice. Criticism of the way lawyers value their services and the costs of justice in Australia abound. 1,2,3,4,5,6 The most significant investigation by the Trade Practices Commission (1993) made its recommendations on pricing whilst "unable to obtain comprehensive quantitative data on legal fees charged in the market place to clients for various legal services. "7
The literature is mainly anecdotal and provided little consensus or research as to how lawyers create value. Forsyth (1992) suggested that the common factor among the professions is that they all provide a service, the service contains an element of advice which depends upon expertise and, sometimes, objectivity; and time is a basic resource of the business. 8 Legal service performance has been described as combining skills (Si) with the lawyer's time (Ti) to produce a service of given quality (Qi). 9
Giarini (1991) traced the changing emphasis in modem economies from the production of goods towards services, and considered that the traditional models for measuring economic value have not kept pace with the change. Traditional economic theory measures economic value under the assumption of a price equilibrium between supply and demand when goods and services are exchanged. Whereas, in a service economy, value depends upon the performance of a system, "performance and real utilisation (in a given time period) of products (material or not) integrated in a system."10 In conclusion, Giarini (1991) defined total wealth as comprising both monetarised and nonmonetarised values. The latter was viewed as "the truly dynamic part of the process in adding to TW (total wealth) ... But in practice, nonmonetarised value was finally kept out of the dominant economic model because essentially, if not priced they were either outside the exchange system or outside the world of scarcity."11
This thesis is concerned with understanding how lawyers value their services. The thesis achieved this aim by developing and testing a theory explaining the legal service value chain described in Chapter 3. The chain runs from service value creation through a production function, the application of legal competencies and service quality, to perceptions about the service, and finally the exchange pricing of legal services. The integration of both qualitative and quantitative measures on pricing were measured.
The research commenced with evaluation of the resource allocation decision rule used by lawyers when producing a service. As services are largely intangible, and production function analysis is normally based upon physical inputs and outputs, an innovative approach to the study of legal service production functions was developed in Chapters 4 and 5.
A substantial body of knowledge suggested that legal service performance depends upon the competencies good lawyers exercise in legal practice.12,13,14,15,16 A competency based theory of "good lawyering" stated in the literature that had not been empirically tested previously was partially confirmed by replication tests and structural equation modelling of the construct in Chapters 6 and 7.
Billing methods developed over many years include fee scales, agreements, taxation and rules concerning discounting and time based charging are used in practice. 17 Some of these methods allow lawyers to subjectively judge the value of their own performance when setting the quantum of costs. 18 In Chapter 8, exploratory research, using a repertory grid approach, was carried out to identify the major reference axes used by lawyers to construe the value of their work.
Having identified these perceptual reference axes, a confirmatory factor analysis was described in Chapter 9, to identify and confirm the dual dimension of the perceived service construct as perceived by lawyers.
In Chapter 10, the results of a 30 month survey of billing methods is presented. The influence of price dispersion and general market supply and demand conditions were reviewed. In addition, the relative influence of billing methods and specialisation on the pricing of legal services was researched using ANOVA and ANCOVA methods.
Chapter 11 was concerned with the integration of monetarised values and nonmonetarised service values into the pricing of legal services. This chapter measured the degree to which lawyers were able to integrate monetary and non-monetary variables in the pricing of legal services. A statistically significant "economic and perceptual values" pricing model was developed that explained the relationship between market price (y) and the law firm's service offer price (w).
The thesis was summarised and concluded m Chapter 12 which also sets out the limitations of the research.
1 Commentary, "Time Costing: Judicial Reservations Emerging," NSW Law Society Journal, July 1992, pp 16 to 18
2 Master of the Queensland Supreme Court Donald Horton, quoted in Hansen P, "Rorting the Law," The Sunday
Mail, 9 September 1991, p 13
3 The Office of the Lay Observer, an independent body overseeing the investigation of complaints against solicitors
of the Queensland Law Society reported that 199 of the 957 complaints investigated related to cost issues in the year
ended 30.6.1993, Courier Mail, 23 October 1993
4 "Inquiry on Costs Committee Preliminary Recommendations", The Proctor, May 1993, p 6
5 Pattison S., "Legal Profession Reform bill creates unique fee system," Law Society Journal. August 1993 pp 19 to
25
6 Senate Standing Committee on Legal and Constitutional Reform inquiry into the Cost of Justice in Australia - 1993
7 Trade Practices Commission, Study of the Professions- Legal Interim Report, 1993, p 198
8 Forsyth P., Marketing professional Services, 1992, pix
9 Cox, DeSerpa, and Canby, op.cit, p 306
10 Giarini 0., "Notes on the concept of service quality and economic value," Chapter 4 in Brown S.W., E.
Gummesson, B Edvardsson and B Gustavsson [Eds], Service guality - multidisciplinary and multinational
perspectives, Lexington Books, Lexington, 1991, p 59
11 Giarini 0., op.cit, p 63
12 The "Macerate Report" -Legal Education and Professional Development - An Educational Continuum, Report of
the Task Force on Law Schools and the Profession: Narrowing the Gap, American Bar Association, July 1992
13 Cort H.R. & J.L. Sammons, "The search for "Good Lawyering": A concept and model of lawyering competencies",
Cleveland State Law Review, Vol 29, 1980, p 406
14 Gonczi A., P. Hager, L. Oliver, "Establishing competency-based standards in the Professions," Research Paper No.
1, Australian Government Publishing Service, December 1990, pp 21 to 22
15 Loh W., "Introduction: The Macerate Report - Heuristic or prescriptive?", Washington Law Review, Vol.69, 1994,
pp 505-515
16 MacCrate, "Key note address - The 21st Century Lawyer: Is there a gap to be narrowed?", Washington Law
Review, Vol.69, 1994, pp 517-526
17 Trade Practices Commission, Final report, 1994, p 13 7
18 Trade Practices Commission, op.cit, 1993, pp 180 to 191
Details
- Title
- Lawyer valuation and pricing of legal services in corporate law firms
- Creators
- J. Charles A. MacDonald
- Contributors
- Geoffrey Meredith (Supervisor) - Southern Cross University
- Awarding Institution
- Southern Cross University; Doctor of Philosophy (PhD)
- Theses
- Doctor of Philosophy (PhD), Southern Cross University
- Publisher
- Southern Cross University, Faculty of Business and Computing
- Number of pages
- xxii, 303
- Identifiers
- 991012958498202368
- Copyright
- © J. Charles A. MacDonald 1997
- Academic Unit
- School of Business and Tourism
- Resource Type
- Thesis