Carolyn Elefant picks up Dan Hull discussing the tendency of lawyers to be risk-averse. She asks:

Not sure about the answer to Hull’s questions, but Los Angeles-based Quinn, Emanuel, Urquhart, Oliver and Hedges is one firm that doesn’t sit on the sidelines, at least as it’s described in this Fast Company profile. (For more background, see The American Lawyer‘s 2006 profile of the firm.)  As the article reports:

Quinn Emmanuel has adopted the strategy, attitude, and accoutrements of a Red Bull-fueled startup. It focuses only on business litigation: no tax, real estate, or other common corporate practices. Even more galling to the tradition-bound large full-service firms that are its competitors, the firm takes some cases on contingency, meaning that it doesn’t get paid if it doesn’t win. That forces Quinn Emanuel to cast the wary eye of an investor on potential cases, in search of the ones that can strike gold, and it’s unafraid to use litigation’s nuclear option — a jury trial — to get outsize results.

So why aren’t more firms adopting the Quinn Emanuel model?  Is the answer — as Hull suggests — that they’ve become too risk averse?  Or is it that the Quinn model is unique to business litigation and more traditional types of law demands traditional lawyers who are willing to remain behind the scenes?

Quinn Emanuel isn’t a swashbuckling contingent-fee firm by my standards: Fast Company says "Quinn Emanuel’s contingency business makes up less than 10% of total hours."

I’d call that "risk-averse." More importantly, their own website says half of their litigation work is intellectual property litigation, an area ripe for contingent fees because it combines big verdicts with extraordinary costs that can frequently exceed $1 million pre-trial.

So, primarily working in an area ripe for contingent fees, Quinn Emanuel devotes at most 20% of its time even in that area to contingent fee work.

Contingent-fee makes up >90% of my hours. It’s a specialized economic proposition that requires a situation involving substantial risks, substantial costs, and the potential for substantial recovery. Take out any of those, and either the client or the lawyer won’t go for it (or, if they do, they did so in ignorance).

Fact is, the vast majority of legal work fails one of those criteria, and the swings in capital inherent in the business would inevitably destroy a "contingent-fee" firm the size of the AmLaw 100 players, just like how the swings in financial markets routinely crush investors who don’t hedge properly. A 200-person contingent-fee business litigation could easily find itself more than $50 million in the red during the normal course of business; it wouldn’t be that hard to double or triple that amount in rough times.

Let’s run a really generalized calculation, using a random equity curve simulator. Assume that the cases you win earn 3 times the cost of the cases you lose, and that you win half of the time.

Odds are, after 200 cases, you’ll likely have three times the capital you started with, not including salaries, rent, taxes, or any other cost not reimbursed by the cases.

Ouch — how long would it take to finish 200 cases? Long enough not to be eaten alive by the salaries, rent, and taxes?

Plenty of lawyers take risks, look at all the fine solo and small firms out there, just not with their money.