Monthly Archives: April 2016

WARM BODIES

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Colleges have entered a game that law schools have been playing for years. According to a recent New York Times front page headline, “Colleges Seek Warm Bodies From Overseas.” The title of the online version was equally pointed: “Recruiting Students Overseas to Fill Seats, Not to Meet Standards.”

For years, law schools have been dropping standards to fill classrooms. Marginal schools have been the worst offenders, and the profession is now paying the price in declining bar passage rates. But even among top schools, a more subtle and profitable technique has pervaded law school business plans for years: expanding LLM programs.

The Numbers

From 2006 to 2013, the number of law students enrolled in non-JD programs increased by almost 50 percent — to more than 11,000. Leading the way are LLM programs that now exist at more than 150 law schools. And students from foreign countries are flocking to them.

What began decades ago as a noble effort to encourage international cultural diversity has become a cynical method of revenue generation. The Times article focuses on colleges that use foreign recruiters. But its money quotes apply to law schools:

“[T]he underlying motivation for the university…is to get warm bodies in the door.”

“It is ethically wrong to bring students to the university and let them believe they can be successful when we have nothing in place to make sure they’re successful.”

“[C]olleges began to look at foreign students, who pay full tuition, as their financial salvation.”

Need Money?

Warm bodies. Graduate outcomes that aren’t the schools’ problem. Students who pay full tuition. If you’re running a law school as a business, the solution to declining revenues from a JD program becomes three letters: LLM.

Professor George Edwards at the Indiana University Robert H. McKinney School of Law explains:

“I would like to think that U.S. law schools are creating LLM programs or expanding existing programs primarily for altruistic reasons…The reality is that law schools are businesses, and to stay afloat they must generate revenue to pay law school expenses, such as faculty salaries. Law school revenues primarily come from tuition revenues, and revenues are down due to fewer U.S. students enrolling in the degree programs for the basic U.S. law degree, the JD.”

“U.S. law schools have been seeking ways to make up for lost revenue,” Professor Edwards continues. “One way is to create or expand enrollment for international LLM students who may not have the same worries that are driving JD enrollment downwards.”

And so, he concludes,

“The desire to increase law school revenue has triggered a proliferation of new LLM programs and triggered the expansion of existing LLM programs.”

So What’s the Problem?

What exactly should a law school’s mission be? Some deans are unwilling to ask the question because they fear honest answers: revenue generation, short-term profits, and maximizing U.S. News rankings. Moving away from those safe harbors risks reorienting the profession toward what it was when they decided to become lawyers.

An institution’s mission statement should be the starting point for every decision its leaders make. Law schools are no exception. From the faculty hired to students admitted to programs offered, clear goals produce coherent behavior. But at law schools throughout the country, discussions about objectives — what they are and what they should be — aren’t happening.

Restating platitudes is easy. Developing a statement of principles to govern conduct is a challenge. Requiring consistent action in accordance with those principles creates accountability.

For centuries, the legal profession has occupied a transcendent role in the preservation of civilization. Law schools have been the custodians of that tradition. To retain that stature, the people who run them should view their responsibilities as something more than managing just another business. If they don’t, their schools will become exactly that.

THE REAL STORY OF THE NEW YORK PRIMARY

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It was a “Dewey Defeats Truman” moment.

Shortly after the polls closed on primary election night in New York, CNN made a bold prediction. Its exit polling showed Hillary Clinton and Bernie Sanders locked in a tight Democratic primary race. Clinton’s win would be close, Wolf Blitzer said: 52 percent to 48 percent.

Less than an hour later, that prediction was as laughable as the famous November 3, 1948 Chicago Tribune headline announcing that voters had elected Thomas E. Dewey President of the United States.

Statistically, the CNN call was far worse. In the end, Truman beat Dewey 49 to 45 percent. Clinton won New York — 58 to 42 percent.

When the News is News

One interesting aspect of the CNN mistake is how quickly it disappeared from public sight. That’s because all major media outlets use exit polling to predict results as soon as they can. First-predictors are the first to attract viewers. There’s no incentive for any of them to throw mud on a process that they all use as a marketing gimmick.

Another aspect is the paucity of discussion over what went wrong at CNN. I don’t know the answer, but this article isn’t about that. It’s about the real lesson of the episode: The use of statistics can be a perilous exercise.

Law Schools

Data are important. It’s certainly wise to look at past results in weighing future decisions. But it’s also important to cut through the noise — and separate valid data from hype.

For example, if less than one-third of a particular law school’s recent graduates are finding full-time long-term jobs requiring a JD, prospective students are wise to consider carefully whether to attend that school. But it becomes more difficult when some law professor argues that the average value of a legal degree over the lifetime of all graduates is, say, a million dollars.

It’s even more challenging when law deans and professors repeat the trope as if it were sacrosanct with a universal application every new JD degree-holder from every school. And it sure doesn’t help when schools with dismal full-time long-term JD employment outcomes tout, “Now is the Time to Fulfill Your Dream of Becoming a Lawyer.”

Law Firms

Likewise, based on their unaudited assessments, leaders of big law firms confess that only about half of their lateral hires over the past five years have been breakeven at best. And that not-so-successful rate has been declining.

Law firms are prudent to consider carefully that data before pursuing aggressive lateral hiring as a growth strategy. But it becomes more difficult when managing partners seek to preside over expanding empires. And it doesn’t help when law firm management consultants keep overselling the strategy as the only means of survival.

Data should drive decisions. But the CNN misfire is a cautionary tale about the limits of statistical analysis. Sometimes numbers don’t tell the whole story. Sometimes they point people in the wrong direction. And sometimes they’re just plain wrong.

CRAVATH SURVIVES

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Partner defections from Cravath, Swaine & Moore are so rare that when they happen, it’s major news. Without exception, such events generate predictions that the firm’s lockstep compensation structure is doomed. Scott Barshay’s move to Paul, Weiss, Rifkind, Wharton & Garrison provides the latest fodder for such false prophets.

From The Wall Street Journal: “The move raises questions about the ability of law firms that tie partner compensation to seniority to retain top talent during an M&A boom.”

From The American Lawyer: The move “casts new doubts on the viability of Cravath’s pure lock-step model of compensation, an outlier in a market where rivals have a freer hand to invest in top talent.”

As Yogi Berra said, “It’s deja vu all over again.”

In 2010, Barshay Was a “Young Gun”

Six years ago, I wrote about three young partners featured prominently in The Wall Street Journal. In their late-30s and early-40s, they had “taken a more pro-active approach, building new relationships and handling much of the work that historically would have been taken on by partners in their 50s.”

This week, I went back and read the Journal article again. One of those partners was Scott Barshay, then 44-years-old.

“In the current big law world,” I wrote in June 2010, “Cravath’s experiment is risky. Will young partners remain loyal or use their newly gained client power to pursue financial self-interest elsewhere? Will Cravath be forced to modify or abandon lock-step so that it can retain young partners controlling clients and billings?”

“I don’t know. Equally significant, I suspect those most directly affected by what the article characterizes as a ‘sea change at one of the best-known and most conservative of white-shoe law firms’ don’t know, either.”

Six Years Later

Well, now there’s a record: no sea change yet. Cravath gave Barshay an opportunity to develop clients and a reputation. He’s now a “go-to” corporate dealmaker. And he’s picking up his marbles — if he can — and “going to” Paul Weiss.

“More significant, say legal experts, is the prospect that Barshay’s departure will weaken Cravath’s much-vaunted cultural ‘glue’,” reports The American Lawyer’s Julie Triedman.

Who are these “legal experts,” anyway? Probably the same consultants and headhunters who benefit most from two pervasive and dubious big law firm strategies: growth for the sake of growth and aggressive lateral partner hiring.

More Data to Come

The reports that Barshay’s move could affect Cravath’s compensation structure assume that he left for more money. Paul Weiss’s chairman fueled those rumors by describing his firm’s system as modified lockstep that provides “flexibility at the upper end for star performers.” At Cravath, the upper end of the pay structure is reportedly $4 million. Barshay will probably make more at Paul Weiss. But at some point, does the answer to how much is enough always have to be “more”?

Headhunters offer predictable analyses. According to The American Lawyer, Sharon Mahn, “a longtime legal recruiter and founder of Mahn Consulting in New York who frequently places top partners at elite firms,” said Barshay’s defection “really sends a message that no firm is immune, that old-school firms can no longer rest on their laurels. This is a game-changing move.”

Those words might scare some big law firm leaders. After all, the warning is a twofer: it feeds their fears along with their confirmation bias. But it won’t faze Cravath. Departures like Barshay’s are rare, but the firm has seen them before.

As Cravath’s current presiding partner C. Allen Parker noted, “Partners are in lockstep systems because they believe it’s the best system for their clients and provides the most satisfying partnership environment.”

The “Deja Vu” Part

In May 2007, a reporter for The  American Lawyer asked Cravath’s then-presiding partner Evan R. Chesler whether partners would stick around if the firm made less money.

“I don’t know the answer to that,” he said. “I think there is more glue than just money.”

We now know the answer. Most will stick around and the firm properly ignores the rest. Barshay wasn’t the first “young gun” featured in the May 2010 Wall Street Journal article to leave the firm. That distinction went to James Woolery. In January 2011, he went to JP Morgan Chase as a senior dealmaker.

Two years after that, Woolery negotiated a huge three-year pay package to join Cadwalader, Wickerhsam & Taft as the chairman’s heir apparent. On the eve of his elevation to the top spot, Woolery left to co-found an activist hedge fund. According to the Journal, Paul Weiss agreed to jettison its activist investor representations to make room for Barshay. So maybe the two Cravath young guns will meet again — on opposite sides of the table.

Motives and Outcomes

Only Barshay knows for sure why he left Cravath. According to Thomson Reuters, It ranked second worldwide in announced deals for 2015. Paul Weiss was nineteenth. Barshay offered the standard “great opportunity” rhetoric that always accompanies such moves.

“This was such an amazing opportunity for me and for our clients that I couldn’t say no,” Mr. Barshay told The New York Times. “Joining Paul, Weiss was like getting an invitation to join the dream team.”

Most of corporate America thought he was already on one. At Paul Weiss, he’ll have to develop his own — a task far more daunting than fielding the clients gravitating to Cravath. Talent can create value, but underestimating the value of a franchise is a big mistake.

The Cravath glue remains.

THANKS

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Since my pancreatic cancer diagnosis last year, readers have continued to send their best wishes my way. I’m grateful for all of them. Many of you have also asked how I’m doing. The answer is: remarkably well.

Last year, my daughter Emma spearheaded our family’s participation in the Pancreatic Cancer Action Network’s walk in San Francisco, where she and her husband live. This year, they’re coming to Chicago for the 5K on Saturday, April 30.

In 2016, pancreatic cancer deaths will exceed the number of lives lost to breast cancer. By 2020, they’re expected to surpass the annual number of colon cancer victims. If you’d like to support efforts to increase research funding and find a cure, then please click on this link.

You don’t have to attend the 5K, but you’re welcome to join our team — TEAM WILLIS. For non-walkers, clink on the “Donate Now” button on the linked page. If you want to come along for the walk that I plan to make with the team, click on the “Join Team” button just above it.

Regardless of whether you make a monetary donation to the organization, please know that all of us Harpers appreciate your continued support.

Meanwhile, I’ll keep writing…