About thebellyofthebeast

Adjunct professor at Northwestern University Law School, regular contributor to Bill Moyers.com, Dan Rather’s “News & Guts,” and "Common Dreams," creator/curator of the Trump-Russia-Ukraine Timeline, the Insurrection Timeline, and the Pandemic Timeline series at “Moyers on Democracy" (The Trump-Russia-Ukraine Timeline also appears at “Just Security”) and author of "The Lawyer Bubble - A Profession in Crisis (2013), "The Partnership - A Novel" (2010), "Crossing Hoffa - A Teamster's Story" (2007) (A "Chicago Tribune" Best Book of the Year), and "Straddling Worlds: The Jewish-American Journey of Professor Richard W. Leopold" (2008). Retired after 30 years at Kirkland & Ellis LLP. Fellow of the American College of Trial Lawyers. Graduated from Harvard Law School (magna cum laude) and Northwestern University (combined B.A./M.A. in economics, with distinction and Phi Beta Kappa).

HOW WILL THE FUTURE JUDGE YOU?

Posted on November 24, 2015 by thebellyofthebeast

Woodrow Wilson is in trouble.

From the time Arthur Schlesinger, Sr. first surveyed historians and political scientists in 1948, Wilson has placed high on scholarly lists of the greatest U.S. presidents. In 1948, he was fourth — after Lincoln, Washington, and FDR. In 1962, his son Arthur Schlesinger, Jr. conducted another survey in which Wilson retained that spot.

In Schlesinger’s 1996 poll, Wilson dropped to seventh as Thomas Jefferson, Theodore Roosevelt, and Andrew Jackson bumped him down three notches. (Jackson has since fallen to ninth.) Only in 2000 and 2005 polls by the Wall Street Journal did Wilson finish outside the top ten. In both, he finished eleventh.

But now Princeton University is contemplating a remarkable reversal of Wilson’s fortunes. The reason: he espoused racist views. A recent article in the New York Times reports that protesters want to distance his name from the institution over which he presided before becoming governor of New Jersey and then 28th President of the United States.

Protests and Goals

Among the protesters’ demands: acknowledge publicly Wilson’s racist legacy, take steps to rename the university’s internationally renown public policy school, remove a large mural from the dining hall of the residential college that bears his name (and remove his name from that residential college), adopt mandatory courses on “the history of marginalized peoples”, require “cultural competency training” for faculty and staff, and create a dedicated housing and meeting space for those interested in black culture.

Debate will continue over these demands. However reasonable some may be, linking them to the legacy of a great president seems odd, to say the least. It’s certainly ahistorical.

The issue is not whether Wilson said things that seem wildly out of place today. He did. His southern upbringing and the times in which he lived account for his most intolerant views about race. Some of his actions had a devastating personal impact on individuals, as a recent Times op-ed explains. That does not excuse them, but context should matter.

Wilson’s words and deeds occurred a century ago. Who decided that ultimate judgments about the past require us to measure yesterday’s greatness against today’s cultural and political standards?

Admitting its first black student in the 1940s, Princeton lagged behind other Ivy League schools, the Times reports. But Wilson left his university post in 1910. Is he to blame for whatever Princeton failed to do during the 30 years after he departed?

No End In Sight

No one should minimize the serious race problem that still permeates our society. Racism remains an infection that has survived all efforts to eliminate it. Scientists have enjoyed greater and quicker success eradicating the ebola virus than human beings have achieved in improving race relations in the United States.

But pulling the thread of retroactive judgment on history will leave us naked. George Washington owned slaves. Should we remove his name from our nation’s capital, a state, numerous cities and streets, and countless schools?

Abraham Lincoln — universally placed atop the presidential rankings — made numerous derogatory comments about blacks, whom he regard as an inferior race. And the Emancipation Proclamation freed only the slaves in the Confederacy. Should we wipe his likeness off Mount Rushmore?

And why limit the issue to race? How about religious intolerance? Protestant churches founded most colleges, and discrimination against Catholics continued well into the 20th century. The University of Chicago began as a Baptist school. Its first president, William Rainey Harper, tried to create a secular institution. But he also said that its purpose was to support a civilization that would be based on biblical principles. Is it time to rename the U of C’s William Rainey Harper Memorial Library?

For too long, Ivy League schools discriminated against Jews. Harvard College appointed its first Jewish faculty member in the 1700s — on condition that he convert to Christianity. Harvard’s president from 1909 to 1933, A. Lawrence Lowell, was a notorious anti-semite and one reason that Harvard didn’t have a Jewish full professor until 1939. No one is talking about removing his name from buildings and lecture halls.

Money Says and Does What It Wants

There’s an irony to the controversy over Wilson’s continuing presence at Princeton. Today, big donors to colleges and universities can buy the ability to see their names on buildings, classrooms, and athletic facilities. How often does the institution consider whether that donor has intolerant racial or religious views in deciding whether to accept such a gift?

What Wilson gave the country was far more valuable than money. He led the nation at a time of great peril though the “War to End All Wars.” His subsequent struggle to achieve lasting world peace through the League of Nations destroyed him physically. In the context of the challenges Wilson faced, his service was heroic.

Never mind all of that, says a current generation of protesters. Posthumously, Wilson should now become a victim of retroactive one-issue voting.

Judge Not…

Current students believe correctly that they should be at the center of a college or university’s mission. In the current environment, they wield enormous power. But with that power comes responsibility. Some students think that chipping away at Woodrow Wilson’s legacy is a good idea.

To those students, I pose this hypothetical: Assume that you spend the next 40 years leading a decent life. Or at least, most people conclude you’ve done so when measured by the standards of your time. Now assume that, one hundred years from now, others revisit and judge you based on new standards of that future period, but unknown to you now. In doing so, they emphasize everything you did wrong while ignoring whatever you did to make the world a better place.

Does that approach make any sense to you? If not, please leave Woodrow Wilson alone.

MIZZOU FOOTBALL LESSONS

Posted on November 11, 2015 by thebellyofthebeast

The legal profession could learn something from the events culminating in Tim Wolfe’s resignation as president of the University of Missouri system. So could all of higher education. But those lessons have little to do with race.

Who is Tim Wolfe?

He’s a businessman.

Wolfe’s family moved to the Columbia, Missouri area when he was in fourth grade. For 30 years, his father was a communications professor at the University of Missouri. Wolfe quarterbacked his high school football team to a state championship. He earned an undergraduate degree from MU in personnel management.

After college, Wolfe became a sales rep for IBM where he worked his way up to vice president and general manager of its global distribution center. After 20 years at IBM, he became executive vice president of a consulting services company. From there, he moved to software maker Novell Americas, where he was president when another company acquired Novell and left him unemployed.

In December 2011, the University of Missouri’s board of curators announced Wolfe’s selection as its 23rd president. His base salary was $459,000.

What Happened? For a While, Not Much

As recently as August 2014, the board of curators thought that Wolfe’s performance had earned him a contract extension from February 2015 through June 2018. A year later, his troubles began.

On September 12, the president of the Missouri Student Association posted a Facebook item about vile racist slurs he’d received. By October 10, a group calling itself Concerned Student 1950 (the year Mizzou first admitted black students) staged a homecoming parade protest. On October 20, the group issued eight demands, including the ouster of Wolfe.

Exactly what he did to make such a shortlist is far from clear. The New York Times and the Wall Street Journal put some blame on his proposal to close the university’s respected press as a cost saving measure. But he withdrew that proposal after hearing from objectors.

The Times and the Journal also implied that Wolfe was responsible for canceling health insurance for graduate students. But that situation is more complicated. As the graduate studies office announced in August, new Affordable Care Act requirements prevented the university from paying those premiums. Instead, the university would provide a one-time stipend to all qualified graduate students. Under the ACA, the university said, it was unable to link the stipend to health insurance or to ask whether recipients needed or planned to purchase a policy. Failure to implement the new IRS regulations would have resulted in fines of $100 per student.

Was It Race?

After a swastika with feces appeared in a campus bathroom on October 24, Concerned Student 1950 met with Wolfe personally. Three days later, one of the protest organizers announced a hunger strike. On November 6, a student posted a video in which protesters asked Wolfe to define systematic oppression.

“I’ll give you an answer, and I’m sure it will be a wrong answer,” he said. “Systematic oppression is because you don’t believe that you have the equal opportunity for success.”

“Did you just blame us for systematic oppression, Tim Wolfe?” shouted a protester. “Did you just blame black students?”

Wolfe’s insensitive comments were unfortunate. But they’re not the sort of thing that costs a university president his job. And they didn’t cost Wolfe his — until the football team weighed in.

And Then…

On Saturday, November 7, the entire Mizzou football team — 84 scholarship players and their coaches — proclaimed unanimous solidarity with the protest movement. Within 36 hours, Wolfe resigned.

Like many universities, the University of Missouri created the monster that can devour it. College football is big business, especially in the Southeastern Conference. The average SEC head football coach makes almost $4 million a year. President Wolfe’s base salary was about one-tenth of what the school pays coach Gary Pinkel. Throughout the country, college football generates enormous revenues that pay for coaches, athletic scholarships, and stunning athletic facilities.

Whether and to what extent this circle of riches makes its way back to support a school’s principal mission — educating young people — isn’t clear. Earlier this year during its dispute over whether college players could unionize, Northwestern University claimed that, considered as a whole with other sports that football subsidized, the athletic programs were money-losers for the school. On November 7, Northwestern broke ground on a new $260 million athletic facility.

Pocketbook Threat

The tipping point for Wolfe came when the football team — with a mediocre record of four wins and five losses — said it would boycott its November 14 game against BYU. That game alone would have cost the university $1 million. But the potential impact could be far greater if the team fails to win the two more games needed to qualify for a postseason bowl appearance.

Now we come to the lesson for big law firms. The internal gap between the highest and lowest paid equity partners at most firms is enormous and growing. Likewise, the frenzy to recruit lateral rainmakers continues unabated. Those trends have produced a “don’t-get-me-angry” group that is analogous to what many college football teams have become. A handful of individuals exerts disproportionate influence over an entire institution, but the resulting culture affects everyone.

Football Cognitive Dissonance

Society is conflicted about football. Every weekend, millions of people watch college games. I’m among them. Our behavior creates market demand that gives college football an outsized influence over higher education.

At the same time, we’ve become uncomfortable with some of the adverse individual consequences that the market doesn’t consider, such as lifelong brain damage from concussions. Economists call these externalities. It’s one reason that half of Americans don’t want their sons playing tackle football. When things get personal, they’re somehow different.

Big Law Cognitive Dissonance

Likewise, most law firm managing partners admit that recruiting high-powered rainmakers doesn’t usually improve their firms’ financial performance. Independent studies confirm that lateral hiring is dubious strategy. Yet the lateral frenzy continues as newly hired partners parachute into the top ranks of many firms.

Unfortunately, short-run disappointment with the financial impact of a lateral hire is the least of the problems associated with aggressive inorganic growth. The strategy can destroy a firm’s cohesion, impair its sense of professional mission, and increase its vulnerability to financial shocks. In the resulting environment, everyone in the institution suffers.

Living through the financial and cultural consequences of lateral hiring failures could have prompted law firm leaders to rethink their strategic plans. But that hasn’t happened. After all, such a reversal would require leaders to overcome their confirmation bias, transcend hubris, and admit mistakes. That’s less likely than a major university relegating football to its proper place in the institution’s broader educational mission.

By the way, Mizzou may also offer a lesson to some law school deans: make friends with your university’s football coach.

LEGAL EDUCATION’S STRANGE BEDFELLOWS

Posted on November 4, 2015 by thebellyofthebeast

The recent New York Times editorial on the law student debt crisis didn’t attack all law schools as “scams.” Rather, along with Law School Transparency’s recent report, it exposed a soft underbelly. But in defending the bad behavior of others, many law professors and deans are doing themselves, their schools, and the profession a great disservice.

It’s a puzzling situation.

In my 30-year career as a litigator at Kirkland & Ellis, I encountered plenty of bad lawyers. I regarded them as embarrassments to the profession. But I didn’t defend their misconduct. Good doctors don’t tolerate bad ones. Gifted teachers have no patience for incompetent colleagues.

The Opposite of Leadership

Yet the top officers of the Association of American Law Schools sent a letter to the Times editor that began:

“The New York Times fails to make its case on law school debt.”

AALS president Blake Morant (dean of George Washington University Law School), president-elect Kellye Testy (dean of the University of Washington School of Law), and executive director Judith Areen (professor and former dean at Georgetown Law and former AALS president) then explained why all is well.

If those AALS leaders speak for the organization, a lot of law deans should consider leaving it. Rather than serving the best interests of most law schools, publicly defending the bottom-feeders — while saying “no” to every proposal without offering alternatives — undermines credibility and marginalizes otherwise important voices in the reform process.

Using a Poster Child to Make a Point

The Times editorial looked at Florida Coastal, about which certain facts are incontrovertible: low admission standards; dismal first-time bar passage rates; average debt approaching $163,000 for the 93 percent of its 2014 graduates with law school loans; poor JD-employment prospects (ten months after graduation, only 35 percent of the school’s 2014 class had full-time long-term jobs requiring bar passage).

Florida Coastal isn’t alone among those exploiting law school moral hazard. Without any accountability for the fate of their graduates, many schools feed on non-dischargeable federal loans and the dysfunctional market that has allowed them to survive.

Predictable Outrage from a Inside the Bubble

In June, Scott DeVito became Florida Coastal’s new dean. In an interview about his strategic plans, he said, ““We’re going to have to build more on the parking garage because people will want to go here.”

Predictably, DeVito pushed back hard against the Times’s op-ed. (The newspaper published only a portion of his two-page letter.) He boasts that his school’s first-time bar passage rate was 75 percent in February 2015 — third best of the state’s 11 law schools. That’s true.

But the February session typically includes only 50 to 60 Florida Coastal first-time test-takers annually. DeVito doesn’t mention more recent results from the July 2015 administration, which usually includes 200 to 300 Florida Coastal grads each year: 59.3 percent first-time bar passage rate — eighth out of eleven Florida law schools.

From 2010 to 2014, the school’s July results were:

2010: 78.8% (7th out of 11)

2011: 74.6% (8th)

2012: 75.2% (9th)

2013: 67.4% (10th)

2014: 58.0% (10th)

Who among America’s law school deans is willing to defend that performance record? Their professional organization, the AALS, seems to be.

Facts Get in the Way

DeVito acknowledges that his students’ law school debt is high, but says that’s because, as a for-profit school, “taxpayers are not paying for our students’ education.” That’s a remarkable statement. Florida Coastal and every other law school receives the current system’s inherent government subsidies: non-dischargeable federal student loans, income-based repayment (IBR), and loan forgiveness programs.

Likewise, DeVito asserts that Florida Coastal students “repay their loans,” citing the school’s low default rate. The AALS letter makes the same point: “[M]ost law students…are able to repay and do. The graduate student default rate is 7 percent versus 22 percent for undergrads.”

That argument is disingenuous. The absence of a default doesn’t mean a graduate is repaying the loan or that the day of reckoning for deferred or IBR-forgiven debt will never arrive for students and taxpayers. In fact, it’s inconsistent to assert that law students “repay their loans” while also touting the benefits of IBR and loan forgiveness because students in those programs will never have to repay their loans in full. (And they still won’t be in default!)

Not Defaulting Is Not the Same as Repaying

A recent Department of Education report on colleges highlights the extent to which the absence of default is not equivalent to repayment. There’s no similar compilation for law schools, but an April 2015 Federal Reserve Bank of New York Report on Student Loan Borrowing and Repayment trends generally notes that while only 11% of all educational loan borrowers are in default, “46% of borrowers are current in their loans but are not in repayment. Only 37% of borrowers are current on their loan and actively paying down.” (Emphasis supplied)

As the New York Fed reports, the worsening repayment rate is exacerbating the long-term debt problem for students and taxpayers: “The lower overall repayment rate [compared to earlier years] helps explain the steady growth in aggregate student debt, now at nearly 1.2 trillion dollars.”

Righting Wrongs?

Finally, D eVito takes a noble turn, claiming that it “takes a for-profit entity to right a wrong — in this case the lack of diversity in law schools.”

In “Diversity as a Law School Survival Strategy,” St. Louis University School of Law Professor Aaron N. Taylor explains that marginal schools with the worst graduate employment outcomes have become diversity leaders: “[T]he trend of stratification may only serve to intensify racial and ethnic differences in career paths and trajectories.”

Rather than righting a wrong, it looks more like two wrongs not making a right.

A Few Profiles in Courage

To their credit, Professors William Henderson (Indiana University Maurer School of Law) and David Barnhizer (Cleveland-Marshall College of Law), among others, have embraced the Times’s message that Brian Tamanaha (Washington University School of Law) offered years ago: The current system is broken. Recognize it; accept it; help to lead the quest for meaningful reform.

Likewise, Loyola School of Law (Chicago) Dean David Yellen worries about schools that are “enrolling large numbers of students whose academic credentials suggest that they are likely to struggle gaining admission to the bar… [T]he basic point is an important one that legal education must address.”

The Real Enemy

DeVito’s effort to spin away Florida Coastal’s problems is understandable. Properly implemented, school-specific financial accountability for employment outcomes would put maximum pressure on the weakest law schools. Frankly, the demise of even a single marginal law school would come as a welcome relief. Since the Great Recession we’ve added law schools, not eliminated them.

That’s why most law schools and their mouthpiece, the AALS, should side with Dean Yellen and Professors Henderson, Barnhizer, Tamanaha, and others urging meaningful reform. To test that hypothesis, try this:

The next time someone says that introducing financial accountability for individual schools would be a bad idea, ask why.

The next time someone says that respectable law schools serving their students and the profession should not distance themselves from marginal players that could never survive in a functioning market for legal education, ask why not.

The next time someone says that a united front against change is imperative, ask who the real enemy is.

Then offer a mirror.

GAME-CHANGER?

Posted on October 28, 2015 by thebellyofthebeast

Almost overnight, a persistently sad situation finally has many legal educators squirming. And rightly so.

The problem has been years in the making, as has been the profession’s unwillingness to address it. Federal funding mechanisms have combined with lack of accountability and non-dischargeability in bankruptcy to block the effective operation of market forces in legal education. Well-intentioned policies have gone terribly awry; they actually encourage misbehavior among many law school deans.

As law student debt soared into six-figures, calls for change produced the equivalent of catcalls from the “voice of the profession” — the ABA. Its latest Task Force report on the subject should embarrass anyone associated with it, including the House of Delegates that approved it. As the profession’s echo chamber convinced itself that all was well, hope for meaningful change was leaving the building.

But as it did four years ago, The New York Times has now aimed its spotlight on one of the profession’s dirtiest secrets.

The Paper of Record Speaks

In January 2011, The New York Times’ David Segal wrote a series that exposed the cynical gamesmanship whereby law schools inflated their recent graduates’ employment statistics. Through the deepening Great Recession, the profession still generated 90-plus percent employment rates for recent graduates. How? By counting every short-term, part-time, and non-JD-related job as if it were a position that any law graduate would want. Part-time greeters at Wal-mart, temporary baristas at Starbucks, and associates at Cravath were all the same in the eyes of that metric: employed.

The ugly truth surprised many prospective law students, but not the ABA, which had approved the schools’ misleading reporting methods. It turned out that within nine months of graduation, only about half of all new J.D.-degree holders were obtaining full-time long-term (defined as lasting a year) jobs that required bar passage. Within two years of the Times’ expose’, the ABA succumbed to public embarrassment and required law schools to detail their employment outcomes.

And It Speaks Again…

The overall full-time long-term JD-required employment rate has barely budged since the new age of transparency began, but law school tuition and resulting student debt have outpaced inflation. As applications to law school plummeted, many deans responded by increasing acceptance rates to keep student loan revenues flowing.

So now the focus has shifted from full disclosure to flawed funding, and the Times has entered the field of battle:

— On August 25, it published my op-ed on the law school debt crisis and the ABA”s feeble response. It went viral.

— On October 24, the Times’ lead editorial was “The Law Student Debt Crisis.” It, too, went viral.

— On October 26, the first page of the Times’ business section completed the trifecta with “Study Cites Lower Standards in Law School Admissions.” The article discusses Law School Transparency’s report documenting that bottom-feeder schools are exploiting unqualified applicants.

And Still the Naysayers Resist…

Previous posts discussed two letters-to-the-editor responding to my August 25 Times piece — one from a law professor at Texas A&M; the other from Northeastern’s dean. There’s no need to review them here. The latest Times’ editorial is generating similarly defensive vitriol from some law professors and deans who are determined to defend the indefensible.

For example, Professor Frank Pasquale at the University of Maryland School of Law (where the full-time long-term JD-required employment rate for 2014 graduates was 57 percent) fears that the Times’ October 24 op-ed will accelerate privatization:

“Private lenders are sure to be pleased by the editorial,” Pasquale writes at Balkanization. “Law school loans are lucrative for them because of extremely low student loan default rates for law school borrowers… The stage is now set for a bootlegger/baptist coalition: as prohibitionists cut off the flow of federal loans, private lenders line up to take their place.”

But The Naysayers Are Wrong…

Pasquale offers a clever turn of phrase, but his premise is incorrect. The widespread use of deferral and income-based repayment programs means that the default rate is not the most meaningful measure of whether a loan will be repaid. Actual repayment rates are. Depending on the school, repayment rates can be pathetic.

Professor Bill Henderson at Indiana University Maurer School of Law doesn’t share Pasquale’s confidence that private lenders would step into any breach that the loss of federal funds created. Henderson also notes, correctly, that private loans don’t come with deferral and IBR options that have kept nominal default rates low as non-repayment rates have surged:

“[P]rivate lenders would need to be confident that loans would be repaid. That likelihood is going to vary by law school and by law student, raising the cost of lending.”

Precisely correct. As I’ve suggested previously, tying the availability of law school loans to school-specific employment outcomes could allow the market begin exercising its long-denied power to correct the situation. It could also mean big trouble for marginal schools.

How About Holistic?

Pasquale also chides the Times for its narrow-minded approach: “[T]he paper’s biased view of higher education in general is inflecting its take on law schools. We can only hope that policymakers take a more holistic approach.”

How about a holistic approach that permitted educational debtors to discharge their private loans in bankruptcy? In that case, Pasquale’s “stage” would no longer be “set for a bootlegger/baptist coalition” whereby “prohibitionists cut off the flow of federal loans [and] private lenders line up to take their place.” Private lenders wouldn’t rush to make fully dischargeable loans to students seeking to attend marginal schools that offered little prospect of employment generating sufficient income to repay them.

How About A Constructive Suggestion?

Policymakers could revise the federal loan program to tie student funding at a school to that school’s employment outcomes for recent graduates. In fact, it could do that while preserving deferral and IBR programs. Add dischargeability of educational debt in bankruptcy and you have the beginnings of a holistic recipe for hope.

In that respect, Professor Henderson notes: “I have faith that my legal colleagues would do a masterful job solving the problems of higher education.”

Based on the profession’s track record to date, I fear that my friend’s sentiment reflects a triumph of hope over reality. But his key message is right on target: If the profession does not put its own house in order soon, someone else will.

Marginal law schools exploiting market dysfunction may have triggered the current round of scrutiny, but outside interveners will not limit their systemic fixes to the bottom feeders. Deniers of the ongoing crisis can persist in their positions, or they can propose solutions, as I have.

The Times has pulled a loose thread on the entire legal education establishment’s sweater.

THE STRANGE CASE OF STUDENT LOAN DEBT

Posted on October 21, 2015 by thebellyofthebeast

The Obama administration has a multifaceted approach to the student debt crisis. It’s time for a policy consistency checkup.

— The President says he wants all young people to pursue higher education and he hopes parents will encourage their kids to do so.

— The President says he wants to hold colleges and vocational schools accountable financially for graduates’ poor outcomes. At many schools, those outcomes include stunning rates of attrition and dismal employment results for graduates.

— The President says he wants to end soaring tuition that creates enormous student debt.

— And the President says students should avail themselves of income-based repayment (IBR) and loan forgiveness, even though those programs will produce large long-term hits to the federal treasury.

— But when students and their parents find themselves swamped in educational debt because graduates can’t find jobs offering a realistic shot at repaying their loans, the President’s Department of Education jumps to the schools’ defense. In its vigorous resistance to discharging school loans in bankruptcy, the administration provides another layer of protection to marginal schools that remain unaccountable for their students’ poor outcomes.

A Case in Point

In 2012, Republican presidential candidate Mitt Romney suggested famously that, if necessary, students should borrow from their parents to attend college. It’s not Mitt’s fault, but two years before he become governor of Massachusetts and continuing through 2007, one of his constituents, Robert Murphy, took out a loans totaling $221,000 to do exactly that for his three kids.

Unfortunately, when Murphy’s manufacturing company closed and moved overseas in 2002, he lost his job as its president. Since then, he hasn’t found work. He’s now 65 years old.

To cover living expenses, Murphy’s IRA retirement account valued at $250,000 in 2002 is now gone. He and his wife live on $13,000 a year that she earns as a teacher’s aide. In 2014, their $500,000 home was worth $200,000 less than the mortgage on it — and was in foreclosure.

As interest accrued, the balance due on Murphy’s educational loans for his kids increased to more than $240,000 by 2014. He now represents himself in a bankruptcy case that has reached the United States Court of Appeals for the First Circuit. The issue is how the court should interpret and apply the “undue hardship” requirement for discharging educational debt. The statute doesn’t define the phrase and the federal appeals courts have adopted differing standards. All are difficult for debtors.

Enter the Department of Education

In this and other cases, the government’s primary educational debt servicing contractor, Educational Credit Management Corporation (ECMC), has urged courts to apply the toughest possible rule in deciding whether to grant relief to student loan debtors. At the request of the court hearing Murphy’s appeal, the U.S. Department of Education intervened on October 12.

Murphy calculates that if he found a job paying $50,000 a year and worked until he was 77, the student debt he owes would actually increase — to $500,000. His government doesn’t care. The Department of Education spares no adjective in describing the parade of horribles that would follow upon discharging Murphy’s debt.

For example, allowing him off the hook would “impair the fiscal stability of the loan program…” Repaying the loans may require “that he remain employed at or past normal retirement age,” it argues, even though “his income may top out or decrease” and “further employment opportunities may be limited.” The government regards retirement account contributions, fast-food dinners, cell-phone plans, and nutritional supplements as “luxury expenses.”

Absent showing a “certainty of hopelessness,” the government urges, no debtor should get relief from student loans: “[A] debtor must specifically prove a total incapacity in the future to repay the debt for reasons not within his control.”

Welcome to America’s 21st century version of debtors’ prison.

Confused Priorities

What matters most, the government urges, is “protecting the solvency of the student loan program.” But if solvency is a function of how much the United States receives in return for the money it lends, aren’t income-based repayment and loan forgiveness greater long-run threats to the solvency of the program? Oh, I forgot. The long run is always someone else’s problem.

Even more to the point, debtors in Robert Murphy’s position will never be able to repay their loans anyway. Simply put, the government’s failure to write off Murphy’s bad loan — and others like his — just means that its accounting methods haven’t caught up with reality.

When that reality hits, some may look back and ask why today’s policymakers ignored the bad behavior of marginal schools at the front end. In fact, government policies encourage misbehavior. As the President delivers his “get more education” message to students and parents, marginal schools beat the bushes for enrollees who represent revenue streams of federally insured loans. Why isn’t the ability of those students to repay their loans the focus of efforts aimed at preserving the student loan program’s solvency?

Ask the Right Questions

Currently, schools have no financial stake in student outcomes and marginal schools have exploited the resulting market dysfunction. Did students complete degrees? Did graduates find decent jobs?

Anyone looking for a true picture of the “solvency of the student loan program” might consider those questions, along with this one: How many students are repaying their loans? Last month, the Obama administration released a new report providing some troubling answers to that one.

Three years after their loans had become due, more than one-third of all student loan borrowers had made no progress toward repaying their educational debt. None. And the bar for “progress” was as low as it could be: one dollar.

Profiting from Market Failure

At 347 colleges, more than half of borrowers had failed to pay down a single dollar of their principal loan balance after seven years. Of that group, almost 300 are for-profit schools. Through the federally insured student loan program that relieves them of any debt collection responsibility, some for-profit schools and their investors are making a lot of money off the rest of us.

Many of those same investors decry government intervention in anything. Like Mitt Romney — a vocal supporter of for-profit colleges during his 2012 campaign — they embrace competitive markets as the only proper way to produce correct decisions. But they’re delighted to exploit a student loan market that doesn’t work at all. Romney’s running mate, Paul Ryan, divided the country into “takers” and “makers.” A lot of those for-profit college investors feeding off government student loan largesse sure look like “takers” — albeit in nicely tailored clothing.

So much for the probative value of divisive partisan labels.

BASEBALL AND BIG LAW

Posted on October 14, 2015 by thebellyofthebeast

Watching the Chicago Cubs make their way into the National League Championship Series causes me to reflect on one of my favorite themes: baseball as a metaphor for life. It might have something to tell big law firms, too.

I focus on the Chicago Cubs because I’ve watched the team since the season began. Before giving up on them several years ago, I was a fan for three decades that started with the birth of our first child in 1981. He and his siblings qualify as long-suffering lifetime fans. For many years, we had season tickets.

As an adult, I knew little of Cubs’ fan angst because I grew up in Minneapolis — an American League city where some of the best entertainment was watching then-Twins coach Billy Martin get thrown out of games during the team’s 1965 pennant run. (Famously, Sandy Koufax refused to pitch in game one of that World Series because it fell on Yom Kippur. He then won games five and seven — pitching complete game shutouts in both.)

After years of Cubs’ frustration, what’s working now? That’s where parallels to big law emerge.

Talent

The Cubs have stars on their roster. Jake Arrieta, Jon Lester, Anthony Rizzo, Addison Russell, and Kris Bryant have become household names in Chicago and beyond. As in a law firm, talent is a necessary condition for success.

But talent alone is not sufficient. Just ask former partners of Dewey & LeBoeuf — a firm loaded with talent.

Depth

When shortstop Addison Russell went down with a pulled hamstring in game three of the National League Division Series, Cubs fans gasped. But the team didn’t fold. Javier Baez was ready to take the field. In game four of the series, Baez hit a three-run homer that turned the tide in the Cubs’ favor.

At shortstop — and every other position — the Cubs have a backup plan. According to Altman Weil’s 2015 Report, “Law Firms In Transition,” only 31 percent of law firms have a formal succession planning process in place.

Most big law firm partners resist transition because it vests younger attorneys with the power to claim a share of client billings. Likewise, most firms offer no financial incentive for partners to mentor young attorneys. There’s no way to bill that time.

Attitude

From July through September and into early October, Cubs ace pitcher Jake Arrieta seemed unstoppable. Then he gave up four runs in the fist five innings of League Division Series game 3. Relief pitchers stepped in and Cubs hitters stepped up. The Cubs won 8-6.

In post-game interviews following game four, the latest Cubs phenomenon, Kyle Schwarber, echoed what many other players said: “We pick each other up. When one guys is off, others step up. We have each other’s back.”

At many big firms, some partners seem determined to put sharp objects into the backs of their fellow partners.

Leadership

Cubs manager Joe Maddon doesn’t offer brash, self-aggrandizing remarks. He leads by quiet example. He expects players to do their best on the field, but he encourages balance in their lives. To emphasize his point, sometimes he cancels batting practice, especially if the team is in a hitting slump. He wants them thinking about other things.

Sometimes, he locks the clubhouse door until two or three hours before game time. Don’t show up early; you won’t have anything to do when you get there. Maddon wants them to develop lives beyond the field. Imagine a big law partner telling associates to go home at five or six o’clock — and not bill any time after they get there.

Maddon models behavior aimed at achieving balance. Before the season began, he took a dozen players to visit children at the Rehabilitation Institute of Chicago. Throughout the year, Anthony Rizzo, a cancer survivor, made similar trips to hospitals. So did Chris Coghlan and many of his teammates.

Culture

Maddon loves the game. He wants everyone around him to love it, too. He keeps the team loose. Sometimes he manages the team like a little league coach, moving players into different positions. Schwarber was behind the plate one game and in the outfield the next; Coghlan played five different positions in a single game; Bryant played four.

Humor is one of Maddon’s principal weapons. At the end of September, he brought exotic animals into the clubhouse. During the pregame media session, he talked to a flamingo named Warren.

“When is the last time you heard about 20-somethings who couldn’t wait to get to work?” Cubs President Theo Epstein asked one interviewer after the game that propelled the Cubs into the League Championship Series.

Perhaps most importantly, Maddon wants players to remember why they chose baseball as a career. Then they’ll realize that they should be enjoying themselves. Many lawyers could benefit from similar introspection.

On a personal note, I thoroughly enjoyed practicing law. But I’m sure glad that I spent time coaching all of my kids’ baseball and softball teams — more than 25 in all. Good luck to any young big law attorney who tries to replicate that feat today. Make the effort. It’s worth it.

LEARNING FOUR LESSONS FROM FAILURE

Posted on October 7, 2015 by thebellyofthebeast

On October 2, 2015, Northwestern University ended a six-year experiment — the two-year accelerated JD. Dean Daniel B. Rodriguez deserves credit for pulling the plug. Now comes the important part: learning the right lessons from failure.

Lesson #1: Beware of Public Relations Hype

With much fanfare in June 2008, Dean Rodriguez’s predecessor, David Van Zandt, released a document outlining his new long-range strategic vision: “Plan 2008: Preparing Great Leaders for a Changing World.” The centerpiece was an accelerated JD program whereby the school jammed three academic years of ABA-required curriculum into two calendar years.

Van Zandt worked tirelessly to sell the program. From local talk show appearances to speeches at law schools, he never let up. But one of his stated goals should have generated concern. Even as the market for lawyers plummeted, his keynote address at a February 2009 Southwestern Law Review symposium explained that he hoped to “tap a different population of students to expand our pool of potential applicants.” In particular, he wanted to “reach those who were planning on going to MBA programs.”

In other words, he offered a prescription for what the profession needed least: more law students who had been on their way to business school until the prospect of a Northwestern accelerated JD appeared.

Lesson #2: Dig Deeper

A program that “accelerated” a student through law school in two years instead of three sounded like an unambiguously good idea. But beyond the superficial appeal were troubling realities.

Students in the program started with a Web-based course even before they arrived on campus. In May, they began full-time study. In the fall, they joined first-year students in the traditional three-year program while also adding an extra course. For anyone on the two-year accelerated path, an already precious commodity — time during the first year to integrate experiences while contemplating one’s place in a diverse, challenging and changing profession — disappeared.

Even worse, Northwestern missed an opportunity. Total tuition for the two-year program was the same as that for the three-year degree. Accelerated students just paid more in tuition each semester. According to Van Zandt, students still benefitted financially because they could enter the job market sooner. Never mind how dismal that market remained.

Lesson #3: Ignore the Spin

Many deans claim to be remaking their schools in ways that respond to the current crisis in legal education. For the sake of the profession, let’s hope that’s true. (But see Lesson #1 above.)

Even so, cramming three years of legal education into two was never particularly creative or innovative. For example, Southwestern Law School started its accelerated JD program in 1974. (Southwestern also has dismal full-time long-term JD-required employment rates for recent graduates.)

After leaving the deanship to become president of the New School in 2010, Van Zandt continued his defense of the Northwestern AJD in an online July 25, 2011 New York Times op-ed. In the process, he earned one of my “Unfortunate Comment Awards.” That was four years ago.

Lesson #4: Beware of Motivated Reasoning

Van Zandt spoke often about the importance of markets and market-based decisions. But it took six years (and a new dean) before Northwestern responded to what the markets were telling it about the AJD. As Dean Rodriguez announced on October 2, the program failed to achieve its aspirational target of 40 AJD students per year (Van Zandt had hoped eventually to enroll 65 AJD students annually):

“[D]ealing with this smaller program,” he said, “has impacted our ability to serve the objectives and needs of all our law students.”

As schools pursue various efforts to reduce the cost and improve the content of legal education, perhaps they’ll learn one more lesson: Don’t wait years to admit a mistake.

YOGI BERRA

Posted on October 1, 2015 by thebellyofthebeast

After Yogi Berra’s September 22, 2015 death, the New York Times ran a two-page obituary on him. That alone is a testament to his universal appeal and the sometimes hidden wisdom of his words.

As my tribute to Yogi, I’ve linked this post to the Convocation Address I gave five years ago to the Northwestern University Weinberg College of Arts & Sciences graduating class of 2010. As you’ll see, I organized my remarks around several of Yogi’s priceless comments, hence the title – “Gems from the Diamond.” (https://www.youtube.com/watch?v=DP3Uhiol6Vs)

DEWEY: 10 LESSONS LOST

Posted on September 23, 2015 by thebellyofthebeast

National news organizations began working on stories about the verdicts in the Dewey & LeBoeuf case long before the jury’s deliberations ended.

“What are the lessons?” several reporters asked me.

My initial inclination was to state the obvious: Until the jury renders its decision, who can say? But that would be an unfortunately limited way of viewing the tragedy that befell a once noble law firm. In fact, the trial obscured the most important lessons to be learned from the collapse of Dewey & LeBoeuf.

Lesson #1: You Are What You Eat

During the twelve months prior to the firms’ October 2007 merger, Dewey Ballantine hired 30 lateral partners; LeBoeuf Lamb hired 19. The combined firm continued that trend as Dewey & LeBoeuf became one of the top 10 firms in lateral recruiting. By 2011, 50 percent of the firm’s partners were post-2005 laterals into Dewey & LeBoeuf or its predecessors.

A partnership of relative strangers is not well-positioned to withstand adversity.

Lesson #2: Mind the Gap

To accomplish aggressive lateral hiring often means overpaying for talent and offering multi-year compensation promises. By 2012, Dewey & LeBoeuf’s ratio of highest-to-lowest paid equity partners was 20-to-1.

A lopsided, eat-what-you-kill partnership of haves and have-nots has difficulty adhering to a common mission.

Lesson #3: Not All Partners Are Partners

One corollary to a vast income gap within the equity ranks is the resulting partnership-within-a-partnership. As those at the top focus on the short-term interests of a select few, the long-run health of the institution suffers.

A partnership within a partnership can be a dangerous management structure.

Lesson #4: The Perils of Confirmation Bias

Firm leaders and their fellow partners are vulnerable to the same psychological tendencies that afflict us all. When former Dewey chairman Steven H. Davis held fast to his perennial view that better times were just around the corner, fellow partners wanted to believe him.

Magical thinking is not a business strategy.

Lesson #5: Short-termism Can Be Lethal

Short-term thinking dominates our society, even for people who view themselves as long-term strategists. At Dewey, the need to maximize current year partner profits and distribute cash to some partners overwhelmed any long-term vision that Davis sought to pursue.

In the not-so-long run, a firm can die.

Lesson #6: Behavior Follows Incentive Structures

Most firms hire lateral partners because they will add clients and billings. To prove their worth, laterals build client silos to prevent others from developing relationships with “their clients.” Similarly, there’s no incentive for partners in “eat-what-you-kill” firms to mentor young attorneys or facilitate the smooth intergenerational transition of client relationships.

Over time, the whole can become far less than the sum of its parts.

Lesson #7: Disaster Is Closer Than You Think

When the central feature of a firm’s culture is ever-increasing partner profits, even small dips become magnified. Incomes that are staggering to ordinary workers become insufficient to keep restless partners from finding a new place to work.

Death spirals accelerate.

Lesson #8: Underlings Beware

On cross-examination, some of the prosecution’s witnesses testified that at the time they made various accounting adjustments to Dewey’s books, they didn’t think they’d done anything wrong. But now they are parties to plea agreements that could produce prison time.

Deciding that something isn’t wrong is not always the same as determining that it’s right.

Lesson #9: Greed Governs

Who among the Dewey partners received the $150 million in bond proceeds from the firm’s 2010 bond offering? I posed that question a year ago and we still don’t know the answer. During the first five months of 2012 — as the firm was in its death throes — a small group of 25 partners received $21 million while the firm drew down its bank credit lines. Who masterminded that strategy?

In a November 2012 filing with the Dewey bankruptcy court, Steven Davis explained why Dewey collapsed: “While ‘greed’ is a theme…, the litigation that eventually ensues will address the question of whose greed.” (Docket #654) He was referring to some of his former partners who ignored the role that fortuity had played in creating their personal wealth.

Hubris is a powerfully destructive force.

Lesson #10: Superficial Differences Don’t Change Outcomes

For the three years that Dewey has been in the news, many big law firm leaders have been performing the task at which attorneys excel: distinguishing adverse precedent. In great detail, they explain all of the ways that their firms are nothing like Dewey. But they fail to consider the more significant ways in which their firms are similar.

A walk past the graveyard is easier when you whistle. Louder is better. Extremely loud and running is best.

MORE ON MY NY TIMES OP-ED

Posted on September 18, 2015 by thebellyofthebeast

Professor Milan Markovic (Texas A&M) and Dean Jeremy Paul (Northeastern) responded to my recent post analyzing their letters to the New York Times about my Times op-ed.

On September 17, The American Lawyer published Dean Paul’s response (and my reply) here: http://www.americanlawyer.com/home/id=1202737553089/Is-Legal-Education-in-Crisis-A-Dean-Responds?mcode=1202617075486&curindex=0

On September 10, the Tax Prof Blog summary of my earlier post prompted Professor Markovic’s response (and my reply), here: http://taxprof.typepad.com/taxprof_blog/2015/09/more-on-the-ny-times-op-ed-too-many-law-students-too-few-legal-jobs.html

The Tax Prof Blog entry also included a comment from someone identifying himself as Gary Lucas. A person with that name also teaches at Texas A&M. I replied to that one, too.

At this point, I’m content to invoke the legal principle of res ipsa loquitur (“the thing speaks for itself”) and let readers decide this one.

ANOTHER TRAGIC HAZING

Posted on September 16, 2015 by thebellyofthebeast

In December 2013, Baruch College freshman Chun Hsien Deng accompanied his new fraternity brothers to the Poconos. He didn’t return.

At first, his death was a regional story in the New York Times, which reported on page A29 that law enforcement officials in Pennsylvania were investigating the incident. Deng had been involved in an outdoor game called “The Glass Ceiling” — a metaphor that his Asian-American fraternity used to depict the difficulty of breaking into the American mainstream.

“It involves blindfolding a person and placing a heavy item on his back,” the Times reported in December 2013. “He has to navigate to someone who is calling for him, and as he makes his way, others try to tackle him.”

Now that the investigation has led to murder charges, the story is front page news. I’m not going to repeat the gruesome details. But buried deep in the Times’ latest story is this item that caught my eye: As Deng was in obvious physical distress, his fellow students “reached out to the fraternity’s national president at the time.”

His name is Andy Meng.

Relative Blame

The prosecutor’s charges distinguish defendants based on levels of culpability for Deng’s death. Five people will face third-degree murder charges. How about Andy Meng, the supposed adult whom the students consulted for advice?

Apparently, the charges against Meng involve “hazing and hindering apprehension.” His lawyer proclaimed that Mr. Meng “was not in Pennsylvania at the time of [Deng’s] death, had no role in his medical treatment and did not commit any wrongdoing.”

As you’ll see, silence would have been a better approach.

Role Model Extraordinaire

What did Andy Meng allegedly do?

According to the Times article about the grand jury report, Meng “told [the students] by phone to hide everything showing the group’s symbol.” Evidently, one member told police, established protocol was to “first put away fraternity letters, paddles, banners, etc.”

Maybe the evidence at trial will show that Meng’s first and foremost concern was not to protect the fraternity. Perhaps he urged the students seeking his advice to do the right thing and do it quickly — seek professional medical attention; call an ambulance; get help ASAP. If so, his lawyer hasn’t included anything to that effect in his statement.

More importantly, if Deng gave that advice, the students didn’t follow it. Instead, they wasted valuable time. They fretted about the cost of an ambulance. One member talked to a friend whose grandfather had fallen and died recently. None of them did the obvious — call 9-1-1.

An hour passed before three fraternity members took Deng to the hospital. By then, he was “mumbling, shivering and snoring.” It was too late to save him.

Lessons Never Learned

All of this has now devolved into the ultimate lose-lose-lose situation. Deng died. The cover-up effort to protect the fraternity failed because the police found paddles, signs, and notebooks bearing the fraternity’s logo. And now 37 people face criminal charges, including five young men for third-degree murder.

Andy Meng isn’t among those charged with murder. His alleged response to the students’ plea for guidance produced charges of “hazing and hindering apprehension.”

Meng’s alleged behavior suggests that he wasn’t around to learn the lesson from President Richard Nixon’s fate: If the crime doesn’t get you, the cover-up will. It’s so much easier to the right thing at the outset, but that requires knowing what the right thing is.

For Andy Meng, the correct response to a frantic call from young fraternity brothers in the Poconos on that December night should have been clear — even for someone who “was not in Pennsylvania at the time.”

NY TIMES OP-ED FOLLOW UP

Posted on September 9, 2015 by thebellyofthebeast

My August 25 Op-Ed in The New York Times went viral. It became number one on the Times’ “most-emailed” list. It rose to the top-five in “most viewed,” “most shared on Facebook,” and “most tweeted.” Within hours of publication, it generated more than 600 comments.

It also produced letters to the editor, three of which the Times chose to publish on September 2. Two are from law professors whose responses reveal why the current crisis in legal education is so intractable.

Letter #1

Milan Markovic is an associate professor of law at Texas A&M. He argues that current law students will soon have better job prospects because there are fewer of them:

“Not all of these students will graduate and pass the bar, but those who do will face much less competition for legal jobs even if the economy fails to improve.”

Professor Markovic perpetuates the sloppy analysis infecting virtually all academic discussion about law student debt and the crisis in legal education. In particular, his macroeconomic prediction about the fate of future graduates ignores a crucial fact: job opportunities vary dramatically according to school.

A 2018 graduate from Professor Markovic’s school — Texas A&M — will not have employment prospects comparable to students at top schools that regularly place more than 90 percent of their new graduates in full-time long-term bar passage-required positions. In that key category, Texas A&M’s employment rate for 2014 graduates was 52 percent.

Likewise, only three Texas A&M graduates in the class of 2014 began their careers at firms where attorney compensation is highest (that is, firms with more than 100 lawyers). Like the JD-required employment rate, big firm placement is another indicia of a school’s relevant market. That’s not a value judgment; it’s just true.

In fact, Professor Markovic is a living example of the distinct legal education submarkets. In 2006, he graduated from the Georgetown Law Center, which placed 281 of its class of 2014 graduates — more than Texas A&M’s entire 232-member class — in firms of more than 100 lawyers. Before Professor Markovic began teaching in 2010, he spent four years as an associate in two big law firms — Sidley Austin and Baker & Hostetler.

Let’s Run the Experiment

Professor Markovic objects to introducing law school accountability for employment outcomes. He argues that any reduction in federal funding “will not lead to less demand for law school or other graduate programs. Rather, students will turn to the private loan market, and private lenders will be only too happy to lend because graduate school loans — and particularly those allocated to law students and medical students — have historically been very profitable.”

Let’s run that experiment. But first, let’s create something resembling a functional market for legal education. Start by adopting my proposed sliding scale of federal loan guarantees based on each individual law school’s employment outcomes. In such a system, a school’s poor job prospects would mean a reduced loan guarantee amount for its students. Then implement one more change to the present regime: make law school debt dischargeable in bankruptcy.

Will private lenders be “only too happy” to make six-figure loans to students at any marginal law school, including places where fewer than half of graduates are finding jobs requiring a JD? Let a real market decide.

Letter #2

Professor Jeremy Paul is dean at Northeastern University School of Law. His letter to the Times editor notes correctly that many Americans cannot afford legal services and analogizes the situation to doctors.

“No one would say we had an oversupply of medical students if millions of Americans resorted to self-medication and treatment because they could not pay for a doctor,” he writes.

One commenter to Tax Prof Blog countered Professor Paul’s analogy with this one: “How can anyone say there are too many restaurants when there are still so many starving and malnourished people in the world? That’s how 12-year-olds think, not lawyers, which I’ve heard is law school’s reason for being.”

For the indigent needing legal services, there are not enough lawyers. But that’s because our society isn’t willing to pay for them. Based on the funding trends for the Legal Services Corporation and the federal government’s current obsession with austerity, the future in that respect is bleak. Compared to 1985, Congressional appropriations to the LSC are down 50 percent (in constant 2013 dollars).

Other than complain about the government’s failure to make the universal right to counsel in civil cases a priority, I can’t do anything about that problem. Neither can Professor Paul. But politicians’ reluctance to fund legal aid positions does not justify burdening today’s graduates with enormous educational debt for a JD that won’t lead to a paid position requiring that degree.

Experiments with Other People’s Student Loan Money

Professor Paul also observes that some law schools and bar associations are launching “incubator programs aimed at helping law graduates to serve clients of modest means.” That’s true. I was on the committee that developed such a program with the Chicago Bar Foundation. Will they result in more solo practitioners who, over the long-term, can squeeze out a living and a satisfying legal career? No one knows. But the participants in those programs are a drop in the bucket compared to the vast numbers of law graduates annually who can’t find JD-required jobs.

Like Professor Markovic, Dean Paul knows there’s no unitary legal education market. He graduated from Harvard Law School in 1981. For Northeastern Law School — where he has been dean since 2012 — the full-time long-term bar passage-required employment rate for the class of 2014 was 53 percent.

Completing the Circle

Professor Paul’s final observation is that “studies show that a law degree remains a sound investment…”

Which takes us back to the pervasive and persistent academic canard that aggregate data matter to individual decisions about attending particular schools. What study tracks outcomes by individual law school to “show that a law degree remains a sound investment” for graduates of every school?

No such study exists. But for those determined to resist necessary change in the broken system for funding legal education, magical thinking combines with confirmation bias to trump reality every time. Federal student loan subsidies unrelated to student outcomes encourage otherwise thoughtful legal academics to become unabashed salespeople.

Think of it as your tax dollar at work.

Would Professor Markovic and Dean Paul — among many others who similarly ignore the crisis in legal education — counsel their own children to attend a marginal law school that, upon graduation, assured them of six-figure debt but offered only dismal JD-required employment prospects? It probably depends on how they feel about their kids.

LABOR DAY

Posted on September 2, 2015 by thebellyofthebeast

Labor Day marks the end of summer. It’s also a time to reflect on our relationship with work. Lawyers should do that more often. In that regard, some big law leaders will find false comfort in their 2015 Am Law Midlevel Associates Survey ranking.

In a recent New York Times Op-Ed, “Rethinking Work,” Swarthmore College Professor Barry Schwartz suggests that the long-held belief that people “work to live” dates to Adam Smith’s 1776 statement in “Wealth of Nations”: “It is in the interest of every man to live as much at his ease as he can.”

Schwartz notes that Smith’s idea helped to shape the scientific management movement that created systems to minimize the need for skill and judgment. As a result, workers found their jobs less meaningful. Over generations, Smith’s words became a self-fulfilling prophecy as worker disengagement became pervasive.

“Rather than exploiting a fact about human nature,” Schwartz writes, “[Smith and his descendants] were creating a fact about human nature.”

The result has been a world in which managers structure tasks so that most workers will never satisfy aspirations essential for job satisfaction. Widespread workplace disengagement — afflicting more than two-thirds of all workers, according to the most recent Gallup poll — has become an accepted fact of life.

Lawyers Take Note

Schwartz’s observations start with those performing menial tasks: “Maybe you’re a call center employee who wants to help customers solve their problems — but you find out that all that matters is how quickly you terminate each call.”

“Or you’re a teacher who wants to educate kids — but you discover that only their test scores matter,” he continues.

And then he takes us to the legal profession: “Or you’re a corporate lawyer who wants to serve his client with care and professionalism — but you learn that racking up billable hours is all that really counts.”

More than Money

Many Americans — especially lawyers who make decent incomes — have the luxury of thinking beyond how they’ll pay for their next meal. But relative affluence is no excuse to avoid the implications of short-term thinking that has taken the legal profession and other noble pursuits to an unfortunate place.

You might think that short-term profit-maximizing managers would heed the studies demonstrating that worker disengagement has a financial cost. But in most big law firms, that hasn’t happened. There’s a reason: Those at the top of the pyramid make a lot of money on eat-what-you-kill business models. They can’t see beyond their own short-term self-interest — which takes them only to their retirement age.

Maintaining their wealth has also been a straightforward proposition: Pull up the ladder while increasing the income gap within equity partnerships. The doubling of big firm leverage ratios since 1985 means that it’s now twice as difficult to become an equity partner in an Am Law 50 firm. Top-to-bottom compensation spreads within most equity partnerships have exploded from three- or four-to-one in 1990 to more than 10-to-1 today. At some firms, it’s 20-to-1.

What Problem?

Then again, maybe things aren’t so bad after all. The most recent Am Law Survey of mid-level associates reports that overall satisfaction among third- through fifth-level associates is its highest in a decade. But here’s the underlying and problematic truth: Big law associates have adjusted to the new normal.

Thirty-one percent of Am Law Survey respondents said they didn’t know what they’d be doing in five years. Only 14 percent expected to make non-equity partner by then. They see the future and have reconciled themselves to the harsh reality that their firms have no place for them in it.

No one feels sorry for big firm associates earning six-figure incomes, but perhaps someone should. As Professor Schwartz observes, work is about much more than the money. In that respect, he offers suggestions that few large firms will adopt: “giving employees more of a say in how they do their jobs… making sure we offer them opportunities to learn and grow… encouraging them to suggest improvements to the work process and listening to what they say.”

I’ll add one specially applicable to big law firms: Provide meaningful career paths that reward talent and don’t make advancement dependent upon the application of arbitrary short-term metrics, such as leverage ratios, billable hours, and client billings.

What’s the Mission?

Schwartz’s suggestions are a sharp contrast to the way most big law firm partners operate. They exclude their young attorneys from firm decision-making processes (other than recruiting new blood to the ranks of those who will leave within five years of their arrival). Compensation structures reward partners who hoard clients rather than mentor and develop talent for the eventual transition of firm business to the next generation. The behavior of partners and the processes of the firm discourage dissent.

“But most important,” Schwartz concludes, “we need to emphasize the ways in which an employee’s work makes other people’s lives at least a little bit better.”

Compare that to the dominant message that most big law firm leaders convey to their associates and fellow partners: We need to emphasize the ways in which an attorney’s work makes current equity partners wealthier.

Law firm leaders can develop solutions, or they can perpetuate the problem. It all starts from the top.

MY OP-ED IN THE NY TIMES — AND A KINDLE BOOK PROMOTION

Posted on August 25, 2015 by thebellyofthebeast

My August 25, 2015 New York Times op-ed on law student debt, law school moral hazard, and the dysfunctional legal education market appears here: “Too Many Law Students, Too Few Legal Jobs.”

In the winter 2015 issue of the American Bankruptcy Institute Law Review, I published a specific proposal for creating a law school accountability: “Bankruptcy and Bad Behavior – The Real Moral Hazard: Law Schools Exploiting Market Dysfunction.”

Additionally, Amazon is running a promotion for my novel. From August 25 through August 29, you can download the Kindle version of The Partnership – A Novel.

THE PERVASIVE AMAZON JUNGLE

Posted on August 19, 2015 by thebellyofthebeast

Amazon’s founder and CEO, Jeff Bezos, hates the recent New York Times article about his company. He says it “doesn’t describe the Amazon I know.” Rather, it depicts “a soulless, dystopian workplace where no fun is had and no laughter heard.” He doesn’t think any company adopting such an approach could survive, much less thrive. Anyone working in such a company, he continues, “would be crazy to stay” and he counts himself among those likely departures.

The day after the Times’ article appeared, the front page of the paper carried a seemingly unrelated article, “Work Policies May Be Kinder, But Brutal Competition Isn’t.” It’s not about Amazon; it’s about the top ranks of the legal profession and the corporate world. Both are places where the Times’ version of Amazon’s culture is pervasive — and where such institutions survive and thrive.

The articles have two unstated but common themes: the impact of short-termism on working environments, and how a leader’s view of his company’s culture can diverge from the experience of those outside the leadership circle.

Short-termism: “Rank and Yank”

Bezos is hard-driving and demanding. According to the Times, his 1997 letter to shareholders boasted, “You can work long, hard or smart, but at Amazon.com you can’t choose two out of three.”

The Times reports that Amazon weeds out employees on an annual basis: “[T]eam members are ranked, and those at the bottom eliminated every year.” Jack Welch pioneered such a “rank and yank” system at General Electric long ago and many companies followed his lead. Likewise, big law firms built associate attrition into their business models.

Theoretically, a “rank and yank” system produces a higher quality workforce. But in recent years, a new generation of business thinkers has challenged that premise. Even GE has abandoned Welch’s brainchild.

As currently applied, the system makes no sense to Stanford Graduate School of Business professor Bob Sutton, who observed, “When you look at the evidence about stack ranking…. The kind of stuff that they were doing [at GE], which was essentially creating a bigger distribution between the haves and the have nots in their workforce, then firing 10% of them, it just amazed me.”

If Amazon uses that system, which focuses on annual short-term evaluations, it’s behind the times, not ahead of the curve.

Haves and Have Nots

Professor Sutton’s comment about creating a bigger gap between the haves and the have nots describes pervasive law firm trends as well. The trend could also explain why Bezos and the Times may both be correct in their contradictory assessments of Amazon’s culture. That’s because any negative cultural consequences of Bezos’ management style probably don’t seem real to him. Bezos is at the top; the view from below is a lot different.

This phenomenon of dramatically divergent perspectives certainly applies to most big law firms. As firms moved from lock-step to eat-what-you-kill partner compensation systems, the gap between those at the top and everyone else exploded. Often, the result has been a small group — a partnership within the partnership — that actually controls the institution.

Those leaders have figured out an easy way to maximize short-term partner profits for themselves: make the road to equity partner twice as difficult than it was for them. As big firm attorney-partner leverage ratios have doubled since 1985, today’s managers are pulling up the ladder on the next generation. It’s no surprise that those leaders view their firms favorably.

Their associates have a decidedly different impression of the work environment. Regular attrition began as a method of quality control. At many firms, it has morphed into something insidious. Leadership’s prime directive now is preserving partner profits, not securing the long-run health of the institution. Short-term leverage calculations — not the quality of a young attorney’s lawyering — govern the determination of whether there is “room” for potential new entrants.

About the Long-Run

Such short-term thinking weakens the institutions that pursue it. As Professor Sutton observes: “We looked at every peer reviewed study we could find, and in every one when there was a bigger difference between the pay at of the people at the bottom and the top there was worse performance.”

That’s understandable. After all, workers behave according to signals that leadership sends down the food chain. Dissent is not a cherished value. Resulting self-censorship means the king and the members of his court hear only what they want to hear. People inside the organization who want to advance become cheerleaders who suppress bad news. Being a team player is the ultimate compliment and the likeliest path to promotion.

One More Thing

Bezos’ letter to his employees about the Times article encourages anyone who knows of any stories “like those reported…to escalate to HR.” He says that he doesn’t recognize the Amazon in the article and “very much hopes you don’t, either.”

One former employee frames Bezos’ unstated conundrum correctly: “How do you possibly convey to your manager the intolerable nature of your working conditions when your manager is the one telling you, point blank, that the impossible hours are simply what’s expected?”

Note to Jeff B: Escalating to HR won’t eliminate embedded cultural attitudes.

Then again, maybe I’m wrong about all of this. On the same day the Times published its piece on the increasingly harsh law firm business model, the Wall Street Journal ran Harvard Law School Professor Mark J. Roe’s op-ed: “The Imaginary Problem of Corporate Short-Termism.”

It’s all imaginary. That should come as a relief to those working inside law firms and businesses that focus myopically on near-term results without regard to the toll it is taking on the young people who comprise our collective future.

THE ABA AT WORK — NOT!

Posted on August 6, 2015 by thebellyofthebeast

Recently, I suggested that the ABA House of Delegates reject the June 17 Report of the Task Force on the Financing of Legal Education. The Task Force was supposed to tackle the crisis of massive student loan debt that is subsidizing marginal law schools. Its Report not only fails to fulfill that mission, but also ignores the central problem of a dysfunctional legal education market. As a consequence, it offers superficial recommendations that will accomplish little.

Doomed from the Start; Flawed at the Finish

As I observed when the ABA announced the creation of the Task Force in May 2014, no one should have reasonably expected its chairman, Dennis Archer — who is also chairman of the national policy board for Infilaw — to point his group in the direction of true market-based reform that would jeopardize revenues at marginal law schools. After all, Infilaw is a private equity-owned consortium of three for-profit law schools with dismal full-time long-term JD-required employment outcomes: Arizona Summit, Charlotte, and Florida Coastal.

On August 4, the ABA House of Delegates gave the Task Force Report a rubber stamp of approval by adopting five “Resolutions.” Only two are even operative; the remaining three now go the Council of the Section of Legal Education and Admissions to the Bar. Together, they constitute an abdication of the ABA’s role in an important national discussion.

The Details

Let’s start with the two resolutions that don’t require additional action by the Council of the Section of Legal Education and Admissions to the Bar. We’ll call them “urging” and “encouraging,” which means they are essentially toothless.

One asks the ABA to “urge all participants in the student loan business and process, including law schools, to develop and publish easily understood versions of the terms of various loan and repayment programs.”

The other asks the ABA to “encourage law schools to be innovative in developing ways to balance responsible curricula, cost effectiveness, and new revenue streams.”

On to Another Committee…

The remaining three resolutions “encourage” another ABA Committee to adopt equally ineffective measures: “enhanced financial counseling for students (prospective and current) on student loans and repayment programs,” “return to collecting expenditure, revenue, and financial aid data annually for each law school,” and “make public the information on legal education it currently maintains and information it collects going forward.”

It took the Task Force more than a year to come up with its recommendations. Expect another year or more to pass before the Council of the Section of Legal Education and Admissions to the Bar acts on the Task Force’s “encouragement.” If the Council takes up these issues, expect law schools to fight major battles resisting disclosure of their financial affairs. But it doesn’t really matter what the Council does or how long it takes because none of the recommendations will make a difference to the core problem: lack of individual law school-specific financial accountability for graduates’ poor employment outcomes.

One More Thing

On July 29, NPR’s Marketplace ran a brief report on the larger crisis in legal education. In his NPR interview, Dennis Archer defended his Task Force’s Report, saying, “People make choices about their lives. And they make choices every day.”

In the current dysfunctional financing regime that his Task Force refused to confront, law schools make choices, too. However, once students pay their tuition bills, law schools have no financial accountability for what happens next. Stated differently, the weakest law schools have the freedom to make the bad choice of maximizing enrollments, tuition revenues, and student debt, even if most of their graduates have dismal JD-required job prospects upon graduation.

The ABA makes choices, too. In the ongoing debate concerning one of the nation’s most pressing issues, it has chosen to remain silent. The next generation of potential ABA members is taking notice.

NPR’S MARKETPLACE REPORT

Posted on July 29, 2015 by thebellyofthebeast

I was interviewed for this brief NPR Marketplace Report airing Wednesday, July 29, 2015: “Should Law Schools Pay If Students Don’t Get Jobs?”

Listen all the way to the end, when Dennis Archer, chairman of the ABA’s Task Force on the Financing of Legal Education, offers his defense of the Task Force’s non-response to the current crisis resulting from a dysfunctional system.

ABOUT SANDRA BLAND’S DEADLY ENCOUNTER

Posted on July 28, 2015 by thebellyofthebeast

“She had been pulled over for failing to signal a lane change.” — The New York Times, July 16, 2015

That’s the most important line in the Sandra Bland story. And it has become lost in the controversy over whether her July 13 death in a Waller County Texas jail cell was suicide. Attention now focuses on her mental state and the marks on her body. But everyone should be taking a closer look at officer Brian T. Encinia and why he stopped Bland in the first place.

Context and Cast of Characters

Bland was black; Encinia is white; Waller County has a notorious history of racism. Encinia was patrolling what The New York Times called “a sleepy state road” that leads from the highway to the entrance of Prairie View A&M University, where more than 80 percent of students are black. In 2004, the district attorney threatened to prosecute Prairie View students from other counties who tried to vote in Waller County. Students and the state’s Republican attorney general thwarted his illegal voter suppression effort.

Bland, a suburban Chicago native, graduated from Prairie View A&M in 2008 and returned to Chicago. On July 10, she accepted a job working with students at her alma mater. Youthful optimism notwithstanding, Bland must have known that she was re-entering hostile territory.

Encinia is 30 years old and has been a Texas state trooper for 19 months. According to a now-deleted Linked-In profile, he took a circuitous route to law enforcement. In 2008, he graduated from Texas A&M University with a degree in agricultural leadership and development. Then he joined Blue Bell Creameries where he left his position as an ingredient processing supervisor in 2014. (Blue Bell is now infamous for the nationwide listeria-related recall of its ice cream.) He also worked at the Brenham (TX) Fire Department.

Disturbing Details

A detailed examination of the complete 47-minute dash-cam video from Encinia’s squad car tells far more than the short excerpts airing on television. For starters, Bland’s car had Illinois license plates. To a white local cop in many places throughout America, she was a black out-of-towner worthy of presumptive suspicion.

Also noteworthy is the principal feature of the four-lane road on which Bland drove: it’s desolate. What constructive police work could possibly occupy Encinia’s time there? During the first 15 minutes of the video, only 36 vehicles passed in her direction. Two of them made illegal u-turns — without signaling — and continued on their way.

Through the Looking Glass

After Encinia pulled Bland over, he walked to the passenger side of her car and their interaction began:

Encinia: Hello ma’am. We’re the Texas Highway Patrol and the reason for your stop is because you failed to signal the lane change. Do you have your driver’s license and registration with you? What’s wrong? How long have you been in Texas?

Timeout #1

“How long have you been in Texas?” Encinia’s early question supports my “black driver, out-of-state plate, pull-‘er-over” hypothesis.

Back Through the Looking Glass

Bland: Got here just today.

Encinia: OK. Do you have a driver’s license? (Pause) OK, where you headed to now? Give me a few minutes.

Encinia walked back to his squad car. After making Bland wait a full five minutes, he returned to the driver’s side of her car and said, “OK, ma’am. You OK?”

Bland: I’m waiting on you. This is your job. I’m waiting on you. When’re you going to let me go?

Encinia: I don’t know, you seem very irritated.

Bland: I am. I really am. I feel like it’s crap what I’m getting a ticket for. I was getting out of your way. You were speeding up, tailing me, so I move over and you stop me. So yeah, I am a little irritated, but that doesn’t stop you from giving me a ticket, so [inaudible] ticket.

Timeout #2

According to Bland, she was changing lanes to get out of the way of Encinia’s speeding squad car as it approached her car. For that, Encinia pulls her over? Who signals while changing lanes to clear the path for a police car, fire truck or emergency vehicle approaching quickly from behind? Who signals when making a lane change when there are no other cars in sight?

Back Through the Looking Glass

Encinia: Are you done?

Bland: You asked me what was wrong, now I told you.

Encinia: OK.

Bland: So now I’m done, yeah.

Encinia: You mind putting out your cigarette, please? If you don’t mind?

Bland: I’m in my car, why do I have to put out my cigarette?

Encinia: Well you can step on out now.

Timeout #3

It’s lawful to smoke in your own car. In fact, I assume Texans’ zeal for individual liberty makes it especially permissible in that state to smoke in your own car — perhaps while cleaning your gun.

Encinia didn’t answer Bland’s question because he couldn’t. There was no legal basis for his request, unless he thought she might use the cigarette as a weapon against him.

Back Through the Looking Glass

Bland: I don’t have to step out of my car.

Encinia: Step out of the car.

Bland: Why am I …

Encinia: Step out of the car!

Bland: No, you don’t have the right. No, you don’t have the right.

Encinia: Step out of the car.

Bland: You do not have the right. You do not have the right to do this.

Encinia: I do have the right, now step out or I will remove you.

Timeout #4

Encinia became defensive about Bland’s denial of a request for which he had no lawful justification (“Would you mind putting out your cigarette, please? If you don’t mind?”). So he bullied his way into an escalation of the conflict with a new demand (“Step out of the car”). With stunning speed, he lost his temper and started yelling.

The current focus on Bland’s mental history is misplaced; someone should investigate signs of anger, aggressiveness, racism, and generally inappropriate behavior in Encinia’s past. Even more pointedly, it’s worth scrutinizing the process that qualifies someone to become a “peace” officer for the Texas Highway Patrol.

One of my friends specializes in criminal law. Here’s what he tells black clients and friends: if you’re subject to a routine police stop in a white neighborhood, remain in your car so the policeman doesn’t perceive your act of getting out as aggressive. Perhaps Bland had received similar legal advice. Still, once policeman asks you to get out of your car, it’s wise to obey.

Back Through the Looking Glass

Bland: I refuse to talk to you other than to identify myself. [crosstalk] I am getting removed for a failure to signal?

Encinia: Step out or I will remove you. I’m giving you a lawful order. Get out of the car now or I’m going to remove you.

Bland: And I’m calling my lawyer.

Encinia: I’m going to yank you out of here. (Reaches inside the car.)

Bland: OK, you’re going to yank me out of my car? OK, alright.

Encinia (calling in backup): 2547.

Bland: Let’s do this.

Encinia: Yeah, we’re going to. (Grabs for Bland.)

Bland: Don’t touch me!

Encinia: Get out of the car!

Bland: Don’t touch me. Don’t touch me! I’m not under arrest — you don’t have the right to take me out of the car.

Encinia: You are under arrest!

Bland: I’m under arrest? For what? For what? For what?

Timeout #5

Encinia didn’t have an answer to her question. As described below, he and a colleague eventually developed one after the incident was over. But Bland knew her constitutional rights, even though Encinia never explained them to her.

Back Through the Looking Glass

A few minutes later, Bland was on the ground and in handcuffs as their exchange continued:

Encinia: You were getting a warning, until now you’re going to jail.

Bland: I’m getting a — for what? For what?

Encinia: You can come read.

Bland: I’m getting a warning for what? For what!?

Encinia then showed her the ticket.

Encinia: Come read right over here. This right here says ‘a warning.’ You started creating the problems.

Timeout #6

After Encinia extracted Bland forcibly from her car without telling her why, wrestled her to the ground, and placed her in handcuffs, he finally revealed that she was just going to get a warning for her supposed failure to signal a lane change. That’s astonishing. If Bland had lived to file a lawsuit against Encinia, she should have won.

Getting His Story Straight

After the incident was over, Encinia spoke with someone on his radio (presumably a supervisor) as they developed an underlying theory to justify his behavior:

“I tried to de-escalate her. It wasn’t getting anywhere, at all. I mean I tried to put the Taser away. I tried talking to her and calming her down, and that was not working….

“Evading arrest or detention. (Inaudible). Resisting arrest … She was detained. That’s the key and that’s why I am calling and asking because she was detained. That’s when I was walking her over to the car, just to calm her down and just to (say) stop.

“That’s when she started kicking. I don’t know if it would be resist or if it would be assault. I kinda lean toward assault versus resist because I mean technically, she’s under arrest when a traffic stop is initiated, as a lawful stop. You’re not free to go. I didn’t say you’re under arrest, I never said, you know, stop, hands up.

“Correct, that did not occur. There was just the assault part…

“Like I said, with something like this, I just call you immediately, after I get to a safe stopping point.

“No weapons, she’s in handcuffs. You know, I took the lesser of the uhh … I only took enough force as I — seemed necessary. I even de-escalated once we were on the pavement, you know on the sidewalk. So I allowed time, I’m not saying I just threw her to the ground. I allowed time to de-escalate and so forth. It just kept getting. (Laughing) Right, I’m just making that clear.”

Sickening and Sad

All of this suggests obvious questions that no one is asking:

— When did Bland fail to signal the lane change that caused Encinia to pull her over?

— Why did Encinia ask Bland to get out of her car? Because she kept smoking her cigarette after he asked her to stop?

— Shortly before Encinia first told Bland that she was under arrest, he grabbed her. But she hadn’t touched him. What was the charge for which he first said he was arresting her?

— What justified Encinia in forcibly removing Bland from her car? Her refusal to obey his dubious order that she get out on her own after refusing to extinguish her cigarette?

— What made Encinia laugh while he was on the car radio as a fellow officer on the scene told Bland she was under arrest for assault on a public servant — the only charge ever lodged against her?

Let’s hope Encinia is under oath when he provides the answers. The testimony of the person who caused him to laugh over the radio should be interesting, too.

Three days later, Sandra Bland was dead. No one is laughing now.

DEAR ABA…

Posted on July 23, 2015 by thebellyofthebeast

Dear ABA (especially members of the House of Delegates to the upcoming annual meeting in Chicago):

For years, America’s dysfunctional system of financing legal education has produced too many lawyers for too few jobs — and too many law graduates with too much educational debt. A year ago, the ABA created yet another Task Force to consider the problem. The June 17, 2015 Final Report on the Financing of Legal Education embodies the failure of that Task Force’s mission. It now goes to the House of Delegates for approval.

If the Delegates are interested in rehabilitating the ABA’s credibility and restoring public confidence in the profession on an issue of critical importance to the country, they could take this simple step: reject the Task Force Report. That’s right. Rather than giving the typical rubber stamp of approval amid flowery speeches thanking Task Force members for their time and effort in generating a hollow ABA statement summarizing the obvious, the House of Delegates could just say no.

Round One

Some observers had hoped that the ABA’s previous Task Force on the Future of Legal Education might tackle the daunting issues responsible for our dysfunctional legal education market. After all, the ABA’s leaders promised that the 2012 Task Force would make “recommendations to the American Bar Association on how law schools, the ABA, and other groups and organizations can take concrete steps to address issues concerning the economics of legal education and its delivery.”

To its credit, the 2012 Task Force put its toe in those waters, observing that the “system of lending distances law schools from market considerations and it supports pricing practices that do not well serve either the public or private value in legal education.”

Let’s state the problem more bluntly: Marginal law schools are relying on exploding student debt to produce revenue streams that keep them alive. They get away with it because federal student loans come without school-specific accountability for graduates’ dismal employment outcomes. Schools have no financial skin in the game.

But the 2012 Task Force didn’t go beyond identifying the problem because, it said, “The time and resources available to the Task Force have made it impractical to develop a structure of equitable and effective solutions.”

Round Two

So in May 2014, then-ABA president James R. Silkenat announced the creation of a new Task Force — one specifically devoted to the Financing of Legal Education. It was supposed to pick up where the 2012 Task Force had stalled. It was going to “conduct a comprehensive study of the complex economic and political issues involved and produce sound recommendations to inform policymakers throughout the legal community.”

The 2014-2015 Task Force Report recites that 25 percent of law schools obtain at least 88 percent of their total revenues from tuition and that the average for all law school is 69 percent. It also reports that higher tuition has produced more student debt, even as job prospects for graduates of marginal schools have languished.

Since 2006 alone, average student debt has increased by 25 percent (private schools) and 34 percent (public schools) in inflation-adjusted dollars. Average student debt at graduation from private law schools in 2013 was $127,000; for public schools it was $88,000. Meanwhile, only about half of new law graduates are obtaining full-time long-term jobs requiring a JD.

But the new Task Force didn’t pursue this obvious market dysfunction. Instead, its Final Report offers superficial fixes: better debt counseling for students, better disclosure forms from the Department of Education, more dissemination of how schools spend their money, and continued experimentation with law curriculum. They ignore the core financial accountability problem, rather than confronting and addressing it.

Insularity and Self-Interest

The chairman of the 2014-2015 Task Force was Dennis W. Archer, former mayor of Detroit, former Michigan Supreme Court justice, and past president of the ABA. Did the ABA think no one would notice that Archer also chairs of the national policy board of Infilaw — a private equity-owned consortium of three for-profit law schools — Arizona Summit, Charlotte, and Florida Coastal.

The Infilaw schools feed on the market dysfunction that the current system for funding legal education creates. The job market for law graduates from schools such as Infilaw’s remains dismal. But even in the face of their graduates’ poor full-time long-term JD-required employment results, Infilaw’s schools increased enrollment and have become leaders in creating debt for their students.

Archer wasn’t the only problematic appointment to the 2014-2015 Task Force. Another member, Christopher Chapman, is president and CEO of Access Group — the collective voice of 197 ABA-accredited law schools.

According to the Access Group’s website, “During the course of our 30+ year existence, we became a leading provider of affordable student loans for aspiring professionals in law, medicine, dentistry, health, business, and other disciplines. As such, we served as a national originator, holder and servicer of federally guaranteed and private, credit-based loans, funding more than $18 billion of education loans since 2001.”

Enough said.

Forfeiting The Right To Be Heard

The fact that, as one 2014-2015 Task Force witness said, legal education may be the “canary in the coal mine” on issues relating to student debt and financing higher education generally is no excuse for the profession to refrain from offering potential solutions.

For that reason, at its upcoming August 3-4 meeting in Chicago, the ABA House of Delegates could reject the Task Force Report. It could then reconstitute the Task Force membership with individuals willing to deliver the tough message that the profession needs. It could direct the newly constituted group to develop meaningful proposals that tie law student loan availability to individual law school outcomes. My recent article in the American Bankruptcy Institute Law Review, “Bankruptcy and Bad Behavior,” offers one idea that would force law schools to put some financial skin in the game; others have suggested plans warranting serious consideration.

The ABA describes its mission as “committed to doing what only a national association of attorneys can do: serving our members, improving the legal profession, eliminating bias and enhancing diversity, and advancing the rule of law throughout the United States and around the world.”

In a single vote rejecting the 2014-2015 Task Force Report on the Financing of Legal Education, the House of Delegates could match those lofty words with action.

On this vitally important issue, the ABA leadership has caused many attorneys and the general public to become cynical about the organization’s motives. The House of Delegates has a unique opportunity to prove that the ABA is not just the vehicle whereby an insular, self-interested group seeks to preserve the present at the expense of the future. The House of Delegates can be part of the solution, or it can remain part of the problem.

Which path will it choose? The whole legal world is watching.

THE DEWEY TRIAL: FOUR EXAMPLES OF NOT-SO-FUNNY COMIC RELIEF

Posted on July 8, 2015 by thebellyofthebeast

The ongoing criminal trial against three former leaders of Dewey & LeBoeuf has consumed six weeks. Time flies when you’re having fun. For example:

#1: Funny, If It Weren’t So Sad

For a bunch of smart people, some senior partners did some dumb things. One of the prosecution’s first witnesses was a former member of Dewey’s executive committee who retired at the end of 2010. She had contributed more than $600,000 in capital to the firm and, upon retirement, expected to get it back. Although the partnership agreement permitted the firm to spread the payments to her over three annual installments, she testified that chairman Steve Davis had discretion to accelerate them.

Davis declined her request to do so. Instead, he encouraged her to get a bank loan from Barclays for the full amount and told her that over the subsequent three years the firm would repay the loan for her. She followed his recommendation and borrowed the money.

The firm failed to repay the Barclays loan. She remained on the hook and paid the full amount herself. Adding insult to injury, she lost again when the firm filed for bankruptcy and her $175,000 annual pension disappeared.

#2: Funny, If You Were Not a Fellow Partner

For a bunch of high-powered former Dewey partners who rose to the very top of the firm, titles typically associated with power didn’t mean leadership. Likewise, becoming a member of the firm’s governing structure apparently didn’t result in any duties or responsibilities that involved actual knowledge of the firm’s finances or operations.

For example, during the fifth week of trial, Ralph Ferrara testified that even though he had no equity stake in the firm, he held an impressive title — vice chairman — and had an agreement whereby the firm paid him a salary around $5 million a year. He told the jury that former chairman Steven Davis’ announcement that Ferrara would assume the vice-chairmanship became an offer that he couldn’t refuse.

“I’m embarrassed to say, my ego overcame my good judgment,” Ferrara, a former general counsel of the U.S. Securities and Exchange Commission, said on the witness stand.

That line could describe leaders of big law firms everywhere. But it’s a flimsy excuse for abdicating responsibilities that come with power. So is another of Ferrara’s quoted lines: “I’m a practicing lawyer. I’m not a law firm administrator.”

Dewey’s other vice-chairman was Mort Pierce. As the firm was failing and Pierce was jumping ship in 2012, he similarly disclaimed any leadership responsibilities associated with his title and position.

#3: Funny, For a Lawyer

For a bunch of lawyers who make a lot of money advising clients not to write stupid stuff, some of them sure wrote stupid stuff. As the trial plodded through its fifth week, the jury saw these colorful messages from former Dewey partner Alexander Dye:

“Fellas: Time to start spending Momma LeBoeuf’s money like its water.”

“Steve DiCarmine, if you are reading this, I’ll have your f-cking head on a stick.”

During week six, one former executive committee member, Richard Shutran, testified about his internal firm emails, including these nuggets:

“I spend most days bulls–ing people…”

“Do what I do. Work out a lot and do drugs…”

“If he calls me, I’ll kill him…”

A defense attorney for Dewey’s former chief financial officer Joel Sanders had Shutran explain that these were all jokes. Apparently, the strategy is to convince the jury that Shutran’s email jests were part of a culture producing defendants’ supposed email “jokes” about finding “a clueless auditor” and using “fake income” in crafting the firm’s financial statements. Good luck with that one.

#4: Funny, If You’re Not A Juror

At the end of week six, jurors listened as the presiding trial judge, Manhattan Supreme Court Justice Robert Stoltz, interrupted Stephen DiCarmine’s defense counsel in mid-question. He wanted counsel to explain a term he was using in cross-examining Dewey’s former budget and planning director:

“What does the phrase ‘unreconciled expense write-off’ mean?”

Riveting.

Only three more months to go.

MY BLOOMBERG INTERVIEW

Posted on July 2, 2015 by thebellyofthebeast

I’m the subject of a two-part series currently appearing in Bloomberg BNA. Here are the links:

Part I: “At Law Firms, Can Culture Create Value?”

Part 2: “A Client-Centered Approach to Save Big Law From the Robot Apocalypse.

MY LATEST INTERVIEW

Posted on June 25, 2015 by thebellyofthebeast

On June 25, Robert Hilson of Logikcull asked me to discuss issues that are the subject of my writing. You can listen to the entire interview here: http://logikcull.com/blog/cullcast-3-in-the-belly-of-the-beast-with-steven-j-harper/

WHEN SUPPORTING A CAUSE UNDERMINES IT

Posted on June 10, 2015 by thebellyofthebeast

Lee Siegel and The New York Times probably thought they were aiding a vital cause when the Times published Siegel’s June 6 op-ed, “Why I Defaulted on My Student Loans.” The underlying issue is important. Many of today’s young people bear the burden of huge educational debt in an economy that has not afforded the kinds of opportunities available to their baby-boomer parents, including Siegel.

Here’s the problem: Siegel did more harm than good. He made himself a poster child for the kind of moral hazard that first led policymakers to render student loans non-dischargeable in bankruptcy more than 40 years ago. It was a mistake then, and it’s a mistake now. But Siegel is exactly the wrong spokesperson for the issue.

Lee Siegel’s Pitch

According to his op-ed, Siegel financed his education with student loans, the first of which he obtained 40 years ago. But when his family’s financial hardship left him unable to pay the full cost of tuition at “a private liberal arts college,” he “transferred to a state college in New Jersey, closer to home.” Eventually, he defaulted on his student loans.

“Years later,” he writes, “I found myself confronted with a choice that too many people have had to and will have to face. I could give up what had become my vocation (in my case, being a writer) and take a job that I didn’t want in order to repay the huge debt I had accumulated in college and graduate school. Or I could take what I had been led to believe was both the morally and legally reprehensible step of defaulting on my student loans, which was the only way I could survive without wasting my life in a job that had nothing to do with my particular usefulness to society.”

He urges others to follow his example: default.

Who is Lee Siegel?

Here’s what Siegel and the Times didn’t reveal.

Notwithstanding his transfer to a New Jersey state college, he obtained three degrees from Columbia University — a B.A., an M.A., and a master’s of philosophy. According to the HarperCollins Speakers Bureau website, he’s “an acclaimed social and cultural critic.” The mere fact that he appears on that site means that you should expect to pay big bucks for the privilege of hearing him speak. He has written four books and his essays have appeared in The Atlantic Monthly, The New Yorker, Time, Newsweek, The New York Times, and The Wall Street Journal.

In other words, he has an elite education that led to a lucrative career. He is exactly the wrong person to be the face of the student loan crisis — which is very real.

The Problem with Siegel’s Support

Siegel has now made himself a powerful anecdote for those on the wrong side of the fight for reform in financing higher education. Forty years ago, similar ammunition — anecdotes about individuals exploiting moral hazard — led to bad policy when student debt first became non-dischargeable in bankruptcy.

In the early years of the student loan program, the Department of Health, Education & Welfare brought a supposed “loophole” to the attention of the 1973 Congressional Commission on Bankruptcy Laws. Concerned about tarnishing the image of the new program, the Department didn’t want new college graduates embarking on lucrative careers to default on loans that had made their education possible

But there was no hard, numerical evidence suggesting a serious problem. Rather, media hype over a few news reports of “deadbeat” student debtors took on a life of their own. In 1976, Congress yielded to public hysteria and made student loans non-dischargeable in bankruptcy unless a borrower had been in default for at least five years or could prove “undue hardship.”

In 1990, it extended the default period to seven years. In 1997, the Bankruptcy Reform Commission still had found no evidence supporting claims of systemic abuse, but Congress decided nevertheless that only “undue hardship” would make educational debt dischargeable. That placed it in the same category as child support, alimony, court restitution orders, criminal fines, and certain taxes. In 2005, it extended non-dischargeability to private loans as well.

The Enduring Power of a Big Lie

Unfortunately, the anecdotes and unsubstantiated lore about supposed abuses that led to the current rule persist to this day. In a lead editorial on July 25, 2012, The Wall Street Journal perpetuated the falsehood that “[a]fter a surge in former students declaring bankruptcy to avoid repaying their loans, Congress acted to protect lenders beginning in 1977.”

There was no such surge. It was “more myth and media hype” than reality. Now, Siegel has provided fuel for a new round of obfuscation to displace facts.

“Thirty years after getting my last [student loan],” Siegel writes, “the Department of Education is still pursuing the unpaid balance.” I hope they catch him.

NOTE: The special ebook sale of my first book, Crossing Hoffa – A Teamster’s Story continues: http://discussions.mnhs.org/10000books/true-crime-e-book-sale/. It’s the true crime saga of my father’s two-year tangle with Jimmy Hoffa from 1959 to 1961.

The Chicago Tribune honored it as one of the “Best Books of the Year.” You can get it at Amazon, bn.com, Google, iTunes, and Kobo.

NOW ON SALE: “CROSSING HOFFA — A Teamster’s Story”

Posted on June 8, 2015 by thebellyofthebeast

My publisher just announced a special ebook sale of my first book, Crossing Hoffa – A Teamster’s Story: http://discussions.mnhs.org/10000books/true-crime-e-book-sale/. It’s the true crime saga of my father’s two-year tangle with Jimmy Hoffa from 1959 to 1961.

The Chicago Tribune honored it as one of the “Best Books of the Year.” You can get it at Amazon, bn.com, Google, iTunes, and Kobo.

THE DEWEY TRIAL: TRUTH, JUSTICE, OR NEITHER?

Posted on June 2, 2015 by thebellyofthebeast

[NOTE: My recent post, “Cravath Gets It Right, Again,” was a BigLaw Pick of the Week.]

***

“Not all the evidence that you hear and see will be riveting,” said Steve Pilnyak last Tuesday as he opened the prosecution’s case against three former leaders of the now-defunct Dewey & LeBoeuf. The judge warned jurors that they will probably be there past Labor Day. The antagonists will present dueling views of what the New York Times called “arcane accounting treatments and year-end adjustments” three years before Dewey’s collapse. As you read between the yawns, watch to see if the trial leaves the most important questions about the final days of a storied firm unanswered.

Victims?

The prosecution’s case requires victims. It settled on insurance companies who bought the firm’s bonds in 2010 and big banks that lent the firm money for years. We’ll see how that plays, but it’s difficult to imagine aggrieved parties that would generate less juror sympathy than insurers and Wall Street bankers. Then again, rich lawyers aren’t exactly the most desirable defendants, either.

The prosecution’s cooperating witnesses will take the stand to explain what it calls a “Master Plan” of accounting adjustments that are the centerpiece of the case. The battle of experts over those adjustments is more likely to induce sleep than courtroom fireworks.

Villains?

If you think former firm chairman Steven Davis and his two co-defendants, Stephen DiCarmine and Joel Sanders, are the only villains in this saga, you’re allowing the trees to obscure a view of the forest. In that respect, the trial will fail at its most fundamental level if it doesn’t address a central question in the search for justice among Dewey’s ruins: Who actually received — and kept — the hundreds of millions of dollars that entered the firm’s coffers as a result of the allegedly fraudulent bond offering and bank loans?

As the firm collapsed in early 2012, it drew down tens of millions of dollars from bank credit lines while simultaneously distributing millions to Dewey partners. As I’ve reported previously, during the five months from January to May 2012 alone, a mere 25 Dewey partners received a combined $21 million. Are they all defendants in the Manhattan District Attorney’s criminal case? Nope. Will we learn the identity of those 25 partners, as well was the others who received all of that borrowed money? I hope so.

Shortly after those 2012 distributions, Wall Street Journal reporters asked former Dewey partner Martin Bienenstock whether the firm used those bank loans to fund partner distributions. Bienenstock replied, “Look, money is fungible.”

It sounds like his answer to the question was yes.

Unwitting Accomplices?

With respect to the proceeds from Dewey’s $150 million bond offering, the picture is murkier, thanks to protective cover from the bankruptcy court. When Judge Martin Glenn approved a Partner Contribution Plan, he capped each participating partner’s potential financial obligation to Dewey’s creditors at a level so low that unsecured creditors had a likely a recovery of only 15 cents for every dollar the firm owed them. That was a pretty good deal for Dewey’s partners.

But here’s the more important point. As it approved that deal, the court did not require the firm to reveal who among Dewey’s partners received the $150 million bond money. In calculating each partner’s required contribution to the PCP, only distributions after January 1, 2011 counted. The PCP excluded consideration of any amounts that partners received in 2010, including the bond money. That meant they could keep all of it.

In light of the bankruptcy code‘s two-year “look back” period, that seemed to be a peculiar outcome. Under the “look back” rule, a debtor’s asset transfers to others within two years of its bankruptcy filing are subject to special scrutiny that is supposed to protect against fraudulent transfers.

Dewey filed for bankruptcy on May 28, 2012. The “look back” period would have extended all the way to May 28, 2010 — thereby including distributions of the bond proceeds to partners. Which partners received that money and how much did they get? We don’t know.

Connecting Dots

As the firm’s death spiral became apparent, a four-man office of the chairman — one of whom was Bienenstock — took the leadership reins from Steven Davis in March 2012. A month later, it fired him. In an October 12, 2012 Wall Street Journal interview, Bienenstock described himself as part of a team that, even before the firm filed for bankruptcy, came up with the idea that became the PCP. He called it an “insurance policy” for partners.

Taking Bienenstock’s “money is fungible” and “insurance policy” comments together leads to an intriguing hypothetical. Suppose that a major management objective during the firm’s final months was to protect distributions that top partners had received from the 2010 bond offering. Suppose further that in early 2012 some of those partners also received distributions that the firm’s bank loans made possible. Finally, suppose that those partners used their bank loan-funded distributions to make their contributions to the PCP — the “insurance policy” that absolved them of Dewey’s obligations to creditors.

When the complete story of Dewey gets told, the end game could be its climax. It could reveal that a relatively few partners at the top of the firm won; far more partners, associates, staff, and creditors lost.

Or maybe I’m wrong and the only villains in this sad saga are the three defendants currently on trial. But I don’t think so.

ON THE COLUMBIA LAW SCHOOL BLUE SKY BLOG…

Posted on May 28, 2015 by thebellyofthebeast

The Columbia Law School Blue Sky Blog is now running my article, “Law School Moral Hazard and Flawed Public Policy”

Here’s the link: http://clsbluesky.law.columbia.edu/2015/05/28/law-school-moral-hazard-and-flawed-public-policy/

IT’S NOT TOO LATE…

Posted on May 14, 2015 by thebellyofthebeast

As my regular readers know, in February I received an unwelcome medical diagnosis: neuroendocrine pancreatic cancer. For those who have inquired, I’m happy to report that after spending 43 of 56 days in the hospital between January 28 and March 27, I’m now celebrating my eighth week at home recuperating. All things considered, I’m feeling quite well.

Readers also know that my daughter, Emma, lives in the Bay Area and is actively involved in an upcoming event to support pancreatic cancer research: Purple Stride San Francisco 2015 — a 5K family run/walk in San Francisco on May 31.

My entire family is grateful for the response of friends and readers to this cause on my behalf. For those who have not yet joined “Team Willis” — Willis is Emma’s longstanding nickname for me — you don’t have to be a runner or, for that matter, anywhere near San Francisco now, on May 31, or ever.

Anyone interested can make a tax-deductible contribution — even a nominal one is significant — to the Pancreatic Cancer Action Network. Just go to this site and click on “Donate Now.”

Thanks, again.

CRAVATH GETS IT RIGHT, AGAIN

Posted on May 13, 2015 by thebellyofthebeast

The focus of The American Lawyer story about Richard Levin’s departure after eight years at Cravath, Swaine & Moore understates the most important point: Levin is a living example of things that his former firm, Cravath, does right. I can count at least three.

#1: Top Priority — Client Service

Cravath hired Levin, a top bankruptcy lawyer, from Skadden, Arps, Slate, Meagher & Flom on July 1, 2007. At the time, Cravath didn’t have a bankruptcy/restructuring practice. But at the beginning of the downturn that would become the Great Recession, its clients were drawn increasingly into bankruptcy proceedings.

Explaining the firm’s unusual decision to hire Levin as a lateral partner, the firm’s then-deputy presiding partner C. Allen Parker told the New York Times that “the firm was seeking to serve its clients when they found themselves as creditors. Many of Cravath’s clients have landed on creditors’ committees in prominent bankruptcy cases, he said, and the firm has helped them find another firm as bankruptcy counsel.”

In other words, Cravath sought to satisfy specific client needs, not simply recruit a lateral partner who promised to bring a book of business to the firm. The Times article continued, “While Mr. Parker does not foreclose the chance of representing debtors — which is often considered the more lucrative side of the bankruptcy practice — for now, it is an effort to serve clients who are pulled into the cases.”

#2: Mandatory Retirement Age

It seems obvious that Levin’s upcoming birthday motivated his departure to Jenner & Block. Less apparent is the wisdom behind Cravath’s mandatory retirement rule. As The American Lawyer article about his move observes:

“[A]t 64, Levin is now approaching Cravath’s mandatory retirement age. And he says he’s not ready to stop working. ’65 is the new 50,’ Levin says. ‘I’d be bored. I love what I do [and] I want to keep doing it.'”

Well, 65 is not the new 50 — and I say that from the perspective of someone who just celebrated his 61st birthday. More importantly, sophisticated clients understand that a law firm’s mandatory retirement age benefits them in the long run because it makes that firm stronger. When aging senior partners preside over an eat-what-you-kill big law compensation system, their only financial incentive is to hang on to client billings for as long as possible. It creates a bad situation that is getting worse.

Recent proof comes from the 2015 Altman Weil “Law Firms in Transition” survey responses of 320 law firm managing partners or chairs representing almost half of the Am Law 200 and NLJ 350. I’ll have more to say about other results in future posts, but for this entry, one of the authors, Eric Seeger, offered this especially pertinent conclusion about aging baby boomers:

“That group of very senior partners aren’t retiring,” he explains.

Seeger went on to explain that even if they were, younger partners are not prepared to assume client responsibilities. Why? Because older partners don’t want that to happen. According to the Altman Weil survey, only 31 percent of law firm leaders said their firms had a formal succession planning process.

At Cravath, mandatory retirement works with the firm’s lock-step compensation structure to encourage much different behavior. Aging partners confront an end date that provides them with an incentive to train junior attorneys so they can assume client responsibilities and assure an orderly intergenerational transition of the firm’s relationships. Hoarding clients and billings produces no personal financial benefit to a Cravath partner.

In contrast, hoarding is a central cultural component of eat-what-you-kill firms. Individual partners guard clients jealously, as if they held proprietary interests in them. Internal partnership fights over billing credit get ugly because a partner’s current compensation depends on the allocations. Partners have learned that the easiest way to avoid those fights is to keep their clients in silos away from other partners. For clients, it can mean never meeting the lawyer in the firm who could be most qualified to handle a particular matter. If they understood the magnitude of the problem, most clients would be astonished and outraged.

#3: Strategic Thinking

With respect to Richard Levin’s practice area, the most recent Georgetown/Thomson Reuters Peer Monitor Report notes that in 2014 big firm bankruptcy practices suffered a bigger drop in demand than any other area. Lawyers who had billed long hours to big ticket bankruptcy matters have now been repurposed for corporate, transactional, and even general litigation tasks. Don’t be surprised as firms announce layoffs.

Cravath’s timing may have been fortuitous. It hired Levin at the outset of the Great Recession — just as a big boom time for bankruptcy/restructuring lawyers began. Likewise, Levin departs as that entire segment of the profession now languishes. I think Cravath’s leaders are too smart to think that they can time the various segments of the legal market. But the firm’s strategic approach to its principal mission — client service — caused it to do the right things for the right reasons.

The harder they work at that mission, the luckier they get.

ANOTHER COLOSSAL LATERAL MISTAKE

Posted on May 5, 2015 by thebellyofthebeast

Lateral hires are risky. Even managing partners responding to the Hildebrandt/Citi 2015 Client Advisory’s confidential survey admitted that only about half of their lateral partners are break-even at best — and the respondents had unrestrained discretion to decide what qualified as “break-even.” As Ed Newberry, co-global managing partner of Squire Patton Boggs told Forbes, “[L]ateral acquisitions, which many firms are aggressively pursuing now … is a very dangerous strategy because laterals are extremely expensive and have a very low success rate….”

Beyond the financial perils, wise firm leaders understand that some lateral partners can have an even greater destructive impact on a firm’s culture. In late 2014, former American Lawyer editor-in-chief Aric Press interviewed Latham’s outgoing chairman Bob Dell, who was retiring after a remarkably successful 20-year run at the top of his firm. Dell explained that he walked away from prospective lateral partners who were not a good cultural fit because they stumbled over Latham’s way of doing things.

Press wrote: “Culture, in Dell’s view, is not a code word for soft or emotional skills. ‘We think we have a high-performance culture,’ he says. ‘We work at that. That’s not soft.'”

Under the Radar and Under the Rug

Most lateral hiring mistakes attract little public attention. Firm leaders have no reason to highlight their errors in judgment. Fellow partners are reluctant to tell their emperors any unpleasant truth. If, as the adage goes, doctors bury their mistakes and lawyers settle theirs, then managing partners pretend that their mistakes never happened and then challenge anyone to prove them wrong. The resulting silence within most partnerships is deafening.

Every once in a while, a lateral hire becomes such a spectacular failure that even the press takes note. When that happens, the leaders of the affected law firm have nowhere to hide. Which takes us to James Woolery, about whom I first wrote five years ago.

Without mentioning Woolery specifically, I discussed a May 28, 2010 Wall Street Journal article naming him was one of several Cravath, Swaine & Moore partners in their late-30s and early-40s taking “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.”

“We’re more aggressive than we used to be,” 41-year-old Cravath partner James Woolery told the Journal. “This is not your grandfather’s Cravath.”

A Serial Lateral

Six months later, it wasn’t Woolery’s Cravath, either. He’d already left to co-head J.P. Morgan Chase’s North American mergers and acquisitions group.

In 2013, only two years after accepting the Chase job, Woolery moved again. With much fanfare, he negotiated a three-year deal guaranteeing him at least eight million dollars annually to join Cadwalader, Wickersham & Taft. How was the cultural fit? The firm’s chairman, Chris White, described him as “the epitome of the Cadwalader lawyer” who deserved the lucrative pay package that made him the firm’s highest paid partner. A new title created especially for Woolery — deputy chairman — also made clear that he was White’s heir apparent.

To no one’s surprise, in 2014 Cadwalader announced that Woolery would take over as chairman in early 2015. As he prepared to assume the reins of leadership, the firm took a dramatic slide. The current issue of The American Lawyer reports that Cadwalader posted the worst 2014 financial results of any New York firm. Woolery’s guarantee deal looked pretty good as his firm’s average partner profits dropped by more than 15 percent. The firm’s profit margin — 26 percent — placed it 87th among Am Law 100 firms.

On January 19, 2015, the firm’s managing partner, Patrick Quinn, convened a conference call with all Cadwalader partners to convey a stunning one-two punch: Woolery would not become chairman, and he was leaving the firm to start a hedge fund. Woolery was not on the call to explain himself.

Unpleasant Press

No law firm wants this kind of attention. No client wants its outside firm to project uncertainty and instability at the top. No one inside the firm wants to hear about someone who has now been “thrust into the role of designated chairman of the firm,” as The American Lawyer described Patrick Quinn.

Woolery is gone, and so is Chris White, the former Cadwalader chairman who sold fellow partners on Woolery and his stunning guaranteed compensation package. White, age 63, left the firm in November to become co-CEO of Phoenix House, the nation’s largest non-profit addiction rehabilitation center.

Meanwhile, newly designated Cadwalader chairman Quinn says that the firm has no plans to change its strategy, including its reliance on lateral partner hiring. Maybe Chris White can use his new job to help Quinn and other managing partners shake their addiction to laterals. Apparently, first-hand experience with failure isn’t enough.

LAW SCHOOL MORAL HAZARD

Posted on April 29, 2015 by thebellyofthebeast

My article in the Winter 2015 issue of the American Bankruptcy Institute Law Review, “Bankruptcy and Bad Behavior — The Real Moral Hazard: Law Schools Exploiting Market Dysfunction,” is now available on the Social Science Research Network. (Free download)

Here’s a teaser.

Loose talk about “the market for law school graduates” and related optimism about future employment prospects for entering students lack analytical rigor. That’s because the job market for new law school graduates is not a single market at all. Rather, graduate employment opportunities vary tremendously across distinct law school submarkets. But tuition and resulting law student debt often bear little relationship to graduates’ employment outcomes.

Current federal policies, including unlimited educational loans that are not dischargeable in bankruptcy, ignore these differences in law school submarkets and confound the operation of a true market. Those policies allow many law schools to exploit the resulting moral hazard, namely, the absence of accountability for their graduates’ poor employment outcomes.

I propose a solution that will make many law school deans, admissions officers, and faculty squirm — as they should.

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The Belly of the Beast

Steven J. Harper, Esq.

Author Archives: thebellyofthebeast

About thebellyofthebeast

HOW WILL THE FUTURE JUDGE YOU?

MIZZOU FOOTBALL LESSONS

LEGAL EDUCATION’S STRANGE BEDFELLOWS

GAME-CHANGER?

THE STRANGE CASE OF STUDENT LOAN DEBT

BASEBALL AND BIG LAW

LEARNING FOUR LESSONS FROM FAILURE

YOGI BERRA

DEWEY: 10 LESSONS LOST

MORE ON MY NY TIMES OP-ED

ANOTHER TRAGIC HAZING

NY TIMES OP-ED FOLLOW UP

LABOR DAY

MY OP-ED IN THE NY TIMES — AND A KINDLE BOOK PROMOTION

THE PERVASIVE AMAZON JUNGLE

THE ABA AT WORK — NOT!

NPR’S MARKETPLACE REPORT

ABOUT SANDRA BLAND’S DEADLY ENCOUNTER

DEAR ABA…

THE DEWEY TRIAL: FOUR EXAMPLES OF NOT-SO-FUNNY COMIC RELIEF

MY BLOOMBERG INTERVIEW

MY LATEST INTERVIEW

WHEN SUPPORTING A CAUSE UNDERMINES IT

NOW ON SALE: “CROSSING HOFFA — A Teamster’s Story”

THE DEWEY TRIAL: TRUTH, JUSTICE, OR NEITHER?

ON THE COLUMBIA LAW SCHOOL BLUE SKY BLOG…

IT’S NOT TOO LATE…

CRAVATH GETS IT RIGHT, AGAIN

ANOTHER COLOSSAL LATERAL MISTAKE

LAW SCHOOL MORAL HAZARD

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