CRAVATH SURVIVES

Posted on April 6, 2016 by thebellyofthebeast

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

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

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

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

In 2010, Barshay Was a “Young Gun”

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

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

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

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

Six Years Later

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

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

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

More Data to Come

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

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

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

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

The “Deja Vu” Part

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

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

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

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

Motives and Outcomes

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

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

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

The Cravath glue remains.

THANKS

Posted on April 4, 2016 by thebellyofthebeast

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

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

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

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

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

Meanwhile, I’ll keep writing…

THE LATEST BIG LAW FIRM STRATEGY: PERFECTING ERROR

Posted on March 30, 2016 by thebellyofthebeast

NOTE: Amazon is running a promotion. The KINDLE version of my novel, The Partnership, is available as a free download from March 30 through April 3, 2016.

Two months ago in “Big Law Leaders Perpetuating Mistakes,” I outlined evidence of failure that most big law firm leaders ignore. Back in December 2011, I’d covered the topic in “Fed to Death” The recently released trade paperback version of my latest book, The Lawyer Bubble – A Profession in Crisis, includes an extensive new afterword that begins, “The more things change…”

The failure is a ubiquitous strategy: aggressive inorganic growth. In response to facts and data, big law firm leaders aren’t stepping back to take a long, hard look at the wisdom of the approach. Instead, they’re tinkering at the margins in the desperate attempt to turn a loser into a winner. To help them, outside consultants — perennial enablers of big law firms’ worst impulses — have developed reassuring and superficially appealing metrics. For anyone who forgot, numbers are the answer to everything.

Broken Promises

One measure of failure is empirical. Financially, many lateral partners aren’t delivering on their promises to bring big client billings with them. Even self-reporting managing partners admit that only about half of their lateral hires are above breakeven (however they measure it), and the percentage has been dropping steadily. In “How to Hire a Home-Run Lateral? Look at Their Stats,” MP McQueen of The American Lawyer writes that the “fix” is underway: more than 20 percent of Am Law 200 firms are now using techniques made famous by the book and movie “Moneyball.”

“Using performance-oriented data, firms try to create profiles of the types of lawyers they need to hire to help boost profits, then search for candidates who fit the profile,” McQueen reports. “They may also use the tools to estimate whether a certain candidate would help the firm’s bottom line.”

There’s an old computer programmer’s maxim: “Garbage in, garbage out.”

Useless Data

Unlike baseball’s immutable data about hits, runs, strikeouts, walks, and errors, assessing attorney talent is far more complicated and far less objective. Ask a prospective lateral partner about his or her billings. Those expecting an honest answer deserve what they get. Ask the partner whether billings actually reflect clients and work that will make the move to a new firm. Even the partner doesn’t know the answer to that one.

Group Dewey Consulting’s Eric Dewey, who is appropriately skeptical about using prescriptive analytics in this process, notes, “An attorney needs to bring roughly 70 percent of their book of business with them within 12 months just to break even.” He also observes that more than one-third bring with them less than 50 percent.

Of course, there’s nothing wrong with assessing the likely value that a strategically targeted lateral hire might bring to the firm. And there’s nothing wrong with using data to inform decisions. But that’s different from using flawed numerical results to justify growth for the sake of growth.

Becoming What You Eat

Beyond the numbers is an even more important reality. Partners who might contribute to a firm’s short-term bottom line may have a more important long-term cultural impact. It might even be devastating.

Dewey & LeBoeuf — no relation to Group Dewey Consulting — learned that lesson the hard way. During the years prior to its collapse, the firm hired dozens of lateral rainmakers. But as the firm was coming apart in early 2012, chairman Steven H. Davis was wasting his breath when he told fellow partners there wasn’t enough cash to pay all of them everything they thought they deserved: “I have the sense that we have lost our focus on our culture and what it means to be a Dewey & LeBoeuf partner.”

Half of the partners he was addressing had been lateral hires over the previous five years. Most of them had joined the firm because it promised them more money. They hadn’t lost their focus on culture. They had redefined it.

A FACT-FREE DIET

Posted on March 16, 2016 by thebellyofthebeast

A political campaign that once looked like a reality-based television series has revealed a broader truth. It was never reality-based at all. Reality requires facts, and facts don’t matter. Not anymore.

Some people look at the Trump phenomenon and see disaffected citizens who have become alienated. The political class ignored them for years; now they think that the Donald as President won’t. Others view Trump as the repository of racists and bigots. In the past, such individuals responded to subtle dog whistles of intolerance. Now they’ve found a socially acceptable vehicle for expressing their views loudly, publicly, and sometimes violently. The list of proffered explanations for Trump’s appeal is long. Most are pretty ugly.

This is Huge!

The micro view ignores the big picture – the really, really big picture. Trump sees it: Americans have learned to dismiss facts as irrelevant. The universal phenomenon that psychologists call confirmation bias does the rest. We tend to see the world in a particular way and, when contrary facts get in the way, we ignore them. If like minded others to do the same, that’s a movement!

This problem didn’t arrive with Donald Trump. He’s just exploiting it to new heights — or depths. Consider the hand-held banners at early Tea Party rallies: “Keep the government out of my social security!”

Facts haven’t mattered to the Obama “birthers” – Trump’s signature issue in 2011 as he turned increasingly toward politics. More than four years after President Obama released a copy of his birth certificate, 20 percent of Americans still believe that he was born outside the United States. Twenty-nine percent think he is Muslim.

Trump University? No Problem

Facts haven’t mattered to the candidate’s handling of the Trump University issue. Founded in 2004, it was never a “university” under New York law. In 2010, it became the Trump Entrepreneur Initiative with a Better Business Bureau rating dropping to as low as a D-minus. According to Trump’s attorney, the program accepted no students after 2010. The BBB received few complaints thereafter.

The BBB tried to publicize the straightforward facts about all of this. When a business stops having customers, it stops generating complaints: “As a result, over time, Trump University’s BBB rating went to an A in July 2014 and then to an A+ in January 2015.”

In the March 3 debate, Trump boasted about his “A” rating from the BBB. But the Bureau responded that it “did not send a document of any kind to the Republican debate site last Thursday evening. The document presented to debate moderators did not come from BBB that night.” Since September 2015, the Trump enterprise has had no rating at all.

Undeterred, Trump tweeted a photo of a BBB report showing an “A” rating for Trump University. To that, the BBB offered more facts to be ignored:

“The document posted on social media on Thursday night was not a current BBB Business Review of Trump University. It appeared to be part of a Business Review from 2014.”

“I Can Make That Deal”

Then there are the facts that get woven into a Trump argument that makes no sense to anyone who understands them. Trump has referred repeatedly to America’s $58 billion trade deficit with Mexico. He juxtaposes that number with his infamous “wall” to keep illegal immigrants out of the country; it would cost $10 billion.

“That’s an easy deal. $58 billion deficit; $10 billion wall, I can make that deal,” he said in the March 3 debate.

Except that the $58 billion number has nothing to do with the $10 billion potential expense of Trump’s wall. The 2015 trade deficit resulted because Americans bought $294 billion in goods from Mexican companies, while Mexicans bought $58 billion less than that from United States companies. It’s not money that went to the Mexican government. It’s not a source of funds that Trump can tap to build a wall that gets higher every time a past or present Mexican president ridicules it. There’s no “deal” for him to make on his apples-to-oranges comparison of the $58 billion trade deficit to the $10 billion cost of a “really, really big wall.”

When Truth and Reason Become Casualties, Everyone Suffers

The list of Trump non-facts goes on and on and on.

“Thousands and thousands of Muslims cheered as the World Trade Center fell!” No evidence of that. But Trump says it, so it must be true. Who would tell such a big lie?

“The Mexican government is forcing criminals, drug dealers, and rapists into the United States!” False, offensive, and divisive.

“Obama plans to admit 250,000 Syrian refuges.” The real figure was 10,000.

“Islam hates America.” Absurd on its face, but only if facts matter to the listener.

For the final six months of 2015 alone, Trump led all other political candidates in The Washington Post’s compilation of the year’s most frequent recipients of “Four Pinocchios.” He notched eleven. But the Post’s more telling observation was this:

“Most politicians drop a claim after it has been fact-checked as false. But Trump is unusual in that he always insists he is right, no matter how little evidence he has for his claim.”

There’s unfortunate historical precedent for Trump’s use of hyperbolic rhetoric to exacerbate fear and generate divisions that spin out of control. In the world of “The Big Lie,” facts don’t matter – until they catch up with all of us.

At the conclusion of the Constitutional Convention in 1787, an interested spectator asked Benjamin Franklin, “Well, Doctor, what have we got, a republic or a monarchy?”

Franklin responded immediately, “A republic, if you can keep it.”

Keeping it requires citizens willing to allow facts and reason to produce informed decisions. Donald Trump – the master salesman and showman – has found a way to short-circuit that process in too many American minds. In November, we may all find out how many.

“LET THE PEOPLE SPEAK”?

Posted on March 9, 2016 by thebellyofthebeast

Lawyers parse words. But sometimes, even supposedly smart lawyers misuse them. Senator Ted Cruz’s March 7 editorial in The Wall Street Journal has examples of both phenomena.

Distinctions Without a Difference

First, the parsing.

“Seldom has a Supreme Court vacancy arisen before the election in a presidential year,” Cruz writes. “Benjamin Cardozo, whom the Senate confirmed in February 1932, was the last justice confirmed to fill such a vacancy before the election.” He then notes that Republicans controlled both the Senate and the presidency.

The parsed phrase is “vacancy arisen before the election in a presidential year.” His citation to Cardozo as “the last justice confirmed to fill such a vacancy” is accurate. But only because it excludes lots of justices whom the Senate confirmed in a presidential election year, but who filled seats that had opened earlier.

The most recent example of a presidential year confirmation is Justice Anthony Kennedy. But Cruz’s parsing eliminates that comparison because Justice Kennedy filled the seat that Justice Lewis Powell vacated in June 1987. President Reagan’s unsuccessful nominations of Robert Bork and Douglas Ginsburg in 1987 pushed Kennedy into a presidential election year — 1988.

If the point is whether the Senate should act on a President’s Supreme Court nominations, Cruz’s proffered distinction is both disingenuous and meaningless. Incidentally, a Democratic-controlled Senate approved Kennedy’s nomination — 97 to 0.

Even apart from Justice Kennedy, the facts undermine Cruz’s core argument that history is on his side of this debate. The SCOTUS blog has a factual summary leading to this conclusion: “The historical record does not reveal any instances since at least 1900 of the president failing to nominate and/or the Senate failing to confirm a nominee in a presidential election year because of the impending election. In that period, there were several nominations and confirmations of Justices during presidential election years.”

Rewriting the Constitution

The other aspect of Senator Cruz’s op-ed is more troubling. As an honors graduate of Harvard Law School, he knows what the constitution actually says about the President’s obligations and the Senate’s responsibilities:

“[H]e shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court….” (Article II, Section 2)

Senator Cruz reads the founding fathers’ command out of the document. He writes, “I believe the Senate should fulfill its constitutional duty by letting the American people be heard in selecting the next Supreme Court justice.”

The Senate has no such “constitutional duty.” The President has a duty to nominate and the Senate has a responsibility to act on that nomination. To be sure, it can vote up or down on the selection. Some states conduct popular elections for state court judges. But the “American people” don’t get to nominate or approve federal judicial appointments.

Let Your Imagination Run Wild

The irony of Senator Cruz’s argument would not be lost on Justice Scalia, who dedicated himself to originalism. Regardless of whether you agreed with him, Scalia urged an interpretation of the constitution that respected its text and meaning. Applying that philosophy, he strove for consistency in its application.

For the lawyers who appeared before the Court, Justice Scalia was also an active interrogator. Imagine the questions he might have posed to Senator Cruz:

“Show me where, in the constitution, it says the Senate has a duty to let the people select a Supreme Court justice?”

“You say the election year makes things different. Why? Where does the constitution say ‘delay, delay, delay’?”

“If I accept your argument about the election year exception — which is nowhere in the constitutional language — what’s the limiting principle? Once we move away from the command of the text — “the President shall nominate” — why not make the exception two years long? Or three?”

“Do you agree that the constitution gives the Senate a duty to act on the President’s Supreme Court nominations? If so, at what point does the Senate’s failure even to consider a nominee make it derelict in the performance of that duty?”

“In your Wall Street Journal piece, you say that the Senate should ‘not consider any Supreme Court nominee until the people have spoken and a new president is nominated.’ Please show me a single word in the United States constitution that supports your position.”

The silence in response to the last question would be deafening.

TRUMP, CHRISTIE, EDUCATION, AND STUDENT DEBT

Posted on March 2, 2016 by thebellyofthebeast

Did anyone else notice Governor Chris Christie’s expression as he stood behind Donald Trump on Super Tuesday evening? Perhaps he wasn’t feeling well. Or perhaps he was discovering more than he wanted to know about the man he’d endorsed for the presidency of the United States.

Monday night before the big primaries, Christie had told his New Jersey radio audience, “I am the highest level endorser that Donald Trump has had. I’m the person with the most experience in governing that is in his circle.” He said that there was “absolutely no question” that Trump listens to him.

Self-Delusion

“I’ve known him personally for 14 years,” Christie continued. If so, he should ask himself why Trump would listen to him. Now that Christie has dropped out of the primary race, why isn’t he just the latest addition to the Republican front-runner’s list of “losers”? That’s Trump’s world — winners (like him) and losers (like Sen. John McCain). Besides, Trump prides himself as an outsider who disdains almost anyone associated with government.

Maybe Christie will be an exception to Trump’s loser rule. The day after Super Tuesday, a Fairleigh Dickinson University PublicMind poll found that the dominant word that New Jersey voters used to describe their governor was “bully.” The next most frequent adjective was “arrogant.” Maybe Trump sees those as redeeming qualities. Perhaps he sees a bit of himself in the New Jersey governor.

Political Death Spiral

There’s another possible explanation for the odd look on Governor’s Christie’s face Tuesday evening: unhappy realization. The New Jersey “bully” had become a Trump “tool.” He’d played all-in with his political career and the impact was swift and certain.

Christie’s former national finance co-chair, Meg Whitman, slammed him:

“Chris Christie’s endorsement of Donald Trump is an astonishing display of political opportunism. Donald Trump is unfit to be president. He is a dishonest demagogue who plays to our worst fears. Trump would take America on a dangerous journey. Christie knows all that and indicated as much many times publicly. The governor is mistaken if he believes he can now count on my support, and I call on Christie’s donors and supporters to reject the governor and Donald Trump outright. I believe they will. For some of us, principle and country still matter.”

According to the Fairleigh Dickinson poll, after endorsing Trump, Christie’s New Jersey statewide approval rating dropped from 33 percent to 27 percent.

Desperate Measures

Christie said that he didn’t agree with Trump on everything, but he did on taxes, job creation, and strengthening America’s leadership in the world. How does he know where Trump stands on anything? The only Trump “positions” on those issues are sound bites that produce audience applause, not substantive debate. His positions change constantly — even on whether he knows certain people.

For example, on Sunday morning, he told Jake Tapper at CNN that he didn’t even know who David Duke, the grand wizard of the Ku Klux Klan, was:

“Just so you understand, I don’t know anything about David Duke…I know nothing about David Duke. I know nothing about White Supremacists. And so you’re asking me a question about people that I know nothing about….I just don’t know anything about him.”

The next day, Trump said he didn’t hear Tapper’s question: “I was sitting in a house in Florida, with a bad earpiece. I could hardly hear what he’s saying.”

Anyone who buys that explanation deserves everything that Trump is selling.

On more substantive policy issues, Trump is all over the map. He says whatever gets him through the moment. He says whatever his audience wants to hear. For Republican primary voters supporting him, substance has yielded to anger that has created a cult of celebrity. They cheer empty words.

Actions v. words

But glimmers of Trump’s real self emerge from his actions. Here’s an example of Trumpism at work. Last fall, he decried the government for making money on student loans. In a November 2915 forum in Iowa, he added that too many graduates are “borrowed up, and they can’t breathe, and they get through college and the worst thing is, they go through that whole process and they don’t have any job.” If elected, Trump said he planned “do something very big with student loans” — including providing refinancing “for people who have loans who literally can’t do anything.”

“Something very big.”

What could it be? Something “great”; something “huge.” Maybe there’s a clue in Trump University.

It used a Wall Street address that implicated New York registration requirements. As Steven Brill reported last November, “New York State law requires that anything calling itself a university must apply, be vetted, have all instructors vetted and then be certified, none of which Trump did. Despite repeated warnings from state education regulators beginning in 2005, Trump persisted in operating out of 40 Wall St. until winding down operations in 2010.”

Before folding, the “University” was renamed the “Trump Entrepreneur Initiative.” It didn’t offer degrees. The course of study began with free seminars on insider real estate moneymaking techniques. It encouraged attendees to purchase additional sessions — up to one-on-one mentoring packages costing $35,000. It left many “students” in debt.

Measuring Success

But Trump’s program made money for Trump. According to Brill’s examination of public records, “Trump University collected approximately $40 million from its students – who included veterans, retired police officers and teachers – and that Trump personally received approximately $5 million of it, despite his claim, repeated in our interview, that he started Trump University as a charitable venture.”

Trump claims to have surveys showing a 98 percent satisfaction rate — “better than Harvard” — and is confident that he will win all of the pending lawsuits involving the now defunct “university” bearing his name. But perhaps what really bothers him about the government “making money on student loans” is that the money should be going to him instead.

By the way, because Trump University and its successor Trump Enterprise Initiative failed, maybe that makes him a loser, too.

LSAT v. GRE – RHETORIC v. REALITY

Posted on February 24, 2016 by thebellyofthebeast

[NOTE: The trade paperback edition of my book, The Lawyer Bubble – A Profession in Crisis (Basic Books, 2016) — complete with an extensive new AFTERWORD — is now available at Amazon.]

The Wall Street Journal reports that the University of Arizona College of Law has begun accepting GRE scores in lieu of LSATs. Two other schools — the University of Hawaii and Wake Forest — are performing validation studies to determine whether they, too, should make the move to GREs.

At Arizona, Dean Marc Miller said, “This isn’t an effort to declare war on anybody. This is an effort to fundamentally change legal education and the legal profession.”

To “fundamentally change legal education and the legal profession,” accepting GRE scores instead of LSATs seems like a misfire. Beyond the rhetoric is a reality that might reveal what else could be going on.

The GRE Is Easier

According to the executive director of prelaw programs at Kaplan Test Prep, Jeff Thomas, “The GRE is regarded as the easier test. The entirety of the LSAT was meant to mimic the law-school experience, while the GRE was not created for that particular purpose.”

But the fact that the GRE is easier doesn’t explain why some law schools want to use it. Self-interest and U.S. News rankings might.

LSATs Are Telling a Sad Story

As LSAT scores of entering classes have dropped at many schools, so have bar passage rates. According to the University of Arizona School of Law’s ABA Reports, its median LSAT for matriculants in 2012 was 161. For 2015, it was 160. That’s not much of a decline, but at the 25th percentile, the LSAT score went from 159 to 155.

According to the school’s website, in July 2013, 92 percent of first-time test takers passed the Arizona bar exam. In July 2015, the passage rate was 84 percent.

The GRE Isn’t the LSAT

Such trends suggest another possible reason for allowing students to substitute the GRE for the LSAT: It buys law schools time and complicates prelaw student decision-making. At many schools, year-over-year LSAT score comparisons have documented the willingness of many deans to accept marginal students. The easiest way to stop such time series analyses is to make that test optional.

The GRE will be a new data point. Until schools report those scores for two or three years, it won’t reveal trends in admitted student qualifications. That will deflect attention away from the “declining quality of admitted students” narrative that has become pervasive. Never mind that the narrative is pervasive because, based on LSATs and undergraduate GPAs for matriculants at many schools, it’s true. (Between 2012 and 2015, the University of Arizona School of Law’s undergraduate GPA for matriculants dropped at all three measuring points — the 25th, 50th, and 75th percentiles, according to its ABA reports for those years.)

The Heavy Hand of U.S. News rankings

In addition to confusing the story on the declining quality of applicants, law schools have another reason to accept the GRE. Applicants will take both exams and pick the better result for law school consumption. It’s analogous to the current ABA rule allowing schools to use only a student’s highest LSAT score.

Prelaw students who do badly on the LSAT will submit the GRE score instead. The ongoing self-selection of poor LSAT scores away from the applicant pool will increase the 25th, 50th and 75th percentile LSAT values for the scores that remain. Until all schools adopt the GRE option, it will help the U.S. News rankings of the schools that do it.

There’s precedent for such behavior. Most high school students take the SAT and the ACT. Where a college allows either score, students submit the higher one.

Look Beyond the Rhetoric

Trends at the two other schools mentioned in the WSJ article might be relevant to all of this. At the University of Hawaii, compare the 2012 and 2015 ABA forms reporting LSATs for matriculants:

75th percentile: 2012 – 160; 2015 – 158

50th percentile: 2012 – 158; 2015 – 154

25th percentile: 2012 – 154; 2015 – 151

Likewise, at Wake Forest the results are:

75th percentile: 2012 – 165; 2015 – 162

50th percentile: 2012 – 163; 2015 – 161

25th percentile: 2012 – 159; 2015 – 157

At this point, the appropriate legal phrase is res ipsa loquitur — the thing speaks for itself.

The ABA is planning to determine independently whether the GRE meets its accreditation requirement allowing schools to use the LSAT or another “valid and reliable” test when making admissions decisions. The profession’s leading organization is likely to approve the switch. That’s because doing so will perpetuate what has become the ABA’s central mission in legal education: protecting many law schools from scrutiny and meaningful accountability.

That’s about as far as you can get from trying “to fundamentally change legal education and the legal profession.”

SCALIA’S VACANCY — NEWS v. OPINION

Posted on February 16, 2016 by thebellyofthebeast

The battle lines are drawn: President Obama will name his choice to succeed Justice Antonin Scalia on the U.S. Supreme Court; Senate Republicans are determined to block it. One aspect has become striking: Which side has the better argument that history supports its position? It turns out, there’s another battle happening there: news versus opinion.

On the same day, February 16, 2016, two of the most widely read newspapers in the world, carried these contradictory headlines:

“In Court Fight, History Backs Obama” appeared in The New York Times.

“No Clear Confirmation Parallels in Recent Court History,” said The Wall Street Journal.

Who’s Right?

Unless you read both newspapers, you wouldn’t think there was any disagreement on the question of historical precedent for filling the current Supreme Court vacancy. The Times article appears on the paper’s op-ed page. But here’s the real kicker: The WSJ carries its version as a straight news item.

The Journal’s readers saw “news” declaring “no clear confirmation parallels” to the present situation. It cites and purports to distinguish only two earlier precedents.

In 1968, the Senate prevented President Lyndon Johnson’s lame-duck appointment of Justice Abe Fortas to succeed the retiring Earl Warren as Chief Justice and the naming of Judge Homer Thornberry to the Fortas seat. Eventually, President Nixon filled those vacancies. (The Journal doesn’t mention that it took Nixon two unsuccessful nominations — Haynsworth and Carswell — before getting Blackmun over the hump.)

The other Journal example is the oft-cited case of Justice Anthony Kennedy. A Democratically-controlled Senate approved him unanimously in 1988. Apparently believing that distinctions without a difference matter, WSJ reporter Brent Kendall notes that prior to Kennedy’s confirmation, the Senate rejected President Reagan’s first choice, Judge Robert Bork, and that his second choice, Judge Douglas Ginsburg, withdrew.

At the end of his article, Kendall identifies Jess Bravin — Wall Street Journal Supreme Court reporter with a bachelor’s degree from Harvard and a J.D. from University of California-Berkeley — as having “contributed to this article.”

Another Opinion

At best, The Wall Street Journal article is incomplete. Ironically, The New York Times op-ed includes more facts than the Journal’s news item. Professor Timothy S. Huebner notes: “On 13 occasions, a vacancy on the nation’s highest court has occurred — through death, retirement or resignation — during a presidential election year. This does not include the most recent and frequently cited example, Justice Anthony Kennedy, who was nominated by Ronald Reagan in November 1987 to fill a vacancy and won confirmation from a Democratic-controlled Senate in February 1988.”

Professor Huebner continues, “In 11 of these instances, the Senate took action on the president’s nomination. In all five cases in which a vacancy occurred during the first quarter of the year the president successfully nominated a replacement.”

What’s the Difference?

The distinction between news and opinion matters. Editors have a responsibility to make that difference clear, especially in our age of political polarization. Due to the power of confirmation bias, consumers of media tend to limit themselves to views they embrace. It keeps people comfortable in belligerent adherence to an understanding that may, in fact, be incomplete or even wrong.

In October 2014, PEW Research reported, “Those with consistently conservative political values are oriented around a single outlet — Fox News — to a much greater degree than those in any other ideological group: Nearly half (47%) of those who are consistently conservative name Fox News as their main source for government and political news.” Both Fox News and The Wall Street Journal are parts of the Rupert Murdoch family’s media empire.

Liberals tend to be, well, more liberal in their choices of news sources. According to the PEW study, “On the left of the political spectrum, no single outlet predominates. Among consistent liberals, CNN (15%), NPR (13%), MSNBC (12%) and the New York Times (10%) all rank near the top of the list….”

The predispositions of their constituencies create a special obligation for the media. There’s money in fomenting divisiveness. Blurring the line between “news” and “opinion” might advance a political agenda or sell advertising space, but it’s making the country’s problems worse.

In my opinion.

A DIRTY LITTLE SECRET

Posted on February 10, 2016 by thebellyofthebeast

The Wall Street Journal’s front page headline tells only part of story: “Legal Fees Cross New Mark: $1500.” The February 9 article lists the range of partner hourly rates at some big firms: Proskauer Rose from $925 to $1475; Ropes & Gray from $895 to $1450; Kirkland & Ellis from $875 to $1445; and so on and so on and so on.

That’s great if you can get it, but most firms can’t. The 2016 Georgetown/Thomson Reuters Peer Monitor “State of the Legal Profession” tells a second part of the story: realization and collection rates have plummeted. How much a firm bills doesn’t matter; what it actually brings in the door does. In 2005, collections totaled 93 percent of standard rates. By the end of 2015, it was down to 83 percent.

The Music Stopped, Almost

Annual standard hourly rate increases have blunted the profit impact of declining collections, but trees stopped growing to the sky about ten years ago. Except in bankruptcy courts. That’s the third element of the story and the profession’s dirty little secret: one of the most lucrative big law practice areas has no client accountability for its fees. Even worse, the process facilitates pricing behavior that spills over into other practice areas.

Take the recent Journal article. Where did the reporters get the detailed hourly rates for the firms it identified? A note at the bottom of the chart reveals the answer: “Source: Bankruptcy court filings.” If managing partners exchanged their firms’ hourly rates privately, it would raise serious antitrust issues. But in bankruptcy, publicly filed fee petitions do all of that work for them.

It gets worse. In bankruptcy, no one forces attorneys into the discounting that produces the current 83 percent overall average collections rate. Remember the infamous “Churn that bill, baby” email involving DLA Piper a few years ago? That was a bankruptcy case. Traditional mechanisms of accountability are ineffective. Unlike a solvent corporate client, a company in trouble has little leverage in dealing with its outside counsel. Until it emerges from a Chapter 11 reorganization, the days of minimizing legal expenses to maximize shareholder value are suspended. If it winds up in Chapter 7 liquidation, those days are gone forever.

At the same, time, the lawyers handling the bankruptcy have little risk. They get paid ahead of everyone else. Lawyers for creditor committees are a theoretical check only. They, too, get paid first and the members of the exclusive club of big law firm attorneys reappear. Their roles may change — debtor’s counsel in one bankruptcy may be creditors’ attorney in another and the liquidating trustee’s lawyer in yet another. In none of those capacities is there any incentive to rock the long-term, “paid-in-full hourly rate” boat.

More Theoretical Accountability

The U.S. Trustee receives all attorneys’ fees petitions before courts approve them. The Trustee can object, but it doesn’t have sufficient resources to analyze detailed line item time and expense entries on the thousands of pages that firms submit. The Trustee issued new guidelines that became effective for cases filed after November 1, 2013. Perhaps they will make a difference. But in the end, they are still guidelines and the final decision on attorneys fees resides with the bankruptcy judge.

As hourly rates have increased to the $1500 level that the Journal highlights, courts have given their rubber stamps of approval to the trend. Rather than challenge the high rates that all firms charge, bankruptcy judges determine merely that they are “reasonable and customary” because, after all, comparable firms are charging them for comparable work. The circularity is as obvious as the resulting payday for the lawyers. Someday, media attention and popular outrage may force meaningful change that has yet to occur.

Worse Than It Seems

Considering the 83 percent collection rate in the context of the nearly 100 percent rate for bankruptcy lawyers yields an insight relevant to the fourth and final part of the larger big law firm story. In particular, the current 83 percent collection rate is deceptively high. If a firm’s average is 83 percent and its bankruptcy lawyers collect close to 100 percent, then firms with large bankruptcy practices have non-bankruptcy clients pushing some practice areas into deep concessions off standard rates.

Likewise, combining this fact with two conclusions from the Georgetown/Thomson Reuters Peer Monitor Report produces ominous implications for such firms:

— “Demand for law firm services…was essentially flat in 2015,” and

— Bankruptcy experienced the largest negative growth rate in demand by practice area.

Unless the country heads into a recession that few economists expect, the continuing reduction in bankruptcies will drive overall average collections dramatically lower. That’s bad news for big law firms with significant bankruptcy practices.

Back in 2011, an icon of the bankruptcy bar, the late Harvey Miller of Weil, Gotshal and Manges, defended his firm’s approach to legal fees: “The underlying principle is, if you can get it, get it.”

Miller isn’t around anymore, but his unfortunate credo for a noble profession survives — for now.

[NOTE: The trade paperback edition of my book, The Lawyer Bubble – A Profession in Crisis (Basic Books) — complete with an extensive new AFTERWORD — will be released on March 8, 2016 and is now available for pre-order at Amazon and Barnes & Noble.]

BIG LAW LEADERS PERPETUATING MISTAKES

Posted on February 3, 2016 by thebellyofthebeast

In January 2014, the annual Georgetown/Peer Monitor “Report on the State of the Legal Market” urged law firm leaders to shun a “growth for growth’s sake” strategy. The year 2013 had been a record-setter in law firm mergers; lateral partner acquisitions were the centerpiece of what many big law firm leaders passed off as a “strategic plan.”

The Report offered this damning observation:

“In our view, much of the growth that has characterized the legal market in recent years… masks a bigger problem — the continuing failure of most firms to focus on strategic issues that are more important for their long-term success than the number of lawyers or offices they may have.”

Since then, the situation has deteriorated.

The Destabilizing Lateral Hiring Frenzy Continues

In 2015, there were more lateral moves in big law firms than at any time since 2009. Morgan, Lewis & Bockius’s mass hiring of 300 former Bingham Mccutcheon partners contributed significantly to the total, but the continuing lateral frenzy is evident. Was the 2014 Georgetown/Peer Monitor wrong? Has aggressive inorganic growth become a winning strategy?

The answers are No and No.

Those answers are not news, but a recent ALM Legal Intelligence analysis suggests that they still are correct. As MP McQueen reports in the February issue of The American Lawyer, “[The] study of 50 National Law Journal 350 firms conducted with Group Dewey Consulting of Davis, California, and released in November found that 30 percent of lateral partner hires delivered less than half their promised book of business after a complete year.”

The co-author of the report notes that lateral hiring is “the top growth strategy for many firms today but there is an incredible lack of empirical evidence as to whether laterals are achieving their promise.”

It’s actually worse than that. The evidence suggests that most lateral hires are disappointments to the firms that acquire them.

Cognitive Dissonance

The survey reported that 96 percent of respondents said that “hiring lateral lawyers with a client following” was “very important” or “moderately important” to their revenue growth strategy. In other words, virtually all firms continue to defy the Georgetown/Peer Monitor Report’s 2014 admonition.

But the survey respondents also said that only 49 percent of lateral hires delivered at least 75 percent of expected client billings. The other 50 percent did worse. Almost one-third of laterals delivered less than half of what they’d promised. And remember, those are anonymous, unaudited responses from the leaders who brought those laterals into the firm. The reality is far worse than they admit.

Likewise, as I’ve written previously, managing partners responding to the Hildebrandt/Citi 2015 Client Advisory’s confidential survey admitted that only about half of their lateral partners were break-even at best. As the Client Advisory reported:

“For all the popularity of growth through laterals, the success rate of a firm’s lateral strategy can be quite low. For the past few years, we have asked leaders of large firms to quantify the rate of success of the laterals they hired over the past five years. Each year, the proportion of laterals who they would describe as being above ‘break even’, by their own definition, has fallen. In 2014, the number was just 54 percent of laterals who had joined their firms during 2009-2013.” (Emphasis supplied)

That’s down from two years ago when managing partners self-reported to Citi/Hildebrandt a self-defined break-even or better rate of 60 percent. At alarming speed, most big law leaders are running their firms backwards.

Costly Mistakes

The cultural impact of aggressive inorganic growth is not susceptible to measurement, so it gets ignored in the prevailing law-firm-as-a-business model. But there are plenty of recent examples of the potentially catastrophic costs. Just look at Howrey, Dewey, and Bingham McCutchen — three recent collapses on the heels of stunning lateral growth spurts.

“Nonsense,” big law leaders are telling themselves. “We’re not like those failed firms. They had unique problems. We’re special.” Sure you are. Things look great until it becomes apparent only too late that current partner profits are the only glue holding partners together. If money lured laterals into your firm, someone else’s more reliable money can lure them away.

But even in the not-so-long run, top-line growth through misguided lateral hiring produces bottom-line shrinkage. Laterals are expensive on the front end. On the back end, it can take years for the failure of financial expectations to become apparent. The ALI study estimates that lateral hiring misfires can reduce law firm profit margins by as much as 3 percent and profits per equity partner by 6 percent.

Why?

If lateral hiring is bad, why are so many firms committed to it as a growth strategy. One answer is that it’s not always bad. Some of my best friends are laterals. Their moves benefitted them and their new firms. In every one of those cases, culture was at least as important as money to the partners’ decisions to relocate and their new firms’ desire to recruit them.

But that doesn’t account for firms that continue to pursue aggressive inorganic growth as an unrestrained strategic policy. When the odds of success are no greater than the flip of a coin, confirmation bias displaces judgment that should be a key attribute of true leadership.

That leads to another explanation for the continuing lateral hiring frenzy: The opposite of leadership. Most managing partners relish the creation of ever-expanding empires over which they can preside. Having made more than enough money to feed their families for generations, now they’re feeding their egos.

Unfortunately, those appetites can be insatiable.

ANOTHER SHOT AT STUDENT LOAN DEBT

Posted on January 27, 2016 by thebellyofthebeast

A recent Department of Education initiative has not attracted the public attention that it deserves. But it could have important implications for the federal loans that fuel higher education, including law schools. The Department seeks to create a framework for dealing with the thousands of students who recently filed “defense of repayment” claims.

The Wall Street Journal’s recent summary of the program could strike fear in the hearts of many law school deans and university administrators:

“In the past six months, 7,500 borrowers owing approximately $164 million have applied to have their student debt expunged under an obscure federal law that had been applied in only three instances before last year. The law forgives debt for borrowers who prove their schools used illegal tactics to recruit them, such as lying about their graduates’ earnings.”

But it could get even worse for the schools, as the Journal explains:

“Last week, the department began a months-long negotiation with representatives, schools and lenders to set clear rules, including when the department can go after institutions to claw back tuition money funded by student loans.”

Will the Department’s latest effort to impose meaningful accountability on institutions of higher education fare any better than predecessor techniques that have failed? There have been too many of those.

Lawsuits Haven’t Worked

Law schools have become poster children for the accountability problem and ineffectual efforts to solve it. In 2012 some recent alumni sued their law schools, but they didn’t get very far. The vast majority of courts threw out claims that the schools had misrepresented graduates’ employment opportunities. The winners on motions to dismiss or summary judgment included Thomas M. Cooley (now Western Michigan University Cooley School of Law), Florida Coastal, New York Law School (not to be confused with NYU), DePaul, IIT Chicago-Kent, and John Marshall (Chicago), among others.

Judge Melvin Schweitzer’s March 21, 2012 ruling in favor or New York Law School set a tone that other courts followed: Prospective students “seriously considering law school are a sophisticated subset of education consumers…” In other words, they should have known better. That might be true today, but at the time Judge Schweitzer wrote his opinion, he was wrong. So were the courts who followed his rationale to reach similar results. At a minimum, there were serious factual disputes concerning his conclusory assessment of an entire cohort of prelaw students.

In particular, the plaintiffs in the New York Law School case graduated between 2005 and 2010. Back in 2002 through 2007 — when those undergraduates were contemplating law school — NYLS claimed a 90 to 92 percent employment rate for its most recent graduating classes. But that stratospheric number resulted only because all law schools counted any job for purposes of classifying a graduate as “employed.” A part-time worker in a temporary non-JD-required position counted the same as an assistant U.S. attorney or a first-year associate in a big firm. Only after 2011 did the ABA finally require schools to provide meaningful data about their recent graduates’ actual employment results.

A notable exception to the dismissal of the cases against the law schools was one of the first-filed actions, Alaburda v. Thomas Jefferson School of Law, which is set for trial in March 2016. In that case, Judge Joel Pressman correctly found that a jury should decide the clearly disputed issues of fact. He got it right, but he’s an outlier.

The ABA and the AALS Haven’t Helped

Anyone expecting the profession to put its own house in order continues to wait. The changes requiring greater law school transparency in employment outcomes came about only because the public outcry became overwhelming and Congress threatened to involve itself. When political opposites such as Senators Dianne Feinstein (D-CA) and Chuck Grassley (R-IA) agree to gang up on you, it’s time to wake up.

Since then, the organization has returned to form as a model of regulatory capture. Twice in the last four years, it has punted on the problem of marginal law schools that survive on student loan debt. School that would have closed long ago if forced to operate in a real market continue to exist only because the legal education market is dysfunctional. That is, the suppliers — law schools — have no accountability for their product — far too many graduates who are unable to obtain full-time long-term JD-required employment after incurring the six-figure debt for their degrees.

And while we’re on the subject of regulatory capture, the current president of the AALS has now declared that there is no crisis in legal education. Her interview produced an article titled, “As Law Professors Convene, New Leader Looks to Unite the Profession.” Why all law schools should unite to protect marginal bottom-feeders exploiting the next generation of students remains a question that no one in the academic world is willing to ask, much less answer.

Now Comes the Fun Part

Ignoring problems does not make them go away. As the profession refuses to acknowledge a bad situation, it loses the opportunity to influence the discussion. Which takes us to the recent Department of Education activity relating to criteria for applying the burgeoning volume of “defense of repayment” applications.

Special interests are likely to resist meaningful change. From institutions of higher education to debt collectors who have made student loan debt collection a multi-billion dollar business, lobbyists will swamp the process. Still, attention seems assured for marginal schools exploiting a dysfunctional market. That’s a good thing.

As the disinfecting qualities of sunlight intensify, someday the ABA and the AALS may realize that an old adage is apt: If you’re not part of the solution, you’re part of the problem. Perhaps another round of bipartisan congressional interest will help them see the light.

A FIRM TO WATCH

Posted on January 20, 2016 by thebellyofthebeast

Something worth watching could be happening at King & Wood Mallesons, one of the world’s largest law firms. It has an interesting history, a challenging present and, perhaps, an even more challenging future.

Past

Beijing-based King & Wood came into existence in 1993. If you look for photos or other information about either name partner, you won’t find them. Neither person ever existed. China doesn’t have U.S.-type ethics rules requiring that law firms carry the names of lawyers who work there (or did before retirement or death). The distinctly non-Chinese names are a branding exercise aimed at reaching a global audience.

In 2012, King & Wood merged with Australian-based Mallesons Stephen Jacques. In 2013, it added London-based SJ Berwin and now has 2,700 lawyers scattered across 30 offices around the world. It operates as a verein, meaning that the constituent firms are legally separate and don’t share profits. (Whether any verein is a real law firm is a subject for another day.)

Present

In July 2015, King & Wood Malleson’s Europe and the Middle East announced “rocketing” results. Profits per equity partner had soared by 39 percent. During the year, the firm hired 15 lateral partners, including attorneys from Fried Frank, Linklaters, and Eversheds.

As London-based (and newly named) managing partner William Boss boasted, “This is an exciting time for our region….”

Maybe a bit too exciting, even for Boss.

Two days later, The Lawyer offered a potentially relevant footnote to the “rocketing” 39 percent jump in partner profits reported only two days earlier: “A number of insiders have questioned the large jump in PEP, attributing the growth to an exceptionally big and anomalous recovery for the firm on one piece of litigation.”

At about the same time, the firm revealed that it had completed its “partnership review” resulting in an almost 10 percent reduction in its London office equity ranks, according to The Lawyer. In addition, the firm lost some “big hitters.”

On January 15, 2016, William Boss resigned as managing partner — more than a year before his term was set to expire in May 2017. The firm said that he would remain in the position until April while the search for his replacement occurred.

Future

On January 20, The Lawyer reported that the firm had “launched a review of its capital contributions structure in order to ease cashflow, stop repeated delays to profit distributions and stem the flow of exits by ‘frustrated’ partners.”

What does that mean? Time will tell. But story in The Lawyer included these nuggets:

— “A number of sources close to KWM have accused the firm of withholding profit distributions over the last five years in order to keep up with tax bills, leading to a raft of senior exits last year.”

— “One source close to KWM said the firm had ‘only just’ paid out the full distributions due in August 2015, having previously paid just half the money owed in that quarter. Another said they had only been paid 25 per cent of their distributions for 2014/15, despite it being nine months into the financial year.”

— “Complaints about delayed profit payments follow a good year financially for the firm in the UK, Europe and Middle East, adding to the frustration of a number of partners, a source said. ‘It’s been a so-called record year for the firm but partners just aren’t getting paid,’ they added.”

— “The review could see its UK partners being asked to pay higher contributions to the firm in return for more units in the LLP.”

If the last item comes to pass, partners who write checks to the firm might want to understand exactly what they are buying and why.

THE CRISIS IN LEGAL EDUCATION IS OVER!

Posted on January 13, 2016 by thebellyofthebeast

[NOTE: The trade paperback edition of my book, The Lawyer Bubble – A Profession in Crisis (Basic Books) — complete with an extensive new AFTERWORD — will be released on March 8, 2016. That’s just in time to put in proper perspective the latest annual rankings from U.S. News & World Report (law schools in mid-March) and Am Law (big firms on May 1). The paperback is now available for pre-order at Amazon and Barnes & Noble. Now on to today’s post…]

Wishful thinking is never a sound strategy for success.

“I don’t see legal education as being in crisis at all,” said Kellye Testy, the new president of the Association of American Law Schools and dean of the University of Washington Law School. She made the observation on January 5, 2016 — the eve of the nation’s largest gathering of law professors.

Perhaps her declaration made attendees more comfortable. Unfortunately, it’s not true.

The Trend! The Trend!

Law deans and professors cite the dramatic declines in applicants since 2010 as proof of law school market self-correction. Dean Testy echoed that approach: “I think there is a steadying out now after quite a crash in the number of students our schools are admitting….”

Two points about that comment. First, the decline in the number of applicants since 2010 is real, but that year may not be the best baseline from which to measure the significance of the drop in subsequent years. From 2005 to 2008, the number of applicants was already declining — from 99,000 to 83,000. But the Great Recession reversed that downward trend — moving the number back up to 88,000 by 2010 as many undergraduates viewed law school as a place to wait for three years while the economy improved.

Viewed over the entire decade that began in 2005, the “drop” since 2010 was from a temporarily inflated level. If the roughly four percent annual reduction that occurred from 2005 to 2008 had continued without interruption to 2014, the result would have been about 65,000 applicants for the fall of 2014, compared to the actual number of 56,000. That difference of 9,000 applicants doesn’t look like a “crash.”

A More Troubling Trend

Second and more importantly, many law schools solved their reduced applicant pool problem by increasing admission rates. Overall, law schools admitted almost 80 percent of applicants for the fall of 2014. Compare that to 2005 when the admission rate was only 59 percent.

During the same period, the number of applicants dropped by 40,000, but the number of admissions declined by only 12,000. Countering the impact of fewer applicants to keep tuition revenues flowing meant lowering admission standards. The ripple effects are now showing up in declining bar passage rates for first-time takers.

Student Enlightenment Interrupted

Transparency has given students access to data that should produce wiser decisions. Until the current application cycle, better information was contributing to the recent decline in the number of law school applicants. But the relentless promotional efforts of law school faculty and administrators may be interrupting that trend. Compared to last year, the number of applicants is up.

But law schools aren’t solely to blame. Responsibility for persistently dubious decisions also rests on those making them. A December 22 article in The Wall Street Journal, “U.S. Helps Shaky Colleges Cope with Bad Student Loans,“ includes this unfortunate example:

“Anthony C. Johns, 32 years old, regrets accumulating $40,000 in debt while attending Texas College, a private college in Tyler. He says he graduated in 2007 with an English degree but couldn’t land a full-time job.

“‘I think I applied for everything on CareerBuilder from teaching to banking,’ says Mr. Johns, who has defaulted on his Texas College loans. ‘Default was very embarrassing.’ Since then, he has enrolled in law school and borrowed $30,000 to pay for his first year.'”

The emphasis is mine.

The Biggest Problems Remain

According to LinkedIn, someone named Anthony C. Johns graduated from Texas College in 2007 and is currently a student at the Charlotte School of Law. That’s one of the Infilaw consortium of three for-profit law schools — Charlotte, Arizona Summit, and Florida Coastal. Owned by private equity interests, the Infilaw schools — like many others — survive only because unrestricted federal student loans come with no mechanism that holds schools accountable for graduates’ poor employment outcomes.

Ten months after graduation, Charlotte School of Law’s full-time long-term bar passage-required placement rate for 2014 graduates was 34 percent. The average law school loan debt of its 2014 graduates was $140,000. If Anthony Johns regretted accumulating $40,000 in college debt, wait until he’s taken a retrospective look at law school.

You Be The Judge

Perhaps Dean Testy is right and there is no crisis in legal education. Or perhaps it depends on the definition of crisis and how to measure it. When a problem gets personal, it feels different.

Since 2011 when the ABA first required law schools to report the types of employment their graduates obtained, over 40 percent of all graduates have been unable to find full-time long-term employment requiring bar passage within ten months of receiving their degrees.

Now let’s make those numbers a bit more personal. Saddled with six-figure law school debt, many recent law graduates might consider crisis exactly the right word to describe their situation. Where you stand depends on where you sit.

MY DAUGHTER NEVER GIVES UP

Posted on January 11, 2016 by thebellyofthebeast

Those who have been following my personal health challenge over the past year might find my daughter’s most recent appearance on KTVU in San Francisco interesting. Here’s the link: https://www.youtube.com/watch?v=cUm2FZMYF1U&feature=youtu.be&app=desktop

And yes, we are still working on the book documenting my family’s journey with me through our dysfunctional medical system.

“BRIDGEGATE” TAKES A STRANGE TURN

Posted on January 6, 2016 by thebellyofthebeast

Chief Justice John Roberts’ annual report on the state the federal judiciary reminds lawyers of their obligations to “avoid antagonistic tactics, wasteful procedural maneuvering, and teetering brinksmanship.” I wonder what he thinks of the “tactics, maneuvering, and brinksmanship” surrounding the latest chapter of “Bridgegate.”

Four Days in September

In 2013, the mayor of Fort Lee, New Jersey refused to endorse Governor Chris Christie’s re-election campaign. In apparent retribution, Christie’s deputy chief of staff Bridget Anne Kelly sent an email to David Wildstein, Christie’s appointee at the Port Authority of New York and New Jersey.

“Time for some traffic problems in Fort Lee,” Kelly wrote on August 13.

“Got it,” Wildstein replied.

On Friday, September 7, Wildstein followed-up: “I will call you Monday AM to let you know how Fort Lee goes.”

Everyone knows how Fort Lee went on Monday, September 10. The Port Authority closed two of three local access lanes on the upper level of the George Washington Bridge. Four days of gridlock near the town continued until September 13, when the Authority’s executive director (a Governor Andrew Cuomo appointee) ordered the lanes reopened.

Getting Ahead of One Story

Several months later, the Kelly-Wildstein emails surfaced. Immediately, Republican presidential hopeful Christie did the fashionable thing: nip a growing scandal in the bud by hiring a respected outside lawyer to conduct an internal investigation. He chose Randy Mastro, former chief of staff to New York City Mayor Rudy Giuliani. According to the firm’s website, Mastro is a partner and member of the management and executive committees at Gibson, Dunn & Crutcher, current winner of The American Lawyer’s biennial “Litigation Department of the Year” contest.

Christie promised that Mastro would “bring an outside, third-party perspective to the situation” with a “thorough” and “efficient” internal investigation. Gibson Dunn certainly had the firepower to accomplish that mission. Its Bridgegate team included five former federal prosecutors with “experience in internal investigations and criminal cases.” The state of New Jersey picked up Gibson Dunn’s tab. For the first three weeks of work, it charged $1.1 million.

Just two months after the investigation began, Mastro released Gibson Dunn’s final report and provided final witness summaries to the U.S. attorney and the New Jersey Legislative Select Committee on Investigations. The report exonerated Christie.

The New York Times described the ensuing press conference: “The former federal prosecutor who led the internal inquiry, Randy M. Mastro, frequently sounded like a defense lawyer making his case to a jury. He referred to Ms. Kelly as a liar, cast doubt on the credibility of the mayor of Hoboken, who accused the Christie administration of political intimidation, and slipped into lawyerly exhortations to the ‘ladies and gentlemen’ sitting before him.”

While Creating Another Story

On May 1, 2015, Wildstein agreed to plead guilty and cooperate with the government’s prosecution of Kelly and Port Authority deputy executive director William Baroni, Jr., both of whom were indicted. On May 27, lawyers for Kelly and Baroni sought court permission to issue subpoenas to Gibson Dunn for any notes, transcripts, and records that the firm had in connection with its investigation and report. Over Gibson Dunn’s objection, the court granted the motion.

After the subpoenas went out, Gibson Dunn objected again. It also responded that no such notes or recordings existed — none — and moved to quash the subpoenas as moot.

Defendants’ exasperated lawyers complained, “Gibson Dunn claims that it billed New Jersey taxpayers nearly $10 million but not a single lawyer took a single note during 75 interviews in the most high-profile political case in recent years.” (The court noted that the actual amount billed seemed to be about $8 million.)

The Court Was Not Amused

On December 16, 2015, Judge Susan Wigenton — a George W. Bush appointee — sympathized with the defendants’ frustration. She also explained what troubled her about Gibson Dunn’s position.

“Attorneys are trained to scrupulously document information when conducting internal investigations, including taking and preserving contemporaneous notes of witness interviews,” the court wrote in a ten-page opinion. “In the past, Gibson Dunn has done exactly that.”

But not for Bridgegate. Judge Wigenton chided the firm for “intentionally changing its approach in this investigation.” In particular, the affidavit of Gibson Dunn partner Alexander Southwell confirmed, “[W[itness interviews were summarized electronically by one attorney and then edited electronically into a single electronic file.”

The judge described the significance of that technique: “The practical effect of this unorthodox approach was to assure that contemporaneous notes of the witness interviews and draft summaries would not be preserved. Rather, they would be overwritten during the creation of the revised and edited final summary.”

Noting that the firm didn’t delete or shred documents, the judge observed that “the process of overwriting their witness notes and drafts of the summaries had the same effect.”

“This was a clever tactic,” Judge Wigenton continued, “but when public investigations are involved, straightforward lawyering is superior to calculated strategy. The taxpayers of the State of New Jersey paid Gibson Dunn millions of dollars to conduct a transparent and thorough investigation. What they got instead was opacity and gamesmanship.”

Gibson Dunn argued that defendants’ underlying motion was a “fishing expedition” and “a waste of time and judicial resources.” Defendants were “targeting a law firm’s work product, already knowing that most of what they seek does not exist…”

Nevertheless, what the court characterized as gamesmanship worked. The firm had no documents to produce, so the court granted Gibson Dunn’s motion to quash.

One More Thing…

The latest twist in the Bridgegate tale involves Debra Wong Yang, whom President George W. Bush appointed as U.S. attorney for the central district of California in 2002. In November 2006, Yang left the bench to become a partner at Gibson Dunn & Crutcher. The firm’s website notes that she works out of the Los Angeles office and has served as a member of the firm’s executive and management committees.

In a glowing introduction of Governor Christie as the keynote speaker at an event on June 9, 2011, Yang described him as her “very good friend” whom she had “known for ten years” — going all the way back to their time together as federal prosecutors. She said Christie was “the real deal” and “doing a remarkable job as governor.”

When Christie took the stage, he described how their families once vacationed together at the game ranch of a fellow U.S. attorney in Texas. “We are good and dear friends,” Christie said of Yang.

Fast-forward to Bridgegate

Here’s a summary of interesting events that followed:

— According to the The New York Times’ review of Gibson Dunn billing records, two days after Christie hired the firm to investigate Bridgegate in January 2014, “Debra Wong Yang, a Gibson Dunn partner in California and a personal friend of of Mr. Christie’s, spent time in ‘meeting with client’ – Mr. Christie and his top lawyer in the governor’s office.”

— Gibson Dunn’s army of former federal prosecutors — including Yang — departed from the usual documentation process so that when the firm completed the investigation, no notes, transcripts or recordings of interviews existed beyond the final summaries provided to federal and state investigators.

— After Gibson Dunn’s report exonerated Christie, the firm continued working at taxpayer expense. According to the Times, it billed the state of New Jersey a total of $8 million from January 2014 through August 2015 “for the continuing defense of the governor.”

— Wholly apart from the dispute over what turned out to be Gibson Dunn’s non-existent internal documents relating to its investigation, on November 11, 2015 attorneys for Kelly and Baroni filed additional motions. They asked the court to direct the government to take a closer look at the adequacy of Gibson Dunn’s earlier document productions to the federal grand jury. Claiming that prosecutors should have challenged the firm’s disorganized and inadequate discovery responses, Baroni’s motion levels this accusation: “The government has given Gibson Dunn free reign to withhold and redact documents as that firm sees fit, as well as to produce documents in an abominable format.”

— Finally, according to the Times, in December 2015 Debra Wong Yang “co-hosted a $2,700-per-person fund-raiser in Los Angeles for Christie’s Republican presidential campaign.”

In an exclusive interview hours after Mastro released Gibson Dunn’s March 2014 report, the governor told ABC’s Diane Sawyer, “Sometimes people do inexplicably stupid things.”

Then again, sometimes things may not be as stupid as they first seem.

BIG LAW’S SHORT-TERMISM PROBLEM

Posted on December 16, 2015 by thebellyofthebeast

Recently, the New York Times devoted a special section of “Dealbook” to short-termism. Big law firms made a prominent appearance in an article focusing on leadership transition. Citing statistics at the managing partner level, the Times reports that only three percent of law firm managing partners are under age 50. Twelve percent are over 70. Almost half are between 60 and 70.

The Tip of the Graying Iceberg

The core problem of transition runs deeper than a single demographic data point about the age of those at the top of the big law pyramid. The developing crisis goes far beyond the question of who the next managing partner will be.

At most firms, aging partners at all partnership levels are hanging on to clients and billings. For them, it’s a matter of survival. Except for lock-step firms, equity partners “eat what they kill” — that is, their closely guarded silos of clients and billings determine their annual compensation.

In that culture, hoarding becomes essential to preserving annual compensation that partners come to regard as rightfully theirs — and theirs alone. Stated in language that many senior partners use in criticizing today’s young attorneys, these aging lawyers have developed a wrong-headed sense of entitlement.

The fact that they’re making far more than they dreamed of earning in law school doesn’t matter to them. Neither does the fact that they are compromising the future of their firms. But their short-term gains could become the institution’s long run catastrophe.

See the Problem

Surveys confirm that law firm leaders recognize the resulting problem. Seven years ago, Altman Weil issued the first of its annual “Law Firms in Transition” series. Since then, the survey has documented a fundamental failure of leadership on this issue.

For example, in the 2011 survey, Altman Weil asked firm leaders to name the areas in which they had the greatest concerns about their firms’ preparedness for change: “The top issue, identified by 47% of all firms, was the retirement and succession of Baby Boom lawyers in their law firms.”

In the 2012 survey, 70 percent of managing partners had “moderate” or “high” concern about client transition as senior partners retire. On a scale of one (no concern) to ten (extreme concern), the median score was seven.

In the 2013 survey, only 27 percent of managing partners reported that they had a formal succession planning process in place.

Ignore the Problem

How have these leaders responded to what they have identified for years as the most pressing long-term problem facing their firms? Poorly.

The 2015 survey observes, “In 63% of law firms, partners aged 60 or older control at least one quarter of total firm revenue, but only 31% of law firms have a formal succession planning process.”

There’s a reason that law firm leaders balk at meaningful transition planning. It requires them to accept the fact that they won’t run their firms forever. But contemplating one’s own mortality can be unpleasant.

It also requires them to rethink their missions. Leadership is not about maximizing this year’s partner profits or pursuing growth for the sake of growth to create illusory empires over which a dictator can preside. It requires a willingness to create incentive structures that encourage long-term institutional stability.

Toward that end, lofty aspirations are easier to state than to achieve. But here are a few governing principles:

— Client service should be central to everything a law firm does.

— Partner cooperation should trump partner competition.

— Clients and billings should flow seamlessly to the next generation while allowing aging partners to retain a sense of self-worth as firms encourage them to prepare for their “second acts,” whatever they may be.

— The culture of a firm should encourage partners to sacrifice some short-term financial self-interest in the effort to leave the firm better than they found it — just as their mentors did for most of them.

Become the Problem

The most creative leaders understand that all of this means thinking outside the conventional billable hour box that remains central to the short-term growth and profit-maximizing mindset. In that respect, the contrast between the absence of true leadership and clients’ desires is striking.

Since 2009, Altman Weil has done an annual survey of corporate chief legal officers, too. The survey asks the CLOs: “How serious are law firms about changing their legal service delivery model to provide greater value to clients?”

The responses are on a scale of one (not at all serious) to ten (doing everything they can), Every year since the survey began, the median score has been three. Three out of ten. Stated differently, as far as clients are concerned, their outside lawyers have little interest in responding to demands for change.

Likewise, LexisNexis/Counsel Link’s most recent semi-annual report analyzing six key metrics confirms the impact of short-termism:

— Clients want alternative fee arrangements. AFAs account for only seven percent of all billings.

— Clients want relief from high hourly rates. For the trailing 12-month period ending on June 30, 2015, big firms of more than 750 attorneys had a median partner billing rate of $711 an hour — up 6 percent from the period ending on December 31, 2014. (For firms of 501-750 lawyers the median hourly rate during the same period increased by only $5 an hour.)

The Future Is Here

As big firm leaders drag their feet, clients aren’t waiting for them. They have figured out that the biggest of big law premiums isn’t always worth it. An October 2013 study of $10 billion in client fee invoices by LexisNexis/Counsel Link concluded the “large enough” firms of 201-500 lawyers are eating into the market share of firms with more than 750 lawyers.

From 2010 to 2013, the biggest firms saw their market share drop from 26 percent to 22 percent. Meanwhile, the market share of the “large enough” firms increased from 18 to 22 percent. For high-fee matters totaling $1 million or more, the shift was even more dramatic: “large enough” firms increased their market share from 22 to 41 percent.

Anyone believing that most big law firm leaders are long-term thinkers preparing their firms for a challenging future is ignoring the actual behavior of those leaders. Most of them are focused on getting rich today. That’s not a strategy for success tomorrow.

FOR YOUR LISTENING PLEASURE…

Posted on December 10, 2015 by thebellyofthebeast

Try Track #6 on my son’s latest album — “Where Are You Now?”

Link: https://soundcloud.com/harper-blynn/tracks

If you like that one, try #7 — “Long Way From Home.”

DEWEY, THE D.A., AND SECRETS

Posted on December 9, 2015 by thebellyofthebeast

“There aren’t too many secrets in this case,” said Judge Robert Stoltz on December 5. He was referring to the Dewey & LeBoeuf trial over which he presided. The multi-year effort to convict Steven Davis, Stephen DiCarmine, and Joel Sanders produced a raft of acquittals on many charges and a hung jury on the more serious offenses.

Actually, there are two big secrets in the case, but no one is talking about them.

Secret #1: Why Zachary Warren?

Former Dewey chairman Steven H. Davis won’t face a retrial. Assistant DA Peirce Moser has offered him a deferred prosecution agreement. As reported, he will not have to admit guilt and can continue practicing law. When my kids were young, they would have called this a “do-over.”

Judge Stoltz’s reference to secrets was in response to Moser’s suggestion that the retrial of executive director DiCarmine and finance director Sanders should precede the first trial of former low-level staffer Zachary Warren. The longer Warren dangled in a world of uncertainty, the more leverage it would give Moser in his relentless pursuit of someone who never should have been indicted in the first place. Appropriately, the judge denied Moser’s request.

That leads to secret number one: Why is the Manhattan DA’s office squandering its scarce resources to pursue Zachary Warren at all?

I’ve written extensively about Warren’s plight. At age 24, he worked at Dewey & LeBoeuf for about a year from mid-2008 to mid-2009 as a client relations specialist. His principal job was to pester Dewey & LeBoeuf partners into making sure clients paid their bills.

Apparently, his mistake of a lifetime came on December 30, 2008. That’s when he accepted an invitation to join 29-year-old finance director Frank Canellas and 53-year-old chief financial officer Sanders for dinner at Del Frisco’s steakhouse. There he allegedly witnessed the creation of what the DA’s office called a master plan of accounting fraud. As his price for that free dinner, Warren would get indicted five years later.

When Zachary Warren left Dewey & LeBoeuf in June 2009, did anyone in the world think that the firm was unlikely to repay its bills, much less collapse — ever? No.

In 2010, was Warren even at the firm as others worked on the bond offering at the center of the DA’s case? No, he was a one-L at Georgetown.

Even if obtained, would a conviction of Warren result in anything positive for anyone inside or outside our justice system? No.

Warren’s indictment was a travesty. The jury’s rejection of the DA’s case against his superiors is reason alone to drop the effort to prosecute him.

Unsatisfying Answers

So why is Moser so determined to try Zach Warren? One possibility is that the same phenomena contributing to Dewey & LeBoeuf’s downfall infects the DA’s office: hubris, ego, lack of accountability for mistakes, and an unwillingness to admit errors that would prompt thoughtful individuals to change course. Maybe it’s a lawyer personality thing.

Another possibility is the public servant manifestation of greed: the DA wants to put a Dewey & Le Boeuf notch — any Dewey & LeBoeuf notch — on its convictions holster. After Cyrus Vance, Jr. personally announced the indictments in a circus-like press conference on March 6, 2014, Moser suffered unambiguous defeat. In fact, even the plea agreements that the DA’s office squeezed from former firm staffers who later testified at trial now look silly. Unfortunately, the resulting penalties aren’t silly for those who are stuck with them.

To put the DA’s pursuit of Zachary Warren in context consider this. According to published reports, assistant DA Peirce Moser has offered him a plea deal, too. But it is more onerous than the DA’s deferred prosecution agreement with Davis.

There is no just world in which that makes any sense.

Secret #2: Where is the Money?

Prosecutors told the jury that it would not see a “smoking gun.” That’s because the DA didn’t know how to look for or describe it. But the gun was there. It was pervasive, insidious, and hiding in plain sight. It was the environment that caused staffers to fear for their jobs if powerful partners weren’t happy. That meant making sure they received millions more than the firm had available to distribute, even if it came from bank credit lines and outside investors in the firm’s 2010 bond offering.

That leads to secret number two: Why didn’t the DA follow the money?

The public could have reasonably expected Vance to direct the power of his office toward the most egregious offenders and offenses. That didn’t happen. Sure, Davis had a major responsibility for the strategy that brought the firm down. But the executive committee consisted of top partners who were supposed to be fiduciaries in running the firm for the benefit of all partners and the institution. Likewise, as most of the firm’s so-called leaders walked away with millions — far more than Davis, DiCarimine, Sanders, or Warren received — bankruptcy creditors got between five and fifteen cents for every dollar the firm owed them.

In a November 2012 bankruptcy court filing, Davis himself teed up what should have been the central issue in any attempt to assign blame for the firm’s problems:

“While ‘greed’ is a theme…, the litigation that eventually ensues will address the question of whose greed.”

The DA’s office never pursued that question.

Just Rewards

Shortly after Vance’s March 2014 press conference, assistant district attorney Peirce Moser received a promotion. He became chief of the tax crimes unit. The DA’s office announced that Moser’s new position would not preclude him from continuing to run the Dewey & LeBoeuf case. Based on his prominence at the most recent court hearing, it’s still Moser’s case.

If no good deed goes unpunished, sometimes it seems that no bad deed goes unrewarded.

AMERICAN AIRLINES AGONY

Posted on December 2, 2015 by thebellyofthebeast

Rarely do I use this forum to discuss personal issues. Earlier this year, I made an exception to inform readers that an unwelcome medical diagnosis of pancreatic cancer had interrupted my weekly posts. As it happened, my 48 days in the hospital provided a unique perspective on our dysfunctional medical system. So as I gained strength, I wrote about that experience. (A book is in the works.) In any event, I’m pleased to report that my progress and prognosis are good.

The outpouring of sympathy and support has been overwhelming. But it hasn’t been universal. Which takes us to the headline for this post.

American Airlines: “Doing What We Do Best”

Twenty-four hours before the first of what would become my five hospitalizations between February and June, my wife and I were scheduled to fly from Chicago to San Francisco on American Airlines. The University of San Francisco School of Law had invited me to its annual Law Review Symposium for a discussion of my book, The Lawyer Bubble – A Profession in Crisis.

Blood test results prompted my doctor to send me to the ER — pronto. Instead of boarding a plane, I was boarding a hospital gurney. After several months of procedures and tests, doctors finally located the source of episodic and life-threatening internal bleeding. One long-term consequence of my condition is that I will remain grounded indefinitely — no air travel.

American Airlines: “The New American is Arriving”

Once it became clear that I would not be able to rebook a flight on American during the one-year period required for our non-refundable tickets, I contacted the airline to seek a refund. (As my principal caregiver, my wife can’t use her ticket either. For better or worse, and for penalties associated with non-refundable tickets…)

The ticket value is significant, but not overwhelming ($870.19 each — for a total of $1740.38). Still, it was worth pursuing.

I called American’s preferred customer number because I’ve been a loyal American flyer for decades. The person I reached was pleasant and cooperative. He found our original reservation, provided ticket numbers, and directed me to the American Airlines website. There, I would click on the customer service link and complete a refund request form.

Shortly after submitting the on-line request, I received a response seeking a physician’s letter confirming my medical plight. Within 24 hours, I scanned and emailed my doctor’s letter describing the cancer diagnosis:

“The complications of his illness include intermittent internal bleeding that renders him unable to travel by air for the foreseeable future… His wife is also my patient and his principal caregiver. As a consequence, she likewise will be unable to travel by air for the foreseeable future.”

Two days later, a customer relations person acknowledged receipt of the letter with this ominous note:

“I have forwarded it to personnel in our accounting office. They are the specialists who review such requests. They will do so and be in touch with you directly.”

American Airlines: “Going for Great”

I knew I was in trouble. The “accounting office” was going to make the final decision about the seriousness of my medical condition in deciding whether to permit a $1,740 refund: “They are the specialists.”

In what?

Five weeks later, I received this nameless form response from a “do not reply” email address:

“After reviewing the documentation submitted, it has been determined the request does not meet our exception requirements.”

“[I]t has been determined…” The passive voice covers a multitude of sinners. But it makes you wonder what the “exception requirements” are and who sets them. More precisely, if my situation doesn’t qualify, what does?

The response continued:

“The ticket purchased is non-refundable so we cannot offer a refund, issue a travel voucher, or transfer this ticket to another person. However, the ticket will remain valid in our system for one year from the original date of issue, at which time it will expire and all value will be lost.”

I know. I can never use the ticket. That’s why I sought an exception.

“The unused non-refundable ticket may be applied to future travel as long as all travel is completed prior to the expiration date.”

Anyone who had read the letter from my physician could never have included that sentence.

“The new ticket will be subject to a change fee based on the fare rules, in addition to any difference in fare or fees that may be in effect at the time of travel. We are forwarding your case to our Customer Relations department for consideration of a waiver for the above stated reissue fee that would be assessed to use your ticket for future travel.”

Lucky me! I might get a fee waiver for a ticket that I will never buy. No one who read my doctor’s letter could have written that, either.

“Please allow time for Customer Relations to review your situation and respond to your case before making additional contact.”

In other words, don’t bother us anymore. My wife received the identical message.

Wrong Without a Remedy

Readers may recognize the subheadings in this post. They are American Airlines’ advertising slogans over the years. The last one — “Going for Great” — is the most recent. Based on my experience, it will never get there.

There’s a lesson for anyone contemplating a flight on American Airlines. When you book a nonrefundable ticket, even the prospect of death from an intervening terminal illness that results in grounding you permanently will not qualify as an exception to the airlines’ “no refund” policy.

There’s a larger lesson, too. American Airlines’ handling of my request is emblematic of a larger societal phenomenon: myopic short-termism. When accountants’ incentive structures displace customer service, the culture of an organization follows that lead.

By the way, feel free to pass this along — retweet, post on Facebook, etc. — and to share your thoughts directly with American Airlines’ customer relations. (After clicking here, select TOPIC: Customer Relations; SUBJECT: Complaint; REASON: Other. After that, you’re on your own.)

I’m sure they would love to hear from you.

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.”

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