NY TIMES OP-ED FOLLOW UP

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

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

Letter #1

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

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

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

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

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

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

Let’s Run the Experiment

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

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

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

Letter #2

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

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

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

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

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

Experiments with Other People’s Student Loan Money

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

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

Completing the Circle

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

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

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

Think of it as your tax dollar at work.

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

LABOR DAY

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

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

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

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

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

Lawyers Take Note

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

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

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

More than Money

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

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

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

What Problem?

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

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

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

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

What’s the Mission?

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

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

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

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

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

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

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

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

 

 

THE PERVASIVE AMAZON JUNGLE

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

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

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

Short-termism: “Rank and Yank”

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

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

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

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

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

Haves and Have Nots

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

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

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

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

About the Long-Run

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

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

One More Thing

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

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

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

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

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

MY BLOOMBERG INTERVIEW

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

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

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

LAW SCHOOL MORAL HAZARD

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

Here’s a teaser.

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

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

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

A NEW YORK TIMES COLUMN MISFIRES

My unwelcome diagnosis and resulting detour into our dysfunctional medical system diverted my attention from scrutinizing commentators who make dubious assertions about the current state of the legal profession.

Well, I’m back for this one. At first, I thought that Professor Steven Davidoff Solomon’s article in the April 1 edition of the New York Times, “Despite Forecasts of Doom, Signs of Life in the Legal Industry,” was an April Fool’s joke. But the expected punch line at the end of his essay never appeared.

To keep this post a manageable length, here’s a list of points that Solomon got wrong in his enthusiastic account of why the legal industry is on the rise. As a professor of law at Berkeley, he should know better.

  1. “The top global law firms ranked in the annual AmLaw 100 survey experienced a 4.3 percent increase in revenue in 2013 and a 5.4 percent increase in profit.”

That’s true. But it doesn’t support his argument that new law graduates will face a rosy job market. Increased revenue and profits do not translate into increased hiring of new associates. In most big firms, profit increases are the result of headcount reductions at the equity partner level – which have been accelerating for years.

  1. “Bigger firms are hiring.”

Sure, but nowhere near the numbers prior to Great Recession levels. More importantly, big firms comprise only about 15 percent of the profession and hire almost exclusively from the very top law schools. Meanwhile, overall employment in the legal services sector is still tens of thousands of jobs below its 2007 high. Even as recently December 2014, the number of legal services jobs had fallen from the end of 2013.

  1. “Above the Law, a website for lawyers, recently reported a rising trend for lateral moves for lawyers in New York.”

Apples and oranges. The lateral partner hiring market — another big law firm phenomenon that has nothing to do with most lawyers — is completely irrelevant to job prospects for new entry-level law school graduates. Even during the depths of the Great Recession, the former was hot. The latter continues to languish.

  1. “Last year, 93.2 percent of the 645 students of the Georgetown Law class of 2013 were employed.”

That number includes: 83 law school-funded positions, 12 part-time and/or short-term jobs, and 51 jobs not requiring a JD. Georgetown’s full-time, long-term, non-law school-funded JD-required employment rate for 2013 graduates was 72.4 percent – and Georgetown is a top law school. The overall average for all law schools was 56 percent.

  1. “[Michael Simkovic and Frank McIntyre found that a JD degree] results in a premium of $1 million for lawyers over their lifetime compared with those who did not go to law school.”

Simkovic acknowledges that their calculated median after-tax, after-tuition lifetime JD premium is $330,000. More fundamentally, the flaws in this study are well known to anyone who has followed that debate over the past two years. See, e.g., Matt Leichter’s two-part post beginning at https://lawschooltuitionbubble.wordpress.com/2013/09/09/economic-value-paper-a-mistrial-at-best/, or the summary of my reservations about the study here: https://thelawyerbubble.com/2013/09/03/once-more-on-the-million-dollar-jd-degree/. Most significantly, it ignores the fact that the market for law school graduates is really two markets — not unitary. Graduates from top schools have far better prospects than others. But the study admittedly takes no account of such differences.

  1. “[The American Bar Foundation’s After the JD] study found that as of 2012, lawyers had high levels of job satisfaction and employment as well as high salaries.”

It also found that by 2012, 24 percent of the 3,000 graduates still responding to the study questionnaire are no longer practicing law. The study’s single class of 2013 originally included more than 5,000 — so no one knows what the non-respondents are doing.

“These are the golden age graduates,” said American Bar Foundation faculty fellow Ronit Dinovitzer [one of the study’s authors], “and even among the golden age graduates, 24 percent are not practicing law.”

7.  “Law schools have tremendous survival tendencies. I have a bet with Jordan Weissmann at Slate that not a single law school will close.”

Yes. Those “survival tendencies” are called unlimited federal student loans for which law schools have no accountability with respect to their students employment outcomes. If Solomon wins that bet, it will be because a dysfunctional market keeps alive schools that should have closed long ago.

Whatever happened to the News York Times fact-checker?