Tag Archives: recession

UNFORTUNATE COMMENT AWARD

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Today’s “Unfortunate Comment Award” winner is ABA President William (“Bill”) Robinson III, who thinks he has found those responsible for the glut of unemployed, debt-ridden young lawyers: the lawyers themselves.

“It’s inconceivable to me that someone with a college education, or a graduate-level education, would not know before deciding to go to law school that the economy has declined over the last several years and that the job market out there is not as opportune as it might have been five, six, seven, eight years ago,” he told Reuters during a January 4 interview.

Which year we talkin’ ’bout, Willis?

Recent graduates made the decision to attend law school in the mid-2000s, when the economy was booming. Even most students now in their third year decided to apply by spring 2008 — before the crash — when they registered for the LSAT. Some of those current 3-Ls were undergraduates in the first-ever offering of a course on the legal profession that I still teach at Northwestern. What were they thinking? I’ll tell you.

I’ve written that colleges and law schools still make little effort to bridge a pervasive expectations-reality gap. Anyone investigating law schools in early 2008 saw slick promotional materials that reinforced the pervasive media image of a glamorous legal career.

Jobs? No problem. Prospective students read that for all recent graduates of all law schools, the overall average employment rate was 93 percent. They had no reason to assume that schools self-reported misleading statistics to the ABA, NALP, and the all-powerful U.S. News ranking machine.

But unlike most of their law school-bound peers, my students scrutinized the flawed U.S. News approach. Among other things, they discovered that employment rates based on the ABA’s annual law school questionnaire were cruel jokes. That questionnaire allowed deans to report graduates as employed, even if they were flipping burgers or working for faculty members as temporary research assistants.

Law school websites followed that lead because the U.S. News rankings methodology penalized greater transparency and candor. In his Reuters interview, Robinson suggested that problematic employment statistics afflicted “no more than four” out of 200 accredited institutions, but he’s just plain wrong. Like their prospective students, most deans still obsess over U.S. News rankings as essential elements of their business models.

The beat goes on

With the ABA’s assistance, such law school deception continues today. Only last month — December 2011 — did the Section on Legal Education and Admission to the Bar finally approve changes in collecting and publishing law graduate placement data: Full- or part-time jobs? Bar passage required? Law school-funded? Some might consider that information relevant to a prospective law student trying to make an informed decision. Until this year, the ABA didn’t. The U.S. News rankings guru, Robert Morse, deferred to the ABA.

The ABA is accelerating the new reporting process so that “the placement data for the class of 2011 will be published during the summer of 2012, not the summer of 2013.” That’s right, even now, a pre-law student looking at ABA-sanctioned employment information won’t find the whole ugly truth. (Notable exceptions include the University of Chicago and Yale.) Consequently, any law school still looks like a decent investment of time and money, but as Professor William Henderson and Rachel Zahorsky note in the January 2012 issue of the ABA Journal, it often isn’t.

Students haven’t been blind to the economy. But bragging about 90+ percent employment rates didn’t (and doesn’t) deter prospective lawyers. Quite the contrary. Law school has long been the last bastion of the liberal arts major who can’t decide what’s next. The promise of a near-certain job in tough times makes that default solution more appealing.

Even the relatively few undergraduates (including the undergraduates in my class) paying close attention to big firm layoffs in 2009 were hopeful. They thought that by the time they came out of law school, the economy and the market for attorneys would improve. So did many smart, informed people. Youthful optimism isn’t a sin.

Which takes me to ABA President Robinson’s most telling comment in the Reuters interview: “We’re not talking about kids who are making these decisions.”

Perhaps we’re not talking about his 20-something offspring, but they’re somebody’s kids. The ABA and most law school deans owed them a better shake than they’ve received.

It’s ironic and unfortunate: one of the most visible spokesmen in a noble profession blames the victims.

A NEW LAW SCHOOL MISSION

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What ails the profession and is there a cure?

If you haven’t already seen it, you might want to take a look at Part I of my article, “Great Expectations Meet Painful Realities,” in the Spring 2011 issue of Circuit Rider. My latest contribution to the debate on the profession’s growing crisis begins on page 24 of the Seventh Circuit Bar Association’s semi-annual publication.

Part II begins at page 26 of the December 2011 issue.

‘TIS THE SEASON

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As this year’s college seniors graduate, relentless pessimism about their fate abounds. I’m a glass half-full kind of guy, but it’s starting to get to me.

On May 15, the Wall Street Journal offered “A Lament for the Class of 2010.” After reciting the dreadful statistics — 17% of those age 20 to 24 don’t have a job and 2 million college graduates are unemployed — the author discussed the intense competition that new graduates face in seeking jobs as “waitresses, pizza delivery men, file clerks, bouncers, trainee busboys, assistant baristas, and interns at bodegas.”

A May 16 New York Times article provided a more dismal assessment. “Plan B: Skip College” gave graduates the bad news that they might have wasted their time and money on the degrees they’re now receiving. Great. Now you tell them.

Another Times article on May 29 described the unhappy plight of a 2005 NYU graduate who is $100,000 in debt and has few prospects.

And of course, everyone knows about the abuse heaped on the next generation of workers searching for a toe-hold on opportunity through the 21st century version of slave labor: unpaid internships.

Enough, already.

It’s true that many of the nation’s best and brightest are now receiving student loan repayment schedules along with their degrees. Even those who lack educational debt will feel the burden of an economy that deprives them of the psychological satisfaction that comes with a decent job.

Where’s the good news?

Today’s new graduates are rethinking traditionally safe career tracks that aren’t so safe anymore. The legal profession is an example.

In the 1960s, law school was a sanctuary. Deferments from compulsory military service meant three more years of academia instead of rice paddies and bullets in Vietnam. That was a pretty good deal.

When the draft ended, law school offered another kind of sanctuary — it was the last bastion of the liberal arts major who didn’t know what to do next. But it was an acceptable default solution. For a reasonable price, it offered the status of a profession and the realistic prospect of a fulfilling career.

Not anymore. Those looking to weather the current economic storm find that law school is an expensive place to seek shelter. Even worse, its earlier promises of future rewards — not only financial security, but also a satisfying career — have become suspect. In fact, many face a Hobson’s choice: surveys consistently show that today’s unhappiest lawyers work in big firms that pay the most.

That’s actually good news for the next generation of would-be attorneys. The sudden unreliability of the law as a safe path provides an opportunity to regroup. For those who are adequately informed about the experience and remain certain that it’s for them, the law is a sensible choice.

But for the rest, using law school as an excuse for three years of procrastination could be a costly mistake. With crushing debt loads, even many of those who get high-paying legal jobs will find a harsh reality that conflicts with their expectations and aspirations. From there, it’s a short trip to the ranks of unhappy, dissatisfied lawyers. We already have too many of those because the light didn’t dawn on them until they’d passed self-imposed points of no return.

So, recent graduates, as difficult as it may be, consider yourselves lucky. You’ll eventually find yourselves among the most creative, entrpreneurial generation in history because circumstances forced you to think outside the usual boxes as you pursued your passions.

I look forward to seeing the fruits of your efforts.

LIFE IMITATES ART

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Sunday’s lead article in the Business section of the May 2 NY Times brought to mind a passage in my forthcoming novel, The Partnership. It’s a legal thriller set against a power struggle at a fictional firm that has embraced biglaw’s twenty-year transformation from a profession to a bottom-line business.

First, the passage from my book, which will be available later this month:

“The crash of 2008 stalled a great run for most large firm equity partners. A year earlier, Michelman & Samson’s average partner profits had grown to almost $3 million. The reasons were obvious: the ratio of all attorneys to equity partners — a number that managers called leverage — doubled from three to six in only ten years. The firm tripled in size to more than two thousand attorneys in a dozen offices around the world. Average hours climbed as yearly billing rate increases far outstripped inflation. Trees, it seemed, really did grow to the sky.

“Michelman & Samson’s balanced portfolio of client work had historically provided protection against the vagaries of the business cycle…For some reason that mystified the firm’s Executive Committee, diversification wasn’t working as well this time. The lucrative corporate venture capital practice had led the firm’s fortunes upward, and it experienced the leading edge of the coming collapse. The transactional pipeline dried up first…The restructuring group picked up some of the slack, but not enough to maintain the historic profits of earlier times. Even worse, the uproar over executive compensation threatened to spill over into bankruptcy courts….”

Which brings me to the Sunday Times article. (http://www.nytimes.com/2010/05/02/business/02workout.html?) Throughout the current Great Recession, some lucrative pockets of biglaw have fared pretty well. For example, overall average equity partner profits of the Am Law 100 (released last Thursday) actually rose slightly in 2009 — even though gross revenue, headcount, and revenue per lawyer fell.

Is the leverage-billable hours model that produces such results sustainable? I don’t know, but it faces a new assault. Kenneth Feinberg, the Washington lawyer who serves as the “pay czar” for banks receiving tax dollars, received another assignment last June. The court in the Lehman bankruptcy appointed him to monitor attorneys’ fees in the case.

“Unemployment is over 9 percent, and to be paying first-year associates $500 an hour angers the public,” the Times quotes him. “People read about all of this and say that lawyers and the legal system are one more example of Wall Street out of control.”

The 77-year-old dean of the bankruptcy bar, Harvey Miller, responded with a spirited defense of the $164 million that his firm reportedly has incurred as Lehman’s lead counsel since its 2008 bankruptcy filing:

“If you had cancer and you were going into an operation, while you were lying on the table, would you look at the surgeon and say, ‘I’d like a 10 percent discount…This is not a public, charitable event.'”

Miller sat on his firm’s management committee for 25 years. Where should I begin an analysis of what his remarks reveal about my once noble profession? 

Here’s one place: American Lawyer reported last week that the average equity partner profits of Miller’s firm — Weil Gotshal — increased to more than $2.3 million in 2009; their percentage of equity partners declined.

Here’s another: how many doctors make more than $1,000 an hour?

Here’s yet another: the Times noted that Miller’s firm also received $16 million in connection with the General Motors bankruptcy. Weren’t “public” taxpayer dollars involved in that one?

More thoughtful biglaw law attorneys declined to take the bait and refused comment to the Times.

Harvey won’t enjoy my novel.

LIZARD-BRAIN REMNANTS…

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Tuesday night’s Nova episode on PBS –“Mind Over Money” (April 27) — waded into the continuing debate over what went wrong to produce the recent economic collapse. Coincidentally, Goldman Sachs executives spent the day explaining themselves to the Senate Subcommittee on Investigations. Meanwhile, biglaw leaders around the world anxiously await the April 29 release of this year’s Am Law 100 rankings.

Maybe these things are related.

Nova interviewed scientific researchers who think they’ve identified the human brain’s unique response to money. MRIs show that it activates deep recesses in the mind — areas that evolutionists believe we share with the earliest forms of life, such as lizards.

Once engaged, those impulses become as powerful as any addiction and as strong as the instincts for sex and survival. They dominate our actions in ways that explain why, for example, people hold on to losing stocks too long and new participants in an auction experiment routinely bid more than $20 for a twenty-dollar bill. It’s not just that the efficient markets model of economic rationality fails; affirmatively irrational behavior takes over.

If these researchers are correct, money itself triggers something that can combine with competition and ego to produce a dangerous mix. When a subconscious reaction to dollar signs overrides rational thought, the resulting decisions can be — shall we say — problematic.

What’s the connection to Goldman Sachs and the Am Law 100? I’m not suggesting that obviously intelligent people at GS did anything illegal. Judges and juries will make that determination someday. Nor am I criticizing leaders of large or small law firms who pay attention to revenues and costs because they need to make a living, just like everybody else. The practice of law has never been an eleemosynary endeavor and never will be.

Still, the research shines an interesting light on the intersection of human behavior and free market capitalism. Just as stratospheric quarterly profits propelled Goldman to develop novel vehicles that continued to feed its insatiable profits beast, perhaps the fixation on annual Am Law rankings triggers an inner impulse in biglaw leaders that even they themselves don’t realize. When a money-laden thought — like average equity profits per partner — becomes a definitive decisional metric that defines professional standing and institutional culture, does reason become a casualty?

If so, what’s the antidote?

Perhaps it doesn’t matter. There’s not much incentive to recover from a socially acceptable addiction that defines who too many of us are.

PUZZLE PIECES – Part 8

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Recession? What recession?

On Monday, April 12, 2010, the National Bureau of Economic Research (NBER), the non-profit group that officially marks the beginning and end of economic downturns, announced that the recession — which started in December 2007 — is not yet over. http://www.nytimes.com/2010/04/13/business/economy/13recession.html

With the DOW Industrials back above 11,000 for the first time since September 2008 and most economists generally bullish on the future, how does biglaw view the situation?

Across the board, attorney hiring remains way down. Many firms that offered full-time jobs to new graduates deferred starting dates into 2011; a few even withdrew offers. Some firms abandoned altogether the second-year student summer programs that have anchored big firm recruiting for more than 40 years. The surviving programs for summer 2010 are a fraction of their 2007 sizes. Pretty bleak, right?

Maybe not for everyone. For a peek inside, consider the ongoing fictional cross-examination of the very real Dechert LLP senior partner profiled in the April ABA Journal (“Not Done Yet”).

(By the way, the data in the questions are real. As Yogi Berra would say, “You can look it up” in the cited sources.)

Q: “You said that the enormous increases since 1995 in equity partner incomes at your firm and others like it reflect ‘free market capitalism’ at work, right?”

Partner: “Yes. Any business enterprise maximizes profits.”

Q: “In capitalism, does the owner bear any risks?”

Partner: “Sure. The owner bears the ultimate risks of the enterprise. If the business fails, the owner’s investment is wiped out.”

Q: “The owner bears the risk of economic setbacks during downswings in the business cycle, right?”

Partner: “Yes.”

Q: “But in the most recent economic collapse, your firm’s owners  — the equity partners — bore very little of that risk, didn’t they?”

A: “I don’t agree. Even the Am Law data show otherwise.”

Q: “Let’s take a look. Am Law reported Dechert’s average equity partner earnings went from an all-time high of $2.35 million in 2007 to $2.145 million in 2008. Is that what you’re referring to?”

Partner: “That’s a decline of almost 9%!”

Q: “A decline to levels that remain astronomical, right?”

Partner: “Everything is relative. 2009 was even worse.”