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13 August 2008

Comments

John Coates

Citizenship matters, in my experience, in both law firms and law schools. I know first-hand of individuals bumped from law firms because they were impossible people as colleagues, even though they had high billings; and I know first-hand of individuals not hired as laterals at top schools because they had well-deserved reputations for being selfish and difficult. Hard to quantify, since the qualities are not typically measured in the way of citation counts or billables, but real, nonetheless.

Elizabeth Mertz

I also want to applaud Bill's post. This kind of thoughtful assessment is rare in a time where many are rushing toward easy answers and facile metrics. Incommensurable aspects of professions and institutions are increasingly ignored and devalued because they cannot be neatly put into formulae. Like my former colleague Gordon Smith (see his post on the Conglomerate), I entered this profession because I wanted to be part of intellectual communities -- both at my own institutions and in my broader field(s). It is disheartening to see the incentives for real dedication to intellectual and pedagogical pursuits increasingly eroded by fairly mindless pursuit of metrics -- many of which bear little relationship to any real content (at least content of the kind that drew me into this work). Bill's post creatively points the way to alternative ways of assessing law schools, a badly-needed intervention in the current discussion.

Jason Solomon

Nice post, Bill, and interesting idea on long-term commitments.

A related possibility is that an alternative strategy might emerge for law schools to "produce a meaningful reputation change that redounds to students and alumni." Right now, the only known strategies are gaming the numbers (including buying LSAT scores) -- which can work but is corrupt -- and hiring noted scholars, which generally doesn't work, as you point out.

But there is a new strategy available for schools to move up in the U.S. News rankings, starting now. Schools that can demonstrate that they have invested in adding real value for their students through educational quality and achieved results will be highlighted in the next few months by an organization I helped start, Race to the Top.

We'll be delivering information directly to U.S. News survey respondents around the time of the U.S. News survey in November. The website will also be a one-stop shop for this kind of information. Right now, there is no such information out there to compete -- so in March, you're going to see a handful of schools move in the rankings because of this effort.

Schools that have a good story to tell, get ready. Those that have work to do (that's all of us), there's always next year, but you might want to start now.

More info in a few weeks once the website is up and running -- check back at Moneylaw or www.racetothetoplaw.com.

William Henderson

Corey,

I definitely agree with you. Your analysis parallels the so-called "Adam Smith", in which "Wealth of Nations" self-interest has to be reconciled with "Moral Sentiments" (Smith's earlier book) desire for acceptance/love amongst one's fellows. Many people assumed that Smith's Wealth of Nations analysis was his more mature view. But just a few days before he died, he re-affirmed BOTH viewpoints and talked about one more work that would have tied the two together--a work that never got written!

I agree that rational self-interest does not explain conduct within a community environment. And that includes offices. But self-interest is there, always. It has so to mitigated by affirming cultural norms. And this gets harder to do firmwide the larger and more sprawling the firm. The cultural components are not always healthy.

Lots more here to discuss. thx. bh.

Corey

Well, you don't have to reform the universe of law schools or firms, it is possible to organize individual institutions to differentiate themselves as centers of cooperation, and collect all the players who don't want free agency. I traded some prestige for increased collegiality when I picked schools and when I picked firms. After you've been around a while you start to realize that liking and trusting your peers brings so much more peace of mind and quality of life than being feared for a name on a resume. I have also found that students and faculty at my school, and associates and partners at my law firm, collectively do work well above their "rank" or "reputation" among outsiders.

The degree to which educated people behave as "rational self-interest maximizers" is VASTLY overstated, people need and want love, and no one loves an instrumentalist. (That's day one lesson if I ever get to teach law.)

You don't have to lock people in with long term contracts (although I would be the first to sign up for "good cause" or tenure to replace "at will"), you just have to find the right people. Spend the money to build a brand and reward an institutional culture based on collegiality and mutual respect. Get the dean or the managing partner to pitch the institution that way. Let the people who want to be "stars" at other's expense do it elsewhere. I've seen this work. In my experience the people holding the institution together are never wasting much of their energy status climbing.

If your brand/culture is based on collegiality and quality, then prestige whoring is at best useless. Branding based on prestige as a quality proxy benefits more from "free agency." At a philosophical level, casting all these interactions as "transactions" in a Moneyball sense is what creates the incommensurability problem. Actual people don't have a problem valuing collegiality when you pitch it to them in moral/normative terms. The reciprocity ethic is actually one of the oldest "laws" out there, but it gets no play in legal academia.

Jeff Lipshaw

Bill, as usual this is a hugely insightful and deftly written analysis.

Here are a couple thoughts on both the problem and the possible solutions.

1. I'm not sure that law firms are going to give you a better model for the following reasons. The real question is whether the institution created by the people involved in the institution is greater than the sum of the parts. The underlying assumption in your analysis is that cooperation and coordination indeed do create value that none of the individuals alone can create. What we have is something of a Prisoner's Dilemma game: individual incentives suggest that law professors AND law partners maximize for themselves, but institutions (and perhaps the professors or partners themselves) would be better off if they cooperated. As we know, one way out of the Prisoner's Dilemma is repeat play until the participants learn to trust each other NOT to maximize individually.

2. For precisely the reasons you cite (the incommensurability of teaching and service), it is very difficult to demonstrate a payoff to professors that warrants cooperation even after repeat plays of the game. Law firms are a little better, but my intuition, based on long experience, is that the payoffs of cooperation are almost as difficult to perceive for the partners. My theory is that it's because, indeed, it really is very hard to build any such value. The brand "Skadden" or "Weil Gotshal" is so hard to build, and once built, so independent of the contribution of any single partner (collective action problem at work?), that it just doesn't take you anywhere.

3. In my experience (and intuition), complex business models will actually take you farther in terms of the analysis of the ideal cooperation. I don't want to confuse this analytically with the corporate model of organization, as my co-author Larry Ribstein would insist (see Ribstein & Lipshaw, Unincorporated Business Associations, 4th ed., coming to a bookstore near you in 2009), but let's use the model for ease of explanation. There's no doubt in the corporation, we are building a value proposition greater than the sum of the inputs, physical and human capital together, that expresses itself in a measurable output that integrates ALL of the inputs (contra law school for the reasons you point out). That is, the market value of the enterprise not only exists but is measured every day in terms of a share price (and if the corporation is public, you can actually see it change minute by minute!). Whether or not the systems actually work (I don't want to argue the CEO compensation issue here), the goal is to align the interests of the individuals in the organization with that unified measurement of value, and usually by tying compensation to increases in that value.

4. Compensation within a multi-divisional public company is an iterative process of balancing individual initiative with cooperative goals. It's really tough to get right. I don't think you do it by long-term contracts (there's an involuntary servitude aspect to this I'd want to think through). Compensation is the carrot; I think your idea of a contract is the stick. You can encourage cooperation by incentives - tying compensation to sticking around, for example, by vesting it over a period of time - but you still have the problem of the individual versus the collective. If you tie the compensation entirely to the group output, you run the risk of having your stars leave if they are performing but the rest of the company sucks. If you tie it to individual performance, and not the collective output, you get precisely the cooperation issue we are discussing.

My reaction generally was that, even in the corporation, algorithmic solutions did not work. You needed a spirit of cooperation that preceded the compensation, or individuals would nevertheless figure out a way of skewing things to favor their own interests over the collective. Despite all the best HR theory, we still had to deal with the "wooden nickel" problem by means of leadership, not analysis. What do I mean? Take corporate overhead allocations. Business unit leaders hated them because they were a cost to the business they could not control, and cost them money in terms of their own compensation. My position (as GC and hence one of those cost centers) was that focusing on reducing the cost was adding value, but that merely arguing the allocation was not. That is to say, trading costs between units in terms of allocation was merely trading wooden nickels.

To conclude, I have some skepticism over the possibility of a rule-based solution to the problem - rule based in the sense of writing a contract to deal with it or rule based in the sense of developing compensation algorithms. To continue on a theme that I hope is apparent in my writing, the solutions here have to do with something like leadership, and that has a way of not being reducible to rule-following.

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