Empirical Legal Studies

Data on the "Employed at Graduation" U.S. News Rankings Input

By Bill Henderson & Andrew Morriss

Yesterday, Bob Morse of U.S. News published a blog post in which he signaled a change in the law school rankings methodology, specifically with regard to employment.  The prevailing view on the law school administrator list-serves (which nearly a dozen people have forwarded to us) is that U.S. News will be increasing the weighting of "employed at graduation," presumably because U.S. News Editor Brian Kelly sent a letter to law school deans--reprinted in Bob's blog post--discussing the importance of employed-at-graduation as a metric.

We have zero inside information, but we are willing to bet a substantial sum that any methodology change will be in a completely different direction.  Here is why.  Over the last decade, fewer and fewer schools have been supplying U.S. News with employed-at-graduation data.  Employment at graduation is not a statistic required or collected by the ABA; as such, its accuracy cannot be checked through cross-reference to the annual ABA-LSAC Official Guide. 

But much more significantly, when a school fails to provide this data, U.S. News has--up until now--imputed the figure based on employment at 9 months.  (Kudos to Ted Seto for unraveling this mystery.  See Understanding the U.S. News Law School Rankings.)  Crudely speaking, the magazine applied a roughly 30% discount rate on the employed at 9 months figure.   Earlier this year, Paul Caron suggested that if a school's employed-at-graduation rate is more than 30% lower than its employed at 9 month rate, it is "rankings malpractice" to supply U.S. News with the data.

As readers can see from the above chart (generated by Paul Caron in his rankings malpractice post), a large proportion of law schools have figured out the payoffs.  Over the last decade, the percentage of non-reporting schools has skyrocketed. With this information in mind, Bob Morse's blog post may seem less cryptic:

In an effort to make our law school employment data more reflective of the current state of legal employment, U.S. News has modified how we calculate the employment rates that are used in the new law school rankings.  ...

U.S. News agrees with the efforts of Law School Transparency to improve employment information from law schools and make the data more widely available.

If the goal is (a) to utilize data that better reflect reality, and (b) provide greater transparency and access to such data, it makes no sense to increase the weight of an input (employed-at-graduation) that is either withheld by law schools or is heavily gamed.  This latter point is made by U.S. News Editor Brian Kelly in his letter to the deans:

[E]mployment after graduation is relevant data that prospective students and other consumers should be entitled to.  Many graduate business schools are meticulous about collecting such data, even having it audited. The entire law school sector is perceived to be less than candid because it does not pursue a similar, disciplined approach to data collection and reporting.

At U.S. News, we work to make meaningful and fair comparisons, based on industry-accepted data. ...

To eliminate some of the gaming that seems to be taking place, we have changed the way we compute employment rates for the rankings due out March 15.  In addition, we will also be publishing more career data than we have in the past in an effort to help students more completely understand the current state of legal employment. We think more still needs to be done.

So Kelly is saying that employed at graduation data are important, and the magazine is tired of being gamed.  Therefore, we think two methodogical changes have a good chance of being implemented:

• U.S. News is likely to heavily penalized schools that withhold the employed at graduation data.  Going forward,  the imputation may be far more negative than -30% off of employed at 9 months.  A drop in rankings will stop in its tracks the non-response problem.

• Regarding perceptions of gaming, it is possible that U.S. News has formulated a way to quantify how many jobs at graduation map onto full-time professional jobs that require a law degree.  For example, the ABA Official Guide provides lots of comparable data by practice setting.  Law firms, judicial clerks, and government jobs could be weighted more heavily than business or academic jobs.  Unknown may also be treated as 100% unemployed rather than the current 25% presumption of employment.  Such changes would have the law schools scrambling to report better numbers in higher weighted categories rather than just finding ways to goose up the employed-at-graduation and employed-at-9 months figures.  Remember that Bob Morse explicitly endorsed the Law School Transparency movement.

We would like to suggest to our colleagues in the legal academy that we are approaching an endgame.  Here is the reality:  prospective students are not being given an accurate picture of their future employment prospects.  Why? Because we are all focused on filling next year's class with as many high credential students as possible, thereby protecting our school's place in the pecking order.  Our focus is so shockingly narrow that, from the outside looking in, it appears that our intent is to deceive incoming students.  Brian Kelly's letter to the deans essentially makes that point--law schools fall short on candor and ethical behavior.

The numbers that get submitted to U.S. News include many graduates who are technically employed but often significantly underemployed, often at positions that don't require law degrees.  Finer grained data get reported to NALP, but they are never published on a school-by-school basis.  If these data were released, prospective students may not fully process the information--that is an argument that we often hear law professors make.  But that does not alter our duty to provide "basic consumer information ...  published in a fair and accurate manner reflective of actual practice."  ABA Accreditation Standard 509.

At some point, all our lawyerly rationalizations will come to a bad end because a governmental agency or a court is going to challenge our right to self-regulation, thus ushering in a truly disgraceful chapter in the history of American legal education.  

Now is one of the very few moments in our careers as academics where we have to make hard choices and demonstrate that we warrant the trust and respect of our tenured positions.   Through our governance organizations (ABA, LSAC, NALP, AALS), we need to implement a system of complete transparency on employment outcomes.  If the system has real teeth, it will force us all to work very hard to ensure we are delivering value commensurate with the tuition dollars we collect.

It's the end of the road.  We likely have one last chance to get it right.

Can Stanford Be #1 in the US News Rankings? The Data

In a recent story in the San Jose Mercury News, the dean of Stanford Law School, Larry Kramer, announced his intention to make Stanford the #1 law school in the country.  As noted by Brian Leiter, the story did not quote Kramer as saying that he wanted Stanford to be #1 in the U.S. News rankings.  The reporter, nonetheless, inevitably gravitated to this dominant measure. As noted by Dan Filler, most students, alumni, employers, and bystanders, cannot get their heads around the meaning or usefulness of alternative measures. 

Fortunately, Larry Kramer's comments have served up an opportunity to grasp some of the limitations and folly of the current dominant method of ranking law schools. (And by the way, I am certain that Larry Kramer knows most of what I am about to write--he definitely understands the math.  He was making comments for public consumption.  Like Kramer, I am trying to make Indiana Law #1 in the nation, albeit not in US News sense. Every faculty member at every law school ought to share this aspiration.)

The Research Question: What will it take for Stanford Law School to be ranked #1 in the U.S. News Law School rankings?

Andy Morriss and I annually construct a simulation model of the US News rankings.  It routinely explains 99.5% of the variance in the actual rankings, and it enables us to test endless "what if" scenarios.  So let's load the dice and make some really extravagant assumptions:

• Academic Reputation (25% of the input formula).  Increase Stanford's Academic Reputation from 4.7 to a perfect 5.0 (surpassing Harvard and Yale, who languish at 4.8). 
• Lawyer/Judge Reputation (15%). Increase the Lawyer/Judge Reputation from 4.8 to a perfect 5.0 (breaking their current 4.8 tie with Harvard and Yale).
• UGPA (10%).  Increase median UGPA from 3.88 to 4.0 (Harvard and Yale are at 3.89 and 3.9 respectively).
• LSAT (12.5%).  Increase the median LSAT from 170 to 180 (blowing past the 173 medians at Harvard and Yale).  This assumption is somewhat absurd because there are not enough perfect 180 scores to produce this median at any law school.

Surely, giving Stanford a perfect score on 62.5% of the US News  weighting formula will make Stanford #1, right?  It turns out, the answer is no.  Yale still beats out Stanford by a hair.  Stanford would, however, finally muscle ahead of Harvard for #2.

It is fair to ask, what is it about the US News ranking formula that produces these peculiar outcomes?  The answer is standardization of the underlying inputs. In order to make things like library books, LSAT scores, and employment figures commensurable, US News converts the underlying arrays into standard deviation units where the mean is roughly equal to zero and  approximately 66% of the input scores fall within one standard deviation above or below the mean.  The US News weighting formula is then applied to each USN input and the weighted inputs are summed to produce the final US News score.

Many of the underlying input distributions, however, do not reflect a typical normal distribution (i.e., bell curve).  They are skewed.  The reputation variables are roughly normal, and therefore they are unimportant--or, more accurately, unlikely to strongly influence school movement.  Likewise, UGPA and LSAT have a natural cap (4.0 and 180) that limits outlier scores.  And outliers are what skew distributions.

The biggest "uncapped" input variable is direct per student expenses at 9.75% of the input formula.  In theory, there is no limit to how expensive legal education can be.  Yale, it turns out, spends over $100,000 per student, not counting financial aid, which is a separate variable accounting for 1.5% of the input formula.  In contrast, Harvard and Stanford spend only $80K+ per year per student.  In standard deviation units, that translates into 5.8 for Yale versus 4.2 for Harvard and 4.5 for Stanford.  So Stanford has a 1.3 standard deviation gap to close.  Reputation, LSAT, and UGPA are not enough to overcome this deficit.

Implications

My back of the envelope calculations suggest that a check for $350 million ought to be enough to produce enough endowment income to eclipse Yale in the US News rankings.  This assumes that the money is used for things like books, more faculty, and higher salaries for everyone.  If the money is spent on student scholarships, however, Stanford would need a check for roughly $1.8 billion to be #1.  Again, these are the idiosyncrasies of the dominant method of law school rankings.

Stanford alumni are well heeled.  And, like all of us, they want to be #1. But here is my my advice: Before you write your check to give Stanford faculty a big pay raise and a lower teaching load, or give some rich kid with a 180 LSAT a free legal education, including living expenses, consider other investment opportunities. $350 million would go a long way to solving the AIDS epidemic an Africa.  $1.8 billion could provide life-altering educational opportunities for children mired in poverty.

The legal profession, especially our students, have some big problems at the moment.  And society's are even larger.  The best law school is one that prepares its students to solve these problems.  This requires a careful balance of innovative teaching and scholarship.  The U.S. News rankings don't capture these metrics.  In fact, they obscure them and create incentives for truly destructive behavior.  By and large the deans are trapped.  From my own perspective, I don't think even one law school in the US News Tier 1 has reached even 10% of its potential to educate and solve problems.  Too many one-professor silos.  Too much ego.

I am sorry to moralize.  But someone needed to say it.  Let's focus on some problems worth solving.  At the end of the day, it will be worth it.

New Data on BigLaw Contraction: Patterns of Winners & Losers

A careful analysis of the recently released National Law Journal 250 reveals some surprising trends.  The NLJ reports that the nation's largest 250 firms (by lawyer headcount) shrank by 4%. Yet, when broken down by geography (see figure below, click on to enlarge), nearly half of the losses (2,096) were concentrated in the 45 firms headquarters in New York City.  And another 20% (883) fell on the 17 NLJ 250 firms headquartered in Chicago.

To put those figures in perspective, for 2008 (the baseline year), NYC- and Chicago-based firms only accounted for  24.7% and 14.7% respectively of the NLJ 250 total lawyer headcount.  In contrast, DC-based firms accounted for 9.7% of the NLJ 250 universe in 2008 but only 3.8% (161) of the total contraction.  The disparate geographic impact suggests that the reductions-in-force are probably due disproportionately (or overwhelmingly) to the decline in the volume of corporate transactions and woes in the banking and insurance sectors.  Among major markets, San Francisco-based firms shrank the least, though this glass-half-full news is probably the result of the dissolutions of Thelen Reid and Heller Ehrman in late 2007, which were both headquartered in the Bay Area. 

On comparative basis, the middle-market firms appear to be thriving.  Collectively, there was a 0.6% increase in the number of lawyers in the 91 NLJ 250 firms based outside the Top 10 markets. In contrast, firms headquartered in Top 10 markets did uniformly worst.  Below is a ranking based on percentage contraction:

1. New York City (45 firms)    -7.0%   
2. Dallas (7 firms) -5.9%
3. Houston (4 firms) -5.4% 
4. Philadelphia (15 firms) -5.4% 
5. Atlanta (9 firms) -5.3% 
6. Chicago (17 firms) -4.7% 
7. Los Angeles (11 firms) -2.7% 
8. Boston (10 firms) -2.1%
9. Washington DC (18 firms)            -1.6%
10. San Francisco (9 firms)                 -0.1% 

Firm size appears to be a major explanatory variable, particularly for associates.  Here is the breakdown of changes in lawyer headcounts by size of firm:

So what is the bottomline analysis?  I think the slowdown in the economy has made the largest firms the most vulnerable to price pressure from large corporate clients.  The largest firms have the highest cost structure (rents and associate pay), and there is some doubt whether there is a corresponding value-add for their higher fees.  At the high end, the market is pretty crowded.  An international footprint is not necessarily a competitive advantage when 20+ of firms have the same high fixed costs and similar lawyer credentials.  Not surprisingly, a lot of desirable legal work that does not require a multi-office international platform is migrating to firms further down the AmLaw/NLJ 250 food chain.  (These observations, by the way, track Larry Ribstein's The Death of BigLaw analysis.) Indeed, anecdotal evidence from my informal network suggests that boutiques are booming holding their own [NOTE: after the original post, three additional members of my informal network suggested that boutiques were not booming but, instead, hurt less badly].

Folks, we are in uncharted waters.  The structure of the corporate bar is changing rapidly.  The giants are vulnerable.

Drawing the Right Lessions from the Bleak Entry-Level Legal Job Market

[cross-posted to the Legal Professions Blog]

As the fall progresses, many law students and law school administers will be trying to assess the direction of three market trends: (1) the number or percentage of summer associates who receive offers of permanent employment; (2) the prevalence of deferrals among those lucky enough to be offered jobs; and (3) the volume of summer offers coming out of this year's OCI process. Nobody expects cheery numbers.  But as the market information comes in over the next few months, law schools will be in a better position to assess the new landscape. 

In a nutshell, here is the issue:  Since the last major legal recession of the early 1990s, elite law schools adapted their business model to the seeming certainty of virtually guaranteed high paying jobs for their graduates.  This meant increasing tuition, hiring more faculty, reducing teaching loads, and generally loading more debt onto students.  For at least the last 15 years, the sizzling corporate legal market made this high-cost model financially viable, even though the only thing these models maximized (or strongly incentivized) was faculty scholarship.  Because corporate counsel are fundamentally changing how they value and buy outside legal services, there may not be enough high-paying entry level jobs to support the very high cost of legal education, even at elite schools. 

Yet, unbelievably, due to the weighting of per pupil direct expenditures, schools with higher cost structures generally fare better in the US News rankings.   Among elite schools, direct expense (financed with high tuition, high student debt, and large endowments) is the input that keeps the elite schools at the top of the pecking order -- Yale's is three times the average, and Harvard, Stanford, NYU, and Columbia are more than double.  Of course, less elite law schools wishing to become more elite--i.e., pretty much every school with a few exceptions-- have tried to keep up by modeling themselves after elite schools, including a "scholarship-first" strategy.  Thus, the cost structure at virtually all law schools has climbed far in excess of the earning capacity of the median law school graduate. See Morriss & Henderson, The New Math of Legal Education, ABA Young Lawyer (July 2008).  Yet, due to deficiencies in (a) information, and (b) how information is analyzed, the status quo rolls on.  

I can think of at least four reasons for these information inefficiencies. 

• Naivete.  The modal student entering law school is not homo economicus. Rather, he or she is young, inexperienced, and overly impressed with branding--largely through US News--and the opinions of peers. IQ does not shield the young from overconfidence and the reflexive desire to impress others through the acquisition of positional goods.  Indeed, sometimes intelligence in the absence of commonsense can make matters worse.  

• Poorly Priced Credit.  Banks have lent students funds without a sharp eye to repayment risk. The terms of loans are largely the same regardless of law school attended, geographic market conditions, and law school performance.  Yes, historically law students have repaid their loans.  But that is the same sloppy logic that created the housing bubble.  The only way the math works is if the vast majority of law school graduates, despite low or no starting salaries, experience a steady, multi-year surge in income.  This is a foolish assumption for anyone who understands the current state of law firm economics.  Of course, just like most home mortgages, student debt over and above the Federal Stafford Loans, often get bundled together, turned into securities, and sold.

• Law Schools are Self-Interested and Locked in a Positional Competition.  This is not a criticism; it is a statement of fact.  Law schools work very hard to manage their market position, including their US News rank, because students and alumni can be completely demoralized with a significant decline. It does not matter if the decline in quality is illusory; stakeholders will declare the patient sick.  This may surprise naive law students, but law schools cannot be counted on to be an objective broker.  We need a regulator to level the playing field and force us to be transparent.  Which brings me to my fourth point ... .

• Failure of Self-Regulation.  The ABA Section on Legal Education and Admission to the Bar bears some responsibility here, but not become it has accredited too many law schools -- the antitrust implications of barring market entry are real.  Rather, the Section has become too focused on the comfort of its law school members.  If the Section collected and published detailed employment outcome information in a way that facilitated school-to-school comparisons--yes, just like US News--the information would trickle down to potential law schools.  It is not helpful to say that 15% of a school's graduates work in business -- they need to know how many of those 15% are waiting tables, driving a cab, or selling insurance.  Re jobs in private practice, how many are working as contract attorneys?  Nobody really knows, and the issue is not on the Section's agenda.  If these data are published, some law schools would probably go out of business.

With corporate firms experiencing sluggish demand and tremendous downward pressure on fees, changes in hiring patterns (both the number of jobs and their remuneration) are going to exert tremendous pressure on law schools to rethink their business models.  To my mind, the proper response is for law schools to really think through how they can maximally enhance the human capital of law school graduates.  (Others might think the proper response is offer the same quality at a lower price, which is the situation confronted by most law firms these days.) 

Here, the greatest risk is drawing the wrong inferences from the historical record and confusing market signals with professional education that truly enhances the decision-making and judgment of young lawyers.  For the last several decades, entry level-lawyer remuneration--a tempting market-based metric of value-added--has been based on a combination of branding and sorting of raw inputs.  In other words, it is not the curriculum at Harvard or Yale, or the massive scholarly output of the faculty, that drove the demand for their graduates.  Rather, it was the Ivy-League brand (think Pavlov's dog) buttressed by statistics that these schools had admitted students with very high IQs.  In turn, firms used this information to signal their superior collective credentials to their clients.  At end of the day, pedigree definitely has CYA value for many general counsel.  But the Bi-Modal distribution suggests that this signal became dramatically overvalued. See Henderson, The Bursting of the Pedigree Bubble, NALP Bulletin (July 2009).

So the open question goes to the very heart of professional education:  what type of law school curriculum and teaching methods are really worth the price paid by today's students?  Even if law schools instituted a moratorium on the writing of law review articles for an entire academic year, our collective brain power may be inadequate to answer this question.  But I guarantee that the answer requires a strong engagement with practicing lawyers and recourse to empirical methods -- not necessarily to publish articles (that is a mere second order effect) but to refashion and retool what and how we teach. The schools that rise to this challenge are, in the long run, going to fare better than those who continue to be believe that more faculty law review articles will raise the school's ranking, thus enticing more employers to hire their students.

Law School 4.0: Are Law Schools Relevant to the Future of Law?

Paul Lippe, a well-known Silicon Valley GC and founder of Legal OnRamp (LOR), recently posted an essay on the Am Law Daily that essentially argues that law schools, at least in their present form, are not relevant to the future of law.  Here is Paul's opening graph:

If I need some insight into the future of medicine, I might head over to Stanford Medical School. If I wanted to learn about likely directions in finance and hedge funds, I might visit Penn's Wharton. If I were looking to make investments in computing, I might arrange a tour of a lab at MIT. If I decided to learn something about where legal practice, law firms, and legal departments will be in 2014, where would I go? Not to law school.

According to Paul, it is not that we are working on irrelevant stuff.  It is worse than that:  we are enjoying a comfortable living while loading our students up with debt and having a low opinion of practicing lawyers and the clients they service.  Paul recounts a recent meeting with law school deans in which he "asked the question, 'If you decided the purpose of law school was to maximize the comfort and income of the faculty, what would you do differently?' The answer: 'Nothing.'" 

Some people might be tempted to lump Lippe together with Judge Harry T. Edwards, who wrote several withering critiques of legal education during the early and mid-1990s.  See, e.g.,  Harry T. Edwards, The Growing Disjunction Between Legal Education and the Legal Profession, 91 Mich L. Rev. 34 (1992); Harry T. Edwards, A Postscript, 91 Mich. L. Rev. 2191 (1993).  Such lumping together is a mistake.  Edwards' criticisms were largely centered on the present--that professors where disengaging with doctrine and increasingly irrelevant to judges and practicing lawyers. 

In contrast, the gravamen of Lippe's remarks are about thought leadership and the ability to identify future solutions to macro-level problems.   Consider the following trend-lines, which are representative of the types of issues that Lippe often discusses in his LOR and Am Law Daily columns:

• Nature and Cost of Civil litigation.  With the proliferation of electronic documents, civil litigation is becoming more time-consuming and expensive.  Thus, disposition of cases is increasingly influenced by the financial wherewithal to wage prolonged campaigns in court rather than the merits of underlying disputes.  A thought leader would be proposing (a) how to re-engineer the civil justice in a way that reduces costs and improves access, or (b) how to anticipate and avoid legal disputes through systems that keep clients out of a broken civil justice system. 

Mediation and arbitration are just the beginning, not the end.  For example, the credit card industry has eliminated virtually lawyers from consumer-vendor  disputes.  See Morriss & Korosec, Private Dispute Resolution in the Card Context (working paper, June 2005).  Some would argue that this is a good thing for business and consumers.   Further, the lawyers who innovate through designing such a system will always get a prime seat at the table. In contrast, lawyers wedded to established ways may find fewer buyers of their services.

• Shifting Nature of Clients. Because of the shifting economics of the profession, an ever large proportion of law graduates earn their living as "thing" lawyers rather than "people" lawyer.   Believe it or not, in the 1930s, the dean of Yale Law School was preoccupied with the oversupply of lawyers. Why? Because the majority of Yale grads became general practitioners--i.e., people lawyers--within the local New England economy.  See Charles E. Clark & Emma Corstvet, The Lawyer and the Public: An AALS Survey, 47 Yale L. J. 1272 (1938).  That world no longer exists.  The overwhelming majority of law school graduates will serve as "thing" lawyers, either for government, private industry, or a public interest cause.  Yet, hearkening back to the time of Dean Clark, our entire regulatory framework is premised on the idea of a client who is a single, natural person. 
  

We lawyers claim to be responsive to economic and social forces and readily profess our commitment to the public interest.  See Preamble, MPRC para. 6 ("As a public citizen, a lawyer should seek improvement of the law, access to the legal system, the administration of justice and the quality of service rendered by the legal profession. ... A lawyer should aid the legal profession in pursuing these objectives and should help the bar regulate itself in the public interest.").  Yet, for nearly a century, the pace of regulatory reform for lawyers has been either glacial or non-existent.  And all-too-often, the changes that have occurred are driven by "parochial or self-interested" motives. Id at para. 12.

Under Lippe's thought-leader ideal, members of the legal academy would be re-conceptualizing the assumptions underneath lawyer regulation and proposing an institutionally coherent strategy for altering the regulatory landscape in a way that simultaneously helps ordinary citizens, business, and the democratic process.  In theory, we've got the time, resources, and brain power.  Where is the leadership?

• Cost and Quality of Legal Education.  Over the last 30 years, the cost of a legal education has increased approximately three times faster than the average household incomes.  Yet, it is difficult to identify a corresponding innovation within legal education that justifies the higher cost.  A thought leader conceives of ways to reduce the cost of legal education or equip graduates with a larger skill set that is likely to provide a substantial return on investment.  Here, I am not talking MacCrate-type skills, as important as they might be.  Rather, I am thinking legal-process engineering and the ability to standardize and commoditize legal products in a way that increases predictability and drives down cost.   See, e.g., Richard Susskind's collected works. 
  

If lawyers solve problems, perhaps traditional legal disputes and transactions are a mere subset of  the services we might provide.  What skills are especially relevant to the 21st century global economy.  Once again, because of our time, resources, and brain power, Lippe is surprised we are not leading the conversation.  Maybe he has a point.

It is tempting to write Lippe off as an arrogant Silicon Valley GC.  But before we do, it is worth noting that Fred Krebs, president of the Association of Corporate Counsel (ACC), wrote in a comment to Lippe's essay that Paul was "Right on point. Should be required reading for law school faculty."   We can be dismissive of Krebs as well, but the legal spend of his constituents (in-house legal departments) is the very thing that supports the high cost structure of legal education.  If legal educators are uninterested in problems of people who buy the majority of legal services, we should not be surprised when in-house lawyers work very hard to reduce their reliance on U.S.-trained lawyers.   Entrepreneurs in Europe, India, and Latin America are salivating at the prospect of easier access to the U.S. corporate legal market. There is just no way that a state disciplinary commission is going to use the unauthorized-practice-of-law hammer to challenge how GE or DuPont allocates its legal spend--there is zero consumer protection basis for stopping the mass migration of this type of legal work. 

Frankly, amidst the meltdown of the entry-level lawyer job market, I am surprised by the lack of significant interest or attention by legal academics, at least as judged by blogosphere traffic.  It is all-too-easy to assume that the market will rebound next year, or 2011 at the latest.  To this I might ask, "What is the basis for the optimism?"   The salad days of 2004 to 2008 were driven by a Wall Street juggernaut that destroyed the U.S. investment banking industry, which was the historical client basis for the industry's most prestigious law firms.  And here is a more pointed follow-up question, "How much does the legal economy need to recover so that our students can to support their debt load?"  See, e.g., Jonathan Glater, Finding Debt a Bigger Hurdle than the Bar Exam, NY Times, July 1, 2009.  Obviously, the answer to this question requires some careful study and some math.  Vague appeals to the business cycle just won't cut it.

It is one thing to acknowledge that we lack good answers--that part is forgivable.   But it is quite another to ignore or minimize the problem because, quite frankly, it really does not affect us personally.  All of this reminds me of my youth in Cleveland, Ohio during the 1970s and 80s.  Lots of my friends' parents worked for General Motors, which offered high pay, amazing benefits, predictable hours, and long vacations.  No one else seemed to have it so good.   I remember thinking at the time that GM was both complacent and invincible.  It turned out that I was only half right.   So I worry about my own industry.  Do I have the mindset of a GM employee circa 1979?  God, I hope not. 

Recently, the editors of Above-the Law surveyed the changes within the legal job market and asked two good questions:  (1) if the Howrey/Drinker Biddle/Frost Brown Todd apprenticeship model gains traction, is it appropriate to shorten law school to two years? And (2) if law school salaries are going down, should law schools be expected to "share in the pain" by figuring out ways to reduce tuition?  Unless the job market significantly improves during the next 12 months, it is going to get much more difficult for us to ignore these issues. For a realistic cost analysis of the current system, see Edward Rubin, Should Law Schools Support Faculty Research, 17 J. Comtemp. Leg. Issues 139 (2008).

I don't want this post to be a screed.  I am looking for next steps that will produce concrete and sustainable forward progress.  But I have read enough history on the growth and evolution of U.S. legal education to have a realistic view on institutional change.  Here are my two primary rules:

Rule #1:  Great ideas are not enough.  As a result, bold initiatives by professional organizations like the AALS or the ABA rarely have staying power.   Law professors are intellectuals; hence, we fall in love with our own ideas.  But all-to0-often, we fail to do a coherent institutional analysis that explains why others will adopt our ideas.   Skipping this step is one of the privileges (and hazards) of the ivory tower.  For a more elaborate discussion of this point, see Why I Worry About the Carnegie Report: Four Data Points (Dec. 7, 2007).

Rule #2:  Sustainable ideas within any industry are always accompanied by institutional self-interest--legal education is no exception.  In other words, the people who execute on the idea have to be made better off, e.g., through financial gains, professional reputation, leisure, economic security, or (at the individual level) self-actualization.   This was secret sauce behind the Langdell case model:  It was more effective than self-study yet it facilitated large enough class sizes to generate a perennial economic surplus.  In turn, lawyers-turned-law-professors were freed from the commercial pressures of practice and could advance their careers as experts.  The university, professors, and students were all made better off.  As a second order effect, so was the legal profession.   Of course, this revolution occurred 100 years ago.  It is time for a new legal education formula that fits the 21st century.

Lippe understands this calculus.  Indeed, he ends his essay with a "glass is half-full" perspective that is bound to be overlooked: 

While law schools need to figure out how to get graduates out the door faster and for less money, they also are the logical source ... of skills (as well as reputation and network) development for lawyers to become fully functional, especially as firms' appetite for subsidizing training will decline. Medical schools and business schools make a ton of money at continuing/executive education, so this is a great opportunity to enrich the faculty and student experience, generate an income stream, and engender more alumni loyalty.

In other words, innovation starts at home with a law school business model that pays the freight by delivering financial and reputational benefits to stakeholders.  And if our metric is 20 slots in US News, we are setting the bar too low.  This type of innovation creates an entirely new system of merit.   To my mind, Lippe's Law School 4.0 is a worthwhile and achievable goal.  The only downside is that we have to fully engage in the problems of the modern legal profession and be willing to fall flat on our faces.  Sounds interesting.  Sign me up.

First Signs of a New Equilibrium in Entry-Level Salaries

According to today's Am Law Daily, Philadelphia-based Drinker Biddle announced that instead of deferring its 37 incoming associates for six months to a year, it is going to institute an intensive training programs run by its partners, professional development personnel, and various firm clients.  To pay for this program, it is going to cut entry level salaries to $105,000 (from $145,000 to $160,000 depending upon the market).  Thereafter, the salaries will go to the "prevailing rate" in the spring 2010. [Query: what will that rate be?  Even it is higher than $105K, maybe Drinker is better off getting associates who self-select into its more training-intensive model.]

Frankly, this is the first sign I have witnessed of a sensible medium term strategy by an Am Law 200 law firm.  Further, this approach is very close to the associate pay models hammered out by the four FutureFirm 1.0 teams.  Remarkably, all four teams (each with four partners, three in-house lawyers, and three associates/law students) traded away the $160K pay scale for a entry level job that guaranteed meaningful training, client contact, and other perks, such as greater job security (e.g., a 3-year contract at $80,000 per year) and loan payback programs.

There are several reasons why Drinker Biddle's move could set the stage for a new equilibrium:

• Making "Better Lawyers Faster."  The real problem with the $160K pay structure is that associates become too expensive to train, at least on the client's dime.  $105,000 is more than the $60,000 to $75,000 one-year hiatus offered by several firms.  But think about it.  A firm can bill out the associates at rates below a paralegal and easily recoup the difference.   Further, the associates are learning the clients' businesses and observing partners and senior associates.  In the fall of 2010,  Drinker Biddle associates will be worth a lot more to clients than associates who took the year off.  This training is akin to the original Cravath system, which was designed to make "better lawyers faster."
• Continued Soft Entry Level Market.   With zero voluntary attrition at most Am Law 200 firms and the go-go days of Silicon Valley (97-00) and Wall Street (04-07) gone for the foreseeable future, the entry level supply pipeline is going to back up into the 2010 and 2011.   Thus, there is a decent chance that Drinker Biddle will enjoy a few years of sensible $105,000 salary structure.  In a world where revenues are unlikely to climb anytime soon, reducing costs is the only viable road to profitability.   More significantly, the lower costs and better trained workforce could become a source of long-term competitive advantage.
• Owning your Market Space.  Up until 2009, virtually every law firm in the Am Law 200 was a market follower.  Drinker Biddle lacks to the cachet to be market leader, even in Philadelphia ($605,000 in FY 2008 PPP, which is #92 in the Am Law 100).  Thus, why not be a first mover where many competitors are likely to be too snobbish and bull-headed to follow your lead?  Based on upon my observations from FutureFirm, and my discussions with Indiana 1Ls, I predict that $105K + training will be magnet for many law students.  Keep in mind, more elite firms cannot even offer a firm start date. 
• Reality is Underrated.  To my mind, it is preferable to be a so-called "middle-market" firm with a sensible cost-structure and a contented client base than an so-called top-market firm with a bloated cost-structure and clients who don't want your junior associates to work on their matters.  Am Law 200 firms can and do sometimes implode, especially when the partnership goes into denial.  Drinker Biddle, to it credit, appears to have a plan.
• $105,000 and the Six-Figure Barrier.   It is unclear to me whether $105,000 is the optimal entry level salary for a lawyer who wants the very best training opportunities to launch one's career.  I suspect the optimal figure may be lower (e.g., $80,000 per year moving up to $120,000 to $200,000 within three years).  But I do think that dropping under the $100,000 barrier may have created perceptions problems for Drinker Biddle that may outweigh any short-term financial gains--e.g., Philly rivals mimicking Drinker's strategy, but coming in above the psychologically powerful six-figure barrier.  Yet, now, if some firms dicker around at $115,000, Drinker can move to that number next year with zero lost in market credibility, said figure being the so-called "prevailing rate."

Arguably, Drinker Biddle is the first Am Law 200 firm to not "waste a crisis."  It will be interesting to see how other firms respond.

Henderson's Hierarchy of Blogging

Regrettably, I have not posted a substantive blog post since Dec. 16, 2008.  Although few things are more enjoyable than blogging (primarily because blogging relies heavily on reading and thinking), over the last several months I have been swallowed up by other priorities.   To convey what happened, I have created Henderson's Hierarchy of Blogging, which is a shameless rip-off of Maslow's Hierarchy of Needs, a staple of undergraduate education during the '70s and '80s.

For the last five months, I have spent most of my time toggling between Levels 1 and 2.  On a good day, I broke into Level 3.  I desperately longed for my Level 5 days--reading, thinking, and blogging.   

The most substantial activity over the last five months has been Indiana's new 4-credit 1L Legal Professions course.  In my case, this included two sections of 50 students each, a wide array of new teaching materials and assessment methods, organizing outside speakers for class, meeting with students, and participating in weekly instructor meetings.  It was a grueling but highly rewarding experience.  Suffice to say that my students, through their six and seven member Practice Groups, did some immensely creative that far exceeded my expectations.   I was bowled over by the power of group intelligence--far beyond what a mere individual could accomplish.  Moreover, I learned a huge amount from my colleagues as we taught the same materials, often in very different ways.

Another major commitment was the organization of FutureFirm 1.0, a "collaborative competition held at Indiana University Maurer School of Law on April 17-19.  Starting with a fact pattern for the fictional law firm of Marbury & Madison LLP, four teams of ten players (each comprised of four actual law firm partners, three actual in-house lawyers, and three actual associates/law students) worked over the weekend to formulate a new law firm model that would enable the firm to "survive and thrive over the next 20 years."  FutureFirm 1.0 was a hugely successful event, thanks in no small measure to the  expert facilitation by Anthony Kearns, the national risk manager for the Legal Practitioners Liability Committee in Austrialia.  Hildebrandt made the weekend especially interesting by putting up $15,000 in prize money.

With my few hours of remaining time, I kept some travel and writing commitments, ate a few meals with my family, but generally fell woefully behind in my non-student email and virtually all other facets of my life.   To the legions of people I have disappointed/irritated over the last five months, please accept my apologies.   In another week, I hope to be back to some modicum of Level 4/5 activity.