Law Professor Free Agency and "School-Specific" Capital

[Update: Paul Caron (Cincinnati), Michael Madison (Pittsburgh Law), Jeff Lipshaw (Suffolk), Jim Chen (Louisville) have picked up on the analysis in the below post.  There seems to be some misunderstanding on my point of "long-term contracts."  In retrospect, I should have said "long-term commitments" (i.e., extra-legal and perhaps not committed to writing) to avoid what I think is an unproductive analysis of run-of-the-mill employment and commercial contracts. 

I am talking about this:  Academic X says, "I will stay here X number of years and ignore outside offers if you provide me with the resources to execute the following institutional plan [e.g., labor-intensive but high-yield teaching, public service, useful scholarship that will be noticed and solve a real world problem, etc.]."  Law School Y says, "I love this idea.  If you are right, it will grow our institution.  Because you have committed to building it here, School Y will fund it."  Because both Academic X and Law School Y have aligned personal and institutional agendas, their cooperation and commitment grows the institutional pie; both are made better off. Moreover, it becomes magnetic for other scholars and funders who share the substantive vision. 

So we are talking about communitarian norms here.  This type of approach is easy in small groups, which is what law faculty are.  Firm-specific capital in law firms is harder to grow/maintain because (a) they have gotten larger, (b) covenants not to compete are prohibited, and (c) there are liquidity constraints imposed by the ban on non-lawyer ownership.  On the other hand, law firms work harder at it because they increasingly operate in a competitive national marketplace--firm-specific capital can be huge competitive advantage.  Law schools, in contrast, are not subject to the same market pressures--the most elite have huge endowments and donors who want to give more to be associated with the elite brands.  Thus, in the legal academy, the free agent ethos is damn near ubiquitous.

No need to be abstract about all this.  I lay out a highly plausible counteractive approach in this comment.]

Several bloggers have noted Clayton Gillette's recent article, Law School Faculty as Free Agents, 17 J. Contemp. Leg. Issues 213 (2008).  See, e.g., Paul Caron, Larry Ribstein, Al Brophy, and Paul Secunda.  Gillette's essay provides the type of straight thinking needed to move the Moneyball-Moneylaw debate into a mode of institutional analysis that can produce actual results.   I will briefly lay out Gillette's analysis and then extend it to a concept I call "school-specific" capital--an analog to firm-specific capital.

Law Professor Free Agency

In a nutshell, here is Gillette's argument.  The lateral market for law professors is primarily based upon scholarship, which is an observable, coveted good.  Teaching and service, to be sure, are relevant goods, but they are hard to measure.   Further, faculty make hiring decisions; when they land a high profile scholar, they share equally in the school's reputational gain (albeit these gains are largely limited to opinions of other professors).  Yet, if new colleagues shirk committee work or are disengaged and uninspiring teachers, the costs borne by individual faculty members are negligible or non-existent. Hence scholarship becomes the focus of lateral hiring.  Clayton observes,

In 30 years of teaching, service as vice dean, and membership on appointments committees, I don’t believe I have ever heard a discussion of a candidate’s qualifications that included serious consideration of institutional service, except insofar as it related to scholarship. ... 

[H]iring schools tend to invest little in discovering teaching quality. The hiring decision is typically made after one or two faculty members at the hiring school attend one or two of the visitor’s classes, and that is done through a process (e.g., informing the visitor when faculty members will attend, and allowing the visitor to choose that time) that diminishes the likelihood that those classes will be representative. ... The result is that, as opposed to the meticulous, highly tailored criticism to which a candidate’s scholarship will be subjected, a candidate’s teaching will be evaluated largely to determine whether it is “good enough.” (pp. 228-29)

Gillette's key insight is that the lateral market in legal academia, unlike baseball (a crucial point), does not force the decision-makers [faculty] to internalize the benefits and costs of free agent activity:  Some costs potentially get externalized onto the students, alumni and law school administrators.   When  scholarship opens so many doors, Gillette suggests, it is easy to see how a more robust lateral market can skew institutional incentives and detract from overall educational quality.

To my mind, Gillette sets forth a very coherent and plausible analysis. [I suspect a lot of people will quibble with it, however, believing that their own lateral experience (or aspiration) reflects a more optimal outcome at the institutional level.  Listeners interested in the merits of this debate should weigh the critic's potential bias.]   It is an open question whether lateral mobility is really on the rise. At Indiana Law, we are building a law faculty universe database that covers 80 years of AALS schools.  See "Is Lateral Movement on the Rise? A Precise Answer is on the Way," ELS Blog (Dec. 21, 2006).  We see a lot of lateral movement in the 30s, 40s, 50s, 60s, and 70s. Eventually we will answer to the nagging empirical question of whether lateral movement is truly on the rise.

But one thing I can say with confidence--information published on the Internet (Leiter Faculty News and Concurring Opinions) has increased the perception of heightened movement.  And perception is all that is necessary to change behavior and institutional norms--possibly in the wrong direction.

"School-Specific" Capital

Gillette actually understates his argument.  Specifically, the proliferation of a free agency ethos not only undercut educational quality, it inhibits the cooperative, highly committed, selfless environments need to create truly exceptional institutions.   One of the major implications of more professor mobility is the diminution of "school-specific" capital--i.e., desirable law school attributes, such as innovative curriculum, public service reputation, alumni good will, that remains largely intact when a professor leaves.   So more free agency suggests fewer law schools that transform good human capital into great human capital.  On this score, the "best" law schools can, in fact, be pretty mediocre.   (I believe there is a way out of this box, which I will address below.)

More after the jump. ...

Law schools with high levels of school-specific capital can be wonderful places to work.   Conversely, schools that have squandered their school-specific capital in the single-minded pursuit of scholarship can be spiritually depleting.   This was the experience of Julius Getman (Texas Law).  In this book, In the Company of Scholars (1992), Getman reflects upon his annual ritual in the 1960s of attending the AALS annual meeting in the hopes of generating a lateral offer. Eventually he moved from Indiana to Stanford to Yale, with visits at Cornell and Chicago along the way.  But in the end, he was largely disillusioned with the professional satisfactions of being at the top of the hierarchy.  Academics at elite institutions were often insecure, elitist, focused on personal agendas, and uninterested in solving real world problems.  (This may be true at all institutions, suggests Getman, but only more so at the very top of the food chain.)

Drawing upon his experience, Getman observes:

People who become professors are rarely indifferent to the title and status that comes with the role.  It would be difficult to overstate the role of hierarchy in academic life.  Its power is manifest at every point, its impact felt on every issue. ...

The desire for status--a higher place in the academic hierarchy--shapes both personal and institutional goals and decisions. It can have a positive impact in fueling effort, but it can be destructive, as well, interfering with effective teaching and scholarship [here Getman refers to grand theorizing rather than a study of reality] and leading institutions and professors away from useful or enjoyable endeavors toward those thought to be more prestigious.  (pp. 252-53)

I suspect a lot of law professors aspire to work at institutions that are committed to being "effective", "useful" and "enjoyable" from the perspective of all stakeholders--that is school-specific capital.  But most of our discourse does not reflect a understanding of how such institutions are created.  Most of us want to believe the most prestigious schools are such places; that way we don't have to do much original thinking.

As Gillette's analysis suggests, building and/or maintaining an effective, useful, and enjoyable institution requires a critical mass of scholars who are willing behave in ways that may undercut their currency in the lateral market--e.g., creating a new law school program, teaching a labor-intensive skills-based course, and attending alumni and student mixers rather than writing another law review article.  When colleagues leave for "better" schools, momentum toward firm-specific capital is undermined.  I know a few schools take pride in their "feeder" status; yet, I have gradually concluded that this line of thinking as an unproductive rationalization.  When the faculty is churning too much, there is no continuity or buy-on for time horizons that are needed for truly ambitious institution building. Success is equated with exit.

Solutions

My analysis of school-specific capital is influenced by my study of law firms.  One of the key features of a law firm with firm-specific capital is that it eventually creates a bigger pie, creating financial and/or psychic benefits that makes virtually all partners better off. Law firms with the right structural incentives foster a culture of teamwork and cooperation that achieves better and more cost-effective results for clients, thus binding clients to the firms.  As law firms become larger,  it becomes harder (but not impossible) to build and maintain firm-specific capital.  Two significant hindrances to firm-specific capital are (a) the unenforceability of lawyer non-compete contracts, and (b) the ban on non-lawyer investment, which means that expensive long-term investments in human and physical capital have to be paid for either through debt or retained (and taxable!) earnings.   Thus, long-term planning in firms can--and I would argue, often does--unravel when impatience partners lateral to other firms. 

Law schools, fortunately, do not suffer from either constraint. Thus, one way to deal with the corrosive influence of the free agent ethos is the use of long-term contracts.  Specifically, individual faculty members (or groups of faculty members) agree to forgo any lateral offer in exchange for the time and resources to build programs and curriculum that produce large institutional payoffs.   Ideally, these will be ventures in which scholarship, teaching, and service become coextensive.   The larger the success, the more magnetic the culture, the more devoted the faculty, students, and alumni.   In turn, the money flows back into the institution because donors realize that something truly substantive is going on.    Then even more ambitious school-specific capital can be built. 

In contrast, law schools with hallowed reputations can raise money because donors like to be associated with prestigious institutions.  But that is not a viable model that most schools can follow.  Moreover, it does not provide a useful market test that funnels money into initiatives that produce long term value.  Most tier 1 law schools tout that they have become "better" when they hire highly prolific lateral scholars--but in reality, these are multi-million commitments that guarantee little more than course coverage and the accolades of professors.  There is also very little empirical evidence that such a strategy can produce a meaningful reputation change that redounds to students and alumni.   

To my mind, this common pattern reflects very shallow analysis.  What is the plan for school-specific capital?

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.