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What if They Built a New Law School and Nobody Came?


Shreveport Night

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Jerome Kowalski

Kowalski & Associates

July, 2010

 

In 1990, the New York Attorney General and the New York City Department of Consumer Affairs began a series of investigations and other proceedings aimed at chains of various health and beauty schools, largely, if not exclusively in underprivileged neighborhoods.  These schools were all licensed by the New York State and City agencies responsible for granting such licenses. The schools advertised broadly, primarily on subway posters, in various newspapers largely directed at underprivileged communities, posters pasted on the walls of these communities, as well as on wrap-around posters on the lampposts in those same areas.

The come-on was simple:  The advertisements pitched the fact that beauticians, cosmetologists, hair stylists, make-up artists earned commendable salaries.  The posters went on to note that many of those positions required both state licensing and a degree of training.  The schools offered the requisite training and assisted the students in obtaining those licenses.  And, then, the real hook in this come-on:  Federally guaranteed student loans for tuition were available for attendance at these schools and, in essence, as far as the students were concerned, tuition would not impose any costs to the students:  all they had to  do was show up, sign a few pieces of paper, attend the program (often a year in duration) and after graduation and licensure, a career in one of these fields would provide a financially more rewarding career than was otherwise to these denizens of underprivileged areas.

The “hook” was exceptionally alluring:  One would simply show up at the school, sign a few forms, fork over not a buck, take the classes and a more financially lucrative career lay ahead of them. Of course, among the stack of papers signed was the student loan applications.  The lending institutions would then advance the entire tuition to the school.

There were only a couple of problems with the entire scheme:  The fact was that there were not sufficient jobs available to the schools’ graduates.  Many students, after graduating from the schools, could not find any jobs in these fields (there was simply a dearth of such jobs) and most of the schools’ students,  after attending the schools and not obtaining any of those so-called well paying jobs, gave up after their job searches and simply found lesser paying jobs and abandoned their job searches. Word also spread from the graduates to the generation that followed and still attending the schools and large numbers of those students just simply walked away from the schools. None of these school graduates or attendees repaid their loaned, quite likely because they felt snookered (which they obviously were), and they simply otherwise lacked the funds.

Of course, the various institutions which either advanced the tuition loans began collection proceeding.  A sufficient number of the victims complained about being hoodwinked and filed various complaints with regulatory agencies, which, of course, served as the catalyst for the commencement of these proceedings.

The question that nobody wants to ask is whether the recent crop of law school graduates, those currently attending law school and the thousands of current law school applicants are victim of a similar scheme, intentionally or not,  created by the profession and the law school community.  I have found very few who have raised or publicly discussed the issue. An absolutely outstanding exception is the blistering report by noted law Professor, Brain Tamahana.

Another interesting question (in the horses are already out of the barn category) is whether a rule recently proposed by the United States Department of Education, 34 CFR Part 668 (http://www2.ed.gov/legislation/FedRegister/proprule/2010-3/072610a.html ) would be applicable to law school tuition loans.  Under the proposed rule, the Secretary of Education is mandated to establish measures for determining whether certain post secondary educational programs lead to gainful employment and if they do not, among other things, if the Secretary determines that they do not, federally guaranteed loans would not be available to students of such schools.

In June of this year, the United States Bureau of Labor Statistics reported that the legal profession lost a total of approximately 30,000 jobs during the preceding year; these numbers are actually misleading, as we shall see. Law Shucks, a blog site which maintains a tally of law firm layoffs, reported  that as of April, 2010 the AmLaw 100 alone lost 14,000 jobs for the preceding 12 month period. Law Shucks acknowledges that its figures do not reflect accurate numbers for the AmLaw 100 alone. The Law  Shucks numbers only include layoffs which AmLaw 100 firms publicly acknowledged and does not include law firms that engaged in stealth layoffs, of which we now there are many. Nor do these numbers reflect law firms, notably Heller Ehrman, which had simply gone out of business, or law firms below the AmLaw 100, of which there are literally thousands. In our work, we found not a single law firm of 50 or more lawyers which had not engaged in some form of reductions in force.

The problem with the BLS statistics is that they are similarly misleading in that they do not include lawyers who became underemployed, for example, lawyers who turned to some form of public service jobs, government jobs, joined smaller firms, all at drastically reduced compensation. The BLS statistics also do not include 2009 graduated who have yet to find employment, nor do they count the armies of lawyers who have descended to the purgatory of staff or temp lawyering positions, where seasoned lawyers and young lawyers, who sit cheek by jowl in these often sordid purgatories.

In short, there are tens of thousands of both unemployed or underemployed lawyers nationally.  There is no accurate metric by which to measure these numbers.  Anecdotal evidence suggests that the total may be anywhere from 30,000 to 100,000 lawyers.  More significantly, law.com reported on July 20, 2010 that employment levels for lawyers as a whole has declined to 1991 levels.

In the face of all of this, law firms, as is widely reported and similarly publicly acknowledged by virtually every law firm in the country in the country, predict that hiring of 2010 law school graduates will be sharply reduced. These same law firms predict continued reductions at least through 2011.

In the face of all of this, our nation’s currently accredited law schools, of which there are now approximately 194, insist on adding at least 45,000 new graduates to these armies of unemployed or underemployed lawyers.  Add to this mix the facts that (a) ten additional  law schools are in a queue to receive accreditation; (b) law school applications have risen dramatically in the last year and a record number of students have enrolled in law schools for the classes of 2013, when, barring an historically and unprecedented event or series of events (perhaps a federal mandate that every municipality hire and compensate a lawyer for every 1,000 of its residents), there will certainly be a pool of at least well over 150,000 lawyers who will be looking for jobs;  (c) economic realities are lowering the demand for lawyers and law firm revenues are in decline and (d) a number of universities announced plans to create new law schools.

With regard to the foregoing, let’s, for example, look at the rather odd recent events in Dallas:

Quixotically, in early 2009, The University of North Texas announced that it planned on establishing a public law school in the Dallas-Fort Worth area as part of its university.  Those plans seem to continue apace in 2010 in spite of the dwindling job market for law school graduates.  Adding to the enigmatic and rationally inexplicably plans of this University is that Houston hosts three law schools (one not yet accredited by the ABA) and 11.5% of the graduates of those law schools were unemployed nine months after graduation; the two existing law schools in the Dallas area, with equivalent post graduate employment results.

West Texas’ rationale: (1) There has not been a law school established in Texas since 1967; and (2) the Houston area had only 538 law school seats available;  (3) the ratio of bachelor degrees in Houston to law school enrollment was 10:1, while the ratio in Dallas was 35:1 and (4) while the Dallas-Fort Worth area purportedly generates 1,400 new legal jobs annually, these lawyers were hired from other regional law schools and schools located in other states.

Obvious flaw in this otherwise inexplicable logic is that all of the positions for lawyers in Texas (including each of the 1,400 new openings for lawyers in Texas)  are quickly filled and there are already multiple applicants for each such position; there certainly is no dearth of job applicants in Dallas.  Another obvious defect is the presumption that Dallas jingoism would somehow favor the employment of students schooled locally by a law school with no track record, while lawyers already employed in the area and those seeking employment there are already drawn from top tier law schools, in existence for many years. Additionally, this new law school does not seem to limit enrollment to residents of the Dallas area; in fact it will likely draw applicants from the rest of the country.

Rather obvious additional questions come to mind:  (1) what’s the point? (2) Why add to the enormous pool of unemployed and underemployed lawyers?  (3)  How can one reasonably expect a faculty and university administration with such patently unsound judgment be entrusted to educate aspiring lawyers in logical thinking, careful analysis and honesty and candor demanded of lawyers?  (4)  How does the fact that a growing metropolitan area has an entitlement to establish a new law school simply because it hasn’t had a new law school created in forty years make any sense?

It might be a cheap shot to call this proposed law school as Texas’ version of a bridge to nowhere. The fact is that there now exist 194 other bridges to nowhere.

Jim Leipold, the director of The National Association for Legal Placement, whose crystal ball is as good as anyone’s, announced last week that the earliest he sees an “uptick” in legal employment for new law school graduates is 2012. Any simple analysis of the facts on the ground ineluctably leads to several conclusions:  The current graph shows a complete vertical decline in unemployment and underemployment of lawyers; that straight down vertical drop may move in 2012 to a drop that may move a few degrees to the right in 2012; there is no possibility that the total number of unemployed and underemployed lawyers will ever be absorbed in to the market.

Far more significant is the press release issued on July 22 by NALP, frankly one of the most opaque reports I have ever read and in which at least the second paragraph quoted, may have been inspired by Lewis Carroll,  reads in part:

“The national median salary for the Class of 2009, based on those working full-time and reporting a salary, was $72,000, unchanged from that for the Class of 2008, and the national mean was $93,454. However, because some large law firm salaries cluster in the $160,000 range while many other salaries cluster in the $40,000–$65,000 range, relatively few salaries were actually near the median or mean, as the Jobs & JDs report details. The national median salary at law firms based on those reporting a salary was $130,000, compared with $125,000 the prior year, and the national mean at law firms was $115,254.

With the Class of 2009 report NALP introduces the concept of an adjusted mean as an additional way to provide a broad measure of salaries for full-time jobs as a whole and for full-time jobs in law firms. Essentially, the adjusted mean compensates for the fact that the distribution of reported full-time salaries is not the same as the distribution of reported full-time jobs, particularly when it comes to law firm jobs. Whereas salaries for most jobs in large law firms are matters of public record and reported, fewer than half the salaries for jobs in small law firms are reported. The calculation of adjusted means is accomplished by giving more “weight” to the mean or average salary in small firms and less “weight” to the mean or average salary in large firms to calculate the overall law firm mean and also the adjusted mean for all full-time jobs. In other words, adjusted means are based on estimates that account for the unreported salaries. The adjusted mean for all full-time jobs reported was $85,198 (in contrast to the unadjusted national mean of $93,454), and the adjusted mean for full-time law firm jobs was $102,959 (in contrast to the unadjusted mean of $115,254).”

I do not mean to impugn Jim Leipold, NALP’s dedicated executive director, previously trained and having served with distinction as a tax lawyer at DLA Piper,  but  you may want to try and pierce the opacity of the entire report, particularly the quoted text.  The simple meaning appears to be that since NALP does not include compensation figures for small law firms, which employs the largest number of lawyers in the nation and similarly excludes staff or temp lawyers, the reported median salary for 2009 graduates of $72,000 per annum is largely a wild assed guess and the actual median salary is probably much lower.  The newly coined phrase, “adjusted mean,” as Mr. Leipold explains (it may take a few readings to comprehend), results in lowering the previous blindfolded shots at the dartboard hitting, which previously, quite fortuitously, I suppose, hit higher numbers.

And, whether we do not address the 12% of 2009 graduates completely unemployed still.  In fairness, it does include, apparently those 11% of 2009 graduates who are employed in positions for which a law degree is not required (“would you like fries with that?”)

Certainly, using a “median” or “mean” or “adjusted mean” is simply Orwellian.  Using a median number simply begs and avoids the single most important  question:  “What is the average salary of a 2009 graduate?”

The fact is that even the reported “median salary” of $72,000 is less than many, if not most, legal secretaries earn at large law firms.

Herwig Schlunk, a professor at Vanderbilt University Law School in an article published in 2009 entitled “Mamas Don’t Let Your Babies Grow Up to be Lawyers” ( http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1497044 )performed an investment analysis  of the monetary value of a law school education. He determined that the cost of attending a second or third tier law school ranges from $201,000 to $280,000. Graduates of such law schools require average compensation of between $80,000 and $150,000 to justify the expense of law school, while the average compensation of those graduates is below $65,000, although some top of the class graduates do earn up to $145,000. In all cases, Schlunk determined that the expense of law school simply does not yield a reasonable return on investment.

More interesting and indeed perhaps even scandalously shocking is a document published in late 2009 that first surfaced and was only widely reported in January 2011 from some deep catacomb of the ABA entitled “The Value Proposition of Attending Law School.”  This paper was authored by the ABA Commission on the Impact of the Economic Crises on the Profession and Legal Needs.  The paper notes:

            Although many factors may influence one’s decisions about whether and where to attend law school, a proper understanding of the economic cost of a legal education is vital for making an educated decision. Far too many law students expect that earning a law degree will solve their financial problems for life. In reality, however, attending law school can become a financial burden for law students who fail to consider carefully the financial implications of their decision. ….

Many prospective law students are already familiar with the steep price of a legal education. What many do not know, however, is that these costs often exceed the expected return on their investment in the job market.  Prior to the recession, starting salaries for associates at large law firms stabilized around $160,000 a year, and many prospective law students expect to be able to earn a comparable amount. In reality, however, only 23% of the graduates of the class of 2008 started with such a high salary, including only 37% of those who went into private practice.  Shockingly, most of the rest of the graduates, about 42%, started with an annual salary of less than $65,000…..

The combination of the rising cost of a legal education and the realities of the legal job market mean that going to law school may not pay off for a large number of law students. Dean David Van Zandt of Northwestern Law School estimates that to make a positive return on the investment of going to law school, given the current costs, the average law student must earn an average annual salary of at least $65,315.  As the data above show, however, over 40% of law school graduates have starting salaries below this threshold. Thus, many students start out in a position from which it may be difficult to recoup their investment in legal education. Even students who do ultimately prosper over the course of a career face difficulties from high debt loads during the beginning of their career. High debt can limit career choices, prevent employment in the public service sector, or delay home ownership or marriage.  In short, going to law school can bring more financial difficulty than many law students expect. [Footnotes omitted]

I frankly cannot fathom why this four page report was not delivered to every prospective law school applicant after its rather clandestine publication by the ABA, nor why the 979 word report was never prominently posted on the NALP web site nor why this critical warning is not contained in every law school catalogue.  It could be easily argued, I would suggest, that the report is a veritable “smoking gun” evidencing the fact that critical material information was being withheld from law school applicants.

The fact that data released and distributed (and withheld) by both law schools and NALP are obtuse, misleading and, a group of law school graduates recently formed a group known as Law School Transparency, whose mission statement is:

[I]nform prospective law students about the value of a law degree by providing open access to ABA-approved law school employment information. To this end, our website functions as an employment information and data clearinghouse. We aim to help prospective law students sort through employment information to understand some aspects of beginning a career post-graduation. We have also begun an initiative to collaborate with law school administrators and the ABA in the creation of a new reporting standard.

Towards that end, the project, in July, 2010 sent out requests to 199 law schools asking for meaningful data, which, among other things, would demonstrate more meaningful information than that which is currently available from both law schools and NALP. As of mid-September, 2010, 10 law schools responded and with the exception Northwestern and Ave Maria) the balance said no, thank you. Ultimately,  Northwestern and  announced that they will instead rely on data Forbes Magazine will purportedly be releasing in its ranking in its ranking of law schools, which will include some as yet undefined “return on investment.”  The only source I have found for the proposition that Forbes will include or report on such data is a blog maintained by some law school professors, which merely noted that Forbes will “reportedly” will include data, in its maiden law school ranking, information concerning “return on investment” based, in part  on employment data for both recent graduates and graduates five years after graduation. Notably, on September 16, 2010, Ave Maria law school, ranked By US News and  World Report  in the fourth tier (the lowest tier).  While Ave Maria is to be much commended, the obvious question is what do the other law schools have to hide?

[Update:  On February 23, 2011, Ave Maria reneged; so much for commendation].

On November 17, 2010, The Law School Transparency project, issued a second rather polite revised request for data.  Don’t hold your breath waiting for any responses.

The smoke and mirrors continue.

Add to that the fact that the nation’s law schools inexorably add 45,000  new lawyers in to the gaping and growing canyon of unemployment and underemployment lawyers every year.  What we have here is the equivalent of  BP oil relentlessly spewing out tens of thousands of barrels of oil, with no possibility at the current time that anybody has any interest in sealing this annual eruption.

There are an additional series of bizarre enigmas that must be added to the equation:

1.    Law school tuitions are rising well above the rate of inflation annually.

2.  As the hordes of new graduates are added to the kettle, simple rules of supply and demand will likely reduce Professor Shlunk’s suggested average compensation of $65,000 and even NALP’s optimistic and speculative $72,000.

3.  These facts are well known to law school administrators, particularly deans and admissions personnel.

4.  Although these facts are presumably ascertainable by those extremely bright college graduates who apply to law schools, law schools which are replete with (a) lawyers of presumably the highest moral integrity; (b) professors who are charged with imbuing law students with the ethical mandates required of lawyers; and (c) every law school has a passel of securities and corporate professors who spend their time drilling in to law students about the legal requirement of making full disclosure of all material facts while also being obligated not to make any omission of material facts; and that failure to do so would result in severe civil and criminal penalties.

5.  All of the nation’s law schools are extremely well served by selfless alumni, hard working lawyers of accomplishment, who dedicate their time and service to the leadership and guidance of their alma maters.  They well know the score.

Illustrative of these inexorable facts is a lovely glossy full color 64 page brochure I received from my own alma mater, New York Law School, just yesterday.  The first eight pages contain a one page encouraging note from the law school’s extremely well regarded – and highly compensated new dean, Richard Mastagar —  a distinguished legal scholar, with an outstanding biography.

When I attended that school, 35 years ago, tuition was $1,200.  Today, with the creep of inflation, it is $67,000. Yet, a significant number of 2009 graduates of are still unemployed and the majority who actually have found employment are likely earning starting salaries less than that amount.

Dean Mastagar’s brief  one page introductory message was “the [current] economic crisis continues to hit our profession hard.” (a) That he was proud of the fact that New York Law School’s graduates are flexible [emphasis in original].in terms of jobs they have taken.  I may be improperly projecting, but I read that as saying that the school’s graduates are taking jobs that are either low paying or completely outside the profession; (b) The school’s graduates are innovators  [emphasis in original] “Where other see problems, they see solutions.” Isn’t that the hallmark of any successful lawyer? And (c) the school’s graduates add value [emphasis in original] “in countless ways.” That reminded me of William Shakespeare’s oft quoted “damning with faint praise” from Twelfth Night. And, I must confess, while I do not intend to impugn any of the school’s graduates,  my barista, Tony, describes himself as having all of these three attributes.

Not a word about the actual employment gained by the school’s recent graduates.  Not a word about their average income.

Dean Mastagar’s cheerful introduction was followed by a mere three page article punctuated by handsome photographs (remember, this is a 64 page glossy brochure) entitled Navigating the Legal Job Market,  stating (a) the virtues of patience, the history of the recession and its effects on the profession, (b)  finding a job will be prolonged, (c) “The wait may yield unexpected rewards” ( I guess so would winning the lottery, (d) the “need to see the “big picture,” (e)  “the need to interview effectively,” (Wow, I didn’t know that), the need to develop a network,  (f) consider employment opportunities at small and medium sized firms (with no mention of the fact that tens of thousands of graduates are doing the same thing nor that the compensation offered at these firms often do not provide enough money to repay student loans, while simultaneously eating or paying for housing, and for at least 50 years, most NYLS graduates wound up practicing at small firms; in 1977, for example, there was only one NYLS graduate who obtained a job in the then equivalent of an AmLaw 100 firm: me ), (g)  consideration of temp jobs (same problems as the preceding suggestion only worse working conditions) coupled with a daily fear that the temp job can abruptly end and the young lawyer will then look for another open casting calls), (h) starting your own law practice, citing the example of one graduate who successfully did so; and, finally the need to “think strategically.” (Clearly another innovative thought).

All of the parentheticals are mine.

The next 55 pages in this glossy handsome brochure are about the joys of photographing wonders of nature (you can’t make this stuff up), the school’s admirable bar pass rate and on campus activities and little bits about the faculty and school graduates.

I certainly have no particular gripe about New York Law School. It provided me with an excellent education and the skills necessary to have a wonderful career at the law.

But the fact is that more than 150 law schools regularly issue similar blather.  What they should be saying, as loudly as possible, is “OMG, our hair is on fire! Run for your lives!”

A quick note about another vice in which law schools have recently been engaging, particularly third and fourth tier law schools: Most graduating college students, when applying to post graduate programs, apply to both “safe schools” and schools at the height of their grasp.  Third and fourth tier school in recent years, in order to improve the employment reports of their graduates,  have been inducing and recruiting top college graduates (in campaigns similar to that engaged in by NBA teams for LeBron James) to enroll in their schools with expansive and enticing scholarships, which are extremely difficult to decline.  These students tend to do well and most often do wind up with far better jobs than their peers; not great jobs, just better jobs or  at least get a job.  The direct consequence is that students below the top quartile, those least likely to gain meaningful employment, are actually subsidizing the education of students who are far more likely to do well professionally.

So, you may wonder, what’s the point of all of the foregoing?  Here it is:

  •  Law schools owe a duty to make full and fair disclosure to all applicants.
  • The nation’s law school student population must be reduced by at least one-half, probably two thirds, for the near term, probably at least three years.
  • The nation’s bar owes a duty of every nature to demand these changes and shepherd through the inevitable resistance of the academic community.

I must confess that my conclusions, which are seem beyond dispute, are not mine alone.  At least four law firm managing partners, a number of other prominent lawyers and several law school professors have shared these thoughts with me.  However, they openly expressed fear about making public statements supporting these obvious conclusions because they all felt they would be seen as pariahs, shunned by the profession, insofar as the practicing lawyers were concerned, they expressed the fear that their firms’ recruiting activities would be hampered at important schools; the academics also expressed the concern of being shunned by their colleagues, since, in effect, they would be encouraging significant unemployment among the academic community.

Analogous defenses to a securities fraud lawsuit brought on the grounds of failures to disclose or omissions of material facts, would certainly not fare well. An issuer could not defend his non-disclosures because investment bankers would shun him, non-disclosures or omissions would be viewed as contrary norms by issuers or that making honest disclosures would result in a reduction in force at his or her own company, without meeting with loud guffaws from judges, juries and prosecutors.

If you have reached this point in this note, in the unlikely event you haven’t already come to these other rather undebatable conclusions, here they are:  (a) law schools must stop behaving like the beauty schools of 1990 and (b) law schools should make full, fair and candid disclosure to every law school applicant (before they even remit the application fee) and have each applicant sign a document that he or she has read the disclosures and understands them.

Finally, law school graduates, law school administrations and law professors might take a look at 16 CFR Part 254 and speculate whether these rules apply to law schools directly or by extension and if there is any private right of action thereunder.  The recent spate of class action lawsuits brought against trade schools ( http://www.usatoday.com/news/education/2010-09-27-1Aforprofit27_ST_N.htm?loc=interstitialskip ) , asserting claims against trade schools based on the fact that students at these trade schools were defrauded by the trade schools regarding their employment prospects following graduation should give the legal academic community some serious pause.

A glimmer of light is now appearing at the end of the tunnel:  On December 13, 2010, US News and World Report announced that it intended to publish more detailed information regarding actual employment figures for law students nine months after graduation.  In addition, an ABA panel is considering requiring law schools to make fuller disclosure and at least a handful of law school deans are displaying some pangs of conscience and are advocating greater disclosure of actual post graduation employment prospects.

It is sometimes said that historical events do not exist unless they have been reported in the New York Times. Thus, for better or worse these matters were covered by the Times On Sunday, January 9, 2011 in a feature first page article in the business section entitled “Is Law School a Losing Game?” by Times reporter David Segal.

You are invited to read much more on the subject in my book, “Navigating the Perfect Storm,” to be published by Ark Press of London.  You can order by contacting me or Anna Shaw at Ark at ashaw@ark-group.com or Daniel Smallwood at Ark at dsmallwood@ark-group.com

(c) Jerome Kowalski, 2010.  All Rights Reserved.

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Blog, blog, blog: Legal Blogging Really Pays Off; A Short Note


                                                                                              Jerome Kowalski

                                                                                                Kowalski & Associates

                                                                                                July, 2010

I previously wrote about the remarkable effectiveness of blogging as an incredibly effective and efficient marketing tool and strongly endorsed – in fact, encouraged our clients to make blogging an important part of their marketing efforts.

Law.com issued an extremely interesting report today concerning four blogs which serves to further prove the point 

   

Wanna Save Millions of Dollars and Bring Them All to Your Bottom Line? Radical Changes in the Legal Profession’s Recruiting Process Will Put Real Money in Your Pockets


New York Recruiting after a "small explos...

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Jerome Kowalski

Kowalski & Associates

May, 2010

If I or any of you could predict with any degree of precision what the economy was going to look two years from now, I would not necessarily be writing this note and you surely would not be reading this posting.  Should we have the ability to know what the world will look like four years from now, we would each be as wealthy as Bill Gates, Warren Buffet, Oprah Winfrey or at least Croesus.

Yet, every large law firm that participates in the NALP choreographed minuet that takes place every fall in connection with the hiring of summer associates feigns the ability to be remarkably prescient.  Even now, law firms’  hiring partners, executive committees and department heads and firms’ recruiting staffs are devoting substantial time in rehearsing for the legal profession’s version of “Dancing with the Stars”, but more significantly, throwing hundreds of thousands, if not millions of dollars out the door.  In these recessionary times of continued cost cutting, and watching every penny on the expense side, law firms’ hiring expenses, both hard and soft, are economically irrational and may be the most wasteful expenditure that any law firm engages in.

Whose fault is it that we are now in this pickle?

To blame NALP, as some have done, most notably Peter Kalis, the visionary leader of K&L Gates has said in his thoughtful essay and as Pete Kalis has advocated in the press , misplaces the blame.  To blame the law schools for relentlessly spewing out in excess of 40,000 new graduates, the overwhelming number of which will likely never earn enough money to repay their student loans, also misplaces the blame. In fact, a reading of NALP’s recent and incisive report on the employment statistics for the class of 2009 should serve as a long overdue wake up call for law firms, law students and should be required reading for any law school applicant.  To blame the ABA for its own juggernaut of accrediting law schools (140 at last count; ten more in the pipeline) also misplaces the blame.

In fact, as much as I admire and respect Pete, I think Pete’s basic premise is far too conservative.  Pete Kalis’ premise is that law firms are being forced to make staffing decisions two years in advance.  In fact, professional staffing decisions are in reality being made four years in advance, as I describe below, based on skimpy information extracted from candidates and without even the slightest clue as to what the world will look like four years hence.

In fact, laying blame is a uniquely Western unproductive tradition (as John Kennedy famously said in 1961, “Victory has a thousand fathers and defeat is an orphan”), the Japanese tradition is to acknowledge a problem and focus on curing the problem and not pointing fingers.

The fact is that NALP is a membership organization, made up of major law firms and law schools.  It is not a deus ex machina that lives and breathes a life of its own.  And the ABA is a membership organization, comprised of lawyers.  Thus, if we insist on looking for the villain, he or she appears every morning in your mirror.

We have previously written on the subject and return to it again because the recent NALP report and the continued and escalating focus on reducing expenses wherever possible, demands that we do so.

How did we get in to this pickle?

 

A quick review of the process is rather remarkable to anybody who looks at it from a clearheaded objective perspective. In fact it almost has an Alice in Wonderland quality to it.

In the spring of each year, firms spend hundreds of hours completing the requisite NALP questionnaires and the fungible essays on each firm. Firms then take a wild-assed guess on how many new associates they will need each year.  Dozens of senior lawyers engage in this activity:  Practice leader, office heads, law firm management, CFO’s and countless others who believe that they have something to contribute to the process. Once all of these contributions are stirred in a pot, shaken vigorously and baked overnight a raw number emerges. Recent experience suggests that simply throwing a bunch of numbers in a hat and having a partner pick the number while blindfolded would yield the same speculative result and save a great deal of time.

The next step is sending out platoons of lawyers on campus to conduct on campus interviews of law students who have nine or ten months of legal education under their belts (we used to dispatch regiments, but some recent recession compelled thoughtfulness prevailed here and the number of campuses visited by each firm and the number of candidates interviewed has been sharply reduced, given the economic realities we all now face).  The on campus process is often 18 – 20 law students seen for 20 minutes by a lawyer representing the law firm, too often distracted by thoughts of pressing client engagements, Blackberries, rushed cell phone calls and the like.  Typically, the interviewer has a single piece of paper in front of him or her used to assess the candidate:  A resume that all too often carries little of real substance:  Law school and undergraduate honors, a summer job or two and a word or two on language or technical skills and interests outside the law. Too often, these resumes are read for the first time while the candidate sits before the interviewer (the 20 minute clock is counting down).  Rarely, if ever is there any substantive discussion of the law (huh?  Isn’t that how we make our living?)

The interviewer then makes some quick judgments and invites some number back to the office (two sounds right; maybe three?) No decision for a callback is based on any criterion essential to the successful practice of law.

Now we get to some of the most amusing parts.  On the callback, the candidate usually spends about five or six hours meeting a mix of partners and associates. These sessions range from 30 to 45 minutes.  Protocol requires that almost none of these chats involve any substantive discussions of the law.  A de rigueur lunch is almost always included; proper table manners being somehow thought to be an accurate yardstick by which future success at the law can be measured. Writing samples and transcripts are submitted by the candidate.  Evaluations are completed by the interviewers and lunch companions and are then the subject of a deliberative meeting in a somber conference room; white clouds emanate from these sessions signaling that decisions have been made as to which candidate will receive an offer.

Wait; it gets better.  Although most firms have reduced the number of weeks of their summer programs and scaled back the Disneyland quality of summers of yore, each summer associate is compensated on a weekly basis the same rate of compensation as first year associates. And, here is another one of my favorites:  As a recruiting tool for generations to come, firms bend over backwards to make as many offers of full time positions for the following year to summer associates as possible (90% plus is often the case).

In short, as we all know too well,  law firms make decisions about which and how many  law students will become part of a law firm’s ranks based on an aggregate of perhaps six hours of chitchat and these decisions are made two years before they are to start work.

How much do we spend on these garnishes?

The estimated hard costs (travel expenses for interviewers and interviewees, salaries for the summer associates, even the scaled down romps) for recruiting these young men and women is estimated to be about $75,000 per summer associate. Like so much else of the anomalies of economics of law firms there are precious few economies of scale. The soft costs (primarily lawyer time in the interviewing process, mentoring and so on):  Like the folks at MasterCard say, “priceless.”

Now, the next part gets even more interesting and certainly breathtakingly more expensive.  Since as well now know too well, and as we previously reported , clients are simply refusing to pay for first and second year associates. Accordingly, scads of time is dedicated to training and mentoring first and second year associates:  CLE programs; workshops, observing the various negotiations, client meetings, transactions, closings, hearings, motions, trials and the other stuff we do to earn our keep. And while we teach and train these young associates, we also insist that we pay them in a grand style (at least that small percentage – NALP estimates approximately 22% — of law school graduates that make it in to “the big game”;  I believe the percentage is actually far lower) the “going rate” — $160,000 per annum.  The cost of paying these young lawyers and the incremental allocation of overhead together fringe benefits during these first two years typically exceeds $400,000 per lawyer.  And again, there is insufficient data to calculate the substantial soft costs, namely, the time of more mature lawyers involved in the training and mentoring process.

In all fairness, associate compensation should not be trivialized.  We of course do need to recognize the crushing debt carried by young lawyers.  But, by the same token, so much of the gravity defying salaries paid by most of the AmLaw 200 firms are rationalized by “competitive pressures” by law firms that are AmLaw top 50 wannabes.

At the ultimate end of this grueling four year process, $500,000+ expenditure, when productive lawyers are first added to a law firm’s profit centers, the most explosive result occurs: Attrition.  As associates move in to their third and fourth years, associates begin to think about alternative careers:  Government service, in-house corporate departments, smaller firms, competing firms, public service careers, family businesses and a host of other endeavors.  A fair number of associates are found by their employers to be wanting and are asked to leave.  The generally accepted estimate is that the attrition rate at the third and fourth year is 40%.

Now, let’s recap the dollars out the door and, because math is not my strong suit, I will simply arbitrarily assume an incoming class of 100 summer associates:  (a) $75,000 for the summer; plus (b) $500,000 in direct expenses for each associate’s first two years; times (c) 100; less (c) the 40% of associates that leave the track equals a very real hard cost of almost some $960,000 to produce each productive third and fourth year associate.  If your firm is larger or smaller, the math is fairly readily calculable. If your law firm is paying lower salaries or you have lower overhead costs, you still cannot escape the ineluctable facts:  There are whopping amounts paid for bringing along third and fourth year associates, all predicated on some irrational guess as to what the world will look like four years from now.

The awful pain the profession went through in 2010, as we slaughtered so many of our young, is the product of this system.

And, I return to the basic premise here:  No man or woman on this planet has a clue as to what the economy, let alone the demand for legal services, will be at the end of the four year gestation period required for the creation of a productive third and fourth year associate by current convention. But we do know that it will take at least two years of billing hours by these hard working associates to amortize these costs.

And how do we get out of this pickle?

But, there is no reason for us to now run around screaming like Chicken Little that the sky is falling.  There are plentiful solutions:  Spring prior to graduation hiring, as so many have suggested.  Some examples:

(a)    Requiring mandatory clerkships prior to bar admissions:

(b)    More rigorous screening than the causal six hour process we now employ.  We should take some important lessons from the processes used by major consulting firms, the financial services industry, the accounting profession and Fortune 1,000 companies.

(c)    Most significantly, the best example from which we must draw important lessons from is the medical profession through the use of the national residency matching program (www.nmrp.org) and the mandatory residency programs required by the medical profession.

Recently, as I lay awake in the wee small hours of the night, focused on the optimization of profitability of the legal profession, as I so often do, the idea of utilizing the medical residency analogue for the legal profession hit me like a thunderbolt.  I knew I had conjured up a unique and novel solution to the hiring and training process. I actually thought that when I revealed what I truly thought was a unique contribution to the legal profession I would be hailed as a consummate visionary.  But, as I devoted some time to researching the feasibility of using this model, I inevitably found my way to an absolutely compelling article written in 2009 by Professor Ashish Nanda, the Robert Braucher Professor of Practice, Faculty Director of Executive Education, and Research Director at the Program on the Legal Profession at Harvard Law School  Professor, assuredly a far more substantial and thoughtful intellect than me, authored a riveting piece in which he revealed, among other things, that he had analyzed the problem and thoughtfully addressed the “matching”  concept I innocently thought that I invented one dark pre-dawn spring day.  Thus, in spite of Professor Nanda’s stealing my thunder, I encourage you to read his piece.

 

The professions’ tossing out millions of dollars in the current completely broken system is the profession’s own fault and its collective inertia. In any new system, NALP would fill an even more vital role.  And, please remember at year end, as partners divide a continuously shrinking pie, how much money was tossed out the window in the current recruitment process.

 

In the weeks ahead, I will further explore some of the other concepts I described above.

 

© Jerome Kowalski, May, 2010; all rights reserved.

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