Wednesday, August 13, 2008

Law Professor Free Agency and "School-Specific" Capital

[posted by Bill Henderson, cross-posted to ELS Blog]

[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 impatient 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?

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