Wednesday, November 28, 2012

Unofficial Comparison of 2010 and 2012 Enrollment and Profile Data and Thoughts on 2013

In August, I posted to this blog a narrative analysis comparing the 2010 and 2011 enrollment and profile data among law schools based on the data published in the 2012 ABA-LSAC Guide and the 2013 ABA-LSAC Guide. In response to recent comments on the 2012 enrollment situation, see ABA Journal Weekly Newsletter and the discussion at The Faculty Lounge, and the further drop in LSAT test-takers in June/October 2012 recently discussed at Tax Prof Blog, I thought it might make sense to update the enrollment and profile analysis to account for 2012 enrollment and profile data, to the extent that it is available, and to offer some thoughts on 2013.

As of November 15, only 140 law schools had published enrollment data on their webpages and only 128 had published sufficient profile data on which to make meaningful year-to-year comparisons.  Please note that this analysis is based on "unofficial data," having been taken from law school webpages, not from any ABA publication, and having been taken from law school webpages prior to the LSAC certification of enrollment and profile data which the LSAC is undertaking this year for the first time.

ENROLLMENT IN DECLINE – Between 2010 and 2012, only 12 schools were flat (a change between -1% and +1%) or had an increase in enrollment; 128 of the 140 law schools had a decline in enrollment (a decrease greater than 1%), of which

            -89 had a decline of 10% or more, of which

            -59 had a decline in enrollment of 20% or more, and of which

            -15 had a decline in enrollment of 30% or more. 

This means over 90% of law schools for which 2012 enrollment information is available had a decline in enrollment and that more than 40% had a decline in enrollment of 20% or more. 

Based on the data published in the 2012 ABA-LSAC Guide, in 2010, these 140 law schools had 33,952 first-years (68.3% of the 49,700 total 1L enrollment (LSAC matriculants)).  Based on the data published in the 2013 ABA-LSAC Guide, in 2011, these 140 law schools had 31,082 first-years (68.2% of the 45,600 total 1L enrollment (LSAC matriculants)).  In 2012, based on data from law school webpages, these 140 law schools had 28,380 first-years.

The decline in first-year enrollment was roughly 8.45% percent across these 140 schools between 2010 and 2011 (slightly more than the national decline of 8.25%), while the decline in first-year enrollment was roughly 8.69% across these 140 schools between 2011 and 2012. 

If enrollment at these 140 schools represents 68.25% of total first-year enrollment for 2012 (the average of 2010 and 2011), that would suggest that total first-year enrollment (LSAC matriculants) for fall 2012 may be as low as 41,500-41,600, a decline of roughly 8.8% from 2011 and a decline of roughly 16% since 2010.  (The LSAC certification of enrollment and profile information may come in even slightly lower than this estimate as it is going to be based on snapshots of enrollment on October 5, 2012, which would exclude students who began classes but withdrew prior to October 5, 2012.  This group of students might number a few hundred if there were one to three such students at each law school.)

PROFILES IN DECLINE – Between 2010 and 2012, 93 of the 128 law schools with available profile information had a decline in their LSAT/GPA profile (more indicators down then up), 23 had an increase in profile (more indicators up then down), and 12 had a mixed profile (same number of indicators up and down). 

ENROLLMENT AND PROFILES IN DECLINE – Most significantly, of the 128 law schools with both enrollment and profile information available for fall 2012, 85 law schools (nearly two-thirds) saw declines in enrollment and in their LSAT/GPA profiles between 2010 and 2012.

Of these 85 law schools, 38 law schools saw declines in enrollment of greater than 20% and saw declines in their LSAT/GPA profiles.  That means nearly 30% of law schools with available enrollment and profile information for 2012 had declines in enrollment of 20% or more and saw their LSAT/GPA profile decline.  It also means that over 75% of the 50 law schools with declines in enrollment greater than 20% and for which 2012 profile information is available had declines in profile for 2012. 

Notably, five of these 38 law schools were in the USNews top-50, 10 were ranked between 51-100, 10 were ranked between 101-145 and 13 were in the alphabetical listing of schools.  The declining interest in law school, therefore, is impacting law schools across the rankings, but is more dramatically impacting alphabetical schools than top-ranked schools.

FURTHER THOUGHTS ON 2012 – According to the LSAC Volume Summary, applications to law school slid from 87,900 in 2010 to 78,500 in 2011 to approximately 68,000 for 2012 (although the 2012 numbers have not been finalized).  Over the last nine years, law schools, on average, have admitted roughly 56,800 students per year, with a low of 55,500 in 2007 and in 2008.  The “admit” rate – which was only 56% for fall 2004 – had climbed to 71% for fall 2011.  For the last several years, however, matriculants have averaged roughly 82% of admitted students.  So if we did have 41,600 matriculants this fall (as estimated above), and if matriculants represented roughly 82% of admitted students, that would mean we had roughly 50,700 admitted students, the lowest number this millennium, with an admit rate of nearly 75%, the highest this millenium.  (Alternatively, if matriculants declined as a percentage of admitted students, it is possible that a larger number of applicants were admitted.)

PROJECTIONS FOR 2013 -- June and October LSAT administrations suggest that there may be fewer than 60,000 applicants for fall 2013.  There were 93,341 June/October test-takers in 2009 (for the 2010 admissions cycle) (resulting in 87,900 applicants – 94.2% of tests administered in June/October).  There were 87,318 June/October test-takers in 2010 (for the 2011 admissions cycle) (resulting in 78,500 applicants – 89.9% of tests administered in June/October).  There were 71,981 June/October test-takers in 2011 (for the 2012 admissions cycle) (resulting in roughly 68,000 applicants – 94.5% of tests administered in June/October). 

That is a three-year average in which the number of applicants in a cycle represented roughly 92.9% of the tests administered in June/October.  There were 63,003 June/October test-takers in 2012 (for the 2013 admissions cycle).   If the 2013 cycle results in a number of applicants representing 92.9% of June/October test-takers, law schools can anticipate there being only roughly 58,530 applicants to law schools for fall 2013.  (Notably, in the admissions cycles from 2007-2009, the number of applicants in a cycle represented, on average, roughly 111% of the June/October test-takers, so the estimate of 58,530 may understate the number of possible applicants.)

If there are only 58,530 applicants for fall 2013 (which would represent nearly a 14% decline from fall 2012 -- the third consecutive double-digit decline in applications), and if law schools admit only 50,700 of these applicants, the same as the estimate above for fall 2012, across all law schools over 86% of all applicants to law school would receive offers of admission.  If 82% of these admitted students were to matriculate, that would mean a first-year enrollment for fall 2013 that once again would be around 41,500-41,600.  Alternatively, if law schools remain somewhat selective and were to admit only 48,000 of the 58,530 estimated applicants, that still would be an admit rate of 82%.  If 82% of those 48,000 matriculated, the first-year enrollment would decline to roughly 39,400, a decline of about 5.3% from the fall 2012 estimate set forth above.

There are two competing tensions law schools must weigh in making admissions decisions in a declining market – revenue and LSAT/GPA profile.  Do you take the number of students you need to meet revenue projections (even if that means profile slides) or do you take a smaller number of students (and take a revenue hit) in an effort to maintain LSAT/GPA profile? 

What the 2011 and 2012 classes demonstrate is that in the current market, for a large number of schools, even taking significantly fewer students did not allow them to maintain their profiles.  Given that many schools already have lost significant revenue due to shrinking enrollments in 2011 and/or 2012 (for just one example see the recent discussion of Vermont Law School in the National Law Journal) they will be hard-pressed to shrink enrollment further to maintain profiles.  As a result, I think when enrollment and profile data is evaluated in fall 2013, we will see even more widespread declines in profile than was manifested in 2011 and 2012, possibly along with some ongoing declines in enrollment.  It seems likely that several more schools may experience both significant declines in enrollment and in profile.

[posted by Jerry Organ]

November 28, 2012 in Data on legal education | Permalink | Comments (4)

Sunday, November 25, 2012

The Rational Hubris of Legal Structures as Moral Agents

Posted by Jeff Lipshaw

LogoThe op-ed section of the Boston Globe this morning has a piece extolling the "benefit corporation,"* the statutory basis for which takes effect in Massachusetts this coming Saturday.

The headline reads "Virtue Inc.  Can a new kind of charter give corporations a conscience?"

Interesting. That is a deeply profound question out there at the cutting edge of science and philosophy of mind.  Normally it plays out in questions of the limits (or not) of artificial intelligence.  Can artificial neural nets give computers consciousness - that is, an inner experience and self-awareness?  Indeed, just this past Friday the New York Times contemplated how far "deep learning" programs have progressed in replicating the pattern recognition capabilities of the human mind.   But will consciousness ever be reducible to scientific explanation?  (See, e.g., Daniel Dennett and Douglas Hofstadter for the affirmative and David Chalmers for the negative in that debate.)

Personally, I think an entity has to be conscious to have conscience.  Hannah Arendt said this:

It took language a long time until it separated the word consciousness from conscience, Images and in some languages, for instance in French, such a separation never happened. Conscience, as we use it in moral orlegal matters, supposedly is always present within us, just like consciousness. And this con-science is also supposed to tell us what to do and what to repent of; it was the voice of God before it became the lumen naturale or Kant’s practical reason.
Corporations are legal structures.  By definition they are artificial.  Even if the artificial intelligence people can create a machine that passes the Turing Test and fools me into thinking it's thinking (and therefore might have a conscience), no corporation statute, charter, bylaws, or series of board resolutions is ever going to approach the algorithmic complexity of decision-making and judgment that it would take for a corporation to have either consciousness or conscience.

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November 25, 2012 | Permalink | Comments (0)

Saturday, November 24, 2012

What is the Significance of Major Combinations between Canadian and U.S. Law Firms?

Law firm consolidations are in the air.  Over the last couple of weeks, two major Canadian law firms have entered into combination agreements with U.S./UK counterparts. 

  1. Norton Rose (a British firm with a major Canadian presence) is merging with Fulbright & Jaworski, creating a firm with 55 offices and 3,800 lawyers.  Details here.
  2. Fraser Milner Casgrain is combining with SNR Denton (US-UK firm that swallowed up the legacy Sonnenschein law firm in 2010) and Salans, which is a European law firm original formed in France. The resulting firm will have 2500 lawyers in 79 offices and 52 countries worldwide.   Details here

In the video interview below, Jordan Furlong, a Canadian lawyer, journalist and consultant (Law21), views these developments as the beginning of a major sea change.

To my mind, the consolidations we are witnessing have a lot to do with flat worldwide revenues. Law firms become uncomfortable places when they are not growing. Yet, really big law firms seldom fail because failure requires that a large number of partners vote their feet. A 30-partner defection can be a lethal blow to a 500-lawyer firm, but not so much for a 2,500-lawyer firm. The larger number of lawyers provides managers with more time and latitude to figure out a longer term strategy. Big feels safer.  Further, once the consolidation is complete, the firm managers can thin the ranks of weaker partners, producing a stronger overall firm.  (That is the theory, anyway.)

[Posted by Bill Henderson]

November 24, 2012 in Current events, Data on the profession, Law Firms, New and Noteworthy, Video interviews | Permalink | Comments (2)

Friday, November 23, 2012

Replacing the "E" in Entrepreneur with "I"

There has been a lot of press over the past few years about entrepreneurism and the law and indeed Capital I ventures like LawWithoutWalls and clinics in law and entrepreneurship have been created by many law schools in order to hone entrepreneurship (along with other skills) in future lawyers.

Some people believe that we shouldn’t be training our future lawyers to be entrepreneurs or that it isn’t necessary or perhaps even desirable.  These people see lawyers and entrepreneurs as “strange bedfellows”.  These people smirk at Richard Susskind’s book, the End of Lawyers?.  They smirk  – not because they don’t see the question mark – but instead, because the question itself is a non sequitur – “The End of Lawyers (That’ll Be The The Day)”.  They know that it is not the end of lawyers nor will there ever be an end of lawyers.  They know that the legal rebels and law disruptors and the big-bad-non-lawyers are NOT going to take over the law market. They know that law firms and law partners and law schools and law deans and law professors will survive. 

And they are likely right.

But what they may not foresee is that the ones left standing (the lawyers, and the law firms and the lawschools and the law deans and law professors that will be left standing) will be those that no longer use the capital “I” that resides in “me, myself, and I” that has so long plagued our profession and that is based on  Individual lawyers and Individual clients and Individual law school education that inhibits collaboration with nonlawyers. and that is at the heart of how most law firms and law faculties have organized themselves  (see SlideShow making these points).

Instead, those left standing will be those that move the capital “I” from a place that has historically kept the legal profession in a closed environment, to a place where there is “Interaction” with non-lawyers, “Interdisciplinary” collaboration “Inter-department” education, and, above all, “Innovation.”  Those left standing may not all be legal entrepreneurs but they most certainly will be Intrapreneurs.  

“Smart organizations will seek out individuals who like to invent, innovate and want to be on the front lines of change. These individuals can work independently but even more important can work seamlessly as part of an integrated team structure and also effectively embrace and embody the culture of the intrapreneur’s host organization.”
So although it is true that these new entreprenurial focused law ventures are made up of many legal rebels and law disrupters and legal entrepreneurs, and that they attempt to instill an entrepreneurial spirit in all that participate.  More than that, they represent a community of lawyers that believe in the Intrapreneur in us all, the ability to exapt ideas from other places in order to affect change (see Article on the need for exaptation in the law market).  They believe in those that use the capital "I" to replace the E in Entrepreneur. They believe that it is not just the Entrepreneurs but also the Intrepreneurs in law that will be left standing. 

Those that continue to use the capital "I" as in "me myself and I" (and refuse to change) will be those that, like the cheese, stand alone.


Cheese alone

[Michele DeStefano]

November 23, 2012 | Permalink | Comments (3)

Wednesday, November 21, 2012

An Open Letter to India's Graduating Classes

From far away, knowledge workers in India appear to be a formidable and growing threat to American college graduates.  But according to Mohit Chandra's essay, "An Open Letter to India's Graduating Classes," which appeared in the India Ink section of the NY Time/International Herald Tribune, the current generation of Indian university and professional school graduates is hindered by a serious skills and values gap.   MohitchandraIndeed, the author, a partner at KPMG in Delhi, chastises the newly minted 2012 graduates for being spoiled and behaving unprofessionally. 

There are two crosscurrents at work here that are quite difficult to untangle: (1) the process of globalization, which is linking together the economies--and thus the cultures--of India and the U.S.; and (2) workplace generational frictions, which apparently are just as vexing in India as they are in the U.S.  As a mid-career Indian professional with an MBA from Ohio State and a work history that includes KPMG, Capital One, McKinsey & Company, and Ernst & Young, Chandra sits on top of both of these faultlines. 

I think Americans might be surprised by both the content and tone of Chandra's letter, which cannot be judged by western standards.  The letter reveals as much about the U.S., and humanity, as it does about India.  Quite a read.

Dear Graduates and Post-Graduates,

This is your new employer. We are an Indian company, a bank, a consulting firm, a multinational corporation, a public sector utility and everything in between. We are the givers of your paycheck, of the brand name you covet, of the references you will rely on for years to come and of the training that will shape your professional path.

Millions of you have recently graduated or will graduate over the next few weeks. Many of you are probably feeling quite proud – you’ve landed your first job, discussions around salaries and job titles are over, and you’re ready to contribute.

Life is good – except that it’s not. Not for us, your employers, at least. Most of your contributions will be substandard and lack ambition, frustrating and of limited productivity. We are gearing ourselves up for broken promises and unmet expectations. Sorry to be the messenger of bad news.

Today, we regret to inform you that you are spoiled. You are spoiled by the “India growth story”; by an illusion that the Indian education system is capable of producing the talent that we, your companies, most crave; by the imbalance of demand and supply for real talent; by the deceleration of economic growth in the mature West; and by the law of large numbers in India, which creates pockets of highly skilled people who are justly feted but ultimately make up less than 10 percent of all of you.

So why this letter, and why should you read on? Well, because based on collective experience of hiring and developing young people like you over the years, some truths have become apparent. ...

There are five key attributes employers typically seek and, in fact, will value more and more in the future. Unfortunately, these are often lacking in you and your colleagues.

1.You speak and write English fluently: We know this is rarely the case. Even graduates from better-known institutions can be hard to understand.

Exhibit No. 1: Below is an actual excerpt from a résumé we received from a “highly qualified and educated” person. This is the applicant’s “objective statement:”

“To be a part of an organization wherein I could cherish my erudite dexterity to learn the nitigrities of consulting”

Huh? Anyone know what that means? We certainly don’t.

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November 21, 2012 in Blog posts worth reading, Cross industry comparisons | Permalink | Comments (2)

Monday, November 19, 2012

How to Increase Your Law School's Academic Reputation

USNewsLaw schools care deeply about their academic reputation.  If this were not true, my Indiana Law mailbox would not be stuffed full with glossy brochures sharing the news of faculty publications, impressive new hires, areas of concentration, and sundry distinguished speaker series, etc. 

Because of the timing of these mailings – I got nearly 100 in Sept and October—I am guessing that the senders hoped to influence the annual U.S. News & World Report Academic Reputation survey.  Cf. Michael Sauder & Wendy Espeland, Fear of Falling: The Effects of U.S. News & World Report Rankings on U.S. Law Schools 1 (Oct 2007) (reporting "increases in marketing expenditures aimed toward raising reputation scores in the USN survey"). But does it work?  A recent study by Larry Cunningham (St. Johns Law) suggests that the effect is, at best, decimal dust.  

Glossy brochures may not reliably affect Academic Reputation, but I have uncovered four factors that are associated with statistically significant increases and decreases of USN Academic Reputation.  To illustrate, consider the scatterplot below, which plots the 1993 ordinal rank of USN Academic Reputation against the 2012 ordinal rank [click on to enlarge].

BarFour sets of dot (Red, Blue, Orange, and Green), each representing distinctive shared features of law schools, tend to be above or below the regression line.  These patterns suggest that changes in USN Academic Reputation over time are probably not the result of random chance. But we will get to the significance of the Red, Blue, Orange, and Green dots soon enough.  

The primary takeaway from the above scatterplot is that 2012 USN Academic Reputation is overwhelmingly a function of 1993 USN Academic Reputation.   Over 88% of the variation is explained by a school's starting point 20 years earlier.  Part of this lock-in effect may be lateral mobility.  That is, there are perks at higher ranked schools: they tend to pay more; the teaching loads are lighter; and the prestige is greater, etc. So school-level reputations rarely change, just the work addresses of the most productive scholars.  This is, perhaps, the most charitable way to explain the enormous stickiness of USN Academic Reputation.

That said, the scatterplot does not show a perfect correlation; slightly less than 12% of the variation is still in play to be explained by influences other than starting position.  A small handful of schools have made progress over these 20 years (these are the schools above the regression line), and a handful have fallen backwards (those below the line).

BarThe Red circles, Blue rectangles, Orange diamonds, and Green circles represent four law school-level attributes.  The Reds have been big gainers in reputation, and so have the Blues. In contrast, the Oranges have all experienced big declines; and as as a group, so have the Greens.  When the attributes of the Red, Blue, Orange, and Green Schools are factored into the regression, all four are statistically signficant (Red, p =.000; Blue, p = .001; Orange, p = .012; Green, p = .000) and the explained variation increases 4% to 92.3%.  As far as linear models goes, this is quite an impressive result. 

Before you look below the fold for answers, any guesses on what is driving the Red and Blue successes and Orange and Green setbacks?

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November 19, 2012 in Data on legal education, Important research, Innovations in legal education, Scholarship on legal education, Structural change | Permalink | Comments (4)

Sunday, November 11, 2012

Lubet on John Brown's Spy

LubetSteve Lubet (Northwestern) has released a new book,  John Brown’s Spy: The Adventurous Life and Tragic Confession of John E. Cook.  It is the story of one of Brown’s chief lieutenants, who spent a year in Harper’s Ferry preparing for the raid, but who later betrayed the conspiracy by providing a “full confession” to the Virginia authorities.  Steve advises, for the benefit of lawyers, law professors, and legal historians, that over half the book is devoted to the trials following the raid, including the previously unknown role of Daniel Voorhees, an Indiana lawyer who later became one of Lincoln’s chief adversaries in Congress.

Here's the description from the Yale University Press website:

John Brown's Spy tells the nearly unknown story of John E. Cook, the person John Brown trusted most with the details of his plans to capture the Harper's Ferry armory in 1859. Cook was a poet, a marksman, a boaster, a dandy, a fighter, and a womanizer—as well as a spy. In a life of only thirty years, he studied law in Connecticut, fought border ruffians in Kansas, served as an abolitionist mole in Virginia, took white hostages during the Harper's Ferry raid, and almost escaped to freedom. For ten days after the infamous raid, he was the most hunted man in America with a staggering $1,000 bounty on his head.

Tracking down the unexplored circumstances of John Cook's life and disastrous end, Steven Lubet is the first to uncover the full extent of Cook's contributions to Brown's scheme. Without Cook's participation, the author contends, Brown might never have been able to launch the insurrection that sparked the Civil War. Had Cook remained true to the cause, history would have remembered him as a hero. Instead, when Cook was captured and brought to trial, he betrayed John Brown and named  fellow abolitionists in a full confession that earned him a place in history's tragic pantheon of disgraced turncoats.

[Jeff Lipshaw]

November 11, 2012 | Permalink | Comments (0)

Wednesday, November 7, 2012

"2012 was the First Moneyball Election"

So concludes John Sides (GW Political Science) at The Monkey Cage.  John writes:

Barack Obama’s victory tonight is also a victory for the Moneyball approach to politics.  It shows us that we can use systematic data—economic data, polling data—to separate momentum from no-mentum, to dispense with the gaseous emanations of pundits’ “guts,” and ultimately to forecast the winner.  The means and methods of political science, social science, and statistics, including polls, are not perfect, and Nate Silver is not our “algorithmic overlord” (a point I don’t think he would disagree with).

But 2012 has showed how useful and necessary these tools are for understanding how politics and elections work. ...

And a fitting comic courtesy of xkcd:


[posted by Bill Henderson]

November 7, 2012 in Blog posts worth reading, Current events, New and Noteworthy | Permalink | Comments (3)

Thursday, November 1, 2012

What Would Happen If Nonlawyers Invested in Law Firms? Soon We Will Have Data

As U.S. lawyers successfully derail the most modest changes to the Rule 5.4 prohibition on nonlawyer investment in law firms, see e.g., this Wisconsin Bar commentary, the Brits are going in an entirely different direction.  The Legal Services Act of 2007 lifted the fee-splitting prohibition in the U.K., but it has taken five years to set up the necessary regulatory infrastructure to facilitate the opening of the legal market to nonlawyer investors. 

The UK experience is bound to have a big influence on the U.S. debate because so much of the rhetoric on both sides is based on the alleged impact of the nonlawyers.  Proponents argue that it will drive down costs, accelerate innovation, and improve access to justice.  The critics, who so far have the upper hand, assert that investor profit motives will compromise lawyer independence, leading to the ruination of the profession. 

Thanks to developments in the UK, we are moving from abstract arguments to concrete experience.  Coverage in the British legal press suggests that a new legal order is indeed beginning to take shape.

JamesCaan Gazette One novel development, reported by the Law Society Gazette, is an equity stake in the Knights Solicitors law firm by Hamilton Bradshaw, a British private equity fund run by entrepreneur and investor James Caan.  Knights is a 23-solicitor Midlands regional firm founded in 1759 (yes, 1759) whose business profile at the time Caan invested was being a competent, responsive law firm at a price point considerably below the London-based firms.  See, e.g, this Legalweek article describing Knights' collaborations with US/UK powerhouse Hogans Lovells.  

The plot here is pretty thick.  In both the UK and Austrailia, which also liberalized its legal market a few years ago, the early investors have been on the personal injury side.  In contrast, Knights is full-service commercial law firm.  With the aid of outside capital, the firm's ambition is to catapult itself into the top 100 UK law firm within three to five years. Further, Caan is not just any investor.  He is famous in England because he served as as judge on the popular Dragon's Den television program.  The show's concept is simple:  entrepenuers pitch their ideas to some colorful, high roller celebrity investors.  Contestants potentially get funding plus a priceless primetime branding opportunity.  Dragon's Den was the basis for ABC's Shark Tank, where serial entreprenuer and Dallas Mavericks owner Mark Cuban serves as a judge.

Well, Caan got the regulatory okay a few months ago and is settling in with his new investment.  His early rhetoric suggests that he has little interest in fitting into the dominant culture of the British legal profession.  According to a story titled "Profit a 'Dirty Word' in Law," Caan regaled the NetLaw Strategic Leadership Forum in London with his experience of interviewing 20 firms in his bid to enter the legal market.  What he observed was "a profession dogged by the partner structure, failing to build a lasting relationship with clients and with too little focus on making money." 

Although he and others would be keen on investing in more law firms, the culture within firms, including excessive deliberations in making basic management decisions, is a major hinderance.  Caan remarked:

A lot of people said this is not how this industry works: we’re about service, and profitability was a dirty word.  ... The minute a business forgets the reality of why it is there it will never grow. Every day you walk into the office you’re looking to make a profit. Being ashamed or embarrassed is not how you grow – every business I invest in, I’m not ashamed that is the strategy.

For a U.S. audience, this quote is likely to stoke the fire of both critics and proponents of fee-splitting.  On the one hand, here is a nonlawyer wanting to clean house in pursue of profits -- that seems to go the heart of lawyer independence.  On the other hand, wringing out more profit could well be possible if lawyers had a laser-like focus on the needs of their clients.  Caan only makes money if the clients (including sophisticated commercial clients) are drawn to his model, essentially rejecting the bundle of services offered by traditional law firms.

ImagesThe late Larry Ribstein was a sincere believer in the latter view.  According to Larry, the pervasiveness of lateral movement -- which, under state legal ethics rules, cannot be curtailed by noncompete agreements -- had caused law firms to become hopelessly focused on the short-term.  This includes the most prestigious firms, which were (and, in my estimation, are) burning down decades of accumulated reputational capital.

Yet, the short-termism of coporate law firms is curable with money plus a coherent business strategy.  With an injection of patient capital, some extremely talented lawyers could be persuaded to stick around and focus on innovative legal products and services.  The idea is that patient capital could guarantee a partner's income for a period of years (essentially a partner's opportunity cost on the lateral market) in exchange for splitting the upside on innovations with the nonlawyer capitalists. 

In a few years, Larry's ideas will be fully roadtested in the U.K.  If he was a right (and I think he was), this could eventually become a consumer rights issue that captures the attention of state legislatures. And who will be advocating for those consumers?  Lawyers who want to take outside investments so they can replicate the financial success enjoyed by their UK counterparts.  Time will tell.

[posted by Bill Henderson]

November 1, 2012 in Current events, Data on the profession, Innovations in law, Law Firms, New and Noteworthy, Structural change | Permalink | Comments (3)