Saturday, March 31, 2012
Posted by Jeff Lipshaw
I am working on an article that considers the relationship of information, like that disclosed in a securities offering, to the internal judgment of the investor who has to make a decision whether to invest based on that information. The empirical studies suggest that more information is better on a macro-basis, when all of the actors are black-box monads, and we get to think of them on the whole as rational (hence, Richard Posner's memorable dictum that in rational actor analysis the internal experience of the actor is irrelevant - "it would not be a solecism to speak of a rational frog"). On the other hand, the overwhelming thrust of behavioral economics is that human beings manage, on an individual micro basis, to have a far less rational connection between the available objective information and the individual's judgment. Nevertheless, even behavioral economics takes an objective, external analytic stance; it's proposing a theory for putatively non-rational action, not providing a protocol for someone actually making a decision. In other words, does getting a lot of information about my tendency to use heuristics and biases have an impact in reducing the impact of heuristics and biases in my decision-making? I'm a long-term skeptic on that one, and the fact that almost every book I've seen on behavioral economics and judgment in law or business ignores or punts on this issue (see Bazerman, Brest, etc.) tends to confirm my skepticism.
It's therefore not surprising to me that legal education, with its emphasis on objective after-the-fact judgmentalism, just eats up prediction seeking social science, whether of the rational actor or more nuanced variety. Why? Because that's exactly what lawyers' lawyers, whether transactional or litigative, are supposed to do: predict the legal effect of actions in terms of their likelihood of being deemed, after-the-fact, the proximate cause of something bad or good.
Imagine my delight, then, in getting the January, 2012 issue of Entrepreneurship Theory and Practice (Vol. 36, No. 1, a perk of my membership, thanks to Tony Luppino at UMKC, in the United States Association for Small Business and Entrepreneurship) devoted to "The Heart of Entrepreneurship." The second article, "Framing the Entrepreneurial Experience," by Michael H. Morris, Donald F. Kuratko, Minet Schindehutte, and April J. Spivack, highlights the affective aspects of entrepreneurship, not from the standpoint of an objective analysis of the entrepreneur, but from the standpoint of the lived experience of the entrepreneur "as actor in an unscripted temporal performance who continually encounters novelty." The authors suggest,
If entrepreneurship is fundamentally experiential, we know surprisingly little about the nature of the experience. What is it like to be "in the moment" as a venture takes form? ... As a lived experience, we highlight the critical role played by idiosyncratic events are frequently uncontrollable and unpredictable. Lichtenstein et al. (2007) make it clear that such events are at the essence of entrepreneurship, and give rise to patterns and punctuating moments.
My suspicion for a long time has been that lawyers engage in a form of attribution error when encountering dealmakers, entrepreneurs, and business people generally. If you look at your business client as a black-box monad, you are likely to attribute your own affective experience (or lack thereof) without considering that the inner experience and circumstances of the client is significantly different than your own. In other words, my job as a lawyer is to explain and blame (in retrospect) the causes of the uncontrollable and unpredictable, or to use some legal science before the fact to place myself prospectively in the after-the-fact position so as to avoid the circumstance in which my client or I might be the subject of that blame. (In the venture capital term sheet, that becomes the wrangling over the representations and warranties and the anti-dilution clause.) And when my client is wholly uninterested in any of that, it must be because she is just weird, flighty, unorganized, naive, ethereal, or whatever.
Oh, and it's not just lawyers and entrepreneurs that have this attribution problem. I'm pretty sure that the Wall Street lawyers we used to hire to help on our deals scratched their heads and wondered why I, as the general counsel of the company, had no apparent interest in the interstices of the environmental representation (as opposed, say, to the financial statement representation or the post closing price adjustment mechanism), or why in the critical moments just before we were to sign and wire funds, I would politely blow off what might otherwise be reasonably considered a helpful clarification of some of the wording.
Obviously, moot courts, trial teams, mock negotiations (like Karl Okamato's Transactional Meets), and clinical experiences (like the Entrepreneurial Law Clinic associated with Don Kuratko's entrepreneurship center in the Kelley School of Business at Indiana) offer the chance for students to live the inner experience of a real lawyer. The bigger challenge is learning to bridge the objective-subjective divide when dealing with others. Bill's words from a previous post are more profound perhaps even than Bill thought:
For those of us who accept change as the one bankable constant, change is less a threat than an opportunity. Over the next five to ten years, maybe slightly longer, a more sustainable Post-Langdellian business model for legal education will emerge. This new model will likely place a higher emphasis on communication, collaboration, and problem solving, which are the skills needed to price, allocate, manage, or engineer around legal risk or legal problems. Winning a case in court is only a sliver of the calculus. Technology and new pedagogy will pack a much better education into three years. At least some scholarship will be highly applied. And at the best schools, teaching, service and scholarship will merge, and the most valuable faculty will be less ivory tower. It will be an exciting place for students, professors and alumni.
Maybe it takes a law school pedagogy that is somewhat less rational, analytical, reductive, and behavioral, and somewhat more personal, emotional, affective, and experiential.
[Cross-posted at Legal Profession Blog.]
Wednesday, March 28, 2012
Larry Kramer, dean of the Stanford Law School, has announced to faculty and administrators that he is resigning, effective August 31 this year, to take over as president of the Hewlett Foundation. He is not the first Stanford Law dean to take that job; he will be succeeding Paul Brest.
Tuesday, March 27, 2012
I am in the process of uploading a backlog of articles and essays onto SSRN. The backlog includes a book chapter I wrote for the Studies in Law, Politics and Society Series (Austin Sarat editor). It explores some of the themes discussed in "Too Good for BigLaw": The Statistician Edition and A Reply to Empiricists at NWU Law -- albeit in far greater depth.
You can read the (dry) abstract here. But in retrospect, I think the puzzle is better described by the first 1.5 paragraghs of the chapter:
Large corporate law firms are in the business of selling legal expertise to clients, usually by the hour and preferably at a premium price. Without high quality lawyers, these organizations have nothing to sell. Therefore, it stands to reason that law firms operating in a highly competitive market would seek to answer the most fundamental questions at the heart of their business: Who succeeds at our firm? Why do they succeed? What traits do they share in common? Can we recruit and develop more of these individuals? What are the characteristics of lawyers who prioritize building the organization rather than maximizing their personal income? Unless a firm has a realistic grasp of these human capital issues — which go to the very heart its business — it cannot make intelligent trade-offs. Such a firm thus becomes susceptible to paying too much for the wrong input, or ignoring the right input available at a bargain price.
In my study of this market over the last several years, I have observed a remarkable indifference to these questions. ...
[Posted by Bill Henderson]
Monday, March 26, 2012
IDEO is the world's leading design and innovation company. Diego Rodriguez, one of the partners at IDEO, has made a point of sharing the video below with a number of his colleagues. Why? Because he wanted to show them "what leadership should look like at IDEO." It will surprise you. (Hat-tip to Bob Sutton at Work Matters.)
Maurice Cheeks, then the head coach of the Portland Trail Blazers, sets a high bar for courage, confidence, decisiveness, humanity, kindness, unselfishness and world class poise. If that is leadership, I am ready to follow.
[Posted by Bill Henderson.]
Sunday, March 25, 2012
Posted by Jeff Lipshaw
I apologize to Bill Henderson, a first-rate student of empirical method, for what is to follow, but it's at least a sliver of data from which I'm going to spin a little perspective, which itself will be cold comfort to those caught in a particular population cohort at a particular moment in history on a particular segment of the macro-economic cycle.
A short piece in today's New York Times Sunday Magazine, entitled "Hello, Cruel World," is a survey of the 2011 graduating baccalaureate class of Drew University in Madison, New Jersey, which the Times characterizes as follows: "For all its merits - including a much admired theater department and a prestigious Wall Street internship program - Drew ranks 94th among 178 private liberal-arts colleges on U.S. News & World Report's annual list. The middle of the collegiate pack is not where you want to be when you're competing for a diminishing number of entry-level jobs."
Now I don't think there's a perfect analog between undergraduate education and professional education when it comes to a causal link between the tuition investment and post-graduate employment. If you read the survey and the student comments, however, it's clear that there's an expectation that going to college has something to do with putting yourself in a better position to compete for employment. Does this sound familiar? 39% of the Drew class have full time jobs. Phi Beta Kappa students from Drew's senior class can't find non-menial jobs. An anthropology major works as a dog groomer. An English major can't earn enough money to make the monthly payment on $128,000 in educational loans. (If I read this correctly, the Times spoke to 226 of Drew's 309 graduating seniors in December 2011. Of the 226, only 4 are in law school as compared to these numbers for other graduate programs: education - 11; health care - 7; psychology/social work - 7; business - 5; liberal arts - 5; sciences -5.)
What I don't see in the comments from the students interviewed is the idea that college is a massive conspiracy cooked up by faculties and administrators to feather their own nests with government-funded student loans, leaving students to bear the cost over the remainder of their working lives. (I grant it's likely that undergraduate schools don't publish post-graduate employment statistics, but I think Judge Schweitzer probably got it right in his skepticism about the causal relationship between those statistics and the decision to go to law school.) I don't mean at all to minimize the hardship of having a lot of debt without a job to provide the income to repay it, but this information is really telling us that the lifetime mortgages placed on young people by college and professional school tuition debt are a far broader issue than merely the so-called law school "scam."
Here are several theses, briefly stated and barely explicated:
1. It's really hard to assess causation, "but-for" or proximate, for this kind of hardship from the midst of the hardship. I think lawyers (and law students) self-select as finding meaningful causative links in what other people refer to as "blame": "okay, something bad happened, who's responsible, and can we have a perp walk?" (I've written about this in connection with the financial crisis: "The Financial Crisis of 2008-09: Capitalism Didn't Fail, But the Metaphors Got a 'C,'" and "The Epistemology of the Financial Crisis: Complexity, Causation, Law, and Judgment.") (That's not to say there are never perps, but the availability heuristic triggered by the Andy Fastows, Bernie Ebbers, and Bernie Madoffs makes us think there are more real ones than there really are.)
2. It's really hard to make policy from the midst of this kind of hardship. My sense is that the problem is not so much the debt but the economic prospects, or at least the ratio of the debt to the prospects. In other words, this wasn't an issue before the downturn, but the debt still existed. What springs to mind is our family's experience as baby boomers raising children in the millennial baby boomlet of the late 80s and early 90s. The problem was lack of capacity in the elementary and middle schools at a time when you could drive around a suburbs and see dozens of unmistakably 1950s and early 1960s former school buildings that had been sold off in the zero population growth culture of the late 1960s and 1970s. Matching up macro-demand and macro-supply, particularly looking forward rather than backward, is hardly science. (From a Drew graduate in the survey, now at Georgetown Law: "I'm hoping that the job market will pick up in the three years I spend at law school, because a lot of lawyers are getting laid off.")
3. No institutions are immune from Schumpeterian creative destruction, including AOL, Yahoo!, Google, Microsoft, General Motors, AIG, Dewey Leboeuf, or law schools. (Of the 25 largest U.S. corporations in 1900, only two existed in the same corporate form in 1963.) That doesn't make living in the midst of the destruction and re-genesis any easier.
4. Quietism or "manure happens" (as we horseback riders like to say) is not an appropriate leadership or management philosophy, but there are no silver bullets either. No proposed solution is immune from the mysterious leap of hypothesis that occurs when we try to translate our experience of the past into predictions of the future. I mentioned to Bill offline that I think his recent industry analysis of legal education is spot-on, but I share his optimism only in the macro, not the micro. I agree with Bill that we'll likely look back in five or ten years, having experienced the shake-out, and agree that the profession and its schools are in a better place that they were in 2012, with those smart enough or lucky to have made the right moves - i.e., see the first sentence in this paragraph - being around to write the history. I can't be optimistic that nobody is going to be caught in the micro of the shake-out. As to them, it's going to be really hard to assess causation, "but-for" or proximate, for their kind of hardship from the midst of the hardship. But that won't stop people for searching for the perp.
[Cross-posted at Legal Profession Blog.]
At Balkanization, Brian Tamanaha (Washington University) continues to shine a bright light on law student loan statistics. See The Quickly Exploding Law School Debt Disaster.
Viewing recently released 2011 data, Brian cites 17 law schools where the average debt exceeds $135,000 per student. The vast majority of students at these schools will be forced into Income Based Repayment (IBR), which is, functionally, a federally administered insurance program for indebted law school graduates who fail to make a high five-figure or low six-figure income. It caps debt payment at 15% of income above some basic poverty level threshold. (In future years, it will drop to 10%.) The downside of IBR is that unpaid interest is quickly capitalized, so a graduate's total debt load explodes upward, making it very difficult to afford things like a car or a home using debt finance. Then, as Brian suggests, buyer's remorse is going to set in for a whole generation of law school graduates.
As a political issue, this is not going away. I agree 100% with Brian's final line: "This financial insanity will not stop until significant changes are made to the federal student loan program." When this happens, every law school in the U.S. will be be affected. As I said last week, it is time we get our houses in order.
[posted by Bill Henderson]