Wednesday, August 12, 2015

Of Transfers and Law-School-Funded Positions

1.      Many Elite Law Schools with Large Numbers of Transfers also Have Large Numbers of Law-School-Funded Positions

Several weeks ago, I participated in two separate conversations.  One was about when law-school-funded positions should be categorized as full-time, long-term, bar-passage-required (FLB) positions and one was about transfer students.  This prompted me to compare those schools that are “big players” in law-school-funded positions with those schools that are big players in the “transfer” market.  Interestingly, as shown in the chart below, there is a significant amount of overlap.

For the Class of 2014, of the 15 law schools with the most graduates in FLB positions, ten had a significant (net) number of transfer students in the summer of 2012.  (The chart is sorted based on 2014 FLB positions (in bold).  To provide context, the chart also includes the 2011 net transfer data and 2013 law-school-funded FLB data for these 10 schools.)

Law School

2011 Net Transfers

2013 Law-School-Funded FLB

2012 Net Transfers

2014 Law-School-Funded FLB

GEORGE WASHINGTON

94

88

46

78

GEORGETOWN

63

73

75

64

EMORY

8

62

32

52

NYU

55

42

50

36

MICHIGAN

36

3

28

33

SOUTHERN CALIFORNIA

20

10

28

31

UCLA

35

31

33

31

COLUMBIA

44

29

57

31

HARVARD

30

11

31

26

BERKELEY

12

25

38

20

 Total

397

374

418

402

 

Note that in both 2013 and in 2014, six of the ten schools had more transfers than law-school-funded positions, suggesting that had they taken fewer transfers they might not have needed to provide as many law-school-funded positions. Phrased differently, this data suggests that with the transfer students, these law schools have too many graduates compared to the number of jobs the market is able to provide for their graduates.

2.      Adjusting to the Employment Market or Continuing to Attract Transfers and Provide Law-School-Funded Positions?

One might expect that a natural response to this “mismatch” between the number of graduates and the number of meaningful employment opportunities provided by the market would be to have fewer graduates (and fewer law-school-funded positions).  Indeed, for many of the schools in the chart above, the simplest way to do this would involve not accepting any transfer students (or accepting very few transfer students).  The first-year enrollment at these schools appears to be fairly-well calibrated with the number of meaningful employment opportunities provided by the market.  Of course, this would mean a significant loss of revenue.

But what happened at these ten law schools in the summer of 2013 and the summer 2014 with respect to transfer students? As shown in the chart below, almost all have continued to take large numbers of transfer students.  With knowledge that a not insignificant percentage of their graduates need the support of law-school-funded positions because they can’t find market positions, these law schools continue to take large numbers of transfers.  Indeed, the total number of net transfers at these ten law schools is even higher in 2013 and 2014 than in 2011 and 2012.

 

 

2014   Net Transfers

2013   Net Transfers

 

GEORGE   WASHINGTON

77

71

GEORGETOWN  

106

115

EMORY 

47

69

NYU

48

46

MICHIGAN

14

20

SOUTHERN   CALIFORNIA

27

34

UCLA

33

36

COLUMBIA

41

50

HARVARD 

31

34

BERKELEY

53

24

 Total

477

499

 

3.   Why are These Schools Continuing to be Big Players in the Transfer Market and in Providing Law-School-Funded Jobs and Why Aren’t Other Schools Doing This as Well?

Many elite law schools are participating heavily in the transfer market and in providing law-school-funded jobs because they can and because it makes financial sense to do so.

As a general matter, only relatively elite law schools are able to attract large number of transfer students willing to pay $50,000 per year in tuition.  (This assumes that most transfers are paying full tuition. There is very little information available about scholarships in the transfer market, but anecdotes suggest that scholarships are uncommon.)  By taking large numbers of transfers, these schools generate revenue that funds general operations AND enables the school to fund post-graduate employment opportunities for a significant number of graduates.  According to NALP, most graduates in law-school-funded positions receive salaries of roughly $15,000-$30,000 per year.  Even if they have as many law-school-funded positions as they do transfers, the schools still net $70,000 to $88,000 per transfer student over the second and third year of law school even after accounting for the salaries for law-school-funded positions. (To be fair, some modest percentage of law-school-funded positions at several of these law schools may be great opportunities that are highly competitive and pay a salary comparable to a market salary – in excess of $40,000 per year.  Some of these may be public interest opportunities that some students find particularly attractive.  But the proliferation of law school funded positions (having grown from just over 500 in 2012 to more than 800 in 2014), with most of the growth occurring at relatively elite law schools, suggests that many of these positions do not fit the profile described in the preceding two sentences.)

Other schools would love to do this, but most simply don’t have the ability to attract significant numbers of transfer students.  Moreover, in the present legal education environment with declining enrollment at most schools, many law schools are running a deficit, and simply can’t afford to invest money in law-school-funded positions for their graduates.

Notably, up until this year, this effort was aided by the reporting of law-school-funded jobs as if they were the same as jobs provided by the market.  A school with law-school-funded positions that otherwise met the definition of FLB positions could report a higher percentage of its graduates in such positions.  This minimized the extent to which less than robust employment results might erode the schools’ ability to attract students and has allowed these elite schools to continue to attract large numbers of relatively highly-credentialed entering students (and transfers) along with the revenue they bring to the school.  For the Class of 2015, however, these law-school-funded positions will be reported separately from FLB positions provided by the market.

4.      What Questions Might this Raise for Students?

Students considering transferring to one of these elite schools should ask two questions: 1) What percentage of law-school-funded positions went to transfer students? and 2) How do employment outcomes for transfer students compare with employment outcomes for students who began at the school as first years?  (Even with the increased attention on transparency with respect to employment outcomes, one data point not presently collected relates to employment outcomes for transfer students.)  This isn’t to suggest that all transfers end up in law-school-funded positions.  Some transfer students may outperform some of the students who began at a law school as first years, both in terms of academic performance and in terms of relationship skills.  These transfer students may outcompete original first-year students for market employment opportunities.  But students considering transferring might want to assess whether their employment prospects really will be better at the school to which they might transfer as compared with the opportunities available to them if they remained at the school from which they are considering transferring, particularly if they are near the top of the class at the school from which they are considering transferring.

Students who had matriculated as first-years at one of these elite law schools, might want to ask the law school administration how and why having a large number of transfers is a good thing for those who matriculated as first-years at the elite law school.  Having the additional revenue might enhance the educational experience in some way, but having significantly more students competing for jobs would seem to be an unnecessary challenge. 

5.      Conclusion

The data on transfers in 2013 and 2014 suggests that at many elite law schools, there will continue to be more graduates than jobs provided by the market.  As a result, these law schools are likely to continue to provide law-school-funded positions for some number of their graduates. Indeed, the prospect of law-school-funded positions as a fall-back option if a market position is not available might provide some solace for students, including transfer students, at these elite law schools. 

Nonetheless, there is a further ripple effect.  With dozens of graduates from these elite law schools in law-school-funded positions looking for market jobs, it makes it even more challenging for the next year’s graduates from these elite schools to find market jobs and almost assures that many graduates will still need the support of law-school-funded positions in the coming years.

(I am grateful to Bernie Burk and others for helpful comments on earlier drafts of this posting.)

August 12, 2015 in Data on legal education, Data on the profession | Permalink | Comments (0)

Thursday, August 6, 2015

How is the entry-level legal job market in Australia?

AlsaNot good.  There are more law graduates than jobs, yet law schools are making matters worse by admitting more students in order to generate subsidies for other parts of the university. That the basic charge of the Australian Law Students Association (ALSA), according to this story in the Lawyers Weekly, a publication that covers the business of law in Australia.

Legal education is Australia is very different than the U.S.,  yet the dynamics of the two entry-level markets seem to be converging.  Law has historically been an undergraduate degree in Australia (LLB), but in recent years the JD has been added as a new and more prestigious way into the profession. Here is the statement of an ALSA spokesperson based on recent survey results of the ALSA membership.

ALSA are of the position that there is still an oversupply of graduates because of the increasing sizes of law schools and the duplication in the number of law schools across the country. ...

Many who have undertaken the Juris Doctor particularly expressed concerns in their survey responses, highlighting that they undertook the postgraduate law degree to further their job prospects. Instead, they are facing the worrying reality that there are fewer jobs available for law graduates as well as the fact that they are completing their degrees with a sizeable student debt.

The article then goes on to describe growing law student anxiety over employment and student loan debt.  Wow, different system but a very similar result.  

One of the advantages of the Australian LLB degree is that it is often combined with another undergraduate degree, typically by adding one year of additional study.  As a result, many LLBs don't go on to qualify for practice, but the legal training probably augments their worldly knowledge and critical thinking skills.  But alas, the Australians are starting to dilute their extremely generous higher education subsidies -- we are just much further down that road. Further, the true undercurrent here is the growing insecurity facing virtually all knowledge workers, Australian or US.  Legal education is just the bleeding edge of this problem.

August 6, 2015 in Current events, Data on legal education, Data on the profession, New and Noteworthy | Permalink | Comments (0)

Tuesday, August 4, 2015

Metrics and Legal Ops Professionals

In a recent post, I urged readers to visit a legal department with a large legal operations staff.   The goal?  To see the future of modern corporate law practice.  Fortunately, Bloomberg Law recently videotaped a legal ops panel moderated by Amar Sarwal of the ACC.  It contains a conversation rarely if ever heard in law schools or bar associations.

The three legal departments profiled are AIG (insurance), Marsh & McLennan (diversified financial and professional services), and GlaxoSmithKline (pharma).  Note the enormous emphasis on metrics, data, and technology.  Note also how the services of law firms are being put through a procurement process. 

August 4, 2015 in Blog posts worth reading, Current events, Data on the profession, Law Firms, Legal Departments, New and Noteworthy, Video interviews | Permalink | Comments (0)

Wednesday, July 29, 2015

"Solicitors 'in denial' about threat from accountants"

Legalservices (321x207)That's the headline from today's Law Society Gazette, the publication of record for solicitors in England and Wales.  The UK is fairly far along in liberalization of its legal markets, progressing from the Clementi Report in 2004 to the Legal Services Act 2007 to the licensing of Alternative Business Structures in 2012.  Now several hundred entities have obtained ABS status.  

The Gazette article reports that accountants are poised to be large players in the ABA space:

Accountants will soon be competing directly with solicitor firms ‘on every high street in the country’, according to a leading financial advisor to the legal sector.

Ian Muirhead, chairman of Solicitors Independent Financial Advice, said he expects 750 accountancy firms – three times more than first envisaged – to move into probate work after securing an alternative business structure licence.

The Institute of Chartered Accountants in England & Wales has accredited 113 entities as an ABS since last October, having been accepted as an approved regulator almost a year ago. A further 34 applications are being processed.

Speaking at a Westminster Legal Policy, Muirhead said too many solicitor firms are ‘in denial’ about the threat from the accountancy profession.

‘Success will go to those who can manage businesses and I query whether that’s going to be the solicitors or whether solicitors are going to be the back room boys,’ he said.

Muirhead argued that law firms’ response so far has been focused on consolidation, mergers and acquisitions – but this risks playing into rivals’ hands.

‘[The response is] safety in numbers, more of the same, not thinking outside the legal silo, and therefore missing the opportunity of which many new ABSs are availing themselves, of providing a more diversified and holistic client service,’ he added. ... 

Some U.S. lawyers believe that liberalization won't come to the U.S. because the legal industry is too balkanized by state bar authorities.  

I think this view, however, is likely naive. The market can change because regulators change the rules (the UK). Alternatively, the market can change because clients change their buying habits in favor of nontraditional legal service providers that are financed by sophisticated nonlawyer investors (the US).  See, e.g., Is Axiom the Bellwether for Disruption in the Legal Industry, LWB, Nov. 10, 2013.

In the US, it is probably true that regulators lack the stomach to initiate a regulatory action where the client ostensibly being protected is a Fortune 500 corporation.  If the action ends up in federal court, the bar officials risk looking like protectors of the guild and have a decent chance of losing.  The prohibition against nonlawyer investment (MR 5.4) is based on the assumption that the nonlawyer profit motive will compromise lawyer independence, thus harming the unwitting and unsophisticated legal consumer.  But that does not describe IBM's or JP Morgan's relationships with sophisticated LPO or analytics shop (or any general counsel charged with stretching his or her legal dollar). As a result, the venture capital money flows in.

When liberalization is viewed in this light, there are probably more similarities between the US and UK than we might want to acknowledge. 

July 29, 2015 in Current events, Data on the profession, Innovations in law, Law Firms, New and Noteworthy, Structural change | Permalink | Comments (0)

Wednesday, July 22, 2015

What is more important for lawyers: where you go to law school or what you learned? (Part II)

If you're trying to maximize the financial value of an undergraduate degree, it is better to bet on course of study than college prestige.  Indeed, prestige is largely irrelevant to those who major in engineering, computer science, or math.  In contrast, prestige does matter for art & humanities grads, albeit the financial returns are significantly lower than their tech counterparts.  

These are some of the takeaways from Part I of this blog post. Part I also presented data showing that law is a mix of both: financial returns have been high (cf. "red" tech majors) and prestige matters (cf. "blue" arts & humanities crowd).  

The goal of Part II is to address the question of whether the pattern of high earnings/prestige sensitivity will change in the future. I think the answer to this question is yes, albeit most readers would agree that if law will change is a less interesting and important question than how it will change.  Speed of change is also relevant because, as humans, we want to know if the change is going to affect us or just the next generation of lawyers.

Shifts in the Legal Market

There are a lot of changes occurring in the legal market, and those changes are altering historical patterns of how legal services are being sold and delivered to clients. In the past, I have thrown around the term structural change, yet not with any clear definition.  To advance the conversation, I need to correct that lack of precision. 

In economics, there is a literature on structural change as applied to national or regional economies (e.g. moving from a developing nation to an industrial nation; or moving from an industrial to a knowledge-based economy).  Investors also focus on structural change within a specific industry because, obviously, large changes can affect investor returns.  When I have used the term structural change on this blog, it has been much closer to investor conceptions.  Investopedia offers a useful definition even if it's somewhat colloquial: 

Definition of 'structural change': An economic condition that occurs when an industry or market changes how it functions or operates. A structural change will shift the parameters of an entity, which can be represented by significant changes in time series data.

Under this definition, the legal industry is certainly undergoing structural change.  The proportion of law graduates getting a job in private practice has been on the decline for 30 years; over the last 35 years, the average age of the licensed lawyer has climbed from 39 to 49 despite record numbers of new law school graduates; the proportion of associates to partners has plummeted since the late 1980s.  See Is the Legal Profession Showing its Age? LWB, October 12, 2014.  Since the early 2000s, long before the great recession, associate-level hiring has been cut in half. See Sea Change in the Legal Market, NALP Bulletin, August 2013.

Likewise, among consumers of legal services, there is a lot of evidence to suggest that lower and middle class citizens can't afford a lawyer to solve life's most basic legal problems, thus leading to a glut of pro se litigants in state courts and many more who simply go without things like contracts and wills.  This troubling trend line was obscured by a boom in corporate legal practice, albeit now even rich corporations have become more sensitive to legal costs -- the sheer volume and complexity of legal need is outstripping their budgets.  In response to the lag in lawyer productivity and innovation, there is a ton of investor-backed enterprises that are now elbowing their way into the legal industry.  See A Counterpoint to "the most robust legal market that ever existed in this country"LWB, March 17, 2014.  

The impact of all this change -- structural or otherwise -- is now being felt by law schools. Applicants are down to levels not seen since the 1970s, yet we have dozens more law schools. It has been said by many that law schools are losing money, albeit we have zero data to quantify the problem.  Based on my knowledge of my own law school and several others I am close to, I am comfortable saying that we have real changes afoot that affect how the legal education market "functions or operates."

There is a sense among many lawyers and legal academics that the legal world changed after 2008. None of the "structural" changes I cite above are pegged in any way to the events of that year.  

What did change in 2008, however, was the national conversation on the legal industry, partially due to the news coverage of the mass law firm layoffs, partially due to important books by Richard Susskind and later Brian Tamanaha and Steve Harper, and partially due to a robust blogosphere.  This change in conversation emboldened corporate legal departments to aggressively use their new found market power, with "worthless" young associates getting hit the hardest.  This new conversation in turn exposed some of the risks of attending law school, which affected law school demand.  But alas, this was all fallout from deeper shifts in the market that were building for decades. Let's not blame the messengers.

Dimensions of Change

I am confident that the future of law is going to be a lot different than its past. But I want to make sure I break these changes into more discrete, digestible parts because (a) multiple stakeholders are affected, and (b) the drivers of change are coming from multiple directions.

Dimension 1: basic supply and demand for legal education

To unpack my point regarding multiple dimensions, let's start with legal education. Some of the challenges facing law schools today are entirely within the four corners of our own house.  Yet, legal education also has challenges (and opportunities) that arise from our connection to the broader legal industry.  This can be illustrated by looking at the relationship between the cost of legal education (which law schools control, although we may blame US News or the ABA) and entry level salaries (which are driven largely by the vagaries of a client-driven market).  

The chart below looks at these factors.  My proxy for cost is average student debt (public and private law schools) supplied by the ABA.  My income variables are median entry level salaries from NALP for law firm jobs and all entry level jobs.  2002 is the first year where I have all the requisite data.  But here is my twist:  I plot debt against entry-level salary based on percentage change since 2002.  

Debtversusincome-2002

If a business nearly doubles its price during the same period when customer income is flat, demand is going to fall.  Thus, the sluggish entry-level market presents a difficult problem for legal education.  Sure, we can point to the favorable statistics from the AJD or the premium that a JD has historically conferred on lifetime earnings, but law professors are not the people who are signing the loan papers.  The chart above documents a changing risk/reward tradeoff.  To use the frame of Part I, the red dots are sinking into the blue dot territory, or at least that is the way prospective students are likely to view things.

Fortunately, smaller law school classes are going to be a partial corrective to low entry-level salaries.  The biggest law school class on record entered in the fall of 2010 (52,488); in 2014, the entering class had shrunk by over 27% (37,942). When entry-level supply is reduced by 25+%, upward pressure on salaries will build.  Yet, the composition of the legal economy and the nature of legal work is clearly changing.  Further, the rate of absorption of law school graduates into the licensed bar has been slowing for decades.  See Is the Legal Profession Showing its Age? LWB, October 12, 2014. It would be foolhardy to believe that time and fiscal austerity alone are going to solve our business problems. Instead, we need to better understand our role as suppliers to a labor market.

Dimension 2:  The content of legal education

The content of legal education is not necessarily fixed or static.  We could change the content, thus affecting how the market responds.  

To provide a simple example, one of my students is starting work this fall at Kirkland & Ellis.  From a financial perspective, this is a good employment outcome.  He will be moving to Chicago with his girlfriend who just received her MS in Information Systems from IU's Kelley School of Business.  The MS from Kelley is a very "red" degree.  It can also be completed in one year (30 credit hours).  Well before she graduated, this recent grad had competing offers from PWC and Deloitte, both in the $80,000 range.   For many Indiana Law students, an ideal post-grad outcome would be $80K in Chicago at an employer who provides challenging work and high-quality training.  Yet, my student's girlfriend got this ideal outcome in 1/3 the time and likely 1/2 the cost of an Indiana Law grad.  

Perhaps we should consider cross-pollinating these disciplines. A huge portion of the legal profession's economic challenges is attributable to flat lawyer productivity -- customers are struggling to pay for solutions to their legal needs.  Information systems are a huge part law's productivity puzzle.  Below is a chart I use in many of my presentations on the legal industry.  The chart summarizes the emerging legal ecosystem by plotting the Heinz-Laumann two-hemisphere model against Richard Susskind's bespoke-to-commodity continuum. [Click-on to enlarge.]

Ecosystem

The key takeaway from this diagram is that the largest area of growth is going to be in the multidisciplinary green zone -- the legally trained working shoulder-to-shoulder with those skilled in information systems, statistics, software development, and computational linguistics, to name but a few.  These are "red" disciplines.  Do law schools want to be part of this movement?  Let me ask this another way -- do law schools want to be relevant to the bulk of the legal market that needs to be rationalized in order to maintain its affordability? Harvard grads will have options on Wall Street for the foreseeable future.  But 98% of law schools operate in a different market.  Further, some HLS grads, or students who might qualify for admission to Harvard, might prefer the big upside rewards that are only available in the green zone.  In short, a new hierarchy is emerging in law that is still very much up for grabs.

If an academic wants to better understand the rapidly changing nature of legal work, I would urge them to visit a large legal department with a substantial legal operations ("legal ops") staff.  These are the professionals who have been empowered by general counsel to find ways to drive up quality and drive down cost using data, process, and technology.  These are the folks who are making build-versus-buy decisions, putting pressure on law firms to innovate in order to hang on to legal work, and experimenting with NewLaw legal vendors. 

I am finishing up a story on legal ops professionals for the ABA Journal.  (By the way, legal ops exist in law firms as well as legal departments and green zone legal vendors. The role is most developed, however, in legal departments.)  My editor flagged the issue that virtually all of the legal ops people in the story did not graduate from prestigious law schools (or any law school).

My only response is that legal operations people have specialized skills and knowledge (often "red" but sometimes involving EQ) that others lack; without these skills, they can't do the job.  Legal ops people live in a world of outputs and metrics.  For example, are legal expenses and settlement amounts trending down over time -- yes or no? If so, by how much?  How much internal staff time does it take to negotiate a revenue contract? How much of this process can be automated? What will it take to get our staff to accept the new system?

As these examples show, a legal ops person is typically going to be evaluated based on measurable outputs -- do they get results? Where someone went to law school is an input that is likely irrelevant to the question.  The only qualifier is whether the curriculum of that school provided valuable, specialized domain knowledge -- most likely non-legal red skills but also skills related to teams, communication, and collaboration. 

Dimension 3:  The value of pedigree to the customer 

Law has historically been what economists call a “credence good.”  This means that a layperson has a difficult time assessing quality.  As a result, proxies for quality, such as pedigree or prestige, have historically been very important when hiring a lawyer or law firm.  

One of the reasons that the field of legal operations is gaining momentum is because it is creating tools and systems that enable clients to look past credentials to obtain information on things they really care about, such as cost, outcome, and speed of delivery. There are now companies coming into existence that are gathering data on lawyers' win-loss rates. See Another Example of Using Big Data to Improve Odds of Winning in Court, LWB, April 12, 2015.  Sure, apples-to-apples comparisons are very difficult to make -- every case is unique in some respect. But the amount of money at stake is large enough that the data challenges will be surmounted.  When that day arrives, we won't opine on the value of pedigree to legal outcomes; we'll just calculate it. More significantly, clients focused on outcomes will change their buying patterns.  Early returns I have seen suggest that the value of pedigree to legal outcomes may be close to negligible.

Do any of us care where the engineers who designed our smart phones went to college? Not really. We just care how well the smart phone works. 

In this respect, the future of law is likely headed in the direction of Google (a pure red company).  In the early days, the founders of Google favored grads of Caltech, Stanford and Berkeley.  But over time, the company learned that prestige of graduate school was a poor predictor of job success. Because Google lives and dies by its outputs, the company changed its hiring model to attract the most qualified engineers.  See George Anders, The Rare Find: How Great Talent Stand Out 1-5 (2012) (telling the story of how data changed the attitudes of Google founders regarding elite credentials and altered the Google hiring model).

I have lived long enough to know that the changes I describe above are not necessarily going to be welcomed by many lawyers and law professors.  If a group benefits from a lifelong presumption of merit, it is natural that group will resist evidence that the presumption is not fully warranted. Indeed, much of the skepticism will be rooted in subconscious emotion.  If the presumption is dashed, those of us in the elite crowd will have to spend our days competing with others and proving ourselves, or even worse, watching our kids soldier through it.  We have little to gain and a lot to lose in the world we are heading into.  Yet, behind the Rawls veil of ignorance, how can we complain?

So with the red-blue crosscurrents, is law school still worth the investment?

That is a relevant and reasonable question that many young people are contemplating.  I will offer my opinion, but markets are bound to follow their own logic. 

This is a time of enormous uncertainty for young people. Education clearly opens doors, but tuition is going up much faster than earnings.  Further, competition among knowledge workers is becoming more global, which is a check on wages.  Of course, if you don't invest in education, what are your options?

I am generally on the side of Michael Simkovic and Frank McIntrye that the education provided by a law degree, on average, significantly increases lifetime earnings.  See The Economic Value of a Law Degree (April 2013).  How could it not?  The law is too interconnected to every facet of society to not, on average, enhance the law grad's critical thinking skills. Nearly 15 years of out of law school and I regularly use what I learned at Chicago Law to solve problems and communicate solutions, particularly in my applied research work with law firms and legal departments. While my Chicago Law credential has value independent of the skills and knowledge I obtained (the red AJD bar chart in Part I strongly suggests that), I can't deny the additional value of the actual skills and knowledge I obtained to solve real world business problems. It's been substantial.

In general, I also agree with Deborah Jones Merritt that there is significant evidence that the entry-level market for lawyers is weak and oversaturated.  See What Happened to the Class of 2010? Empirical Evidence of Structural Change in the Legal Profession (April 2015).   The class of 2010 is not faring as well as the class of 2000.  Indeed, the lead economist for Payscale, Katie Bardaro, recently noted that wages are stagnating in many fields, but especially in the legal profession. "More law schools are graduating people than there are jobs for them...There’s an over-saturated labor market right now. That works to drive down the pay rate.” See Susan Adams, The Law Schools Whose Grads Earn the Biggest Paychecks in 2014, Forbes, Mar. 14, 2014. 

In the face of these stiff headwinds, I think law schools have an opportunity to pack more value into three years of education. See Dimension 2 above.  To be more specific, if you are a protege of Dan Katz at Chicago-Kent, you will have a lot of career options. Ron Staudt, also at Chicago-Kent, has quietly built a pipeline into the  law and technology space.  Oliver Goodenough and his colleague at Vermont Law are making rapid progress with a tech law curriculum.  And at Georgetown Law, Tanina Rostain and Ed Walters (CEO of Fastcase) provide courses that are cutting edge.  

But absent these types of future-oriented instruction, what is the value of a JD degree as it is commonly taught today? That value is clearly positive; I would even call it high.  But whether the value is sufficient to cover the cost of attendance is likely to vary from law grad to law grad.  Lord knows, in a world of variable tuition based on merit scholarships and merit scholarships that go away after the 1L year, the swing in cost can be a $250K plus interest.

What is killing law school applications these days is the lack of near certainty among prospective students that the time and expense of law school will pay off.  The world looks different than it did in the fall of 1997 when the vast majority of the AJD respondents entered law school. Tuition and debt loads are higher and high paying entry-level jobs are harder to obtain.

So what is the solution?  For students, it's to bargain shop for law schools, which is bad news for law schools.  For law schools, it's to add more value to an already valuable degree.  Some of that value will come in the form of red technical skills that will make lawyers more productive.  In turn, this will prime demand for more legal products and services.

July 22, 2015 in Blog posts worth reading, Data on legal education, Data on the profession, Legal Departments, Structural change | Permalink | Comments (0)

Sunday, July 19, 2015

What is more important for lawyers: where you go to law school or what you learned? (Part I)

The Economist reports a very interesting analysis from Payscale.  The questions being asked are pretty simple: If you want to generate earnings that justify the time and cost of an undergraduate education, what should you study and where should you enroll?

Lots of people have strong opinions on this set of questions, but Payscale has the data to answer them empirically. It turns out that at the undergraduates level, course of study is much more important than the prestige of the college or university you attend.  The hard evidence is shown below.

Payscalegraphic

For those working in law or thinking about attending law school, a natural question to ask is whether the legal industry is closer to the blue dot (art & humanities) or red dot pattern (engineering/CS/math).  A second, related question whether the future of law is more blue or more red.

This a two-part blog post.  Part I tries to answer the first question, starting with a careful analysis of the undergraduate chart, which provides a valuable frame of reference that can be discussed more dispassionately (at least among lawyers and law students) than an analysis that questions the value of law school prestige and hierarchy.  

Part II, which I will post on Wednesday, explores the second, future-oriented question.  I will tip my hand now and say that the future of law will be less blue (arts & humanity) and more red (math/CS/engineering).  Within the legal industry, there will be winners and losers; but from the perspective of broader society, this change is a very good thing. 

Undergraduate ROI

In the Payscale chart above, the y-axis (vertical) is 20-year annualized returns from college fees paid.  The x-axis is selectivity, running from under 10 percent to near open admissions.  

The Payscale chart is a very good example of how data visualization can be used to communicate both core facts and useful nuance.  Here, the lede is unmistakable:  the red dots (engineering/CS/math) are overwhelming higher on the ROI scale than the blue dots (arts & humanities).  Sure, there are exceptions to this rule, but they don't occur very often. (Observe how rarely a blue dot is above the red fit-line.) This suggests it would be very foolish to get a blue degree and expect a red paycheck unless you have very good information (or skills or talent) that others lack.

The chart conveys another important piece of information -- the red fit-line is flat.  This means that for engineering/CS/math majors, prestige has not been very relevant to their eventual earnings.  I'll add a nuance here that some empirically savvy readers are bound to point out:  It is possible (indeed likely) that fees are higher at more selective schools. So if MIT costs twice as much as a public polytech, and both yield 12% over 20 years, one might wish they had gone to MIT.   Still, the flat trendline is surprising.  As a general matter, lower ranked schools are not dramatically cheaper than higher ranked schools, and many public schools are highly selective.  The flat red trendline suggests that there are (or were, remember these are historical data) many bargains out there.  If one is trying to maximize financial returns, the goal is to find a school that will, in the future, be well above the red fit-line (and avoid those below).  

The flat red fit-line is also surprising because college selectivity is almost certainly highly correlated with ACT or SAT scores, which our society often views as measures of general intelligence. Yet, there we have it -- a flat trendline. Four years of education seem to be more relevant than a standardized test score taken during high school.  That is heartening at many levels.

A third interesting trend -- the blue fit-line is sloped downward.  This suggests that in the arts & humanities, selectivity/prestige does have a financial payoff.  I don't think this will surprise many readers, albeit the prestige payoff is not very large. To use a simple metaphor, if you attend a more selective college or university to get your arts or humanity degree, you are likely to have a better house in the arts & humanities neighborhood.  But on average, you won't be able to afford the same neighborhood as the engineers, computer scientists, and math majors.

What about Law?

Moving on to law, if we want to examine the relationship between earnings and law school attended, the best available evidence is probably the After the JD Study (AJD), which is large, representative sample of law graduates who took and passed the bar in 2000.  

Data from AJD Wave 3 suggests that the financial returns are relatively strong for all law school graduates -- ten years out and graduates of Tier 4 schools have median earnings of $100,000 per year. As shown in chart below, this is akin to shifting the blue dots up into the red territory.  

AJDearnnings

The downward sloping fit-line remains, but that doesn't seem to matter very much to happiness. Other AJD data shows that regardless of tier of graduating school, AJD respondents show relatively high and uniform satisfaction with (a) the decision to become a lawyer, and (b) the value of the law degree as an investment. By 2010, 48% of respondents had no debt; only 5.1% had more than $100K in educational debt remaining. 

This is all good news.  But is it reasonable to extrapolate forward and assume the past is a fairly accurate barometer of the present and the future? 

One way to address that question is to ascertain what has changed since 2000.  As noted earlier, the AJD sample was composed of law graduates who passed the bar in the year 2000. Figures published by NALP and the ABA show that the percentage of full-time bar passage required jobs has dropped significantly over the last 13+ years -- from 77.3% for the class of 2000 to 57% for the class of 2013. That is a huge delta.

Barpassagerequiredjob

One of the reasons why law school applicants have plummeted is that the career path from JD graduates has become murky.  And that is a good place to start Part II

July 19, 2015 in Blog posts worth reading, Cross industry comparisons, Data on legal education, Data on the profession, Structural change | Permalink | Comments (3)

Thursday, May 14, 2015

Further Thoughts on the July 2014 Bar Results -- A Response to Erica Moeser

Late last fall, Erica Moeser responded to a letter from Dean Kathryn Rand of the University of North Dakota (on behalf of a large number of law school deans), reiterating that the NCBE had double-checked its scoring of the MBE on the July 2014 bar examination and could find no errors in its calculations.  Erica Moeser also took to the pages of the December 2014 issue of The Bar Examiner to further validate her conclusion that the historic drop in the mean MBE scaled score is attributable solely to the fact that the class that sat for the July 2014 bar exam was “less able” than the class that sat for the July 2013 bar exam.  In January, Dean Stephen Ferruolo of the University of San Diego also wrote to Erica Moeser requesting the release of more information on which to assess the July 2014 bar examination results in comparison with previous years’ results.  In February, Erica Moeser responded to Dean Ferruolo’s request by declining to provide more detailed information and reiterating her belief that the July 2014 scores “represent the first phase of results reflecting the dramatic and continuing downturn in law school applications.”

In an earlier blog posting, I explained why Erica Moeser is partly right (that the Class of 2014 could be understood to be slightly less able than the Class of 2013), but also explained why the decline in “quality” of the Class of 2014 does not explain the historic drop in mean MBE scaled score.  The decline in “quality” between the Class of 2013 and the Class of 2014 was modest, not historic, and would suggest that the decline in the mean MBE scaled score also should have been modest, rather than historic.  Similar declines in “quality” in the 2000s resulted in only modest declines in the MBE, suggesting that more was going on with the July 2014 exam. 

Others have written about these issues as well.  In January, Vikram Amar had a thoughtful reflection on Moeser’s statements and in recent weeks Debby Merritt has written a series of posts -- here, here, and here -- indicating in some detail why she believes, as I do, that the ExamSoft debacle in July could have impacted the MBE scaled scores in jurisdictions that used ExamSoft as well as in other jurisdictions.

I write now to take issue with four statements from Erica Moeser – three from her President’s Page in the December 2014 issue of the Bar Examiner and one from her letter responding to Dean Kathryn Rand.  I remain unpersuaded that the historic decline in the mean MBE scaled score is solely attributable to a decline in quality of the class that sat for the July 2014 bar examination and remain baffled that the NCBE refuses to acknowledge the possibility that issues with test administration may have exacerbated the decline in the performance on the July 2014 MBE.

Item One – Differential Declines in MBE Scores

In her December article, Moeser stated: 

I then looked to two areas for further corrobo­ration. The first was internal to NCBE. Among the things I learned was that whereas the scores of those we know to be retaking the MBE dropped by 1.7 points, the score drop for those we believe to be first-time takers dropped by 2.7 points. (19% of July 2014 test takers were repeaters, and 65% were believed to be first-time takers. The remaining 16% could not be tracked because they tested in jurisdictions that col­lect inadequate data on the MBE answer sheets.) The decline for retakers was not atypical; however, the decline for first-time takers was without precedent dur­ing the previous 10 years. (Emphasis in original.)

Moeser starts by referencing data that is not publicly available to support her cause.  This is unfortunate, because it makes it really hard to understand and critique the data.  Nevertheless, there are some inferences we can take from what she does disclose and some questions we can ask.  Moeser asserts that the 19% of MBE “retakers” saw an MBE drop of 1.7 points compared with MBE “retakers” in July 2013, while the 65% believed to be first-time takers saw a drop of 2.7 points compared with first-time takers in July 2013.  It would have been helpful here if Erica Moeser would have released publicly the declines among MBE retakers in the previous 10 years and the declines among first-time takers in the previous 10 years so that patterns could be assessed, particularly in relation to the changes in class composition for each of those years.  Without that information available it is hard to do much more with Moeser’s assertion.  (I find it odd that she would reference this point without providing the underlying data.) 

Nonetheless, this assertion raises other questions.  First, the overall decline in the mean MBE scaled score was 2.8 points. Moeser notes that 19% of takers (MBE retakers) had an average drop of 1.7 points, while 65% of takers (first-time takers) had an average drop of 2.7 points.  Unless there is something I am missing here, that should mean the remaining 16% of test-takers had to have an average decline of 4.51 points!  (This 16% of test-takers represents those who Moeser notes could not be tracked as first-time takers or MBE retakers “because they tested in jurisdictions that collect inadequate data on the MBE answer sheets.”) (Here is the equation --- 2.8 = (.19*1.7)+(.65*2.7)+(.16*x).  Solve for X. This translates to 2.8 = .323+1.755+.16x.  This translates to .722 = .16x and then .722/.16 = X.  X then equals 4.51.)  It would have helped, again, if Moeser had indicated which jurisdictions had these even larger declines in mean MBE scaled scores, as we could then look at the composition of graduates taking the bar in those jurisdictions to see if there was an unusual decline in entering class statistics in 2011 at the law schools from which most bar takers in those states graduated.

Item Two – The MPRE

In the December article, Moeser also stated:

I also looked at what the results from the Multistate Professional Responsibility Examination (MPRE), separately administered three times each year, might tell me. The decline in MPRE performance supports what we saw in the July 2014 MBE numbers. In 2012, 66,499 candidates generated a mean score of 97.57 (on a 50–150 scale). In 2013, 62,674 candidates generated a mean score of 95.65. In 2014, a total of 60,546 candi­dates generated a mean score of 93.57. Because many MPRE test takers are still enrolled in law school when they test, these scores can be seen as presaging MBE performance in 2014 and 2015.

At first blush, this looks like a pretty compelling argument, but Moeser’s selectiveness in looking at the data is troubling, and her failure to discuss whether the MPRE and MBE are meaningfully comparable test-taking experiences also is troubling.  Essentially, Moeser is making the following assertion – because the mean MPRE scaled score declined by 1.92 points between 2012 and 2013, we should have expected a large decline in the mean MBE scaled score in July 2014 (and because the mean MPRE scaled score declined another 2.08 points between 2013 and 2014, we should expect another large decline in the mean MBE scaled score in July 2015).

But the “relationship” between changes in the mean MPRE scaled score and changes in the mean MBE scaled score over the last decade does not support this assertion. If one looks at a decade’s worth of data, rather than data just for the last couple of years, the picture looks significantly more complicated, and suggests the collective performance on the MPRE may not tell us much at all about likely collective performance on the MBE in the following year. 

MPRE Year

Mean MPRE Score

Change

MBE Year

July Mean MBE Scaled Score

Change

2004

99.1

 

2005

141.6

 

2005

98.7

-0.4

2006

143.3

+1.7

2006

98

-0.7

2007

143.7

+0.4

2007

98.6

+0.6

2008

145.6

+1.9

2008

97.6

-1.0

2009

144.5

-1.1

2009

97.4

-0.2

2010

143.6

-.9

2010

96.8

-0.6

2011

143.8

+0.2

2011

95.7

-1.1

2012

143.4

-0.4

2012

97.6

+1.9

2013

144.3

+0.9

2013

95.6

-2.0

2014

141.5

-2.8

2014

93.6

-2.0

2015

????

????

The data Moeser cites from the last two years conveniently makes her point, but it consists of a very small sample size.  The data over the last decade looks much more random.  In three of the nine years, the change is not in the same direction (MPRE 2005, 2006, 2010, MBE 2006, 2007, 2011).  In the six years where the change is in the same direction, there are two years in which the MBE change is significantly larger than the MPRE change (MPRE 2007, 2009, MBE 2008, 2010) and there are two years in which the MBE change is significantly smaller than the MBE change (MPRE 2011, 2012, MBE 2012, 2013).  In only two of the nine years, do the changes in the MPRE and MBE roughly approximate each other (MPRE 2008, 2013, MBE 2009, 2014).   Nonetheless, this remains a very small sample and more analysis of data over a longer period might be helpful to better understand how/whether changes in mean MPRE scores inform meaningfully changes in mean MBE scores the following year.  At this point, I think the predictive value seems marginal given the wide range of changes on a year-over-year basis.

Item Three – Mean LSAT Scores

In the December article, Moeser further stated:

Specifically, I looked at what happened to the overall mean LSAT score as reported by the Law School Admission Council for the first-year matricu­lants between 2010 (the class of 2013) and 2011 (the class of 2014). The reported mean dropped a modest amount for those completing the first year (from 157.7 to 157.4). What is unknown is the extent to which the effect of a change to reporting LSAT scores (from the average of all scores to the highest score earned) has offset what would otherwise have been a greater drop. (LSAC Research Reports indicate that roughly 30% of LSAT takers are repeaters and that this num­ber has increased in recent years.

This assertion is misguided for purposes of this comparison, a point Vikram Amar made in his post.  If we were comparing the first-year matriculants in 2009 with the first-year matriculants in 2010, the question of the change in reporting from average LSAT score to highest LSAT score would have mattered.  But the 2010 matriculants were the first class for which the mean was reported based on highest LSAT score and the 2011 matriculants were the second class for which the mean was reported based on highest LSAT score.  Thus, there is no “unknown” here.  The reported mean LSAT dropped only a modest amount between the matriculants in 2010 and the matriculants in 2011.  Nonetheless, the mean MBE scaled score in July 2014 decreased by an historic 2.8 points from the mean MBE scaled score in July 2013. 

Item Four – Administration Issues

In her letter to Dean Kathryn Rand, Moeser stated:  "To the extent that the statement you attached referenced both administration and scoring of the July 2014, bar examination, note that NCBE does not administer the exam; jurisdictions do."

This response suggests not only that the NCBE is not responsible for administering the bar examinations in the many different jurisdictions, but implicitly suggests that issues with administration could not have contributed to the historic decline in the mean MBE scaled score. 

Were there issues with administration?  Yes.   Could they have contributed to the historic decline in the mean MBE scaled score?  Yes.

Debby Merritt’s recent posts discuss the administration issues and the potential consequences of the administration issues in some detail.  In over forty states that used ExamSoft to administer the bar examination, the MBE came on Wednesday, after the essay portion of the exam on Tuesday.  But because of an ExamSoft technical problem, tens of thousands of test-takers, who were initially informed by their respective state board of bar examiners that they would FAIL THE EXAM if their essay answers were not uploaded in a timely manner, spent most of Tuesday night dealing with the profound stress of not being able to upload their exam answers and not being able to contact anyone at the board of bar examiners (who were not answering phones) or at ExamSoft (due to the flood of calls and emails from anxious, frustrated, stressed out exam takers) to figure out what was going on and what they should do. 

Given that this “administration” issue caused untold stress and anxiety for thousands of test-takers, who spent Tuesday night completely anxious and stressed out trying repeatedly and unsuccessfully to upload their essay answers, should it be a surprise that they might have underperformed somewhat on the MBE on Wednesday?  (If you want a sense of the stress and anxiety, check the twitter feed for the evening of Tuesday, July 29, 2014)

The responses from the boards of bar examiners to this issue with administration of the bar examination were far from uniform.  Different jurisdictions granted extensions at different times of the night on Tuesday, July 29, or on Wednesday, July 30, with some granting short extensions and some granting longer extensions.  Thus, in states that gave notice of an extension out earlier on Tuesday, July 29, test-takers may have had less stress and anxiety, while in those states that didn’t give notice of an extension out until later (or for which the extension was relatively short), or where there may not have been any communication regarding extensions of the submission deadline, test takers likely experienced more stress and anxiety.  (It would be worth studying exactly when each jurisdiction gave notice of an extension and whether there is any correlation between timing of notice of the extension and the relative performance of bar takers in those states.)

The NCBE’s unwillingness to acknowledge any issues with administration of the bar examination is all the more surprising at a time when the NCBE is pushing for adoption of the Uniform Bar Examination.  On its webpage, the NCBE states: “[The UBE] is uniformly administered, graded, and scored by user jurisdictions and results in a portable score that can be transferred to other UBE jurisdictions.” (Emphasis added.)  This simply was not true in July 2014.  The Uniform Bar Examination was administered under different exam conditions across jurisdictions.  First, three of the states administering the Uniform Bar Examination in July 2014 did not use ExamSoft – Arizona, Nebraska and Wyoming -- and therefore, bar takers in those states had a vastly different “exam administration” experience than bar takers in ExamSoft jurisdictions.  Across ExamSoft jurisdictions, different approaches to extensions also meant different administration experiences. Given the significance of consistent administration for the purpose of equating performance on a standardized exam like the bar exam, that the NCBE allows such varied approaches to administering a supposedly “uniform” exam strikes me as very problematic.

Many questions remain unanswered, largely because adequate information has not been made available on which to assess the various factors that might have contributed to the historic decline in the mean MBE scaled score.  With the release of February bar results and the NCBE’s publication of the 2014 statistical report, some additional information is now available to put the results of July 2014 in context.  In my next blog posting regarding the July 2014 bar results, I will delve into some of those statistics to see what they tell us.

(Edited as of May 20 to correct the 2013 MPRE and 2014 MBE change and corresponding discussion.)

May 14, 2015 in Current events, Data on legal education, Data on the profession | Permalink | Comments (0)

Saturday, February 7, 2015

The Early Days of Legal Analytics

LexMachina-logo1There is an interesting story in Forbes on Lex Machina, a legal start-up that provides analytics for use in patent litigation.  See Dan Fisher, Stanford-Bred Startup Uses Moneyball Stats to Handicap Judges, Forbes, Feb. 2, 2015.  The company was created by faculty at Stanford Computer Science and Stanford Law.  As the company emerged from the University, the reigns were handed to Josh Becker, a Stanford JD-MBA.  To date, the company has raised $8 million in start-up funding.  According to the Forbes article, the company's clients include some of the nation's large technology companies plus one-third of the AmLaw 100.

What makes Lex Machina so interesting is that the company is not a NewLaw service provider that trying to take marketshare. Instead, Lex Machina is a toolmaker.  It is a true Big Data company that provides analytics to (a) value contested patents and (b) protect/maximize that value through a litigation strategy that is informed by data.  

The impact of Lex Machina is hard to decipher, primarily because if it does provide an edge, the customers are unlikely to be too vocal. Just like a hedge fund with an effective trading strategy, why advertise the ingredients of your secret sauce? Indeed, compared to other toolmakers (e.g., predictive coding, expert systems) Lex Machina's benefits are less about efficiency and more about affecting the outcomes of cases -- who wins and by how much.  If Lex Machina is truly delivering, it will eventually touch-off a Big Data legal analytics arms race akin to the quant revolution on Wall Street.  Dan Katz frequently makes this point, and I think he is right.  The Forbes article makes the point that Lex Machina is already moving into adjacent areas of IP law and general commercial litigation.  

The broader legal industry is unlikely to notice Lex Machina until it has a substantial liquidity event -- i.e., it's acquired or goes public, making if founders far richer than the BigLaw partners and in-house lawyers they currently serve.  

If we are looking for early signs of a tipping point for legal analytics, one marker may be the number of Stanford Law grads who are turning down entry-level opportunities in BigLaw to pursue legal start-ups.  In recent years, Stanford Law grads fresh out of law school have gone on to found other venture-backed legal start-ups like Ravel Law, Judicata, and Law Gives.  Back in 2013, The Stanford Lawyer (SLS alumni magazine) had an extensive write-up with several examples.  See Sharon, Driscoll, A Positive Disruption, June 4, 2013.  In 2014, Stanford's CSO offered a program titled, An Alternative to BigLaw -- Startups.

The legal world isn't going away; it's just changing.

February 7, 2015 in Cross industry comparisons, Current events, Data on the profession, Innovations in law, New and Noteworthy, Structural change | Permalink | Comments (0)

Sunday, January 4, 2015

Size of the US Legal Market by Type of Client

Washington, DC.  The AALS Section on Professional Responsibility hosted a vigorous discussion today on the evolving ethical duty of competency, a topic partially inspired by the recent changes to Model Rule 1.1 cmt. 8 (requiring lawyers to stay abreast of the "benefits and risks associated with relevant technology").  As part of this panel, I showed a chart on the size of the US legal market, which was promptly tweeted by CALI 's Director of Community Development, Sarah Glassmeyer, a law librarian who is a total data subversive in a style and manner I fully support.

Well, despite a less-than-optimal photo angle, the chart was retweeted and favorited, so I figured I ought to just post the actual chart here. [Click on to enlarge] Legal Market

In a competitive market, the threshold question, asked by potential entrants and those who might finance them, is often the same: "what is the size of the available (or addressible) market?" Because lawyers and law schools are feeling unprecedented economic pressure, I thought it would be worthwhile to run this exercise for the U.S. legal industry and break it down by type of client.

The figures above are estimates of 2014 receipts going to organizations and individuals in the business of providing legal services.  My calculations are derived from US Census Bureau data. They exclude the cost of in-house and government lawyers.  More granular calculation details will be laid out in a forthcoming publication.

At today's AALS Professional Responsibility session, technology was framed as an ethical issue. And that is certainly right:  technology can deliver enormous cost and quality benefits to clients, so we have both a fiduciary and professional duty to be up-to-date.  Yet, there is a flip-side here that is crucially important -- to ignore or fall behind on technology is to run the risk of commercial ruin. This axiom applies to lawyers in private practice and to law schools that want employers to hire their graduates. 

Building upon that theme, I used the Market Size chart to make two points today, one based on the high-end corporate market (right side of chart) and the other directed toward the individual consumer market (left side of chart). 

Re the corporate side, the data show that a relatively small roster of large corporations are spending vast sums each year on legal services -- more than $10 million per year for a publicly held company.  Because large national and international corporations are awash in a sea of growing legal complexity, they are turning to technology, process, and data to keep legal costs in line with overall company revenues.  From the perspective of a large corporate client, the typical junior law firm associate has little to offer.  A more seasoned partner or counsel is a better value, but this is by virtue of experience rather than technology or process.  As a result, law firm hiring remains stagnant, and more legal work is being taken in-house or given to LPOs or New Law legal service providers like Axiom, Elevate, or Novus Law.  It may take a generation for the law school--law firm--legal department supply chain to come into a reasonable alignment.  Right now, it's broken.

Re the individual retail market, the $232 annual legal spend per citizen means that there is not enough money go around to pay for all the legal need.   If a middle-class professional couple with kids has a contested divorce, that could easily chew-up $50,000 to $100,000 in legal fees.  A DUI is likely to cost $1,500.  A worker's comp claim might be 30% of an award.  Probate work runs well into the thousands.  In reality, most citizens go without.  One of our co-panelists today, retired US Magistrate Judge John Facciola, made the claim that 83% of American never talk to a lawyer to help them with a legal problem.  "The middle class is largely gone from federal court."  To my mind, technology is the only vehicle for tapping into a large latent market for legal services.  LegalZoom, Rocket Lawyer, Modria, Shake, and many other legal technology companies all see the potential here. And so do the venture capital and private equity firms that are funding them. 

 Today's panel was one of the most lively I have ever attended at AALS, owing in part to my excellent co-panelists but also an audience that asked some great, tough questions.  Many thanks to Andy Perlman (Suffolk Law) for organizing a terrific session and Natasha Martin (Seattle) for her skillful moderation of the panel.

January 4, 2015 in Current events, Data on the profession, Legal Departments, New and Noteworthy, Structural change | Permalink | Comments (2)

Tuesday, November 11, 2014

What Might Have Contributed to an Historic Year-Over-Year Decline In the MBE Mean Scaled Score?

The National Conference of Bar Examiners (NCBE) has taken the position that the historic drop in the MBE Mean Scaled Score of 2.8 points between the July 2013 administration of the bar exam (144.3) and the July 2014 administration of the bar exam (141.5) is solely attributable to a decline in the quality of those taking a bar exam this July.  Specifically, in a letter to law school deans, the NCBE stated that:  “Beyond checking and rechecking our equating, we have looked at other indicators to challenge the results.  All point to the fact that the group that sat in July 2014 was less able than the group that sat in July 2013.”

Notably, the NCBE does not indicate what other “indicators” it looked at “to challenge the results.”  Rather, the NCBE boldly asserts that the only fact that explains an historic 2.8 point drop in the MBE Mean Scaled Score is “that the group that sat in July 2014 was less able than the group that sat in July 2013."

I am not persuaded.   

(Neither is Brooklyn Law School Dean Nicholas Allard, who has responded by calling the letter “offensive” and by asking for a “thorough investigation of the administration and scoring of the July 2014 exam.”  Nor is Derek Muller, who earlier today posted a blog suggesting that the LSAT profile of the class of 2014 did not portend the sharp drop in MBE scores.)

I can’t claim to know how the NCBE does its scaled scoring, so for purposes of this analysis, I will take the NCBE at its word that it has “double-checked” all of its calculations and found that there are no errors in its scoring.

If we accept the premise that there are no scoring issues, then the historic decline in the MBE Mean Scaled Score is attributable either to a “less able” group taking the MBE in July 2014 or to issues associated with the administration of the exam or to some combination of the two.

The NCBE essentially has ignored the possibility that issues associated with the administration of the exam might have contributed to the historic decline in the MBE Mean Scaled Score and gone “all in” on the “less able” group explanation for the historic decline in the MBE Mean Scaled Score.  The problem for the NCBE is that it will be hard-pressed to demonstrate that the group that sat in July 2014 was sufficiently “less able” to explain the historic decline in the MBE Mean Scaled Score.

If one looks at the LSAT distribution of the matriculants in 2011 (who became the graduating class of 2014) and compares it with the LSAT distribution of the matriculants in 2010 (who became the graduating class of 2013), the NCBE probably is correct in noting that the group that sat in July 2014 is slightly “less able” than the group that sat in July 2013.  But for the reasons set forth below, I think the NCBE is wrong to suggest that this alone accounts for the historic drop in the MBE Mean Scaled Score.

Rather, a comparison of the LSAT profile of the Class of 2014 with the LSAT profile of the Class of 2013 would suggest that one could have anticipated a modest drop in the MBE Mean Scaled Score of perhaps .5 to 1.0.  The modest decrease in the LSAT profile of the Class of 2014 when compared with the Class of 2013, by itself, does not explain the historic drop of 2.8 reported in the MBE Mean Scaled Score between July 2013 and July 2014.

THINKING ABOUT GROUPS

The “group” that sat in July 2014 is comprised of two subgroups of takers – first-time takers and those who failed a bar exam and are retaking the bar exam.  I am not sure the NCBE has any basis to suggest that those who failed a bar exam and are “retaking” the bar exam in 2014 were a less capable bunch than a comparable group that was “retaking” the bar exam in 2013 (or in some other year).

What about “first-time takers”?  That group actually consists of two subgroups as well – those literally taking the exam for the first time and those who passed an exam in one jurisdiction and are taking the exam for the “first-time” in another jurisdiction.  Again, I am not sure the NCBE has any basis to suggest that those who passed a bar exam and are taking a bar exam in another jurisdiction in 2014 were a less capable bunch than a comparable group that was taking a second bar exam in 2013.

So who’s left?  Those who actually were taking a bar exam for the very first time in July 2014 – the graduates of the class of 2014.  If we accept the premise that the “retakers” in 2014 were not demonstrably different than the “retakers” in 2013, than the group that was “less capable” in 2014 has to be the graduates of 2014, who the NCBE asserts are “less capable” than the graduates of 2013.

COMPARING LSAT PROFILES

The objective criteria of the class that entered law school in the fall of 2011 (class of 2014) is slightly less robust than the class that entered law school in the fall of 2010 (class of 2013).  The question, however, is whether the drop in quality between the class of 2013 and the class of 2014 is large enough that we could anticipate that it would yield an historic drop in the MBE Mean Scaled Score of 2.8 points? 

The answer to that is no.

The difference in profile between the class of 2014 and the class of 2013 does not reflect an “historic” drop in quality and would seem to explain only some of the drop in MBE Mean Scaled Score, not a 2.8 point drop in MBE Mean Scaled Score.

To understand this better, let’s look at how the trends in student quality have related to changes in the MBE Mean Scaled Score over the last decade. 

Defining “student quality” can be a challenge.  A year ago, I noted changes over time in three “groups” of matriculants – those with LSATs at or above 165, those with LSATs of 150-164, and those with LSATs below 150, noting that between 2010 and 2013, the number at or above 165 has declined significantly while the number below 150 has actually grown, resulting in a smaller percentage of the entering class with LSATs at or above 165 and a larger percentage of the entering class with LSATs below 150. 

While the relatively simplistic calculations described above would provide some basis for anticipating declines in bar passage rates by 2016, they would not explain what is going on this year without more refinement.

In his blog posting earlier today, Derek Muller attempts to look at the strength of each class by calculating "projected MBE" scores drawing on an article from Susan Case and then comparing those to the actual MBE scores, showing some close relationship over time (until this year). I come to a similar conclusion using a different set of calculations of the "strength" of the graduating classes over the last several years based on the LSAT distribution profile of the matriculating classes three years earlier.

To develop this more refined analysis of the strength of the graduating classes over the last nine years, I used the LSAC’s National Decisions Profiles to identify the distribution of matriculants in ten five-point LSAT ranges – descending from 175-180 down to 130-134.  To estimate the “strength” of the respective entering classes, I applied a prediction of bar passage rates by LSAT scores to each five point grouping and came up with a “weighted average” bar passage prediction for each class. 

(In his article, Unpacking the BarOf Cut Scores, Competence and Crucibles, Professor Gary Rosin of the South Texas College of Law developed a statistical model for predicting bar passage rates for different LSAT scores.  I used his bar passage prediction chart to assess the “relative strength” of each entering class from 2001 through 2013. 

LSAT RANGE

Prediction of Success on the Bar Exam Based on Lowest LSAT in Range

175-180

.98

170-174

.97

165-169

.95

160-164

.91

155-159

.85

150-154

.76

145-149

.65

140-144

.50

135-139

.36

130-134

.25

Please note that for the purposes of classifying the relative strength of each class of matriculants, the precise accuracy of the bar passage predictions is less important than the fact of differential anticipated performance across groupings which allows for comparisons of relative strength over time.)

One problem with this approach is that the LSAC (and law schools) changed how they reported the LSAT profile of matriculants beginning with the entering class in the fall of 2010.  Up until 2009, the LSAT profile data reflected the average LSAT score of those who took the LSAT more than once.  Beginning with matriculants in fall 2010, the LSAT profile data reflects the highest LSAT score of those who took the LSAT more than once.  This makes direct comparisons between fall 2009 (class of 2012) and years prior and fall 2010 (class of 2013) and years subsequent difficult without some type of “adjustment” of profile in 2010 and beyond.

Nonetheless, the year over year change in the 2013-2014 time frame can be compared with year over year changes in the 2005-2012 time frame.

Thus, having generated these “weighted average” bar passage projections for each entering class starting with the class that began legal education in the fall of 2002 (class of 2005), we can compare these with the MBE Mean Scaled Score for each July in which a class graduated, particularly looking at the relationship between the change in relative strength and the change in the corresponding MBE Mean Scaled Score.  Those two lines are plotted below for the period from 2005-2012.  (To approximate the MBE Mean Scaled Score for graphing purposes, the strength of each graduating class is calculated by multiplying the weighted average predicted bar passage percentage, which has ranged from .801 to .826, times 175.)

Comparison of Class Strength Based on Weighted Average Class Strength (Weighted Average Bar Passage Prediction x 175) with the MBE Mean Scaled Score for 2005-2012

  Image1

What this graph highlights is that between 2005 and 2012, year to year changes in the MBE Mean Scaled Score largely “tracked” year to year changes in the “quality” of the graduating classes.  But perhaps most significantly, the degree of change year over year in “quality” generally is reflected in the “degree” of change year over year in MBE Mean Scaled Scores.  From 2008 to 2009, the drop in “quality” of 1.5 from 144.6 to 143.1 actually was reflected in a drop in MBE Mean Scaled Scores from 145.6 to 144.7, a drop of 0.9 points.  Similarly, from 2009 to 2010, the drop in “quality” of 1.1 from 143.1 to 142 actually was reflected in a drop in the MBE Mean Scaled Scores from 144.7 to 143.6, a drop of 1.1 points.  This two-year drop in quality of 2.6 points from 144.6 to 142 corresponded to a two-year drop in MBE Mean Scaled Scores of 2.0 points from 145.6 to 143.6.

How does this help us understand what has happened in 2014 relative to 2013?  The decrease in quality of the class of 2014 relative to the class of 2013 using the “Weighted Average Bar Passage Projection” methodology above reflects a change from 145.1 to 144.2 – a drop of 0.9 (less than the year over year changes in 2009 and 2010).  Accordingly, one might anticipate a decline in MBE Mean Scaled Scores, but probably a decline slightly smaller than the declines experienced in 2009 and 2010 – declines of .9 and 1.1 point, respectively. 

Does the decline in quality between the Class of 2013 and the Class of 2014 explain some of the decline in MBE Mean Scaled Scores?  Certainly.  This analysis suggests a decline comparable to or slightly less than the declines in 2009 and 2010 should have been expected.

But that is not what we have experienced.  We have experienced an historic decline of 2.8 points.  Yet, the NCBE tells us that in looking at other indicators “all point to the fact that the group that sat in July 2014 is less able than the group that sat in July 2013.” 

THE EXAMSOFT DEBACLE

What the NCBE fails to discuss, or even mention, is that there is one other “indicator” that was a distinctive aspect of the bar exam experience for the group that sat in July 2014 that the group that sat in July 2013 did not experience – the ExamSoft Debacle

For many of those in one of the many jurisdictions that used ExamSoft in July 2014, the evening between the essay portion of the bar exam and the MBE portion of the bar exam was spent in needless anxiety and stress associated with not being able to upload the essay portion of the exam.  This stress and anxiety were compounded by messaging that suggested the failure to upload in a timely manner would mean failing the bar exam (which messaging was only corrected late in the evening in some jurisdictions). 

In these ExamSoft jurisdictions, I can only imagine that some number of those taking the MBE on the second day of the exam were doing so with much less sleep and much less focus than might have been the case if there had not been issues with uploading the essay portion of the exam the night before.  If this resulted in “underperformance” on the MBE of just 1%-2% (perhaps missing two to four additional questions out of 200), this might have been enough to trigger a larger than expected decline in the MBE Mean Scaled Score.

ONE STATE’S EXPERIENCE BELIES THE NCBE STORY

It will be hard to assess the full reality of the July 2014 bar exam experience in historical context until 2015 when the NCBE releases its annual statistical analysis with state by state analyses of first-time bar passage rates.  It is very difficult to make comparisons across jurisdictions regarding the July 2014 bar exam at the present time because there is no standardized format among states for reporting results – some states report overall bar passage rates, some disaggregate first-time bar passage rates and some states report school specific bar passage rates.  To make meaningful comparisons year-over-year focused on the experience of each year’s graduates, the focus should be on first-time bar passage (even though as noted above, that also is a little over inclusive).

Nonetheless, the experience of one state, Iowa, casts significant doubt on the NCBE “story.”

The historical first-time bar passage rates in Iowa from 2004 to 2013 ranged from a low of 86% in 2005 to a high of 93% in 2009 and again in 2013.  In the nine-year period between 2005 and 2013, the year to year “change” in first-time bar passage rates never exceeded 3% and was plus or minus one or two percent in eight of the nine years.  In 2014, however, the bar passage rate fell to a new low of 84%, a decline of 9% -- more than four times the largest previous year-over-year decline in bar passage rates since 2004-2005.

YEAR

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

First Time Bar Passage Rate

 

87%

 

 

86%

 

88%

 

89%

 

90%

 

93%

 

91%

 

90%

 

92%

 

93%

 

 

84%

Change from Prior Year

 

 

-1

 

2

 

1

 

1

 

3

 

-2

 

-1

 

2

 

1

 

 

-9

 

The NCBE says that all indicators point to the fact that the group that sat in 2014 was “less able” than the group that sat in 2013.  But here is the problem for the NCBE.

Iowa is one of the states that used ExamSoft in which test-takers experienced problems uploading the exam.  The two schools that comprise the largest share of bar exam takers in Iowa are Drake and Iowa.  In July 2013, those two schools had 181 first-time takers (out of 282 total takers) and 173 passed the Iowa bar exam (95.6% bar passage rate).  In 2014, those two schools had 158 first-time takers (out of 253 total) and 135 passed the Iowa bar exam (85.4% bar passage rate), a drop of 10.2% year over year. 

Unfortunately for the NCBE, there is no basis to claim that the Drake and Iowa graduates were “less able” in 2014 than in 2013 as there was no statistical difference in the LSAT profile of their entering classes in 2010 and in 2011 (the classes of 2013 and 2014, respectively).  In both years, Iowa had a profile of 164/161/158.  In both years, Drake had a profile of 158/156/153.  This would seem to make it harder to argue that those in Iowa who sat in July 2014 were “less able” than those who sat in 2013, yet their performance was significantly poorer, contributing to the largest decline in bar passage rate in Iowa in over a decade.  The only difference between 2013 and 2014 for graduates of Drake and Iowa taking the bar exam for the first time in Iowa is that the group that sat in July 2014 had to deal with the ExamSoft debacle while the group that sat in July 2013 did not.

TIME WILL TELL

This analysis does not “prove” that the ExamSoft debacle was partly responsible for the historic decline in the MBE Mean Scaled Score between 2013 and 2014.  What I hope it does do is raise a serious question about the NCBE’s assertion that the “whole story” of the historic decline in the MBE Mean Scaled Score is captured by the assertion that the class of 2014 is simply “less able” than the class of 2013.

When the NCBE issues its annual report on 2014 sometime next year, we will be able to do a longitudinal analysis on a jurisdiction by jurisdiction basis to see whether jurisdictions which used ExamSoft had higher rates of anomalous results regarding year-over-year changes in bar passage rates for first-time takers.  When the NCBE announces next fall the MBE Mean Scaled Score for July 2015, we will be able to assess whether the group that sits for the bar exam in July 2015 (which is even more demonstrably “less able” than the class of 2014 using the weighted average bar passage prediction outlined above), generates another historic decline or whether it “outperforms” its indicators by perhaps performing in a manner comparable to the class of 2014 (suggesting that something odd happened with the class of 2014).

It remains to be seen whether law school deans and others will have the patience to wait until 2015 to analyze all of the compiled data regarding bar passage in July 2014 across all jurisdictions.  In the meantime, there is likely to be a significant disagreement over bar pass data and how it should be interpreted.

November 11, 2014 in Data on legal education, Data on the profession, Scholarship on legal education, Scholarship on the legal profession | Permalink | Comments (4)

Sunday, October 12, 2014

Is the Legal Profession Showing Its Age?

The figure below suggests that a growing number of students are attending law school but not going on to become lawyers.  This conclusion requires some explanation, which I will supply below.  Alternative explanations are also welcome, as I’d like to find a plausible narrative that foreshadows a brighter future for the licensed bar. [PDF version of this essay]

Slide14

I generated this figure based on data from various editions of The Lawyer Statistical Report, which is periodically compiled by the American Bar Foundation (ABF).  The ABF's gets the underlying data from Martindale-Hubbell, which is a comprehensive directory of the licensed bar.  As of 2005, the sample was roughly 1 million lawyers who work in law firms, solo practice, in-house legal departments, government, and the judiciary.

The big surprise here is that the proportion of young lawyers (under age 35) has been declining for several decades.  And not by a little, but by a lot.  During this period, the median age went from 39 in 1980, to 41 in 1991, to 45 in 2000, to 49 in 2005.  See ABA Market Research Department.

I would be tempted to attribute a demographic shift of this magnitude to a computational error.  But that is unlikely because the underlying data were calculated at four different points in time, yet the results come together to produce a single, steady trendline -- a trendline that shows a licensed bar that is steadily aging.  

Another possible factor to consider is whether there are any significant data collection or sampling issues that skew the data in a manner that dramatically undercounts younger lawyers. For example, Martindale-Hubbell is largely irrelevant to today's younger lawyers.  So, in solo and small firm practices, where they are making the business decisions, we might expect plummeting subscription rates.  But subscribing and requesting the publication of additional biographical information (in the hope of garnering referral business) is not the same thing as being listed. Martindale Hubbell attempts to track lawyers who did not subscribe to the directory, as the near-universe level of inclusion increases the directory's value.  

To illustrate this point, consider that in 2000, the Lawyer Statistical Report (which relies on Martindale-Hubbell data) counted 909,000 lawyers.  According to the ABA, the total number of lawyers licensed in the US (compiled from state bar roles) was 1,022,000, and that almost certainly includes some double counting of lawyers licensed in more than one state.  While I have no doubt that younger lawyers are becoming harder to hunt down because of cell phones and home-based offices, the gap of missing lawyers is just not big enough to fully account for the sharp drop-off in younger lawyers. 

I have shown this chart to various law firms, legal departments, law faculty and bar association audiences.  Through this process, I have developed two working theories that are not mutually exclusive:

  1. Increased exits from law practice based on gender integration
  2. Slowing absorption of law graduates into the licensed bar

Theory 1: Gender Integration

One explanation is gender integration.  In short, over the last 40 years, more women have entered the legal profession; and as an empirical matter, they are much more likely to exit the workforce in order to focus on childcare.  Thus, more gender integration over time would cause a proportional decline in the younger lawyer cohort.

So let's examine the data.  According to the figure below, which shows number of male and female 1Ls enrolling by year at ABA-accredited law schools [Click-on to enlarge], the high water mark for male 1L enrollment occurred over 40 years ago -- in 1971!   The high water mark for female enrollment in percentage terms was 2000 (49.4%). In absolute numbers, the high was the class entering in the fall of 2009 (24,305).  

Temp12

Presumably, the higher the percentage of female graduates, the lower the percentage of lawyers under the age of 35.  In 1968, a 22 year old female 1L, if she graduated from law school and stayed in the legal profession, would be part of the younger lawyer cohort in 1980. Yet, her 1L cohort included only 1,179 females (7.4% of all 1Ls).  By 1993 (12 years before 2005), the number of female 1Ls had increased to 19,059 (nearly 44%). So exits based on childcare factors would likely be increasing.  

I can readily accept gender integration as a partial, but not a complete, explanation.  Why? Because female exits are likely to be siphoning off a substantial portion of the over 35 cohort, as this group is still having and raising children.   It seems implausible that female lawyers are leaving in droves before age 35 (reducing the younger lawyer cohort) yet returning in droves thereafter (swelling the over 35 cohort).  Further, according to the figure above, the absolute number of law school graduates is increasing during this entire period.  Sheer numbers are likely a partial counterbalance to the impact of gender-related exits.

Theory 2:  Slowing Absorption of Younger Lawyers

It is important to keep in mind the magnitude of the overall slide in younger lawyers -- from 36% in 1980 to 13% in 2005.  One would think the trendline would be moving in the exact opposite direction -- that larger graduating classes would be replacing the much smaller number of law school graduates from 40 years earlier who were retiring or passing away.  But such a youth movement does not appear to be happening, at least based on data through 2005.

I think the most likely explanation is that the rate of absorption of law school graduates into the licensed bar has been steadily declining over time.  This explanation, which would affect men and women equally, is directionally consistent with the percentage of entry-level jobs in private practice, which has been declining since in the late 1980s. See figure below.

Slide10

The slower absorption theory is also directionally consistent with the shifting demographics of large law firms, which now have more partners than associates.  See figure below.

NLJdemographics

Despite the higher number of partners compared to associates, it is worth noting that large law firms are not becoming more generous in sharing the partnership pie.   

Rather, the real sea change is the decline in the number of traditional law firm associates, who have been slowly supplanted by staff attorneys, permanent of counsel lawyers, and nonequity partners. Indeed, over 40% are large law firm partners (defined at AmLaw 200 / NLJ 250) are nonequity. Three decades ago, this category of partner was relatively rare.  See Henderson, An Empirical Study of Single-Tier Versus Two-Tier Partnerships in the Am Law 200, 84 NC L Rev 1691 (2006).  The growth of nonequity partners reflects a new kind of law firm leverage that relies on senior lawyers. The annual ALM/Major Lindsay & Africa study of partner compensation reveals that equity partners make dramatically higher incomes than nonequity partners and that the size of the pay gap is widening over time. See Ross Todd, A Widening Partner Pay Gap, American Lawyer, Sept 29, 2014.  

The primary advantage of nonequity partners and other senior lawyers, like permanent counsel, is that training costs fall to near zero. Cf. Elizabeth Olson, Corporations Drive Drop in Law Firms’ Use of Starting Lawyers, Study Finds, New York Times, Oct. 10. 2014 (showing drop over time in use of first year associates because clients are refusing to pay for training costs).

To my mind, however, the most persuasive support for the lower absorption theory is the simple delta between the growth in the licensed bar--which has clearly hit a plateau--and the size of graduating classes from ABA-accredited law schools--which, until recently, had been steadily increasing. The figure below shows these macro-level trendlines.

Slide1

If younger lawyers were replacing older lawyers and also growing to keep pace with the broader economy, the under 35 young lawyers cohort would be getting bigger or at least remain relatively constant in size.  But instead, as the first figure in this essay showed, the younger lawyer cohort has gotten smaller.  Arguably, the simplest explanation for these patterns is that it has gotten much harder over time to parlay a JD degree into paid employment as a licensed lawyer.  So, faced with a saturated legal market, law school graduates have been pursuing careers outside of law.  

What Does This Mean?

The analysis above suggests that the JD Advantage / JD Preferred employment market started to take shape several decades ago, long before these terms were put in place by the ABA and NALP.  Yet, we really don't know about these careers.  To construct a more useful, informative narrative, we'd have to systematically study the career paths of our alumni.  That task is long overdue.  

I started teaching at Indiana Law in 2003.  Since I first saw the declining trendline for the young lawyer cohort, I have been thinking about the roughly 1,600 students who have taken my Corporations, Securities Regulation, Business Planning, Project Management, Law Firms as a Business Organization, and Legal Professions classes.  

  • What percentage are working as licensed lawyers?  
  • For those doing something different, where are they working?  
  • Has their legal education opened doors for them? 
  • Did those doors lead to interesting and remunerative work?

The After the JD Study is based on law school graduates who passed in the bar in the year 2000.  The Wave III results provide some clues to how at least one cohort of younger lawyers fared during their first ten years in practice.  

  • Roughly a quarter of the class of 2000 is no longer practicing law (remember the base sample excluded those who never took or passed the bar).
  • The migration out of practice is generally in the direction of private sector business.  
  • Ten years out, the median pay for full-time work is more than $100,000 for both men and women.  No tears need to be shed here.
  • Roughly three-quarters report being satisfied with their decision to attend law school. 

These statistics are generally encouraging, but some caution is in order, as the entry-level legal economy was quite different in 2000.  

Because of the law school transparency movement, we lack commensurable data between 2000 and 2013.  That is an important piece of information right there, as changes in collection and reporting standards were caused by student protests, including several lawsuits surrounding allegedly misleading employment data. Yet, we can cobble together some potentially useful comparisons:

Even if NALP's full-time legal positions in 2000 is a more expansive category than the ABA's full-time bar-passage jobs in 2013, the gap is startling -- over 20 percent!  Further, we have additional evidence of a major shift in the job market, as law firm summer associate positions have declined in size by more than 50% since in the early 2000s. See Henderson, Sea Change in the Legal Market, NALP Bulletin (Aug 2013).   Between 2008 and 2013, there has also been a drop in median starting salaries, from $72,000 to $62,500. See NALP, Employment for the Class of 2013 – Selected Findings

Demand Drops, but Supply Marchs On

Cumulatively, the trendlines presented in this essay suggest that we are on the tail end of a multi-decade structural shift in the legal economy.  So what comes next?

Law schools were recently taken to task in an editorial by the Young Lawyers Board of Philadelphia Legal Intelligencer.  See If Unchanged, Legal Education will Remain a Business in Decline, Legal Intelligencer, Sept 25, 2014.  According to the young lawyers, "One reason graduates have difficulty obtaining employment is that most of them need to be trained in how to practice law, and clients are unwilling to pay for training new lawyers. Law schools need to step up and train students on how to practice law."

I am very sympathetic to the young lawyers, but I think they are missing something essential.  A law school that improves the quality of its skills training reduces the training costs to prospective employers.  That is a good thing, but it does not change the underlying demand for legal services. And it appears that that demand is eroding on several fronts:  (a) wealthy corporations are balking at the price of outside counsel and looking for credible substitutes, (b) ordinary citizens are struggling to afford a lawyer at all, and (c) a new segment of the legal economy is emerging that is financed by nonlawyers and heavily focused on data, process, and technology, which taps into skill sets not traditionally taught in law school. See Henderson, A Counterpoint to "The most robust legal market that ever existed in this country", Legal Whiteboard, Mar 17, 2014.  

Conclusion

My own conclusion is that neither the organized bar nor the legal academy has a firm grip on the changes that are occurring in the legal marketplace.  This uncertainty and confusion is understandable in light of the magnitude of the shift.

Nonetheless, these market shifts create special urgency for legal educators because we can't teach what we don't understand.  The thesis of the Young Lawyers Board is surely right -- if unchanged, legal education will remain a business in decline.  Much of legal education today is premised on a 20th century professional archetype--an archetype that is, based on the data, becoming less and less relevant with each passing day.  Thus, we are under-serving our students.  And frankly, they are figuring that out.  

Change is hard for people and organizations they work in.  And law professors and law schools are no different.  The retooling of legal education will likely be a slow, painful process that will take the better part of a full generation to complete.  I am trying to do my part.

Yet, the brunt of the demographic shift falls on the licensed bar, which is getting older and thus weaker with each passing year.  This is a problem that belongs to the ABA, the state bars, and the state supreme courts, not the legal academy.   [PDF version of this essay]

October 12, 2014 in Data on the profession, Structural change | Permalink | Comments (1)

Sunday, August 24, 2014

Ahead of the Curve: Three Big Innovators in BigLaw

Nashville, TN.  It is time to put down the broad brush used to paint BigLaw as inefficient and out of touch.  At least for me, that is the big takeaway from the 2014 International Legal Technology Association (ILTA) conference, which took place this past week at the Gaylord Opryland Hotel in Nashville and included nearly 2,000 lawyers, administrators, staff, and vendors from around the world.

My takeaway is based on what I saw during the presentation session for the ILTA Most Innovative Law Firm Award.  The three finalists all qualify as big:  Bryan Cave (985 lawyers), Seyfarth Shaw (779 lawyers), and Littler Mendelson (1002 lawyers). Presenters from each firm had 15 minutes to share their innovations followed by 5 minutes of Q&A.  Afterwards, ILTA members in attendance casted ballots for first, second, and third place.

Kudos to Bryan Cave, Seyfarth Shaw, and Littler Mendelson for publicly sharing their innovations, as it demonstrates a commitment to the broader legal profession.

In this post, I will describe the salient points of each innovation. I will err on the side of detail because, when it comes to innovation in the legal space, there is a short supply of “guts of the operations” commentary.  I will then offer some macro-level observations.  As it turns out, BigLaw has on balance a surprisingly good hand to play.  Many will thrive, but at the expense of taking market share from the rest.

Bryancave

Bryan Cave

Presenter: John Alber, Strategic Technology Partner

Bryan Cave has developed an ingenious and highly efficient way to educate its lawyers on the economics of its business.  Prior to the presentation, I was familiar with the firm’s investment in a rigorous cost accounting system to guide the firm’s strategy and operations.

Yet, to get the full benefit out of such a system, the understanding needs to filter down to the individual lawyer-timekeeper level so that each lawyer-timekeeper can use the superior data to allocate time and effort in ways that strengthen the enterprise.  Even in the year 2014, many successful and skilled BigLaw lawyers confuse revenues with profit. And the confusion is understandable because portable books of business, which tend to be measured in terms of revenue, drive the valuation of lateral partners.  See Henderson & Zorn, Of Partners and Peacocks, Am. Law., February 2014.

Based on what I saw at ILTA, such confusion appears to have been substantially eliminated at Bryan Cave. No_math_arithmophobia

The core Bryan Cave innovation is a simple dashboard that tracks a variety of statistics at the lawyer, practice group, and firm level.  What is most striking about the Bryan Cave initiative is the sensitivity shown to the large percentage of lawyers who are not comfortable processing numbers (“arithmophobia” was the term used in the presentation).  The Bryan Cave innovation team dealt with this constraint in two ways.

1. The Octagon.  The Octagon is a data visualization technique that communicates eight key metrics in an octagon-shaped graphic.  Wondering what the term "data visualization" means? It's finding graphical ways to communicate complex multivariable data in a format that requires the end user, such as a lawyer, to have very little technical training.  The Octagon is a textbook example. It uses colors and distance from the center of the graphic to convey essential information related to origination, client relationships, matter management, days to bill, days to collect, hours billed, leverage, and profit margins. (There may be other octagons containing other metrics--the one we were shown appeared to be geared toward partners.)

Each lawyer each month gets a new updated Octagon; and that graphic communicates, through its shape, the lawyer’s relative contributions to the firm.  Specifically, there are distinctive patterns well known within the firm that tend to signal rainmaker, service partner, project manager, technical specialist, or some blend thereof.  The features of the Octagon also communicate how well a lawyer is performing in his or her various roles relative to his or her peers.  So, on a monthly basis, self-image confronts hard numbers.

This type of transparency is bound to have a profound effect on behavior.  (During another ILTA session I heard, from another Bryan Cave presenter, that since the introduction of the Octagon a couple of years ago, the average days to collect has fallen from 60 to 44.)

2. The Rosetta. Some lawyers are bound to prefer a story rather than a picture.  For these lawyers, the firm has created a narrative, referred to as the Rosetta, that translates the numbers into a diagnostic story of strengths, weaknesses, and, most importantly, specific prescriptive advice on how to improve.

But there is an interesting catch—the stories are all written with a computer algorithm.  How is this possible?  It’s a technology pioneered by a company called Narrative Science.  Note that computers that are fed nothing but a traditional baseball scoring sheet now routinely write sports stories that summarize the game for the local sports page.  This narrative summary accompanying the Octagon removes any lingering ambiguity regarding what the diagram means.  Further, all report generation, including practice-group level Octagon and Rosetta reports, has been entirely automated.

I am told that the Octagon and Rosetta programs can handle, and properly incentivize, work that is done on either a billable or alternative fee arrangement basis. If this is true, Bryan Cave has an innovation designed for the legal market of the future.

Some readers may be turned off that the Bryan Cave innovation may seem, on the surface anyway, entirely focused on law firm financial performance.  I am not. To my mind, this type of technology is valuable for communicating the fundamentals of the business.  This reduces the myths and false narratives that routinely take hold in data-poor environments.  This innovation is also timely because it is getting harder to give clients superior value while also delivering a strong return to the firm's owners -- the best of whom could lateral to another firm tomorrow.

The challenge of every BigLaw firm is getting all of the firm's stakeholders to row in the same direction. The combination of the Dashboard, Octagon, and Rosetta is a breakthrough in lawyer communication and, by extension, change management.  Bryan Cave attorneys have the information they need to both build their practices while also advancing the broader goals of the enterprise.

Seyfarth Shaw Seyfarth

Presenters: Kathy Perrelli, Chair of Litigation Practice; Kim Craig, Global Director of Legal Project Management.

Seyfarth Shaw’s innovation is the creation of a true Research & Development Department staffed by lawyers, project managers, technologists, and software developers.  The charge of Seyfarth’s R&D Department is to build solutions in advance of perceived client needs.  As the presenters mentioned, “we are not doing this because our clients are asking for these solutions; we are doing this because our clients will ask.”

Continue reading

August 24, 2014 in Blog posts worth reading, Current events, Data on the profession, Innovations in law, Law Firms | Permalink | Comments (1)

Thursday, May 1, 2014

What Ails the Large Law Firm? Will the Real FutureFirm Please Stand Up

TimeinabottleFive years ago this April, I helped organize a novel experiment on how to reengineer the modern law firm.  The occasion was FutureFirm 1.0, a collaborative competition in which teams of law firm partners, associates, and in-house lawyers to create a strategic plan for the fictional firm of Marbury & Madison (M&M).  The goal was a new business model that would enable the firm "to survive and thrive over the next 20 years."  See M&M Fact Pattern.   

We planned FutureFirm 1.0 in the fall of 2008, but by April 2009, things looked pretty unstable.  Deal flow had ground to a halt, and corporations were reluctant to fund noncrucial litigation.  Law firms in turn were rescinding offers to thousands of law students.  Further, the specter of law firm failure hung in the air.  Suffice it to say, the timing was not right for sharing the results of FutureFirm.  As a result, my analysis of the event, "What Ails the Large Law Firm?  Will the Real FutureFirm Please Stand Up," was never published or circulated.  

With five year anniversary of FutureFirm 1.0, I decided to uncork my time-in-a-bottle essay and post it on SSRN and JDSupra.  

Having not read this essay for five years, I am surprised at how well the FutureFirm analysis holds up.  Yet, the biggest takeaway from my FutureFirm experience is not the specifics of the analysis, but acclimating myself to the permanence of new change dynamic, much of which I can see through the participants of FurtureFirm 1.0.   

  • Two law firm partners subsequently left to start their own boutiques, one of which is aggressively moving into managed services in South Africa.  
  • Another law firm partner became a judge in King County, Washington (Seattle).
  • Several summer associates joined BigLaw only to leave within three or four years to become sophisticated in-house lawyers who are themselves driving change.
  • Several people in all roles have switched over to the business side.  Indeed, new legal businesses are actively being planned.

In the spring of 2014, the new normal is here to stay, and it has no froth.  FutureFirm was probably a fringe activity back in 2009.  Now, an event like FutureFirm would be one of the key places to go for answers.  Indeed, I have very serious senior in-house lawyers at Fortune 100 companies who want to run this type of colloborative competition to help better design tomorrow's legal departments.  So stay tuned for that.

I hope you are sufficiently curious to do a bit of time travel and give "What Ails the Large Law Firm?" a read.  I would welcome your thoughts and feedback. 

May 1, 2014 in Data on the profession, Innovations in law, Law Firms, Legal Departments, Structural change | Permalink | Comments (0)

Monday, March 17, 2014

A Counterpoint to "The most robust legal market that ever existed in this country"

There is a line in Professor Reich-Graefe's recent essay, Keep Calm and Carry On, 27 Geo. J. Legal Ethics 55 (2014), that is attracting a lot of interest among lawyers, law students, and legal academics: 

[R]ecent law school graduates and current and future law students are standing at the threshold of the most robust legal market that ever existed in this country—a legal market which will grow, exist for, and coincide with, their entire professional career.

This hopeful prediction is based on various trendlines, such as impending lawyer retirements, a massive intergenerational transfer of wealth that will take place over the coming decades, continued population growth, and the growing complexity of law and legal regulation.

Although I am bullish on future growth and dynamism in the legal industry, and I don't dispute the accuracy or relevance of any of the trendlines cited by Reich-Graefe, I think his primary prescriptive advice -- in essence, our problems will be cured with the passage of time -- is naive and potentially dangerous to those who follow it.

The Artisan Lawyer Cannot Keep Up

The primary defect in Reich-Graefe's analysis is that it is a one-sided argument that stacks up all impending positive trendlines without taking into account the substantial evidence that the artisan model of lawyering -- one-to-one consultative legal services that are tailored to the needs of individual clients -- is breaking down as a viable service delivery model.  

Lawyers serve two principal constituencies--individuals and organizations.  This is the Heinz-Laumann "Two-Hemisphere" theory that emerged from the Chicago Lawyers I and II studies.  See Heinz et al, Urban Lawyers (2005). The breakdown in the artisan model can be observed in both hemispheres.

  1. People.  Public defenders are understaffed, legal aid is overwhelmed, and courts are glutted with pro se litigants.  Remarkably, at the same time, record numbers of law school graduates are either unemployed or underemployed.  Why?  Because most poor and middle-class Americans cannot afford to buy several hours of a lawyer's time to solve their legal problems.  
  2. Organizations.  The most affluent organizations, multinational corporations, are also balking at the price of legal services.  As a result, foreign labor, technology, process, or some combination thereof has become a replacement for relatively expensive and unskilled junior lawyers.

The primary driver of this structural shift is the relentless growth in legal complexity.  This increase in complexity arises from many sources, including globalization, technology, digitally stored information, and the sheer size and scope of multinational companies. 

But here is a crucial point:  the complexity itself is not new, only its relative magnitude.  A century ago, as the modern industrial and administrative state was beginning to take shape, lawyers responded by organizing themselves into law firms.  The advent of law firms enabled lawyers to specialize and thus more cost-effectively tackle the more complex legal problems. Further, the diffusion of the partner-associate training model (sometimes referred to as the Cravath system) enabled firms to create more specialized human capital, which put them in an ideal position to benefit from the massive surge in demand for legal services that occurred throughout the 20th century.  See Henderson, Three Generations of Lawyers: Generalists, Specialists, Project Managers, 70 Maryland L Rev 373 (2011). 

The legal industry is at the point where it is no longer cost effective to deal with this growing complexity with ever larger armies of artisan-trained lawyers.  The key phrase here is cost effective.  Law firms are ready and willing to do the work.  But increasingly, clients are looking for credible substitutes on both the cost and quality fronts. Think car versus carriage, furnace versus chimney sweep, municipal water system versus a well.  A similar paradigm shift is now gaining momentum in law.

The New Legal Economy

I have generated the graph below as a way to show the relationship between economic growth, which is the engine of U.S. and world economies, and the legal complexity that accompanies it.

Complexity
This chart can be broken down into three phases.

1. Rise of the law firm. From the early twentieth century to the early 1980s, the increasing complexity of law could be capability handled by additional law firm growth and specialization. Hire more junior lawyers, promote the best ones partner, lease more office space, repeat.  The complexity line has a clear bend it in.  But for most lawyers, the change is/was very gradual and feels/felt like a simple linear progression.  Hence, there was little urgency about the need for new methods of production.

2. Higher law firm profits. Over the last few decades, the complexity of law outpaced overall economic growth.  However, because the change was gradual, law firms, particularly those with brand names, enjoyed enough market power to perennially increase billing rates without significantly improving service offerings.  Corporate clients paid because the economic benefits of the legal work outweighed the higher costs.  Lower and middle class individuals, in contrast, bought fewer legal services because they could not afford them. But as a profession, we barely noticed, primarily because the corporate market was booming. See Henderson, Letting Go of Old Ideas, 114 Mich L Rev 101 (2014).

3. Search for substitutes.  Laws firms are feeling discomfort these days because the old formula -- hire, promote, lease more space, increase rates, repeat -- is no longer working.  This is because clients are increasingly open to alternative methods of solving legal problems, and the higher profits of the last few decades have attracted new entrants.  These alternatives are some combination of better, faster, and cheaper.   But what they all share in common is a greater reliance on technology, process, and data, which are all modes of problemsolving that are not within the training or tradition of lawyers or legal educators.  So the way forward is profoundly interdisciplinary, requiring collaboration with information technologists, systems engineers, project managers, data analysts, and experts in marketing and finance.

Why is this framework potentially difficult for many lawyers, law firms, and legal educators to accept?  Probably because it requires us to cope with uncertainties related to income and status.  This reluctance to accept an unpleasant message creates an appetite for analyses that say "keep calm and carry on."  This is arguably good advice to the British citizenry headed into war (the origin of the saying) but bad advice to members of a legal guild who need to adapt to changing economic conditions.

There is a tremendous silver lining in this analysis.  Law is a profoundly critical component of the globalized, interconnected, and highly regulated world we are entering.  Lawyers, law firms, and legal educators who adapt to these changing conditions are going to be in high demand and will likely prosper economically.  Further, at an institutional level, there is also the potential for new hierarchies to emerge that will rival and eventually supplant the old guard.

Examples

Logo-kcuraOne of the virtues of lawyers is that we demand examples before we believe something to be true.  This skepticism has benefited many a client.  A good example of the emerging legal economy is the Available Positions webpage for kCura, which is a software company that focuses exclusively on the legal industry. 

The current legal job market is terrible, right?  Perhaps for entry-level artisan-trained lawyers.  But at kCura, business is booming. Founded in 2001, the company now employs over 370+ workers and has openings for over 40 full-time professional positions, the majority of which are in Chicago at the company's LaSalle Street headquarters.  Very few of these jobs require a law degree -- yet the output of the company enables lawyers to do their work faster and more accurately.  

What are the jobs?

  • API Technical Writer [API = Application Programming Interface]
  • Big Data Architect - Software Engineering
  • Business Analyst
  • Enterprise Account Manager
  • Group Product Manager
  • Litigation Support Advice Analyst
  • Manager - Software Engineering
  • Marketing Associate
  • Marketing Specialist -- Communications
  • Marketing Specialist -- Corporate Communications and Social Media
  • Product Manager -- Software and Applications Development
  • QA Software Engineer -- Performance [QA = Quality Assurance]
  • Scrum Team Coordinator [Scrum is a team-based software development methodology]
  • Senior SalesForce Administrator 
  • Software Engineer (one in Chicago, another in Portland)
  • Software Engineer (Front-End Developer) [Front-End = what the client sees]
  • Software Engineer in Test [Test = finds and fixes software bugs]
  • Technical Architect
  • Technical Architect - Security
  • VP of Product Development and Engineering

kCura operates exclusively within the legal industry, yet it has all the hallmarks of a great technology company. In the last few years it has racked up numerous awards based on the quality of its products, its stellar growth rate, and the workplace quality of life enjoyed by its employees.

KCuraawards

That is just what is happening at kCura.  There are many other companies positioning themselves to take advantage of the growth opportunities in legal, albeit none of them bear any resemblance to traditional law firms or legal employers.

LexRedux-Eventbrite-headerIn early February, I attended a meeting in New York City of LexRedux, which is comprised of entrepreneurs working in the legal start-up space.  In a 2008 essay entitled "Legal Barriers to Innovation," Professor Gillian Hadfield queried, "Where are the 'garage guys' in law?"  Well, we now know they exist.  At LexRedux, roughly 100 people working in the legal tech start-up space were jammed into a large open room in SoHo as a small group of angel investors and venture capitalists fielded questions on a wide range of topics related to operations, sales, and venture funding.

According to Angel's List, there are as of this writing 434 companies identified as legal start-ups that have received outside capital.  According to LexRedux founder Josh Kubicki, the legal sector took in $458M in start-up funding in 2013, up from essentially zero in 2008.  See Kubicki, 2013 was a Big Year for Legal Startups; 2014 Could Be Bigger, Tech Cocktail, Feb 14, 2014.

The legal tech sector is starting to take shape.  Why?  Because the imperfections and inefficiencies inherent in the artisan model create a tremendous economic opportunity for new entrants.  For a long period of time, many commentators believed that this type of entrepreneurial ferment would be impossible so long as Rule 5.4 was in place.  But in recent years, it has become crystal clear that when it comes to organizational clients where the decisionmaker for the buyer is a licensed lawyer (likely accounting for over half of the U.S. legal economy) everything up until the courthouse door or the client counseling moment can be disaggregated into a legal input or legal product that can be provided by entities owned and controlled by nonlawyers. See Henderson, Is Axiom the Bellwether of Legal Disruption in the Legal Industry? Legal Whiteboard, Nov 13, 2013.

The Legal Ecosystem of the Future

Book-tomorrows-lawyersIn his most recent book, Tomorrow's Lawyers, Richard Susskind describes a dynamic legal economy that bares little resemblance to the legal economy of the past 200 years.  In years past, it was easier to be skeptical of Susskind because his predictions seemed so, well, futuristic and abstract.  But anyone paying close attention can see evidence of a new legal ecosystem beginning to take shape that very much fits the Susskind model.

Susskind's core framework is the movement of legal work along a five-part continuum, from bespoke to standardized to systematized to productized to commoditized.  Lawyers are most confortable in the bespoke realm because it reflects our training and makes us indispensible to a resolution.  Yet, the basic forces of capitalism pull the legal industry toward the commoditized end of the spectrum because the bespoke method of production is incapable of keeping up with the needs of a complex, interconnected, and highly regulated global economy. 

According to Susskind, the sweet spot on the continuum is between systematized and productized, as this enables the legal solution provider to "make money while you sleep."  The cost of remaining in this position (that is, to avoid commoditization) is continuous innovation.  Suffice it to say, lawyers are unlikely to make the cut if they choose to hunker down in the artisan guild and eschew collaboration with other disciplines.

Below is a chart I have generated that attempts to summarize and describe the new legal ecosystem that is now taking shape [click-on to enlarge].  The y-axis is the Heinz-Laumann two-hemisphere framework.  The x-axis is Susskind's five-part change continuum. 

Ecosystem
Those of us who are trained as lawyers and have worked in law firms will have mental frames of reference that are on the left side of the green zone.  We tend to see things from the perspective of the artisan lawyer.  That is our training and socialization, and many of us have prospered as members of the artisan guild.

Conversely, at the commoditized end of the continuum, businesses organized and financed by nonlawyers have entered the legal industry in order to tap into portion of the market that can no longer be cost-effectively serviced by licensed U.S. lawyers.  Yet, like most businesses, they are seeking ways to climb the value chain and grow into higher margin work.  For example, United Lex is one of the leading legal process outsourcers (LPOs).  Although United Lex maintains a substantial workforce in India, they are investing heavily in process, data analytics, and U.S. onshore facilities.  Why?  Because they want to differientiate the company based on quality and overall value-add to clients, thus staving off competition from law firms or other LPOs.

In the green zone are several new clusters of companies:

  • NewLaw.  These are non-law firm legal service organizations that provide high-end services to highly sophisticated corporations.  They also rely heavily on process, technology, and data.  Their offerings are sometimes called "managed services." Novus Law, Axiom, Elevate, and Radiant Law are some of the leading companies in this space. 
  • TechLaw.  These companies would not be confused with law firms. They are primarily tool makers.  Their tools facilitate better, faster, or cheaper legal output.  kCura, mentioned above, works primarily in the e-discovery space.  Lex Machina provides analytic tools that inform the strategy and valuation of IP litigation cases.  KM Standards, Neota Logic, and Exemplify provide tools and platforms that facilitate transactional practice.  In the future, these companies may open the door to the standardization of a wide array of commercial transactions.  And standardization drives down transaction costs and increases legal certainty -- all good from the client's perspective.
  • PeopleLaw.  These companies are using innovative business models to tap into the latent people hemisphere.  Modria is a venture capital-financed online dispute resolution company with DNA that traces back to PayPal and the Harvard Negotiations Workshop.  See Would You Bet on the Future of Online Dispute Resolution (ODR)?  Legal Whiteboard, Oct 20, 2013.  LegalForce is already an online tour de force in trademarks -- a service virtually every small business needs.  The company is attempting to translate its brand loyalty in trademarks into to new consumer-friendly storefront experience.  Its first store is in the heart of University Avenue in Palo Alto.  LegalForce wants to be the virtual and physical portal that start-up entrepreneurs turn to when looking for legal advice.

Conclusion

When I write about the changes occurring in the legal marketplace, I worry whether the substance and methodology of U.S. legal education provides an excellent education for a legal world that is gradually fading away, and very little preparation for the highly interdisciplinary legal world that is coming into being. 

Legal educators are fiduciaries to our students and institutions. It is our job to worry about them and for them and act accordingly.  Surely, the minimum acceptable response to the facts at hand is unease and a willingness to engage in deliberation and planning.  Although I agree we need to stay calm, I disagree that we need to carry on.  The great law schools of the 21st century will be those that adapt and change to keep pace with the legal needs of the citizenry and broader society.  And that task has barely begun.

[PDF version]

March 17, 2014 in Blog posts worth reading, Current events, Data on legal education, Data on the profession, Innovations in law, Innovations in legal education, New and Noteworthy, Scholarship on legal education, Scholarship on the legal profession, Structural change | Permalink | Comments (16)

Saturday, March 1, 2014

Is the Employment Market for Law Graduates Going to be Improving?

Last fall, while making a presentation at the Midwest Association of Pre-Law Advisors Conference in St. Louis, I had the opportunity to respond to the question that is the title of this blog posting. 

Is the employment market for law graduates going to be improving?  My answer was, and is, almost certainly yes, although perhaps not immediately.

I write this to offer my perspective on the employment market for law graduates in the coming years.  A number of people have written on this topic in recent weeks and months.  Bernie Burk has a very thoughtful piece analyzing the changing job market over the last three decades.  In his concluding thoughts he suggests that the decline in the number of law students will mean that the job market will be improving.  Paula Young, Debby Merritt, Matt Leichter, and The National Jurist, also have weighed in on this issue with some disagreement about how to understand the “market” for law graduates in the coming years.  Whether and how to include JD Advantage jobs in the analysis is something that is frequently contested.  Bernie Burk does a thorough job analyzing the challenges of assessing whether JD Advantage jobs should be included within his definition of “law jobs” – “placements for which a law degree is typically a necessary or extremely valuable substantive preparation; or put slightly differently, jobs that a law degree typically makes a truly substantial and significant difference in obtaining or performing.”

To avoid some of these definitional challenges, this post will focus solely on the market for full-time, long-term Bar Passage Required jobs. Initially, it will analyze those jobs in relation to all graduates; then it will look more specifically at the percentage of graduates who are likely to be eligible for Bar Passage Required jobs for whom full-time, long-term Bar Passage Required jobs likely will be available, a point on which few others appear to have focused up until now.

Class of 2013 – Little if Any Good News is Likely

In the short term, for the Class of 2013, for which job results will be reported in the coming weeks, it would not be at all surprising to see little, if any, improvement in the employment results in terms of the percentage of graduates finding jobs classified as full-time, long-term Bar Passage Required jobs.

According to NALP’s data, there were 29,978 full-time, long-term Bar Passage Required jobs for 2007 graduates, a number which fell to 24,902 for 2011 graduates, and then rebounded to 26,876 for 2012 graduates, an increase of 1,974.   According to the ABA’s Employment Outcomes data, between 2011 and 2012, the number of full-time, long-term Bar Passage Required jobs grew from 24,149 to 26,066, an increase of 1,917.  (For this blog posting, I am not going to try to reconcile the slight differences in data between NALP and the ABA’s Employment Outcomes data.)

Unfortunately, however, according to the ABA's Employment Outcomes data, this growth in full-time, long-term Bar Passage Required jobs between 2011 and 2012 corresponded with a growth in the number of law graduates, from 43,979 to 46,364, an increase of 2,385.  Thus, even though the number of full-time, long-term Bar Passage Required jobs grew by 7.9%, the percentage of graduates in full-time, long-term Bar Passage Required jobs grew only slightly, from 54.9% to 56.2%.

Between 2012 and 2013 the number of full-time, long-term Bar Passage Required jobs may increase again, but the number of graduates also will be increasing, likely from 46,364 to roughly 47,250.  (For the last few years, the number of law school graduates has averaged roughly 90% of the number of first-year students who started law school three years previously.  With 52,500 first-year students in Fall 2010, there likely were roughly 47,250 May 2013 graduates on whom employment will be reported in the coming weeks.) 

If the number of full-time, long-term Bar Passage Required jobs for the 2013 graduates reported in the ABA Employment Outcomes data grows by roughly 1,000 to 27,000, an increase of nearly 4%, the percentage of graduates with such jobs would increase only slightly to 57.1%.  If the number of full-time, long-term Bar Passage Required jobs for the 2013 graduates grows only slightly, by roughly 500, to 26,500 (an increase of less than 2%), the percentage of graduates with such jobs will drop slightly, to 56.1%.  If the number of Bar Passage Required jobs is flat, at 26,000, the percentage of graduates with such jobs will drop a little more to 55%.  Between 2011 and 2013, the market might see graduates finding roughly 2,000 to 2,500 new full-time, long-term Bar Passage Required jobs, and yet still see only 55% to 57% of graduates in such jobs because of the growth in the number of graduates between 2011 and 2013.

Classes of 2014, 2015, 2016, 2017 – An Improving Dynamic

What are the employment prospects for those currently in law school or considering starting law school in the fall of 2014?  They almost certainly will be getting better – not necessarily because there will be more jobs, but because there will be fewer graduates.

Indeed, to make this point, let’s assume that there is actually no further growth in full-time, long-term Bar Passage Required jobs between 2012 and 2017.  Assume the number of such jobs plateaus at 26,000 for graduates of the Class of 2013 and then stays at that level each year through 2017.  What percentage of law graduates over the next four years will have such jobs? 

According to the LSAC, "ABA First-Year Enrollment" has declined steadily from 2010 to the present, from 52,500 in 2010, to 48,700 in Fall 2011, to 44,500 in Fall 2012.  The ABA recently released the Fall 2013 enrollment summary noting that it had fallen to 39,675.   The LSAC's most recent Current Volume Summary, from February 21, 2014,  indicates that applicants to law school are down roughly 11% compared to last year.  Thus, it seems reasonable to project that first-year matriculants will decline again in Fall 2014.  If first-year enrollment falls by 5%, that would give us roughly 37,700 first-years.  If it falls by 10% once again, that would give us roughly 35,700 first-years.

With these estimates for the number of first-years, we can estimate the number of graduates (which, as noted above, has averaged roughly 90% of first-years for the last few years).  Even if the number of full-time, long-term Bar Passage Required jobs does not continue to rebound, but plateaus at 26,000, as the number of graduates declines over the next few years, the percentage of law graduates obtaining a full-time, long-term Bar Passage Required job, as shown in Table 1, will grow to between 77% and 84% by 2017 (depending upon first-year enrollment in fall 2014).

TABLE 1

Analysis of the Estimated Number of Full-Time, Long-Term Bar Passage Required Jobs as a Percentage of the Estimated Number of Law Graduates from 2012-2017

   

Grad. Year

2012

2013

2014

2015

2016

2017

2017

 

(5% Dec.)

(10% Dec.)

 

(1st Yrs 3 Yrs Prior)

 

51600

 

52500

 

48700

 

44500

 

39675

 

37700*

 

35700*

 
 

Grads (90% of 1st Yrs.)

 

46364

 

47250*

 

43830*

 

40050*

 

35708*

 

33930*

 

32130*

 
 

FT/LT BPR Jobs

26066

26000*

26000*

26000*

26000*

26000*

26000*

 

% of Grads in FT/LT BPR Jobs

 

56%

 

55%*

 

59%*

 

65%*

 

73%*

 

77%*

 

84%*

 

*Denotes estimated value.

An improvement in the number of law school graduates getting full-time, long-term Bar Passage Required jobs, from roughly 55% to between 77% and 84% is indicative of an improving employment market for law school graduates.  Indeed, according to Bernie Burk’s analysis of the employment market over the last few decades, this rate of employment in full-time, long-term Bar Passage Required jobs would rival or exceed the high water mark for “Law Jobs” of roughly 77% that he identified as having been experienced by the graduates from 2005 to 2007.  (And for his purposes, “Law Jobs” included some JD Advantage jobs.)  Moreover, this assumes no growth in the number of full-time, long-term Bar Passage Required jobs; if there is even modest growth in the number of full-time, long-term Bar Passage Required jobs over the next few years, the percentages of grads in these jobs would be even higher than reflected in this chart.

 Full-Time, Long-Term Bar Passage Required Jobs as a Percentage of Those Eligible for Such Positions by Virtue of Having Passed a Bar Exam

Even so, many may look at this and suggest the market remains less than robust given that perhaps 16%-23% of graduates in this “improved” market in 2017 will not obtain full-time, long-term Bar Passage Required jobs. While some compare the number of full-time, long-term Bar Passage Required jobs to the number of law school graduates to demonstrate why the employment market for law school graduates remains unsatisfactory, this may not be the most accurate way of thinking about the market for full-time, long-term Bar Passage Required jobs as not all graduates are going to be eligible for Bar Passage Required jobs.

Among those graduating from law schools accredited by the Section of Legal Education and Admissions to the Bar and taking a bar exam upon graduation, the National Conference of Bar Examiners indicates that over the last several years, on average, roughly 83% of graduates of ABA-accredited law schools pass the bar exam on their first attempt. 

To calculate the employment market for law graduates in the coming years who are eligible for full-time, long-term Bar Passage Required jobs, let’s assume that all law graduates actually want a full-time, long-term Bar Passage Required job and therefore take a July bar exam, and let’s assume that 83% of them pass the bar exam on their first attempt.  This should give us the maximum number of graduates eligible for full-time, long-term Bar Passage Required jobs 10 months after graduation (which will be the measuring point starting with the Class of 2014). 

Even if we assume no growth in the number of full-time, long-term Bar Passage Required jobs in the coming years and simply hold the number of such jobs at a constant 26,000, the decreasing number of law graduates will mean an even more improved employment market for those seeking full-time, long-term Bar Passage Required jobs who will be eligible for those jobs by virtue of having passed the bar exam on their first attempt, increasing from nearly 70% in 2012 and 2013 to nearly 90% by 2016 and over 90% by 2017.

 TABLE 2

Analysis of the Estimated Number of Full-Time, Long-Term Bar Passage Required Jobs as a Percentage of the Estimated Number of Law Graduates Eligible for Bar Passage Required Jobs from 2012-2017 

Graduating Year

2012

2013

2014

2015

2016

2017

2017

 

First   Year Enrollment

 

51600

 

52500

 

48700

 

44500

 

39675

 

37700*

(5% Dec.)

 

35700*

(10% Dec.)

 
 
 

Graduates   (90% of First Year Enrollment)

 

46364

 

47250*

 

43830*

 

40050*

 

35708*

 

33930*

 

32130*

 

83% of   Graduates (NCBE Avg. for First-Time Takers)

 

38482*

 

39218*

 

36379*

 

33242

 

29638*

 

28162*

 

26668*

 
 

FT/LT Bar   Passage Jobs

 

26066

 

26000*

 

26000*

 

26000*

 

26000*

 

26000*

 

26000*

 

Percentage   of Graduates Who Might Pass the Bar for whom FT/LT Bar Passage Jobs Likely   Would be Available

 

68%*

 

66%*

 

71%*

 

78%*

 

88%*

 

92%*

 

97%*

 

 *Denotes estimated value.

Notably, these estimates probably overstate the number of graduates who will be eligible for Bar Passage Required jobs.  First, not all law school graduates want to take a bar exam as some conclude that they are not interested in practicing law as a licensed attorney.  Second, given the increasing number of law school matriculants with LSATs less than 150, one could anticipate a slightly higher rate of attrition such that fewer than 90% of matriculants graduate after three years.  Third, given the increasing number of law school matriculants with LSATs less than 150, one also could anticipate that the historical average bar passage rate of 83% might be too generous.  All of these points suggest that the number of graduates eligible for full-time, long-term Bar Passage Required jobs may decline between now and 2017 even more than is indicated in Table 2.    

Between 2012 and 2013 to 2016 and 2017, we will have gone from having nearly seven full-time, long-term Bar Passage Required jobs for every ten graduates eligible for such positions by virtue of having passed a bar exam to having nine or more full-time, long-term Bar Passage Required jobs for every ten graduates eligible for such positions by virtue of having passed a bar exam. That strikes me as an improving employment market.

Of course, this may not be good news for those who graduated in the last few years into one of the toughest markets in history.  It is not clear that this improving market will be improving for them.  But it also is not clear that this "excess capacity" will unduly constrain the opportunities available to law school graduates in the coming years.  This excess capacity already has been impacting the market, yet the number of full-time, long-term Bar Passage Required jobs obtained within nine months of graduation grew by nearly 2000 between 2011 and 2012.  That is one reason I think the assumption of no further growth in full-time, long-term Bar Passage Required jobs is probably fairly conservative. 

In addition, this may not be good news for those who fail to pass the bar exam on their first try and may have to look for jobs that do not require bar passage.  While a significant percentage of these graduates will pass the bar exam on their second attempt and may eventually find employment in full-time, long-term Bar Passage Required positions, it may take several months longer than they had desired and may require that they pursue other employment, perhaps JD Advantage employment, during the intervening months.  

Even assuming a flat market for full-time, long-term Bar Passage Required jobs, as a result of significant declines in first-year enrollment that will mean a significant decline in the number of law school graduates in 2016 and 2017, we should be moving from having slightly more than three of ten graduates who were eligible for Bar Passage Required jobs in 2012 who could not find them to having less than one of ten graduates in 2017 who likely will be eligible for Bar Passage Required jobs who cannot find them.  While individual schools and local or regional markets may have more varied results on a "micro level," on a "macro level" this should be good news for current first-year students and students considering starting law school in the fall of 2014.

Whether this improving employment situation will be enough to change the trend in terms of declining number of applicants to law school remains to be seen.  While the future may be brightening, the "news" in the coming weeks will be the report on employment outcomes for 2013 graduates nine months after graduation.  As noted above, that may be somewhat uninspiring because any increase in the number of full-time, long-term Bar Passage Required jobs may be masked by the larger number of graduates in 2013 compared to 2012.  As a result, potential law school applicants may remain reluctant to make the commitment of time and money that law school requires because the "good news" message regarding future employment prospects for law graduates may fail to gain traction if the messages about employment outcomes for recent law school graduates continue to be less than encouraging.

March 1, 2014 in Data on legal education, Data on the profession, Structural change | Permalink | Comments (8)

Sunday, December 8, 2013

Did the Market for Law Firm Associates Peak 25 Years Ago?

Based on the chart below, which reflects 35 years of large law firm data, the answer appears to be yes.  The chart enables us to compare two very simple trendlines: the percentage of lawyers in NLJ 250 law firms who have the title of Associates versus the percentage with the title of Partner. 

Figure1

The chart above was generated by my colleague, Evan Parker-Stephen, who is Director of Analytics at Lawyer Metrics.  I asked Evan to crunch these data after some of research I was working on revealed a 50% decline in Summer Associate hiring between 2002 and 2012 at the ~600 law firms listed in the NALP Directory (11,302 to 5,584). In other words, 2008 is the wrong reference point. See Sea Change, NALP Bulletin (Aug 2013).  Something more substantial was (is) happening.

Indeed, the 35-year graphic above provides a true wide-angle view, which in turn reveals an absolutely remarkable story.  Associates were most integral to the large law firm model over 25 years ago.  Although large law firms went on a hirng spree at various points during the 1990s and 2000s, the firms themselves were simultaneously adding a new layer of human capital that was neither associate or partner/owner.  And in the process, associates were gradually being marginalized. The graph below (also NLJ 250 data) reveals the growing middle section of the so-called Diamond Model:

Figure2_highres

So what does all this mean?  

My best analysis is set forth in a short research monograph I wrote with Evan, entitled "The Diamond Law Firm: A New Model or the Pyramid Unraveling?"  The punchline is that large law firms appear to be chasing short-term profits at the expense of longer-term sustainability.  It would not be the first industry sector to lose its competitive advantage through myopic strategy -- as the saying goes, nothing fails like success.  See Henderson, Three Generations of U.S. Lawyers: Generalist, Specialist, Project Manager.  Large firms are not going extinct.  But as a matter of demographics, they are greying.  If BigLaw were trading on the Nasdaq, the analysts would be very critical of this trend.  

December 8, 2013 in Blog posts worth reading, Data on the profession, Important research, Law Firms, New and Noteworthy, Scholarship on the legal profession, Structural change | Permalink | Comments (9)

Sunday, December 1, 2013

From Big Law to Lean Law

RibsteinIn 2012, Bruce Kobayashi and the George Mason Law & Economics Center organized an ambitious conference series entitled, "Unlocking the Law: Building on the Work of Professor Larry Ribstein."  The collective work product has recently been published in the International Review of Law & Economics.  

My contribution was an essay entitled "From Big Law to Lean Law."  It is a  review of Larry's seminal "The Death of Big Law" article, with the benefit of three years of data and the gradual realization that the entire legal profession is on the brink of a major structural transformation.

The "Death of Big Law"  first appeared on SSRN in the fall of 2009.  The following spring, I attended the annual Georgetown Center on the Legal Profession conference, where Larry's analysis and conclusions were presented to a large audience of Big Law partners, including managing partner commentators.  Suffice to say, the reaction was one of polite bafflement.

"From Big Law to Lean Law" was my best attempt to serve as a translator, albeit with the benefit of three years of market data and hindsight.  Here is the abstract

In a provocative 2009 essay entitled The Death of Big Law, the late Larry Ribstein predicted the shrinkage, devolution, and ultimate demise of the traditional large law firm. At the time virtually no practicing lawyer took Larry seriously. The nation’s large firms were only one year removed from record revenues and profits. Several decades of relentless growth had conditioned all of us to expect the inevitable rebound. Similarly, few law professors (including me) grasped the full reach of Larry’s analysis. His essay was not just another academic analysis. Rather, he was describing a seismic paradigm shift that would profoundly disrupt the economics of legal education and cast into doubt nearly a century of academic conventions. Suffice to say, the events of the last three years have made us humbler and wiser.

This essay revisits Larry’s seminal essay. Its primary goal is to make Larry’s original thesis much more tractable and concrete. It consists of three main pillars: (1) the organizational mindset and incentive structures that blinds large law partners to the gravity of their long-term business problems; (2) a specific rather than abstract description of the technologies and entrepreneurs that are gradually eating away at the work that has traditionally belonged to Big Law; and (3) the economics of the coming “Lean Law” era. With these data in hand, we can begin the difficult process of letting go of old ideas and architecting new institutions that better fit the needs of a 21st century economy.

(SSRN link.)  In the service of explaining these complex market dynamics to lawyers, legal educators, and law students, I am posting the figures used in the paper, which can be downloaded from Slideshare.

December 1, 2013 in Data on the profession, Important research, Law Firms, Scholarship on the legal profession, Structural change | Permalink | Comments (0)

Sunday, November 24, 2013

Understanding Trends in Demographics of Law Students – Part Three

Why the Difference in Response to Market Signals?

In Part One, I analyzed how analysis of changes in applicants from LSAC’s Top 240 Feeder Schools demonstrates that graduates of more elite colleges and universities have abandoned legal education at a rate greater than graduates of less elite colleges and universities. 

In Part Two, I analyzed how the pool of applicants to law school has shifted with a greater decrease among applicants with high LSATs than among applicants with low LSATs resulting in a corresponding  increase in the number and percentage of matriculants with LSATs of <150.

What might explain why applicants to law school are down more significantly among graduates of more elite colleges and universities than among graduates of less elite colleges and universities?  What might explain why applicants to law school are down more significantly among those with LSATs of 165+ than among those with LSATs of <150?  Is there some relationship between these data points?

There likely is some relationship between these data points.  Many of the more elite schools in the LSAC’s list of the Top 240 Feeder Schools have historically been schools whose graduates on average have higher LSAT scores compared with graduates from less elite schools.  The LSAC’s 1995 publication, Legal Education at the Close of the Twentieth Century:  Descriptions and Analyses of Students, Financing, and Professional Expectations and Attitudes, authored by Linda F. Wightman, discusses the characteristics of the population of students who entered law school in the fall of 1991.  Roughly 31% of the students scoring in the top quarter in terms of LSAT came from very highly selective undergraduate schools, roughly 31% from highly selective undergraduate schools, and only 17% from the least selective undergraduate schools.  Id. at page 38, Table 20. Thus, it is very likely that these two data points are related – that the greater decline among applicants from more elite colleges and universities is correlated directly with the greater decline among applicants with LSAT scores of 165+.

I want to offer three possible explanations for this differential response to market signals among different populations of prospective law students.  The first two focus on the possibility that market signals are communicated differently to different populations.  The third focuses on how different populations of prospective law students simply might respond to the same market signals in markedly different ways.

Different Pre-Law Advising Resources May Mean Market Signals Penetrate Some Populations of Prospective Law Students More Deeply Than Other Populations of Prospective Law Students.  Focusing first on the nature of the feeder schools, one possibility is that access to pre-law advising resources differs across these different categories of feeder schools resulting in different messages being communicated to applicants from less elite colleges and universities than to applicants from more elite colleges and universities regarding the cost of legal education and the diminished employment prospects for law school graduates in recent years.  Perhaps there are more robust pre-law advising programs among the elite colleges and universities than among the less elite colleges and universities, with pre-law advisors who really have their finger on the pulse of what is happening in legal education and the legal employment market.  Perhaps these more robust pre-law advising programs are engaging in programming and advising that communicates more effectively to prospective law students the significant costs of legal education and the ways in which the challenging employment reality for law graduates in recent years makes the significant cost problematic.  As a result, perhaps larger percentages of prospective law students at more elite colleges and universities are getting more information about the increasing costs and diminished employment prospects for law graduates and are deciding to wait to apply to law school or are deciding to pursue a different career completely. 

Alternatively, pre-law advisors may have different responses to market signals in thinking about their role in advising students.  Perhaps pre-law advisors at more elite colleges and universities are more directive about discouraging students from considering law school while pre-law advisors at less elite colleges and universities are more inclined simply to support student interest in pursuing law school.

There clearly are disparate allocations of resources to pre-law advising across various colleges and universities, different levels of engagement among pre-law advisors and different perspectives on how directive one should be in advising students considering law school.  That said, I am not sure these differences necessarily can be delineated in relation to the extent to which a college or university is considered an elite college or university or a less elite college or university.  Moreover, with so much information now available on the internet, it is not clear that pre-law advisors are the primary source of information for prospective law students. 

These hypotheses would benefit from being explored empirically.  What are the relative pre-law advising resources at the schools down more than 30% in applicants between 2010 and 2012 relative to the pre-law advising resources at the schools down less than 10%? Are pre-law advisors at the colleges and universities down more than 30% in applicants between 2010 and 2012 more inclined to affirmatively discourage students from considering law school than pre-law advisors at  colleges and universities down less than 10%?  Were prospective students at these two categories of schools really receiving different messages about the employment situation for law graduates and the cost of law school?

Different Social Network Signals and Influences --- Another possibility might involve social network signals and influences.  Significant empirical data indicates that on average different socio-economic populations attend different types of colleges and universities.  Among those entering law school in fall 1991 from very highly selective undergraduate schools, nearly three times as many were from families from upper socio-economic status as from lower-middle socio-economic status.  Legal Education at the Close of the Twentieth Century:  Descriptions and Analyses of Students, Financing, and Professional Expectations and Attitudes, at page 38, Table 20.  By contrast, among those entering law school in fall 1991 from the least selective undergraduate schools, nearly twice as many were from lower-middle socio-economic status as from upper socio-economic status.  Id. Similarly, there is fairly significant empirical data indicating that different socio-economic populations generally attend different tiers of law schools with more of the socio-economically elite at higher-ranked law schools and fewer of the socio-economically elite at lower-ranked low schools.  Id. at pages 30-31,  Table 15 and Figure 7; Richard H. Sander and Jane R. Bambauer, The Secret of My Success:  How Status, Eliteness and School Performance Shape Legal Careers, 9 J. Empirical Legal Stud. 893, Table 2 (2012)(analysis of the After the JD dataset looking at a representative sample of law school graduates who took the bar in 2000). 

Given this background, it would seem plausible that graduates of more elite colleges and universities on average represent more of an upper-income socio-economic population who may know more lawyers than graduates of less elite colleges and universities who may on average represent more of a middle class socio-economic population.  The parents of graduates of more elite colleges and universities may be more likely to be lawyers and/or have friends who are lawyers.  Thus, it is possible that graduates of more elite colleges and universities may be more likely to have received negative signals about the rising cost of legal education and the diminished employment prospects for law school graduates in recent years from family and friends than did their peers from less elite colleges and universities.  This hypothesis also would benefit from being explored empirically.

Different Decision Matrices Based on Socio-Economic Status and Opportunity – Another possibility is that regardless of whether students across different types of feeder schools really are getting different messages about the costs of legal education and the challenging employment prospects for law school graduates, they simply may be making different decisions in response to that information.  This hypothesis builds on the possibility that different populations of prospective law students may have different motivations for considering law school or may evaluate the value of a legal education using different parameters given different sets of options that might be available to them.  It is possible that the market signals regarding employment of law graduates are more nuanced than we might generally appreciate.  

For example, it may be that graduates of elite colleges and universities, who also tend to be among the socio-economic elite, have a variety of employment options coming out of college that are more attractive than law school at the moment given the diminished job prospects for law graduates in recent years.  If these students generally value a law degree primarily because of the status associated with acquiring a “prestigious” job in a big firm upon graduating from law school, than the significant decline in big firm jobs might frame their analysis of the value-proposition of law school.  Changes in the legal employment marketplace, particularly significant declines in the number of positions with “prestigious” big firms, may have made the legal profession less attractive to the socio-economic elite, who may be able to pursue job opportunities in finance, investment banking, consulting, or technology, or meaningful public interest opportunities such as Teach for America, that are viewed favorably within their social network. 

By contrast, for graduates of less elite colleges and universities, who are generally not from the socio-economic elite, fewer opportunities may be available in finance, investment banking, consulting, and technology.  In addition, they may lack the financial flexibility to make Teach for America or other public interest opportunities viable.  Moreover, this set of prospective law students may be more motivated simply about becoming a lawyer and acquiring the status that comes with being a lawyer (even if they are not going to become a big firm lawyer, but are simply going to be a family law attorney, or a public defender or a worker’s comp attorney).  This population may be less focused on big firm options and less concerned about the lack of jobs in that niche within the market and may see any position within the legal profession as a path toward financial security and social status, despite the increasing costs of legal education and the diminished employment prospects of law graduates. 

These hypotheses also may merit more empirical assessment.  What are the graduates of more elite colleges and universities choosing to do in greater numbers as significantly smaller numbers apply to law school?  Are there different motivations for pursuing law school among different socio-economic populations?

Regardless of the explanation for the current changes in application patterns, it would appear that the population of law students not only is shrinking, but may be going through a modest demographic transformation, with a somewhat smaller percentage of law students representing the socio-economic elite and a somewhat larger percentage of law students from lower on the socio-economic scale.  First-year students in 2013 may be slightly less “blue blood” and slightly more “blue collar” than they were in 1991.  Whether this is a short-term trend or a longer term reality remains to be seen.  What it might mean for legal education and the legal profession over time also remains to be seen.

November 24, 2013 in Data on legal education, Data on the profession, Scholarship on legal education, Scholarship on the legal profession | Permalink | Comments (0)

Saturday, November 23, 2013

Bringing the Disruption of the Legal Services Market into the Law School Classroom

Is it important to help law students understand the disruptions that are now occurring in the legal industry?  Well, let me ask a more fundamental question.  How can a law professor efficiently obtain better information on these complex and diffuse changes? None of us legal academics are experts in this area, and that's a problem in and of itself.

In the process of struggling with these questions, I decided to carve out 15% of the grade in my Corporations class for team-based profiles of NewLaw companies.  Here is how I described the conundrum in my syllabus:

The legal industry is changing in dramatic ways, including the creation of new legal businesses that rely upon technology and process design to solve legal problems that have traditionally been handled by lawyers. These businesses are often financed and managed by nonlawyers, which some of you may find surprising. ...

Remarkably, very few practicing lawyers grasp the type of industry context described above ...  Yet, the influx of financiers and technologists is likely going to have a dramatic effect on your future legal careers.  These changes are extremely foreign to the substance of traditional legal education – we (the legal professoriate) just don’t understand the breadth and depth of the changes that are now occurring.  Rather than sweep this uncomfortable fact under the rug, let’s do what great lawyers do with their clients.  Let’s learn about the business and the industry so that we understand the context.  Armed with this information, we can make better decisions with regard to our own careers.

Two months ago, I circulated the full assignment to the class, divided the class into teams, and gave students two weeks to select a company.  The only restrictions were no duplicates, so first-come first-serve, and the company had to be a non-law firm business operating, partially or entirely, in the legal industry.  (BTW, JB Ruhl's Law Practice 2050 course at Vanderbilt Law tackles this topic head-on.)

Students made their presentations this past Monday evening (Nov. 18) in Indiana Law's Moot Courtroom.  It was a marathon session that ran nearly four hours.  Because of the novel content, several practicing lawyers showed up to see the presentations. The following companies where profiled:

  • AdvanceLaw.  Privately held company that operates a closed community of legal departments who share information on law firms and individual lawyers in order obtain better quality at a lower cost.  Discussed on the LWB here.
  • Axiom Law.  Venture and private equity-based company that helps legal departments more efficiently manage and source their legal needs. Discussed on the LWB here.
  • Black Hills IP.  Privately held onshoring company that does highly specialized IP-related paralegal work -- their internal motto is "innovate and automate."  Founders were involved in an earlier LPO that sold to CPA Global a few year ago. Discussed on the LWB here.
  • Datacert.  An e-billing platform for legal departments that has added on a large overlay of data analytics so legal departments can more aggressively benchmark and monitor their expenses to outside counsel.
  • Ernst & Young.  Big Four accounting firm that hires an enormous number of law grads each year for its tax and consulting practices.  Very much set up for the tastes and preferences of Millenial professionals including training, work space, and work-life balance.
  • Exemplify.  Start-up company founded by Professor Robert Anderson at Pepperdine Law and his student.  Used super computer technology and inductive computational linguistics to identify the market standard language in a myriad of forms found in the SEC Edgar database. Will speed up negotiations on what is "market"; setting stage for eventual market convergence on standards.
  • Huron Consulting.  Publicly held consulting firm that formed out of the ashes of Arthur Anderson's post-Enron collapse.  Although a business consulting organization, a surprisingly large part of their business is e-discovery through attorneys in U.S. and India.  This group trudged through the company's 10Ks, which was a great educational experiemce for them. Discussed on the LWB here.
  • Integreon.  Venture- and private equity-based LPO that has tried to distinguish itself with its global platform and language capabilities.  The company recently cut a deal with Microsoft to handle a large tranche of their patent portfolio work.
  • KM Standards.  Privately held legal knowledge management company that is trying to deconstruct the logic of contracts into standardized terms to enable autonmation and reduce ambiguity (and thus litigation).  Potentially very disruptive.
  • LegalForce.  Privately held company hoping to recapture the lost consumer and start-up market through a novel storefront strategy.  Financed at least initially through LegalForce's  enormously successful online trademark practice run by the company's founder, Raj Abhjanker.  More trademarks granted by PTO than any other law firm.
  • Manzama.  Privately held company in Bend, Oregon that scrapes the Internet with machine learning technology to filter business intelligence for law firms and other professional service firms track.  Enormously scalable. Daily results presented through a dashboard technology. 
  • Modria.  Online dispute resolution system that enables businesses and governments (mostly municipalities) to avoid costly, in-person legal proceedings to resolve a steady stream of similar disputes that are part of running a business or government. Discussed on the LWB here.
  • Neota Logic.  Privately held company founded by former Davis Polk partner and CIO Michael Mills.  The company specializes in the creation of expert systems that can improve the quality and efficiency of many transactional and compliance related activities.  
  • Pangea3.  LPO with substantial operations in India.  Initially back by venture capital in 2004 but subsequently sold to Thomas Reuters in 2010.  Employs roughly 1,000 lawyers in the US and India.  Discussed on the LWB here.
  • Recommind.  Privately held company that specialized in predictive coding for use in document review and e-discovery.  Founders were graduate students in Artificial Intelligence programs at Stanford and UC Berkeley in early 1990s.  Discussed on the LWB here
  • Stewart Richardson.  A privately held Indianapolis-based deposition services company that has gradually and successfully expanded into a broader array of law firm support services.  Very focused on technology to make the job of clients easier.  

The assignment was an experiment, albeit one that worked very well.  Both students and the visiting lawyers reported surprise at the depth and breadth of the innovations taking holding the legal market.  

Although some of the innovations where clearly eroding the need for traditional legal service jobs, the profiles also revealed the tremendous opportunities for those willing to stretch into the law and technology space.  Many students commented that the evening drove home the point that they need to proactively obtain new skills and knowledge.  Why? Because the emerging market has no secure place for the complacent or mediocre.  Better for them to discover it in the course of an assignment than for me to say and have it fall on deaf ears.

Many thanks to the profiled company, who exhibited enormous generosity in helping my students complete this assignment.   Remarkably, most groups had the benefit of a lengthy conference call with senior leadership.  My only regret is that more practicing lawyers did not attend.  My students, who have have 1L team and presentation experience, brought their "A" game.  I will fix that in the next class, as there is no shortage of NewLaw companies to be profiled. 

November 23, 2013 in Current events, Data on the profession, Fun and Learning in the classroom, Important research, Innovations in legal education, Structural change | Permalink | Comments (1)

Sunday, November 17, 2013

An Update on Milbank's Big Bet

Two years ago, when all other large law firms were slashing expenses to prop up partner profits, Milbank Tweed went in the opposite direction and invested heavily in an executive education program for midlevel associates. The program, called Milbank@Harvard, required all 4th, 5th, 6th, and 7th year associates to spend one week per year at Harvard University taking course work from HLS and HBS professors along with Milbank partners.  At the time, I wrote an in-depth analysis for the Am Law Daily. See Milbank's Big Bet, May 11, 2011.

In the video below, Bloomberg Law provides an update on the program via an interview with David Wolfson, the Milbank partner who oversees the firm's professional development programs.  Here are three takeaways from Lee Pacchia's interview with Wolfson:

  • Two years in and its a big success.  Law firms are innovating these days, but they don't always advertise what they are doing lest their failures become public or their successes get copied.  Why is Milbank talking about this very expensive program?  My best guess is that the firm's bet is paying off.  Thus, the firm is in an ideal position to use the program to differentiate itself in the minds of clients and prospective recruits, including laterals.  In short, this is the branding component of a longer term strategy.  To get his payoff, Milbank started three years ago and invested--back of the envelope calculation--$20 million, which amounts to $150,000 to $200,000 of forgone profits per equity partner. 
  • The skills gaps are primarily in business and leadership.  Wilson criticizes law schools for not doing more in this area, particularly in the collaboration and leadership areas.  But he also acknowledges that the biggest part of hard skills gap, financial literacy and acumen, requires learning in context.  At year four, the associates know what they don't know.  The original Cravath System was a lawyer development machine.  So is Milbank@Harvard, albeit the specifications have been updated.
  • The idea for Milbank@Harvard came from a German partner.  One of the many fruits of globalization is getting an outsider perspective on old problems.  Perhaps U.S. law firm partners are too embedded in the year-to-year AmLaw league tables to see and appreciate the power of a longer-term strategy based on aligning the needs of clients, partners, and associates.  That said, the American brain trust at Milbank was smart enough to listen their German partner.

The video:

In this book, Tomorrow's Lawyers, Richard Susskind predicts that the market for high-end bespoke legal services will consolidate to "20 global elites."  That said, 50 to 100 US and UK firms are hoping to make that cut.  This gradual winnowing process is what is causing all the groaning these days from millionaire BigLaw partners.

Milbank is one of the few firms, however, that is pursuing a unique, public strategy:  (a) attract, develop, and retain mid-level associates who know they need business training, (b) impress clients through improved value in the mid-level ranks, and (c) as I noted in the original Milbank's Big Bet essay, make Milbank the preferred recruitng grounds for in-house legal talent. 

To my mind, that is a compelling and likely winning strategy.

November 17, 2013 in Current events, Data on the profession, Innovations in law, Law Firms, New and Noteworthy | Permalink | Comments (0)