MAY 17, 2013
THE LAWYER BUBBLE: A Profession in Crisis, by Steven J. Harper, is a cry from the heart about greed and cruelty in the practice of law. Harper is a 30-year veteran of corporate litigation practice at the Chicago powerhouse firm Kirkland & Ellis. Since 2008 he has been an adjunct professor at Northwestern University’s law school and college, teaching what he calls “the good, the bad, and the ugly of what it means to be a lawyer.” This book appears to come from that curriculum, despairing of the predicaments of those at the lowest end of the legal spectrum, like applicants to third-tier law schools, and of those at the highest, lawyers practicing at the elite corporate law firms. He writes fluidly, and tells no lies. Throughout there is a tone of barely suppressed anger that makes for good reading, although overwrought.
We may have finally come to the end of about four decades of explosive growth in the legal profession, but the problems he sees may be no more than the problems of adjustment to new realities. That is, we may have less a profession in crisis, as he claims, than a profession in transition.
Harper began practicing law in 1978. His 30-year career matched a unique period in the legal profession’s history. Getting a start as a young lawyer had never been as easy as it was then. In the 19th and early 20th centuries it was common for an aspiring lawyer to have to pay a practicing attorney to begin as a new man (almost always a man) in his office. By the 1960s the demand for legal talent changed. In 1969 the leading Wall Street firm, Cravath, Swaine & Moore, got front page New York Times coverage by raising its starting salary for new lawyers to $15,000 (the equivalent of $95,000 today). When Harper got out of Harvard, near the top of his class, he could have his pick of openings at excellent firms, and the pay scale had already doubled from 1969. The market was reacting to escalating demand for legal services. Firms were solicitous of their youngest associates and anxious to put them to productive work. Gradually, over the ensuing decades the situation turned, and the opportunities to enter the profession and then to be rewarded within it changed, not all for the better. Harper witnessed this and lays it out with facts, figures, and nostalgia for a bygone era.
He begins with a survey of the current excess of law students given legal career openings. In 2012 law school applicants numbered 68,000 for about 50,000 law school first-year spaces, in the face of a Bureau of Labor Statistics prediction of only 73,600 job openings for the entire decade of 2010s. This oversupply exists despite high law school tuitions and the heavy burden of debt that 90 percent of students incur. Prospective students have been duped, Harper asserts, by the American Bar Association, the aggressive promotional efforts of law school deans, and unreliable law school rankings published by U.S. News & World Report and The Princeton Review. Harper shines a special light on the suspect claims made about the percentage of each school’s graduates employed in full-time legal work nine months after graduation. It is an unreliable statistic, and the focus of pending (but not yet successful) lawsuits alleging fraud against such schools as Thomas M. Cooley, California Western, Golden Gate, and Hofstra, among others. He argues that this deceptive advertising has fooled “kids” into pursuing an unattainable career. “Kids?” The consumers of these reports are typically no younger than college seniors, i.e., 21-years-old, and often much older. He focuses on these surveys even though he also acknowledges that one-third of all applicants “said that they had wanted to attend law school since childhood and, while still in high school, made the decision to apply after college. Another third made the decision as undergraduates, in either their freshman or sophomore year.” Cheating about job prospects on the rankings may make someone apply to Golden Gate instead of Hofstra, but it is not creating the lawyer bubble. At worst, it is briefly postponing for a few the realization that the bubble has burst.
The Lawyer Bubble summarizes the current responses to the problem of having too many applicants and too many graduates for too few jobs. Harper relates efforts across the law schools to make their curricula more work-related, so graduates might be more attractive to employers. There is talk about shortening law school from three to two years, and efforts to improve the law firm recruiting process. Harper sees these as “inadequate” and calls for reductions in tuition and forgiveness of student loans through bankruptcy. Would these deflate or further inflate the bubble?
A bigger question is whether there is really a problem here. Surely anyone preparing for a job that does not exist feels pain. Consider the mismatch between the thousands of “kids” across the nation who spend an entire childhood and then a college career preparing for life as a professional basketball player and the paucity of NBA openings, and the “kids” who study a lifetime for a career as a concert violinist, attend Juilliard and then confront the odds. Try to pursue your dream as a management consultant or investment banker with an MBA that is not at the top of Stanford’s class. Would law students trade for the employment odds of a PhD student in English literature looking for a job in academia in today’s market? Even general undergraduate programs are being tested by the same pressures as law schools. Jeffrey Selingo stated in The Wall Street Journal in April 2013 that, “With unemployment among college graduates at historic highs and outstanding student-loan debt at $1 trillion, the question families should be asking is whether it’s worth borrowing tens of thousands of dollars for a degree from Podunk U. if it’s just a ticket to a barista’s job at Starbuck’s.” These familiar problems did not need a sinister law school dean to create them. The law schools outside the lowest ranks do not hold themselves out as trade schools, with a guarantee of employment. Their degree is like any academic degree — a certification that the student has successfully completed the course of study. When it is combined with bar exam passage the graduate has a right to practice law, but not a promise. Students studying for any career know this.
The frothy decades of the 1970s, 1980s, and 1990s may have temporarily blinded young people to that truth, but only temporarily. The legal market is responding as fewer people apply. Harper admits this is a “positive development” but dismisses it, saying the “reduction in the number of LSAT takers in summer 2011 merely brought it back to 2008 levels.” But The New York Times reported in January 2013 that “there were 30,000 applicants to law schools for the fall, a 20 percent decrease from the same time last year,” and that the number of matriculating this year will be “the lowest since 1977, when there were two dozen fewer law schools.”
The Lawyer Bubble then pivots to a totally different subject: job dissatisfaction among the lawyers in the elite large corporate law firms — the places that have never been open to graduates of the bottom of the law school food chain. Harper gives a fine rendition of the increasingly Darwinian culture of these firms, but it is not clear that we ought to care. As he says, the legal profession is not homogeneous or monolithic. In fact, lawyers come in all stripes, do different kinds of work, and work in vastly different environments and “cultures.” As with “equines,” which include horses, zebras, mules, burros, and the occasional unicorn, “lawyers” consist of personal injury trial lawyers, criminal defense lawyers, prosecutors, public defenders, solo practitioners, in-house corporate lawyers, human rights lawyers, government lawyers, large firm corporate lawyers, and the occasional Supreme Court appellate specialist, among many others. Their working environments and compensation methods are all different. Harper estimates that the large-firm corporate lawyers are only 15 percent of the bar. I believe that overstates the number. Their highly paid travails are not only hard to sympathize with, but they also do not seem important as a systemic matter.
Still, this book does a good, well-written job of telling a tale of encroaching short-term thinking and corporate behavior in what had been a collegial parochial world. As Harper describes it, up until the mid-1970s the elite law firms, the ones that represented corporate America, were partnerships of moderate size in which the qualities of professional excellence, objectivity, and teamwork prevailed. Money and self-interest were secondary. Earnings were comfortable but not grand. He sees the end of this Eden in 1985 due to The American Lawyer’s commencement of an annual publication of partner earnings in each of the top 100 firms — the Am Law 100. Lawyers studied them carefully to learn where they stood relative to similar lawyers at other firms. A person would not have to be avaricious to be troubled that the opposing lawyer across the table was earning 50 percent more doing identical work. The result was open season for attorneys to shift firms looking for the best compensation. Old ties of camaraderie and firm loyalty were ruptured. Harper says managing partners, in pursuit of profits and growth for growth’s sake, aggressively went on the hunt to boost their annual profits per partner so as to attract the best people away from their competitors. Since corporate law firms make their money by charging for each hour of work, profits are only maximized by raising the hourly rate and the number of hours worked. Firms have steadily sped up the assembly line during the last 30 years, Harper claims, to the point that legal practice has become soulless, endless drudgery, resulting in high levels of dissatisfaction and depression. Harper then takes us through some cases of big law firms, like Finley, Kumble, Heller Ehrman, and Dewey & LeBoeuf, crashing and burning under the pressures of this new model.
In truth, it was never idyllic. Harper doesn’t mention that the primal Wall Street corporate law firms were closed: Mad Men–like, three-martini-lunch clubs, suffering all the bigotry, misogyny, and other horsemen of the 1960s apocalypse. They were groups of a few dozen or perhaps 100 genteel lawyers advising corporate and moneyed clients. The earnings were confidential and entirely reserved to the few partners whose names were on the door. A young man could become a partner if and when someone died or retired, especially if he was a son or nephew of a partner. Everyone could make a decent living, but not great wealth. Work was done at a civilized pace — communications with clients came and went by snail mail. The senior partners could do very nicely at the then-generous but not extravagant pay level of a typical corporate CEO. They were the men responsible to maintain the client ties, which were fostered by direct relationships with CEOs on the golf course and other social and family settings. Clients were permanent and loyal. The senior partners would sit on the boards of directors of the clients and take on the mantles of senior statesmen.
Things changed. Law firms are a client service business. When clients’ demands changed, the law firms had to respond. The 1970s and 1980s saw enormous growth in the need for legal services due to rapidly growing antitrust regulation and litigation, corporate securities issuances, corporate securities class action litigations, mergers and acquisitions, private equity funds, hostile takeovers, and government regulatory involvement in everything from international trade to the environment. American society became much more litigious. Things the government had treated as regulatory violations were being treated as criminal cases. Businesses became bigger and more complex. The result was a client need for serious, deeply expert legal advice. Further, senior partners watched as CEO and investment banker salaries took off, leaving them in the dust. With the growing spread between CEO earnings and law firm partner earnings, the opening was there in corporate management to insert an in-house vice-president for legal affairs who could be as highly compensated and qualified as those at the outside firm. He or she became the gatekeeper charged with getting the best legal advice and watching legal costs. By the mid-1980s in all the major corporations the client became personified by the in-house general counsel rather than the CEO.
Client loyalty to a single outside firm was history. The law firm senior partners ceased being members of the boards of directors. The in-house counsel had every interest in having outside firms compete for the work on each major matter. On routine work, price would be a key factor. On work of complexity and importance to the company, the in-house counsel would want the very best. He or she would want a lawyer or a firm on the “short list” of top performers. To stay in business in this environment the law firms had to look hard at their specialties, strengthen their strengths, and eliminate their weaknesses. Without a lock on a major client, a law firm’s secure inventory of work would stretch out no further than four months. Harper sees all the associates in a law firm as producers of profit for the partners, but that is only true if they are busy; absent steady client work they are just mouths to be fed. The corporate law market became both highly competitive and insecure. Managing partners had to begin to run them as competent businesses. The biggest of the firms now gross over $1 billion. No longer can they send out an annual bill to a client for “services rendered” and hope to be paid. Attorney time has to be properly accounted for and billed regularly so receivables do not get out of hand. The thousands of employees, including associates, expect to be paid. Naturally, life in these firms has taken on a more professional, impersonal, and quantitative edge.
As the firms grew they competed for the most talented associates and seduced them with a good chance to enter the partnership after seven or eight years. They began to admit a high percentage of the senior associates to their partnerships as a matter of course. The result of increasing the top of the pyramid was pressure on firms to constantly increase the base. Firms inexorably grew from 100 or 200 attorneys to 1,000 or 2,000 attorneys. Firms had to find ever more client business to keep the associates busy. This fueled the pressure to bring in new business (which young associates rarely accomplish), boosting the lateral hiring boom. No matter how much business is brought in, partner earnings will fall if the pyramid keeps growing at the top. Thus there is a compulsion to slow or stop the admission of associates to the partnership, keep hiring new associates, and expect the existing staff, partners, and associates to work more hours.
The new partners and the new clients they bring keep the pipeline full of work-in-progress. The added expertise improves the reputation of the firm and its future business prospects and enhances the complexity and interest of the work. The prestige of the firm rises, making it able to compete for the most talented new associates, the most difficult work, and the highest fees. To remain a medium-sized, medium-earnings firm doing routine legal work is to be doomed in profitability, reputation, and professional satisfaction. Firms like Heller Ehrman and Dewey & LeBoeuf, whose failure Harper bemoans, did not die because they engaged in lateral hiring and corporate business practices; they died because they did not do it soon enough or smart enough. Dewey & LeBoeuf was the product of a merger of two old-line middle-sized firms that did not sense the market changes. Their delays and inadequacies in understanding their businesses did no favors to their employees and partners, however much they might have preferred to preserve the old verities. It is not that they wanted more money; it is that they did not know how to go about getting it.
These changes animate The Lawyer Bubble. Harper is right that elite legal careers are now more pressured and less collegial — even if better-paid. Lawyers brought in under the promise of a march to partnership in seven years are justifiably dismayed when the partners “pull up the ladder.” But expectations of law graduates have already adjusted. Most who begin big-firm practice now neither expect nor want to stay. The idea of a career at a single place in any occupation has become quaint. Many junior people now see top law firms (or management consulting firms or investment banking firms) as places to get experience on which to base a career elsewhere. Still, The Lawyer Bubble puts great emphasis on the dissatisfaction expressed by mid-level associates at the big law firms as measured by The American Lawyer’s annual A-List survey (while Harper is scornful of the accuracy of Am Law 100, he accepts as gospel the much more subjective A-List survey of associate satisfaction). The mid-level associates as a group may have legitimate dissatisfactions. But it would be odd for firms in any industry to be managed just for the satisfaction of their relatively junior employees.
It is the older associates and partners who are affected more by these changes. The real issue is that law, the famous “jealous mistress,” has become much more jealous of the lives of all attorneys in exchange for higher earnings, at all levels, and some greater satisfaction, which comes from dealing with matters of higher complexity and import. Is the bargain worth it? While Harper ignores this, a bigger issue than the pressure to bill hours is the pressure to originate new business as soon as a lawyer becomes a partner. The pipeline must be filled, or the big organization will fail. There is no value in “senior statesmen” who cannot deliver a client. They and everyone else find themselves increasingly cogs in a wheel. The phenomenon was already well covered 20 years ago by Anthony Kronman’s book, The Lost Lawyer: Failing Ideals of the Legal Profession (1992), which Harper, to his credit, cites.
The Lawyer Bubble often mentions law firm “culture” and regrets its loss, but does not explore what it means. Law firms are large aggregations of people who have to perform at their highest level on a constant basis. Esprit de corps is critical to performance, and it is fragile. Once lost it is hard to regain. Widespread personal dissatisfaction among partners and associates at all levels is an issue for the medium- and long-term success of elite law firms. A law firm cannot become a factory floor relying on the pace of its machinery to guarantee output. Lateral hiring and loss of any pretense of more than a financial bond among the members of the firm, as well as growing numbers and disparate locations of attorneys, make it hard to maintain the loyalty and selfless responsiveness necessary to give clients the best results. The resulting crisis of firm culture risks the entire enterprise. The best firm managements spend their time struggling with this even as they keep an eye on leverage, pace, and other quantitative issues.
With so many losers, are there winners? Perhaps the clients are the winners. The big firms are no longer called upon for sage advice as to the most general issues of the management. That is a loss. However, the restructured big law firms with their professional management and quantitative measurements of performance by their staff and far-reaching offices and specialties are offering their clients more immediate and expert advice on legal matters. We live in a complex and dangerous world. These finely tuned legal machines are what stand between the clients and the deep blue sea. The Lawyer Bubble suffers from its failure to look at the client requirement side of this quintessentially personal service profession, and its failure to ask whether firms so loosely bound can continue to provide the services the clients desire.
Barry A. Sanders is a professor of Communications Studies at UCLA and President of the Recreation and Parks Commission of the City of Los Angeles. He graduated from Yale Law School and practiced international corporate law at Latham & Watkins from 1970 to 2007.