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Abstract:
Over the last several decades, virtually every large law firm has adopted some variant of the Cravath system, which builds human capital by hiring the best students from the best schools and providing them with the best training. At the end of a multi-year tournament, the best associates are promoted to partner. In theory, this system delivers superior services to clients, thus creating firm-specific capital that generates higher profits. In recent years, however, the surge in demand for corporate legal services has outstripped the supply of one key input - elite law school graduates. The ensuing salary wars have significantly increased the cost structure of large corporate law firms and undercut clients' willingness to pay for associate training. These trends are unsustainable. More significantly, clients are unhappy and searching for ways to control costs.

This essay draws upon the findings of an innovative study of engineers at the renowned Bell Laboratories to sketch out a plausible alternative law firm model that could profit from client discontent. In an exhaustive study that was designed to identify the various traits of star performers (so Bell Labs could recruit more of them), researchers found no relationship between performance and various social, psychological, and cognitive abilities, such as I.Q. Two years of observational fieldwork subsequently revealed that higher productivity among knowledge workers was attributable to several distinctive work strategies that were teachable. Further, controlled experiments showed large and persistent productivity gains for engineers who completed the training program, with women and minority workers posting the largest increases. I discuss whether these insights could be applied to law firms (the answer is yes) and why law firms nonetheless would resist despite the potential for higher profits. I then outline how the concept could be put to a market test.

Law Firms, Associates, Partners, Human Capital, Tournament, Am Law 100, Am Law 200

Abstract:
This study examines the change in entering class median LSAT, a key input into the U.S. News & World Report rankings, between 1993 and 2004. Using multivariate regression analysis, the authors model several factors that can influence the direction and magnitude of this change. The study presents six specific findings: (1) the market for high LSAT students is divided into two segments that operate under different rules; (2) initial starting position is a strong predictor of the future gain or loss in LSAT scores; (3) the allure of the high-end corporate law firms appears to cause a significant portion of students to discount the importance of rankings in favor of locational advantages related to the regional job market; (4) students will pay a tuition premium to attend elite law schools but, when deciding among non-elite schools, are willing to forgo a higher ranked school for lower tuition, thus producing a measurable gain in median LSAT scores for lower priced, non-prestigious law schools; (5) there is little or no association between change in lawyer/judge and academic reputation and median LSAT scores, and (6) two well-known gaming strategies for driving up median LSAT scores appear to work.

Drawing upon these results, the authors suggest that the current rankings competition among law schools has all the hallmarks of a positional arms race that undermines social welfare. The authors outline the emerging equilibrium in which non-elite schools engage in costly strategies to boost their reputations while elite law schools are able to further leverage their positional advantage. Because this dynamic spawns rapidly escalating costs in the form of higher tuition, continuation of the ranking tournament threatens the long-term viability of the current model of legal education. The authors conclude with four specific recommendations to law school deans and the editors of U.S. News & World Report.

LSAT, rankings, U.S. News, demography, Am Law 100, Am Law 200, law schools, legal education

Abstract:
During the last decade, many of the nation's largest law firms have converted from single-tier to two-tier (or multi-tier) partnerships. A two-tier firm contains separate tracks for equity and nonequity partner. The equity tier typically controls the firm and enjoys a larger per capita share of the firm's profits. At present, two-tier partnerships make up 80 percent of Am Law 200. The conventional explanation for the growth of the two-tier system (or, conversely, the abandonment of the single-tier) is that it produces higher profits per equity partner (PPP), thus solidifying the prestige of the firm and improving its ability to attract the best legal talent. Drawing upon a comprehensive dataset of Am Law 200 firms, this study documents that average PPP is significantly higher in single-tier firms, even after controlling for geographic market segment and firm leverage. The higher profitability of single-tier firms appears to be a function of higher levels of reputational capital, which enable single-tier firms to (a) attract and retain a more lucrative client base, and (b) run a more rigorous promotion-to-partnership tournament.

Based upon a ten-year longitudinal sample, this study also found negligible statistical evidence that the two-tier structure, after controlling for relative starting position and geographic market, is associated with larger gains in PPP. In light of its uncertain financial benefits, the author theorizes that the two-tier structure is primarily a bonding mechanism used by less prestigious firms to institutionalize a marginal product method of partnership compensation and consolidate managerial control for the benefit of the firm's most powerful partners. Failure to switch to the two-tier structure leaves the firm vulnerable to defections and possible collapse. As a result, the primary economic benefit of the two-tier format may be firm stability rather than higher average PPP. Finally, this study provides some evidence that the appeal of permanent nonequity partnership status, which typically entails fewer professional demands, may set in a motion an adverse selection problem at the associate recruitment level, thus undermining some of the perceived benefits of a two-tier (or multi-tier) format.

Law firms, Am Law 100, Am Law 200, Partnerships

Abstract:
The U.S. News & World Report annual rankings play a key role in ordering the market for legal education, and, by extension, the market for entry level lawyers. This Article explores the impact and evolution of placement and post-graduation data, which are important input variables that comprise 20 percent of the total rankings methodology. In general, we observe clear evidence that law schools are seeking to maximize each placement and post-graduation input variable. During the 1997 to 2006 time period, law schools in all four tiers posted large average gains in employment rates upon graduation and nine months, which appear to result from a combination of competition and gaming strategies. In addition, Law schools in tiers 2, 3, and 4 have increased 1L academic attrition, which may be an attempt to increase the U.S. News bar passage score.

We also use multivariate regression analysis to model the employed at graduation and employed at nine months input variables. We find that the following factors are associated with higher employed at graduation rates: (1) higher 25th percentile LSAT scores, (2) more on-campus interviews (OCI), (3) higher percentage of part-time students, (4) location outside a Top 10 corporate law market, and (5) status as a historically black law school. All of these factors except LSAT and OCI activity vanish when examining the employed at 9 months data. The U.S. News Lawyer/Judge reputation score is associated with higher employment at nine months. Further research on the Lawyer/Judge survey instrument is needed.

After presenting our empirical results, we critique the specific measures of post-graduation success used in the U.S. News rankings and explain how each can be improved. We conclude that the best solution to law schools' complaints about the impact of U.S. News rankings is greater data availability and transparency, particularly on post-graduation outcomes and other factors affecting students' eventual employment prospects.

USNews, rankings, Bar exam, Bar passage, legal profession, legal education

Abstract:
In 1991, Galanter and Palay published 'Tournament of Lawyers: The Transformation of the Big Law Firm', which documented the regular and relentless growth of large U.S. law firms. The book advanced several structural and historical factors to explain these patterns, centering on the adoption of the promotion-to-partnership tournament. Systemic changes in the marketplace for corporate legal services in the intervening years suggest the need for an updated account of the modern large law firm.

Using 'Tournament of Lawyers' as a starting point, we propose to fill this void in the literature. Marching through a wide array of empirical evidence covering the last twenty to thirty years, our findings corroborate some of the core theoretical insights of 'Tournament of Lawyers'. For example, the continuous upward growth of the partnership based on the tournament is clearly evidenced by a 'smooth' upward trajectory in the partnership ranks while associate hiring hews more closely to the underlying business cycle. On the other hand, the widening ranks of permanent 'off track' attorneys and non-equity partners, including the prevalence of de-equitizations, suggest the emergence of a more complex and elongated tournament structure that applies to both partners and associates.

Under a new model, which we dub the 'elastic tournament,' the equity core is primarily reserved for partners who control access to key clients. This structure reduces cross-subsidies between lawyers with differential value to the firm, thus reducing the potential for large-scale lateral defections. Yet, this reduced sharing of risks and benefits simultaneously creates an environment in which it becomes more costly - at the individual lawyer level - to faithfully adhere to professional and ethics principles that are in tension with client objectives. Arguably, these dynamics have made zealous advocacy the touchstone of ethical lawyering. The diminution in sharing also reduces the time horizons of individual lawyers and decreases their willingness to invest in firmwide initiatives that do not simultaneously optimize their own practice. Amidst this widening collective action problem, the 'firm' itself has remarkably little autonomy to pursue non-economic objectives, such as racial and gender diversity (particularly efforts directed at retention) or the training and mentoring of the next generation of lawyers. Further, except in some exceptional cases, the influence of firm culture, which may have moderated lawyer self-interest in an earlier era, is weakened by the sheer size and geographic dispersion of the modern big law firm.

Although this model is fundamentally 'stable' in the economic sense, it raises several philosophical and practical issues regarding lawyer independence and the long-term viability of professional self-regulation.

Tournament, Am Law 100, Am Law 200, Law Firms, Partners, Associates, Human Capital

Abstract:
In the Shadow of the Law. By Kermit Roosevelt. New York: Farrar, Straus and Giroux. 2005. Pp. 346. $24.

Utterly Monkey: A Novel. By Nick Laird. London & New York: Harper Perennial. 2005. Pp. 344. $13.95.

Two recent novels portray the substantively unhappy and morally unfulfilling lives of young associates who work long hours in large, elite law firms. As it turns out, their search for love, happiness, and moral purpose is largely in vain. In the rarefied atmosphere of both fictitious firms, the best and the brightest while away their best years doing document reviews, drafting due diligence memoranda that no one will read, and otherwise presiding over legal matters with lots of zeros but precious little intrinsic interest. If this is what large law firm practice is like, the reader is bound to ask why large law firm jobs are so coveted. Is it really all about money?

In this review essay, we compare Kermit Roosevelt's and Nick Laird's bleak portrayals with findings from a unique dataset on law firm profitability, prestige, hours worked, and various measures of several associate satisfactions. We also mine the findings of several empirical studies that track the experience of lawyers over time. We observe that higher firm profitability is associated with higher salaries, bonuses, and prestige. Yet, higher profits also have a statistically significant relationship with longer hours, a less family-friendly workplace, less interesting work, less opportunity to work with partners, less associate training, less communication regarding partnership, and a higher reported likelihood of leaving the firm within the next two years. Nonetheless, graduates from the nation's most elite law schools tend to gravitate toward the most profitable and prestigious (and most grueling) law firms. The attraction of the most elite firms may be superior outplacement options. Or perhaps, as both novels intimate, it may stem from a reluctance to make hard life choices.

The available empirical evidence suggests that success within the elite law firm environment often entails a difficult array of personal and professional trade-offs. Although we find our empirical data to be informative, the novel may be a particularly effective vehicle for examining the rather existential nature of these choices. Thus, we suspect that the accounts drawn by Roosevelt and Laird will resonate with many elite, large law firm lawyers.

Law firms, Am Law 100, Am Law 200, Partnerships, Roosevelt, Laird

Abstract:
Within the field of psychometrics, it is widely acknowledged that test-taking speed and reasoning ability are separate abilities with little or no correlation to each other. The LSAT is a univariate test designed to measure reasoning ability; test-taking speed is assumed to be an ancillary variable with a negligible effect on candidate scores. This Article explores the possibility that test-taking speed is variable common to both the LSAT and actual law school exams. This commonality is important because it may serve to increase the predictive validity of the LSAT. The author obtained data from a national and a regional law school and followed the methodology of a typical LSAT validity study, with one important exception: student performance was disaggregated into three distinct testing methods with varying degrees of time pressure: (1) in-class exams, (2) take-home exams, and (3) papers. Consistent with the hypothesis, the data showed that the LSAT was a relatively robust predictor of in-class exams and a relatively weak predictor on take-home exams and papers. In contrast, undergraduate GPA was a relatively stable predictor on all three testing methods.

The major implication of this study is that the current emphasis on time-pressured law school exams increases the relative importance of the LSAT as an admission criterion. Further, because the performance gap between white and minority students tends to be larger on the LSAT than UGPA (the other important numerical admissions criteria), heavy reliance on time-pressured law school exams is likely to have the indirect effect of making it more difficult for minority students to be admitted through the regular admissions process. The findings of this study also suggest that when speed is used as a variable on law school exams, the type of testing method, independent of knowledge and preparation, can change the ordering (i.e., relative grades) of individual test-takers. The current emphasis on time-pressured exams, therefore, may skew measures of merit in ways that have little theoretical relationship to the actual practice of law. Finally, this study found some preliminary evidence that the performance gap between white and minority students may be smaller on less time-pressured testing methods, including blindgraded take-home exams. Definitive evidence on this issue will require a larger sample size.

LSAT, legal education, law schools, legal profession, standardized testing, psychometrics, Grutter, race, speed, reasoning ability, intelligence

Abstract:
For most Americans, the collapse of the Enron Corporation is without doubt the most memorable corporate event of their generation. Remarkably, few people are aware that the New Deal regulatory framework - which Congress recently reformed and toughened to in response to the Enron debacle - was itself erected in the wake of a strikingly similar corporate crash. In late 1931 and early 1932, the country looked on in horror as Samuel Insull's mighty and seemingly invulnerable electric utility holding company empire collapsed without warning, wiping out the holdings of over 1 million investors, most of whom believed that they had invested in a safe and secure electric utility enterprise. The newspapers of the day declared the event "the biggest business failure in the history of the world." President Franklin D. Roosevelt and the progressives in Congress subsequently used the Insull debacle as a rallying point from which to promote many of the most important laws of the New Deal, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Federal Power Act of 1935, and the legislation creating the Tennessee Valley Authority and the Rural Electrification Administration.

This Article chronicles the striking similarities, and the ironic differences, between the respective failures of Insull and Enron. A careful examination of these historic events suggests that Insull and Enron were emblematic of rare moments in history when the birth of an infrastructure industry generates an enormous surge in economic activity, capturing the imagination of the investing public and weakening the commitment of the political class to serve, if needed, as vigilant, disinterested regulators.

The main lesson that emerges from our analysis is not so much that we need to strengthen laws against corporate wrongdoing. Rather, it is in recognizing that, during a financial bubble driven by rapid growth in network industries (e.g., electricity and the Internet), regulatory officials will almost inevitably buckle under political pressure and (a) fail to issue new rules that might interfere with the financial "hijinks" and (b) fail to enforce vigorously laws already on the books. This Article suggests that the laws adopted in response to Enron are destined to be watered down and ignored during the next boom, just as the New Deal laws, passed in response to the Insull debacle, were watered down and ignored during the 1990s. The authors reluctantly conclude that history will likely repeat itself in another generation or two, and there is little that can be done beyond vain entreaties to our own grandchildren to become more devoted students of history.

Enron, Insull, electricity, deregulation, New Deal, securities, SEC, FERC, PUHCA, PURPA, Energy Policy Act of 1992

Abstract:
During the last several decades, the legal profession's definition of a "large" corporate law firm has gradually shifted. The rise of mega-firms, with broad geographic platforms and highly sophisticated, specialized, and profitable practice groups, has been expedited by the steady erosion of the norm against lawyer movement between firms. This change in market structure and professional ethos is attributable to a confluence of factors, including the bureaucratization of corporate legal departments; the publication of law firm financials; the delineation of individual lawyers by prominence in various regional, national, or global markets; and the challenges of maintaining shared cultural values and long-term time horizons in the face of perpetual growth imperatives driven by the promotion to partnership tournament.

To date, commentators have described this process without necessarily articulating a logical endpoint. The purpose of this essay is to assemble the empirical facts of the "age of lawyer mobility" and, in turn, to offer some preliminary observations on: (a) the internal economic logic that propels the growth strategies of most large U.S. law firms; (b) how these strategies collectively produce a value proposition increasingly less attractive to clients and young lawyers; (c) structural problems within most large firms that inhibit their ability to effectively adapt to changing market conditions; and therefore (d) why many large law firms are vulnerable to small and mid-sized competitors who, by virtue of their size, have the flexibility to emphasize cost, collegiality, innovation, collaboration, and shared risks, both within the firm and with clients. Although a substantial number of large firms will continue to prosper, primarily by attracting lateral partners with the most lucrative and loyal clientele, most large firms (i.e., Am Law 200 or NLJ 250) will likely have to retool their business models in order to survive.

legal profession, law firms, Am Law 200, Am Law 100, lateral partners

Abstract:
In recent years, courts and commentators have routinely assumed that the desegregation era caused white flight and contributed to the deterioration of urban schools. Cleveland is often cited as a prototypical example of this misguided policy. The empirical basis for this belief, however, has been assumed rather than proven. This article uses the critical case study method to assess how the 1976 Cleveland desegregation order altered pre-existing demographic patterns within the Cleveland metropolitan area. Specifically, the article draws upon the social science literature to construct two theories of central city decline: (1) studies that link increased rates of white flight to court-ordered desegregation (desegregation/white flight model); and (2) research on the general cycle of middle-class outmigration spurred by an attractive suburban lifestyle and the declining social and economic conditions of the central city (economic and social conditions model).

To assess the relative importance of these two mutually compatible theories of central city decline, the analysis considers evidence from a wide variety of sources, proceeding chronologically from the early 1900s to the present. The article concludes that the economic and social conditions model provides the most robust explanation of not only the failure of the Cleveland public schools, but also the failure (and success) of dozens of suburban districts in the region. Further, the author generated several GIS maps, which permit a spatial analysis of race, socioeconomics, and school performance for the seven-county Cleveland metropolitan area. At least in Cleveland, these maps demonstrate the enormous predictive power that social and economic isolation has on education outcomes. (The maps in the article are in gray scale; color maps in Word format can be obtained by contacting the author.)

Freed from the historical baggage of the Cleveland desegregation order, the article considers the potential of racial and socioeconomic integration as an educational reform. It examines the mounting evidence that such an approach has a profoundly positive effect on the life chances of poor and minority students. Further, this article identifies specific examples where racial or socioeconomic integration has been shown to be politically viable. Finally, it directly addresses the complex theoretical issue of racial tipping in schools as opposed to neighborhoods and offers a legal and practical roadmap to a legislative solution.

Desegregation, Demography, Cleveland, Public Schools, Education, K-12

Abstract:
Over the past three decades, the juridical link and concerted action exceptions have evolved from dicta in the Ninth Circuit's decision in La Mar to an amorphous and undertheorized body of case law that has dangerously merged procedural and jurisdictional issues. Drawing on the principles of class action jurisprudence set forth by the Supreme Court in Amchem and Ortiz, lower courts should consider the issues of class certification and Rule 20(a) joinder before turning to the issue of standing under Article III. Under this approach, courts would not be able to reconcile much of the juridical links case law with the requirements of Rule 23(b)(2) and Rule 20(a). However, for a narrow category of cases involving 23(b)(3) defendant classes, courts could employ the exceptions to serve the two policy objectives underlying the class action device: judicial economy and private law enforcement. In summary, courts should not view the juridical links doctrine as a joinder device, but as a test for ensuring Rule 23(a)(3) typicality for a plaintiff serving as class representative in a multiple defendant class action.

Class actions, juridical links doctrine

Abstract:
A clear sailing agreement (or clause) is a compromise in which a class action defendant agrees not to contest the class lawyer's petition for attorneys' fees. This Article argues that clear sailing provisions often facilitate collusive settlements in cases involving non-pecuniary relief or claims-made common funds that return all unclaimed monies to the defendant. Because these types of settlements present difficult valuation problems, trial courts lack a clear benchmark for calculating attorneys' fees. Defendants and class can exploit this uncertainty by presenting an inflated settlement value to the court (to justify higher attorneys' fees) while simultaneously reducing the true cost imposed on the defendant. Although courts purportedly apply "heightened scrutiny" to settlements involving clear sailing agreements, this approach rarely threatens the underlying settlement. As a result, clear sailing agreements tend to undermine the deterrence function of class action by producing settlements that are systemically too low. This Article proposes a per se ban on settlements that rely upon clear sailing provisions. In addition, this Article recommends the appointment of guardian ad litem to litigate the issue of attorneys' fees in all cases involving non-pecuniary relief or a claims-made reverter fund.

Class actions, clear sailing agreements, settlements

Abstract:
In recent years, a steady chorus of dignitaries has decried the low pay of federal judges and suggested that the federal judiciary is on the brink of losing its best and its brightest. The persistent nature of these claims should give us pause. Scott Baker's recent study empirically evaluates these claims by examining the relationship between judicial salaries and the work habits and voting patterns of federal appellate judges. If large pay disparities are indeed eroding the quality of the federal bench, Baker theorizes this likely results in more ideological voting, fewer dissents, longer delays in issuing opinions, and a self-selection of judges who are intent on maximizing their influence within the federal judiciary. To test these hypotheses, Baker undertook the formidable task of assembling the requisite datasets, which he then posted on the Internet for other researchers to use. Along with the ingenuity of his research design, we applaud Baker's industry and transparency. Thanks to his efforts, there is now an empirical literature surrounding the debate over federal judicial pay.

At the end of his inquiry, Baker concludes that higher judicial salaries would have virtually no effect on the performance of federal appellate judges. The purpose of this Reply is to qualify Baker's interpretation of his results, at least with regard to judges located in the "Top Five" legal markets of New York, Chicago, Los Angeles, San Francisco, and Washington, D.C. In his original analysis, Baker relies upon the average law firm partnership compensation, adjusted for years in practice and region, to estimate the forgone income - and hence opportunity costs - of each federal judge. Baker explicitly anticipated the possibility that this variable would understate the opportunity cost in large legal markets; thus, he included a Top Five variable plus an interaction term, which captures the effect of forgone earnings when a judge is located in one of the nation's five largest legal markets. Baker's discussion, however, does not formally address the significance of the interaction term, which requires some additional steps to properly interpret.

Based on our reanalysis of Baker's specifications, it appears that judges in the largest legal markets often behave differently than their smaller market counterparts. Specifically, the lower judicial salaries in Top Five markets strongly correlate with behavior Baker characterizes as "ideological" or "influence-motivated." Conversely, while lower judicial salaries in small markets correlate with longer delays in issuing opinions, the exact opposite effect describes the behavior of judges in Top Five metropolitan areas.

Our brief Reply proceeds as follows. Part I provides our reanalysis of Baker's data. Part II establishes an additional comparative context that allows us to speculate why Top Five legal markets may foster a more intense tradeoff of influence versus remuneration. Indeed, as we note, the real or perceived financial tradeoffs are so enormous - and conspicuous - in Top Five markets that federal judges may feel they have been lumped together with a large, faceless working class. We conclude by suggesting that the debate over judicial salaries is rooted in the more general problem of greater income disparity within the American legal profession.

judges, pay, judicial pay

Abstract:
During the last three decades, the number of lawyers working for large U.S. corporate law firms has increased dramatically. This study draws upon the economic geography literature on producer services and global cities to outline a theoretical framework for the location and growth of large corporate law firms. The framework is then applied to a dataset of large U.S. law firms (Am Law 50, 100, 200) and their principal clientele (Fortune 500). We also use network analysis to observe changes in city centrality over time. Our preliminary findings suggest that over the last twenty years, New York City has supplanted Washington, DC as the more interconnected market, particularly for law firms with international offices in Europe and Asia. Although profitability and revenues per lawyer appear intimately tied to presence in large global cities, particularly New York City and London, the network analysis reveals several firms that are following successful niche strategies. We use this network analysis and block modeling methodology to identify structural elements of the large U.S. market that are based on geographic differences, including factors related to change over time. In turn, we discuss the implications of these findings for large U.S. law firms.

economic geography, law firms, lawyers, agglomeration, Fortune 500, Am Law 100, Am Law 200