Are We Selling Results or Résumés?: The Underexplored Linkage between Human Resource Strategies and Firm-Specific Capital

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.

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

JEL Classifications: D21, J24, J44, L84, O31

Working Paper Series