How Green Was My Valley? An Examination of Tournament Theory as a Governance Mechanism in Silicon Valley Law Firms
Bruce M. Price
USF School of Law
Law & Society Review, Vol. 37, No. 4, 2003
The tournament model is a widely-used mechanism to control opportunistic behavior by associates in law firms. However, this mechanism can only operate in certain economic (and social) circumstances. When those circumstances do not exist, the model breaks down and with it the ability to control opportunism in the absence of some alternative mechanism. Prior research has not investigated whether the utilization of a tournament model prevents the opportunistic behaviors identified as grabbing, leaving and shirking. In order to test the limits of the tournament model, it is necessary to find particular historical moments when the economic environment radically challenges assumptions/premises of the model. The dot-com bubble in Silicon Valley provides precisely such a time and place. This paper demonstrates limits to the applicability of tournament theory. Those limits are to be found in the economic environment in circumstances in which: 1) exogenous reward structures offer many multiples of internal rewards; 2) demonstrably high short-term rewards outside the firm starkly contrast with the delayed long-term rewards inside the firm; 3) the managerial strata reduce their emphasis on long-term recruiting of potential partners in favor of short-term productivity by young associates; and 4) firms develop departmental leverage ratios in excess of their capacity to monitor, mentor and train recruits.
Accepted Paper Series
Date posted: September 2, 2003
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