What Do These Two Trends Have in Common?

Tuesday, October 11, 2011

Here are two things we know:

First, the rise of the Legal Process Outsourcers–and other nontraditional ways of accomplishing legal work–has not only arrived for keeps, but is accelerating.   Consider that all of the conceivable possibilities for ways to do things are being explored:  Buy or build, at home or abroad.

  Domestic Foreign
Owned Allen & Overy/Belfast, Orrick/Wheeling, WV, WilmerHale/Dayton, OH Clifford Chance/India, Baker & McKenzie/Manila, Milbank/India
Rented Axiom*, Practical Law Company*, Clutch Group* CPA Global*, Integreon*, NovusLaw, Pangea3*

[* indicates both foreign and domestic operations]

Not only are traditional legal functions such as document review and e-discovery being conducted in novel locations under the control of new players, but entirely new types of service providers are arising, such as Clearspire

Some of these players are not just trying to deprive your associates of jobs, they’re trying to come directly between you and your clients.  They are smart, stocked with top talent, well-funded, strategically astute, and not the least bit afraid to break some china.

Clients certainly appear to get it:  Whether it’s involving purchasing departments in selection of outside counsel, abjuring junior associates billing time on their matters, or requiring firms to provide many services for free, this time their determination to fundamentally restructure the “value for services rendered” equation strikes me as real and enduring.

Second, never before in memory has there been such a wide-ranging, vocal, and, frankly, convincing chorus ganging up to assault the value of a law degree–and it’s coming from all corners.  Just a few data points; you are more than capable of adding many others of your own:

  • The New York Times has been running what constitutes a series, starting in January of this year, on whether “law school is a losing game.”
  • Seventeen–and counting–law schools have been sued for fraudulently misrepresenting post-graduate employment statistics; class action status is being requested.
  • NALP has reported that the Class of 2010 faced the worst job market since at least the 1990’s, if not earlier.  Among other things:
    • The overall employment rate was 87.6%.
    • However, 27% of these jobs were temporary and an additional 11% were part-time, meaning that the permanent, full-time employment rate was closer to 53%.
    • And to pile on the bad news, only 68.4% had a job “for which bar passage is required”–in other words, 1 in 3 need not have bothered with law school at all.
    • If you assume the requirement of bar passage is equally distributed across all reported jobs, you arrive at the dismal statistic that barely 36% of all graduates held a (a) permanent (b) full-time job (c) requiring bar passage.
    • Make that 2 out of 3 who wasted three years of their lives and $100,000-$200,000.
  • New online outlets such as the Law School Transparency Project and Inside the Law School Scam have arisen, constituting sustained, serious-minded critiques of how our law schools have gone so far astray.
  • And of course, the US Senate is questioning the veracity and good faith of the ABA’s Section of Legal Education when it comes to gathering and publishing employment information on ABA-accredited law schools.  So far the ABA has stoutly shirked responsibility at every turn, which can only cause reasonable people to wonder what they’re hiding.

Now, what do these two phenomena have in common?

This:   They create and reinforce the impression among the public–most importantly, the sophisticated segment of the business community that buys or pays for legal services–that lawyers are overcharging for commodity services. This is not a leap:  This is 2 + 2.   

LPOs are introducing smarter ways of doing things (implying that law firms have been bloated and inefficient all along) at the same time that an enormous excess capacity in the supply of lawyers has been laid bare.  What more potent combination of forces to invite clients to conclude that our services are not worth nearly what we claim or wish them to be?

One more emotionally potent point:  Clients know that hundreds of people in any major metropolitan area would respond to a simple Craigslist ad offering $25/hour, or $40/hour, to highly credentialed, bar-admitted lawyers.   Sure, they won’t all be equally qualified, but I guarantee you if hundreds respond and you only need a handful, you’ll have zero problem finding talent–in fact I’ll wager you’ll get a surfeit of amply overqualified applicants.   And clients are being asked to pay north of $300/hour to their friendly AmLaw firm for people who look an awful lot like the Craigslist responders?   

This is what economists call a disequilibrium situation.


The market dynamics that got us here are inarguable, and as market dynamics tend to do, they’ve been operating in sublime indifference to the consequences for BigLaw specifically, or the public’s perception of the profession generally.  But clearly, the implications are negative.  If you want to be alarmist about it, suddenly we face a very real threat of a systemic discrediting of law schools and legal education, tarnishing the profession as a whole.

So the question this poses is:  What if anything can we do about all this?

Clearly, it’s too late to turn back the clock and knock retroactive sense into law schools who were evidently determined to misrepresent their graduate employment numbers.  Likewise, it’s too late to absorb all the excess capacity of recent law school graduates–many, as noted, from elite schools and with experience at elite firms–who are available for contract work at contract wages.  The best we can do is try to take what steps we can to keep matters from getting worse, or even to try to build mechanisms to absorb some of the excess capacity that law schools are continuing to churn out. 

Now, if you believe demand for new associates among the AmLaw 200 is going to rebound smartly and swiftly, I would like to know what’s in your pharmacopeia.  (Indeed the Bureau of Labor Statistics  just reported that the legal sector as a whole has shed 3,500 jobs in the past year.)  And it’s very hard–just ask President Obama or Secretary Geithner–to dramatically affect overall job creation in the short run.  The best that can be hoped is to minimize friction in the employment marketplace and try to make sure that willing employers and willing job-seekers can find each other.

If you’re thinking right about now about the insanity dance that is OCI, and despairing of anything that looks like a market-based solution, you’re pretty much where I was about two years ago, watching the train wreck of two classes of law graduates piling up on top of each other as firms “deferred” offers and start dates.

And that’s when we at Adam Smith, Esq. decided to try to do something about it, in the form of what is today JD Match.

JD Match is an online membership service developed to address the flawed law firm/law student recruitment process. Membership is open to all law firms and corporations, law students, and law schools in the U.S., and is free to students and schools.

JD Match provides several features:

  • A proprietary preference-based matching algorithm which examines and compares students’ ranked preferences for firms with firms’ ranked preferences for students.
  • Employers can search for students by specified structured criteria, or through keywords.
  • Employers can learn which students have ranked their firm highly, or have ranked their firm in any position at all.
  • JD Match includes a “recommendation engine,” analogous to Amazon or Netflix, which suggests students to firms based on the characteristics of students those firms have identified as desirable.

JD Match launched in May 2011 and has seven charter member law firms (Skadden, K&L Gates, WilmerHale, Morrison & Foerster, Proskauer, Wilson Sonsini, and McKenna Long), fifteen member schools, and over 1,700 student members, who have collectively created over 40,000 individual firm rankings. Over the first (fall 2011) recruiting season, 21% of firms’ ranked preferences for students generated a match.

We consider this extremely strong proof of concept, and more.  But we have high ambitions for JD Match and, to be frank about it, we want more member firms, member students, and member schools, and we want them now.  The wider the JD Match membership community, the more valuable it will be to all involved–and, we believe, to our industry.

Yes, JD Match is our brainchild and you could interpret this as a pitch.  But it’s something we believe in profoundly and we remain idealistic enough to think it provides a valuable service that’s for the betterment of all involved. 

The question you should be asking is:  Can we increase the overall demand in the economy by law firms for law students?

On first impression, the answer is no:  The demand is what it is. 

But we disagree.  Supply and demand within a given marketplace are not static, they are dynamic, subject to change when new circumstances and new players within the marketplace appear.  To illustrate this vividly:  What was the “demand” for iPads in 2009?   Or this:  Does anyone seriously believe that Amazon hasn’t increased the market for hitherto obscure books, or dramatically increased the reach of tiny retail players for niche objects

We think such is the case with the student/firm marketplace.

The market fundamentally under-serves both the elite segment of the market and the non-elite segment.

The elite firms, despite all the resources they command to throw at student recruitment, simply cannot get to all the law schools they’d like to get to, during the wildly compressed OCI calendar.  And while they may reassure themselves, and not incidentally their clients, that they can find all the talent they need at the Top Tier schools they do get to, the actual makeup of these firms reflects a slightly different reality, with even the bluest of the blue chips having lawyers from schools such as Brooklyn Law or Fordham

The current system does an even greater disserve to small, medium-sized, one-city, and regional firms who would like to look at students from a cross-section of the nation’s schools but who can’t realistically participate in OCI outside their local metropolitan area.  They are simply not served at all, and are effectively excluded from the market by dual constraints of cost and time.

In economics, this is called the problem of “search,” which means that people will search for a bargain they’re willing to strike, even big-ticket items such as a car or a house they’re willing to buy (say), only within limits. After all, the costs of “search” become, at some point, uneconomic and even insuperable.

JD Match provides a solution to that problem in the law student/law firm recruiting space.

But we haven’t answered the question of whether JD Match could increase overall demand for law students.

We believe that giving firms access to the nationwide pool of law students, online and from your screen, goes so far to decrease the costs of search that it actually changes the demand equation.  If firms can now find students from law schools they could never afford to visit–based on structured or unstrucured search criteria which didn’t previously exist–it’s safe to say at the very least that more firms and students will be exposed to each other than is possible using conventional means.

Does that mean  more students will be hired?  Now we get down to how firms’ hiring decisions are made.  Today, we seem to have a relatively bifurcated market:  Students get a job at $145-160K  with BigLaw, or they “suffer” with local firms paying on the order of $45-70K.

We believe there’s room in the middle, only the marketplace for those students and those firms to be matched currently doesn’t function very well. 

If you want to put this more formally, we believe in non-zero price elasticity of demand for law students by law firms.  In other words, we believe that if the under-served segment of the law firm market could find students meeting their criteria, and if students knew they could be discovered by those firms, an entirely new segment of the market would “clear,” and firms would find productive young lawyers they could hire at salaries less than the BigLaw going rate but still very attractive.

We believe that in the 21st Century this is the most sensible way for the market to work, and we have built the platform to make it happen.  The repute and the economics of our profession are under threat.   

I’d be happy to walk you through JD Match; just let me know.  We would warmly welcome your joining us–and the students you find will thank you.

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One Comment


  1. legaltruth, 1 year ago Reply

    Interesting approach. I have pushed on the ABA Journal for such a system. Having thought it over more though I think it might have more reception in the UK with the ABS firms or with Clearspire and/or Axiom, domestically. I can only see it being successful with the new types of firms out there that are focused on efficiency and not on the pyramid structure that traditional law firms have relied for so long.

    I too have read Innovators dilemma and what we are seeing here is an interesting predicament that the book highlights. Namely, the incumbents are dependent on a certain high margin in order to function. With the “great reset” that margin can no longer be reached across most, if not all, sectors. The incumbents will shed the non-performers and restructure to survive, but it is the disruptive innovators that will really prosper and come out strong as things get better. They will be the ones to be doing much of the hiring and will want to lower hiring costs as much as possible. This of course in just my assumption, no data yet to support it.


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