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Do you occasionally despair of changing the status quo, no matter how irrational it has exposed itself to be, simply because of the vast inertia associated with "the way it is," not to mention the vehemently self-protective behavior of any organization whose importance would be diminished--or, quelle horreur, whose very reason for being would be destroyed--by a move to a new reality?

First of all, despair is a remarkably unproductive approach to most problems.  An optimist at heart, I resist succumbing at all costs, regardless of the odds.

Be that as it may,  I believe the odds have just shifted--dramatically--in favor of ringing the death knell for what has become a toxic, market-poisoning, and increasingly archaic institution:  One which may be a walking antitrust violation to boot.  That would be?

NALP.

Here's how the stars are aligning.

In late December of last year, I decided to write about the defects and vices inherent in the NALP-dictated law student hiring process.  Most of you presumably have not seen my column on this topic, since it appeared in the Adam Smith, Esq. monthly subscriber-only newsletter. 

[If you're wondering what our monthly subscriber-only newsletter is all about, it's quite simple:

The newsletter, distributed by email monthly and archived permanently online at a password-protected site, contains material which has not appeared on this site, the Adam Smith, Esq. online publication, which of course remains free.  By contrast, the newsletter's premium content includes several articles each month which have not been published here and will not be published here.  Annual subscriptions are available at modest rates, including rates for individuals and firms of various sizes.  Firm-wide subscriptions are quite economical on a per capita basis.  You can subscribe here]

Since my views on NALP have not materially changed in the few short weeks since I wrote my original article, permit me to reproduce some of its highlights.

The "Great Reset," as I call it, exposed many latent flaws in the BigLaw business model, which happier, more oblivious, and more affluent times forgave and excused us from having to recognize. (Indeed, many did not recognize them as "flaws" at all; they were simply the honorable traditions of a profession that had always done things the way they were done.)

One of the most irrational was the excruciatingly long lead time between committing to hiring what would, de facto, be incoming associates, and knowing what the actual marketplace demand for additional young lawyers at your firm would be when they finally joined, years later.

Consider the timeline:

• Can you project the demand for new starting lawyers three years hence? Well, that's precisely what you were expected to do. And for long enough, it didn't really matter. But here's how it works:
• Given the highly significant datum of first year law school grades (sorry, lost my head), your firm interviews these 1L's late in the summer before they start their second year, making them offers to be summer associates one year hence.
• After they become summer associates, it is of course one more year before they'll start.
• Unless they clerk for a year--and we like people who clerk!--in which case add a year.

So when you were projecting the demand you'd have for new lawyers in September 2009, you had all the data you needed--given that it was summer 2007 and not Ben Bernanke, not Hank Paulson, not Warren Buffett, not anyone in sight, knew what was coming.

Clearly, this works splendidly:  Assuming, that is, that your firm and law students alike enjoy canceled and postponed offers, the prospect of a "pileup" next year as this year's deferred grads run into the new crop, the drastic measure of some firms' simply "taking a year off" recruitment altogether, and the manifestly open question of whether deferred start dates may not turn into canceled start dates.

While corporate America has moved relentlessly towards "just in time" supply chains, we seem to be stuck in the prehistoric past. Are MBA's hired this way? (No, to state the obvious--if they were, they'd be hired before they even started business school.) BA's? No. Ph.D.'s? No. So why JD's?

One word: NALP.

NALP was founded in 1971 and, like many organizations well past their first generation, it's showing signs of having lost sight of its mission.

What are the symptoms of this?

For starters, organizations tend to become more and more self-referential as they enter senescence. Exhibit A: The NALP"History" page devotes a good three-quarters of its space to recounting the original members present at the 1971 founding, the locations of every annual meeting, and all the past presidents. Not a word about changes in the legal marketplace over the past half-century and how NALP has responded.

Exhibit B: It has five-year strategic plans.

Exhibit C: It has a "Mission" (bad initial sign), the introductory paragraph to which reads in full:

"NALP is dedicated to facilitating legal career counseling and planning, recruitment and retention, and the professional development of law students and lawyers."

What's wrong with that?

Simply that I have never, in a lifetime of working in law firms, in-house, and now as an analyst of and consultant to the industry, ever heard a single soul mention NALP in connection with any of those activities. They may think that's their mission but, to be charitable, they are flying under everyone's radar.

But all this is really unfair, because it's too easy.

Here's the real horror about NALP: Its reaction to this seismic shock our industry has been going through for 18 months (with no convincing signs that we're out of the woods).

Faced with:

• The highest level of layoffs since reporting began was in 2009. Worse than that, actually: More layoffs occurred in 2009 than in all prior years combined.
• Numerous failures of "name-brand" firms with, I predict, more to come.
• Soup-to-nuts re-evaluations of associate career paths.
• Soup-to-nuts re-evaluations of alternative billing.
• Soup-to-nuts re-evaluations of outsourcing, "staff" and "contract" lawyers.
• Widespread firings of non-equity partners and de-equitizations of full partners

Yes, faced with all this, once-in-a-career events each and every one, NALP's response was? This past July, to reaffirm its principles absolutely without change, amendment, or even sober relaxation of them in a time of crisis.

Here, specifically, is what they said:

Nevertheless, after weighing a variety of options, the Board is convinced that this is not the time to abandon or change the ethical guidelines that direct our professional expectations and behavior, and we urge all NALP members to adhere to the Principles and Standards.

These are the unmistakable indicia of an organization utterly out of touch with reality and resolutely determined to elevate the sanctity of its own pronouncements above the well-being of those it supposedly serves.

One thing has changed since I wrote those words, namely that on January 7, 2010 the NALP "Commission on Recruiting in the Legal Profession" released a report containing recommendations for changes to the annual recruiting season, the core of which is to prohibit any offers of employment to 2L's until sometime in January, the so-called "Offer Kick-Off Day."  Further, offers extended on the OKOD would remain open for 14 days.   Bear in mind that interviewing would still occur in August, but that firms would be forbidden from "signalling" their interest in any individual student for nearly the next six months until OKOD.

All of this to be enforced by an elaborate and draconian system of law schools' concertedly threatening to boycott offending firms--charmingly called "cheaters," and tagged as engaging in "unethical" conduct.

While I am only an armchair and not remotely an expert antitrust practitioner, Jones Day recently submitted Comments to NALP (the 8-page letter available here, which I commend to you in its entirety) not only attacking the logic, fairness, and even feasibility of the revised NALP proposals, but also making a compelling prima facie case that the proposal is deeply suspect as a matter of law, constituting a concerted refusal to deal or group boycott.  Greg Shumaker, Jones Day's hiring partner, who authored the letter--and who I was able to interview on the phone about this--writes:

In any other industry, this would immediately be perceived as suspect under the antitrust laws.  Efforts by associations and professional organizations to "regulate" competition among themselves have been found to violate the antitrust laws in numerous contexts.  [Citations omitted.] 

Given the adverse effects on competition and on law students, the Report's proposals, if agreed to by law schools and firms and challenged by an appropriate plaintiff, could well be found to be an illegal restraint of trade. [Page 6 of the cited letter.]

While Greg told me, as of the time of our conversation (a few days ago), that no other large firms had expressly offered support, I have to believe more will get onboard as they think through the actual ramifications of the proposed NALP rules.

Indeed, in an opinion piece published today in The National Law Journal, Peter Kalis, the chairman and global managing partner of K&L/Gates, characteristically minces no words in his denunciation of NALP:  Indeed, the title of Pete's column is the pungent and terse, "Abolish NALP Now."  (Disclosure:  I consider Pete a friend.)

NALP is, and for some time has been, a market imperfection -- no more and no less. For the common good, it should be abolished, and we should start from scratch.

Consider some elements of the NALP-enabled hiring regime:

• Employers meet on campus with law students for 20 to 30 minutes. What can you learn about a candidate in a 20- to 30-minute interview except whether he or she drools? What can you learn about a law firm except whether the interviewer is an imbecile?

• At many law schools, employers can't prescreen their interviewees. In some instances, employers are not permitted to see transcripts in advance. At times, employers are required to interview students who don't even rate the employer as a likely destination.

• Because of the importance of law firm summer programs, interviews and hiring decisions are essentially made two years in advance of a start date and after two semesters of legal education.

• Offers are required to be open for 45 days. Employers interview law students in August, invite them to visit, extend an offer after the visit and then keep the offer open until November or December. The 45-day requirement deadens a market that should be dynamic and highly interactive.

• From the students' standpoint, the system allows stars to hoard offers, freezes employers in place and deprives the market of the fluidity necessary to operate efficiently.

In the past couple of years, the Great Recession impeded the orderly flow of law students into the profession. Law firms scrutinized their business models, including their hiring assumptions. It was a time for nimbleness on all sides if the interests of law students and employers were to be served. Yet the NALP-enabled system -- including, inexplicably, rigid adherence to the 45-day requirement -- plodded woodenly along in fall 2009 to the detriment of all concerned.

Pete writes that he "earlier passed on [his thoughts] to NALP," and discusses further irrational elements of the new NALP proposal:

• Although no formal offers could issue before the January date, firms could give "winks and nods" to their top choices starting with interviews the prior August. Law students would have a sense of which firms will extend offers to them, unless, of course, law firms wink and nod indiscriminately to keep options open.

• This would create an intensely competitive but sloppy and confusing recruitment atmosphere resulting in weeks and even months of wining and dining and follow-up visits, a substantial increase in the cost of recruiting and more disruption to legal education and students' personal lives. To what end? Competition for jobs and talent should focus on finding where the merits and aspirations of the student and employer intersect, not on shock-and-awe campaigns. There should be a rational relationship between energy expended and insights gained on both sides.

• Students would be distracted by the longer time period in which to sort through employment choices for the following summer. Can it be good for law schools and law students that the entire first semester through examinations would be spent in the recruitment orgy?

• The most stellar candidates would await and receive offers from multiple firms, and, with no contrary incentive, those students would be unlikely to withdraw from consideration before the January date or to release a single offer after the January date.

• Prior to the 14-day acceptance deadline, candidates could accept offers and then withdraw their acceptances when they have an offer they desire more. This would cause an administrative nightmare and would hamper firms' efforts to achieve the appropriate class sizes and yield.

From the perspective of a simple economist, the most profound flaw in NALP's unilaterally imposed scheme is precisely the one Pete identifies, and which Greg Shumaker also discusses:  The sheer unreality, given human nature and the essence of competitive markets for talent, of expecting there to be no signalling between August and January.

But of course there will be signalling.  Not only will there be signalling, there should be every reason to encourage it.

Of course, once one admits that signalling in this artificially constrained timeframe makes perfect economic and competitive sense, then taking the next step is both trivial and inevitable:  Why resort to the imperfect mechanism of signalling (sometimes signals are misinterpreted, after all, not to mention that they require inordinate investments of time, energy, and funds in utterly unproductive activity, a deadweight loss all the way around)?  Why not just make the offer?

My own suggestion is that firms do just this.

As I wrote in December:

So what's to be done?

It's actually quite simple: Starting tomorrow, ignore any and all NALP guidelines and so-called "principles."

Clearly, NALP has become a toxic organization that:

• Straitjackets law firms into economically unworkable timelines;
• Forces law school career centers and deans to toe an unrealistic line which only discredits their opportunity to be of real service in a dynamic economy; and
• Most shameful of all, puts defenseless law students in absolutely untenable positions.

Hard to do, you say?

I ask: Who elected these guys, anyway? Who on earth do they think they are?

In one of our recent First Lady's immortal words, "Just say no!"

And what, then, of next recruiting season?

Simple:

Where: Rent a hotel suite just off-campus at schools you want to target, or simpler still, invite students straight to your offices if you have a location in the same city as a school you're recruiting at.

When: Whenever you are good and ready, and the market will tell you as much.

Why: To retake control over the indispensable pipeline of supply--talent--that is all you have to offer your clients in the future.

When an organization has manifestly outlived its usefulness, when it arrogates to itself the single-handed power to attempt to subvert the orderly workings of a critical marketplace for talent, and when it evinces not the remotest understanding of the folly of its proposals, that organization must die.

My December article had the same title as this column, but Pete's title is pithier:

Abolish NALP.  Now.

I'm at USC Law School speaking in a course entitled The Evolution of Large Law Firms: Effects of the Storm, taught by Adjunct Professor Bry Danner, former partner at Latham & Watkins and General Counsel at Edison International. I've known Bry for a few years.

Here's what the course is about:

Will firms actually create a new business model, or simply revert to their former ways once the downturn changes direction? To answer these questions, Danner provided students with some background in  economics and the recent history of law firm strategies during the first installment of the series, "Framing the Questions," on Sept. 21. In the second installment, "Search for Answers (part one)," held Sept. 30, Danner welcomed Michael Roster, former General Counsel at Golden West Financial and Stanford University and  steering committee chair of the Association of Corporate Counsel's (ACC) "Value Challenge" initiative. Roster also is a former managing partner at Morrison & Foerster in L.A

The description for "my" session of the course notes:

The third installment of the speaker series, Oct. 14, features a discussion with Bruce MacEwen, a lawyer and consultant to law firms on strategic and economic issues, and founder and editor of the "Adam Smith, Esq." website. Included in this session will be a Danner-vs.-MacEwen debate on which ultimate outcome from the current recession (a major change of direction or just a minor detour in the evolution of the law firms) would be best for today's law students.

Through a coin toss, I was chosen to argue the "major change of direction" side of the debate and while I hesitate to attribute the resulting student vote to my advocacy skills, a clear majority seemed to agree that a major change would be better for their careers than a minor detour.

I fly up to Portland, Oregon tomorrow for a mix of business and pleasure; back in New York early next week.

When on the same day both the WSJ and Corporate Counsel publish feature articles heralding that the time has come for alternatives to the billable hour, it's time to step back and ask if they might actually be right this time around.  (It doesn't hurt that the Journal's article was written by its two best legal-beat reporters and that the Corporate Counsel piece was co--authored by the rather more prominent Ben Heineman and Bill Lee.)

They may well be right—and I'll discuss what I perceive as the intrinsic defects of the billable hour in a moment—but first I want to suggest another thought:  The debate about the billable hour is not, actually, about the billable hour.  It's about something far more fundamental to the lawyer/client relationship.  (You can either jump ahead at this point or have confidence that I'll get to it.)

Well, of course it's about the billable hour at some level, but I don't think the question of whether any of us will live long enough to see the triumph of fixed or alternatives fees and the elimination of this rather remarkably durable and dysfunctional institution (the billable hour) actually depends on their relative merits or the rational parameters of the debate.

What's wrong with the billable hour?

From my fundamental economic perspective, all you need to know is that it starts and ends the pricing determination based on "cost of production" rather than "value to client."  In my book, that's per se irrational. 

It can be difficult for those of us who've spent our careers in this industry to get perspective on this, so let's step outside for a moment.  What if cars were priced in linear proportion to cost of production?  We can imagine a few things would occur, but what would not occur is a car marketplace looking anything remotely like the one we have which, for all its self-inflicted troubles of late, is clearly providing incredibly valuable services to a fast-growing worldwide customer base.  But in the car "cost of production" world, we would see these irrational conditions:

• There would be almost no such thing as premium luxury brands.  Perhaps Ferrari, Rolls Royce, and few other "bespoke," one-by-one handcrafted brands would truly have costs of production so astronomical as to justify astronomical prices, but any cost accountant worth their salt would tell you the difference in cost basis between a top-of-the-line Lexus and a Toyota Yaris is not on the order of 10 or more to 1.
• Conversely, manufacturers might lose any incentives towards efficiency.  Who cares whether it takes 22 or 44 or 88 hours of labor to assemble a car if the customer picks up the passed-through costs?  Factory managers might even be measured and favorably rewarded based on how many hours of labor they require to get a finished car out the door.  (Sounding familiar?)  "Cost plus" pricing tends to create such results.
• At the very least, one could imagine manufacturers losing all interest whatsoever in producing rock-bottom, purely utilitarian, econo-boxes—regardless of whether a small cohort of customers would actually prefer them.

I don't need to pursue this for you to get my drift.  It's just plain a weird way to price products or services, because it fundamentally disconnects price from perceived value in the eyes of clients.

The Journal and Corporate Counsel pieces add a few other specific facts, observations, and counts to this indictment, of their own, including:

• Alternative billing is reported to have accounted for $13.1 billion this year vs. $8.6 billion in the same period last year, which if true would represent a 52% increase.  Unfortunately, it's not clear what the "denominator" of that figure is, as it's simply said to be the results of a survey of 370 lawyers at Fortune 1000 companies.
• Pfizer GC Amy Schulman reports that their alliance of 16 law firms "bills entirely" on a non-billable hour basis.  Firms are rated on such performance criteria as collaboration and diversity of teams, and "there are rewards and punishments."
• Heineman and Lee write that the move away from the billable hour, among other things:
  • reduces billing hassles
  • yields more predictable costs for the client and more predictable collections for the firm;
  • avoids clients "flyspecking" bills and demanding after-the-fact writeoffs or discounts; and
  • economizes on the "deadweight cost" of overhead devoted to the billing process.
• Flat fees have a long history of being used for "repetitive, predictable work" and while the somewhat pregnant implication is that that territory will expand, Barry Ostrager, head of the litigation department at Simpson Thacher retorts fairly convincingly that "a client can't expect to have the absolute best team of [trial] lawyers from a firm, and have the lawyers give up all the other work they could be doing on a regular-fee basis, to work 18 hours a day for months of time on a flat-fee engagement."  Somewhere in between routine patent implications and Ostrager's bread and butter (such as successfully  representing Swiss Re in its highly publicized insurance coverage dispute over the World Trade Center), we presumably have a gray, fuzzy, and moving line differentiating matters suitable for flat fees and those not.
• Heineman and Lee talk more specifically about where that line might be drawn, using these examples:
  • A single project involving expertise and judgment, but not much risk, such as writing a handbook ...
  • A repeating, routine book of business, which involves expertise and judgment, but not much risk, such as filing a certain type of patent or trademark application ...
  • A repeating, but more complex book of business that involves judgment, expertise, and risk, such as annual securities reporting ...
  • A one-off, highly complex, high-risk matter [such as] the company wide bribery scandal being pursued by enforcers in multiple jurisdictions ...
• And they write, I think persuasively, that even in the most complex types of matters, "the fixed fee can be split into segments."  This is nothing more than unit pricing, which is a time-tested model.  Don't tell me you have no historical data on how much it costs to take a deposition:  And where the 10th %-ile, median, and 90th %-ile of that distribution fall.  That's about all you need to price realistically.
• Some of the consequences of fixed fees are unquestionably salutary:
  • A Sidley Austin partner working on a fixed-fee matter for Pfizer cites her freedom to assign a senior associate to perform legal research much more quickly and efficiently than was the case under the prior rule that no lawyer with an hourly rate higher than a second-year could bill the company for research;
  • And the managing partner of Saul Ewing says they made a comfortable profit on a six-week flat-fee corporate due diligence engagement "because we were incentivized to get done in 10 hours [could have taken] 12."
• Both Heineman and Lee, and Larry Ribstein (albeit from a slightly different angle, since he sees this trend as another arrow to the heart of BigLaw), trace part of the rise of alternative billing to the increasing sophistication of in-house lawyers:  "the 20-year rise in the talent, experience, and expertise of in-house lawyers has led to co-equal partnering on matters."

And yet.

All three pieces have rather caustic observations to make about law firms' profitability:

• "One of the most important issues in setting fixed fees is distinguishing between a law firm's actual costs (which firms see), and the actual costs, plus profit margins for the partners (which is what clients see in a firm's bills)." [Heineman/Lee]  You know where this is leading:  Directly to challenging the "profit margins for the partners."
•  "'I have told firms you cannot make your historical profit margins' on Pfizer work, said the pharmaceutical giant's general counsel, Amy Schulman." [WSJ] Can't say it much more bluntly than that.
• "The implications for Big Law are substantial. Fixed fee and other alternative billing make legal work more like a commodity and less like a specialized one-on-one service.
  "Even more importantly, hourly billing has been Big Law's profit engine for decades." [Ribstein]

Now, you might think people would be more guarded about directly attacking the profitability levels of law firms.  After all, what business is it of theirs?  Why—I'm wearing the rational economist's hat now—should a client care how profitable a law firm is or indeed whether it's profitable at all (assuming only that they don't positively yearn to see the place go out of business)? 

Back to cars:  If I'm trying to choose between a BMW and a Lexus, or for that matter between a Kia and a Hyundai, should I care how profitable each company is?  What earthly relevance does that have to my decision?  Or consider, on a somewhat parallel note, clients' noisy objections to the salaries paid young associates:  Does the car buyer in the showroom ask what assembly line workers make?  If he did, would handsome wages be a demerit for the auto manufacturer or to its credit?   (Does anyone this side of Michael Moore ask what the CEO or senior executives make?)  How does that bear on the ultimate "money for value" calculus?

But clearly, when it comes to law firms, no such restraint applies.  Clients just plain do not like how much money law firms have made.

And this is getting us closer to the heart of the matter, isn't it?

Here are some less than randomly selected comments I've heard in various precincts over the past month or so on our topic du jour:

• "If I hire a plumber to renovate my bathroom, I want to know what his time and materials are!"  [GC, major corporation]  "Don't you really just want a nice bathroom?"  "But I don't want to be taken for a ride."
• "If I got a bill 'for professional services rendered' for a six-month period of time, how on earth would I know what the law firm had even done?" [GC, a different major corporation]  "Well, you were GC during those six months, right?"  "That's not the point."
• "How do I know I'm saving money with a fixed fee?  Isn't the law firm just going to take the opportunity to pad their bill even more?"  [GC, major corporation #3] 
• "Lawyers are risk-averse; we know that.  So if they have to quote a flat fee, they'll estimate how many hours it will take and add a safety margin.  I'll end up paying even more!"  [GC #4]
• "I'm afraid that if I submitted a bill 'for services rendered,' the client would assume I was overcharging them."  [BigLaw senior partner]
• "When I send an itemized hourly bill with disbursements, the client knows we actually did the work."  [BigLaw senior partner #2]

So this is what I believe it has come down to:  Trust.

Sadly, for too many of us, clients don't trust us with their money and we don't trust them to reward us fairly.

If you hark back to those old-fashioned typewritten bills "for professional services rendered," didn't they positively reek of a close, trusting relationship? The lawyer would no more exploit the client than the client would expect (hope?) the lawyer would price representation at bargain-basement levels.  This seems to me to be the enormous unspoken issue in today's debate over the billable hour.

If you don't trust someone, you want something quantifiable.  And you want the "most favored nation" rate and 10% discount on top of that.  If you don't trust someone, it's all perfectly understandable.  And uneconomic.  Is this what we've come to?

So perhaps more than anything else, I find the seemingly perpetual debate about the billable hour sad.  Because I can't think about it without thinking about forfeited trust.

We have a dust-up between Fordham Law School, instigated or certainly escalated by its Dean, William Michael Treanor, and Reed Smith, which, a few days ago, canceled on-campus interviews scheduled for this week and next at Fordham. Unfortunately, students who had already signed up for those interviews are reported "to have lost a potentially valuable interview slot."  (Being unable to reschedule something worthwhile for those slots strikes me as the triumph of bureaucracy over common sense, but we'll let that pass for the moment.)

Dean Treanor didn't take this lying down, as first reported by Above the Law, and released a memo to the "Fordham Law School community" banning Reed Smith from participating in on-campus interviewing for the next five years.  The Dean explained:

Ethics and professionalism are at the heart of the legal profession. At Fordham Law, we strive to impart to our students the importance of these principles through our curriculum, clinics, and activities--and during the job search process. The importance of law schools instilling the tenets of professionalism in students is a theme we continually hear from legal employers.

[...]

While disappointing, Reed Smith's action is more disheartening because of the lack of professionalism it conveys. The firm could have made its decision earlier; in fact, it received its interview schedule prior to canceling its participation. In my seven years as Dean, no other firm has canceled its interviews after the schedule was released. [...]

At Fordham Law, we require our students to conduct themselves with the utmost professionalism, and we expect employers to demonstrate the same high standards.

Best,

Bill

Reed Smith's response today, also covered on ATL, reads in part:

Like every major law firm, Reed Smith is faced with a very difficult set of circumstances brought on by the global recession which has dramatically reduced the demand for legal services. This has resulted in layoffs, deferrals, fewer offers and now consideration about whether to have a 2010 Summer Program, and if so, at what size. Firms have taken a variety of approaches to handling the many issues raised by this environment. In all instances, Reed Smith has tried to make carefully considered business decisions and has communicated with the people affected by those decisions.

We have decided to maintain a 2010 Summer Program, although it will be a smaller program than in prior years [and therefore] we decided to reduce the number of schools we will visit for on-campus interviews. We immediately and directly discussed our decision with all the law schools affected, including Fordham. [W]hile we won't be coming on campus, we will still be considering students from their schools by reviewing resumes and conducting in-office interviews.

Fordham is an outstanding law school and we regret that our decision has caused problems for them. Reed Smith has many Fordham graduates in our lawyer ranks; all of them valued members of our team.

Michael Pollack, Reed Smith's Global Head of Strategy (and--disclosure--a friend, but I haven't spoken to him on this topic) also had this to say yesterday:

[T]his certainly isn't a situation the firm was looking for and he suspects the ban isn't a good situation for the firm or the students. He said he hopes Treanor would reconsider.

"We're trying to run a business just like he's trying to run a law school and I appreciate the pressures that he is under and I would hope he would appreciate the pressures we're under.  [...]  It's unfortunate that it didn't fit within Fordham's schedule and calendar, but we're trying to manage this thing as best we can.

"Does interviewing in August make sense when you're trying to project [what your needs will be] two years from now?" Pollack asked. "I suspect not."

Oh, and for the record, James Leipold, executive director of NALP, was contacted by the diligent Legal Intelligencer reporter and had this to say:

Leipold wouldn't comment on the specifics of the situation between Reed Smith and Fordham. Both are members of the NALP. But he did say there is nothing in NALP guidelines that would govern a situation like this. While the association has specifics on timing for when offers must be given or accepted, for example, it doesn't have anything regarding when firms can pull out of OCI.

"This particular fact pattern I've never seen before," he said. "It's new" like many things in this market.

Credit Leipold for candor:  Many things in this market are indeed, as he puts it with intentional or unintentional drollery, "new."

May we now review the bidding?

• We are in the midst of the most pounding and serious recession of the post-WWII era;
• 125 major law firms have announced or had confirmed layoffs (as of July) totaling 10,723 people, 4,015 attorneys and 6,708 staff;
• AmLaw Firm #16 (Reed Smith) decides that it probably can't, after all, realistically project its associate hiring needs two years hence;
• And faced with a decision (presumably) to go through with sham interviews or to honestly announce its intentions, it chooses B;
• Whereupon the Dean of US News law school #30, donning the robes of "ethics and professionalism," decides to deprive his students of on-campus interviewing opportunities with that firm for the next five years.

I readily admit that there are many dimensions of law firm management which baffle me, but I can usually understand the motivations and endorse the goodwill of those behind the decision-making.

But I confess, Dear Readers, I find myself utterly over-matched by how they make decisions in Academe.  It is a bridge too far for my brain.

Further affiant sayeth not.

I'll be attending the "Globalization of the Legal Profession" conference at Harvard Law School this Friday (21 November), put on by HLS' Program on the Legal Profession.  Here's the  agenda, with some notables on the program including a keynote by Ben Heineman, and commentary across four panels from many other recognizable names such as:

• Stephen Denyer, International Development Partner of Allen & Overy;
• Prof. Marc Galanter of Wisconsin;
• Dean Elena Kagan of HLS;
• Peter Kalis, Chairman and Global Managing Partner of K&L/Gates;
• Prof. Ashish Nanda of HLS;
• Prof. Carole Silver of Georgetown; and
• Prof. David Wilkins of HLS.

Here's a brief description of the program:

Legal practice historically has been a largely parochial endeavor.  One need look no further than the complex debate within the United States about multi-jurisdictional practice between states (let alone questions of foreign lawyers practicing within the US) to see that the inherent complexities of the emerging global bar extend far beyond fitness and character to practice law.

In an age of rapid globalization, this is no longer merely the academic issue it might have been even a decade ago.  The largest law firms now span the globe, with thousands of lawyers carrying the banner of a single firm, yet residing in geographically diverse offices and practicing law in numerous states. [...]

What can we do - as international scholars, educators, and practitioners - to adapt to the rapidly-changing economic, social and political environment and prepare the next generation of lawyers - domestic and international - to meet the challenges that globalization will continue to present?

I'll be staying Thursday night at the Inn at Harvard.  If any of you will be there and you want to look me up, don't be shy.

My friend Prof. Bill Henderson of Indiana University School of Law has just published a highly significant column titled "How the 'Cravath System' Created the Bi-Modal Distribution." At least one blog ("MoneyLaw") has already deemed it "The blog post of the year;" be that as it may, it's worthy of the attention of any serious student of our profession.

The "bi-modal distribution" Bill discusses is that of salaries of starting lawyers, which for the Class of 2006 looks like this (all diagrams courtesy of Bill):

This is unlike any normal labor market salary distribution I've ever seen. Yes, to be sure, there are the "winner take all" labor (read: talent) marketplaces in industries such as professional sports, celebrity entertainment, and CEO compensation, but those are sui generis for reasons we all understand. What I mean is this is unlike any normal labor market involving tens of thousands of people and not just a handful of superstars.

Even more intriguingly, this is a recent development. Things were not always thus. Here are the graphs for 1991, 1996, and 2000 (the Internet boom, you will fondly recall):

How does Bill explain this? Here's the heart of his theory:

"What are the market forces that have created this peculiar salary structure? In my working paper, "Are We Selling Results or Résumés?: The Underexplored Linkage Between Human Resource Systems and Firm-Specific Capital," I posit that the runaway $160K mode is a confluence of two factors: (1) the continued growth in the corporate legal services market, primarily due to the growing scale and scope of transnational corporate activity; and (2) law firms' nearly universal adherence to the "Cravath system," which purports to hire the best graduates from the best law schools and provide them with the best training."

To understand Bill's thinking there is of course no substitute for reading the primary text, but I'll outline it for you briefly:

• 30, 40, and 50 years ago, firms that were the predecessors of today's AmLaw 100 hewed to the totemic "Cravath system" in ways unimaginable today. For example, a researcher found that in the early 1960's 73% of the lawyers in "law firms" (not solo practice) in Detroit came from Harvard, Yale, Columbia, Chicago, and Michigan law schools.
• The expectation/need of paying top "going rate" salaries to recruit people of that caliber became ingrained in law firm practice and behavior and partner expectations (or, as Bill puts it, "partners remained psychologically wedded to their own perceptions of eliteness."
• This model is becoming increasingly unsustainable.

I have my own take on Bill's fascinating data, which I first posited well over a year ago: The bimodal distribution of starting lawyer salaries is not, economically speaking, an equilibrium condition. It will change.

The last great associate salary spike, from $125Kto $160K, took place roughly 18 months ago when times were flush. Even then, some firms began panting at the effort to keep up. (Recall that the instigator of that spike was Simpson Thacher, which didn't have to raise its resting pulse to manage the spike.)

The next spike—I won't predict when it will be but I will predict it will be to $200K—will leave a lot of firms crying "Uncle." They will stop struggling to keep up with the receding red lights moving on down the highway. And it will be economically rational, geographically defensible, and culturally unifying.

Late last week Northwestern University Law School in Chicago announced an "Accelerated JD" program, compressing the same 86 credit hours earned by traditional three-year JD students over the course of six semesters into five semesters over two years.  The compression of credits results from a combination of starting in the summer, taking extra courses each semester, and picking up credits through mini-courses between semesters.  (Students will start classes in May and graduate in May, two years on.)

But the real story has very little to do with compressing three years into two:  It has to do with a fundamental re-thinking of what a legal education entails.  The other components of the accelerated program include:

• A limit of 40 students in the first class, rising to 65 in subsequent years;
• A requirement that each individual applicant be interviewed;
• A requirement that they have at least two years of "substantive work experience" under their belts (sounds as though backpacking across Europe and Asia on your trust fund developing your "foreign language and cross-cultural sensitivity skills" wouldn't cut it); and
• Most importantly, the inclusion of two new and one existing course as new requirements.    As the NWU press release puts it:  "The two new courses would be devoted to quantitative analysis (accounting, finance and statistics) and the dynamics of legal services behavior (involving social networks, teamwork, leadership and project management); the other course focuses on strategic decision-making (improving students’ ability to understand the strategies pursued by their clients and organizations)."  The point of this, to paraphrase Northwestern Law's Dean, David Van Zandt, is to help prepare students for the way lawyers actually work today.

No sooner was it announced than it was denounced.  Perhaps this shouldn't be surprising, as Van Zandt noted with a slight air of resignation:

"Van Zandt said he expected some criticism. "Any time you innovate, you are always going to have people who pooh-pooh it or look down their nose," he said. "Law and legal education is tremendously conservative.""

What type of denunciation?

"University of Chicago professor and former dean Geoffrey Stone called the two-year program "irresponsible" and said it risked producing inferior lawyers who haven't had time to develop intellectual and analytical skills.

"My sense is that compressing the educational process is likely to seriously derogate from the quality," he said. "What is lost is likely to be much more than anything that is gained by hustling the students through more quickly."

And this:

"University of Illinois associate dean Lawrence Solum said students in a two-year program would have less time to explore career opportunities during the summer.

"Law school is already an extraordinarily intense experience and my gut instinct is that cramming it into fewer weeks and months is not likely to improve the quality of the education," he said. "If anything, law students already are doing too much in too few hours."

And—quelle surprise!—the commentariat on Above the Law and the WSJ Law Blog were, admittedly with exceptions, rambunctiously dismissive.  For example:

• Let's get this straight. The new two-year program would ...

  1. Cost the same;
  2. Allow no breathers between semesters; and
  3. Make it harder to find a full-time job at a big firm.

  If NW really wanted to be innovative, they'd make their third year optional.

• Wow. Just when I think I couldn't be any more ashamed of my Northwestern Law degree, they go and do something like this. Way to dilute whatever value a NW degree has and turn law school into a vocational school in the manner of any number of unaccredited California TTTs. Jesus.

• This is just another way for Northwestern to cheat on the US News rankings. Just like some law schools admit students into their night programs so they do not “count” in US News, NWU will admit students into the “short program” who will not get counted against NWU in the rankings. Free money from 50 below average students without the threat of sinking in the US News rankings or the faculty revolt from having an onerous night program. Great idea.

You get the idea. 

And the "exceptions?"  Those who had something positive to say.  They tended to be, excuse the phrase, adults.  For example:

• This is not a new idea. Back in the sixties, I came out of the Army and immediately began a 27 month law school curriculum at the University of Michigan, starting in June of one year and ending in an August 27 months later. Most of my colleagues in this program were a little older than the students in the regular, full 3 year program, having, like me, done a stint in the military or worked a few years after college in some sort of job. In fact, most of them were already married. [...] When I left law school, I joined one of the large first tier law firms, and I was a distinctly odd man out, because my peers at the firm finished the bar exam half a year before I did and had also enjoyed the work and bonding experiences of a summer together as interns. Still, I felt that the advantages accruing to me overall outweighed these disadvantages. For one thing, a space of several years between college and law school resulted in my being more mature when I started law school and, I think, made me a far better law student. (By my last year of college I was a real goof off, and might well have failed out of law school if I had gone there straight out of college. This is exactly what happened to a good college friend of mine.) And of course, as others have noted above, I basically gained back a year of time lost in military service and picked up an extra year to work and make the big bucks in my chosen profession.
• I totally agree with you. As an Iraq vet, it was beyond excruciating to watch another 3 years drain away sitting in a library - especially when I got little out of it. I don’t think the last year of credits is worth anything at all, intellectually. It would be better to implement a two year program, and then maybe add an optional third year that allows law students to do each semester as an externship somewhere - that way they at least get some practical experience.
• This is a visionary experiment, as is the experiment now going on at Washington & Lee. Bottom line: the three-year model is unnecessary and all the power behind it — the ABA and the AALS in particular — cannot stop the momentum behind a two-year law school curriculum. In two decades, it will be gone.

Clearly, Van Zandt intends to make Northwestern distinctive.  Referring particularly to the two new courses in quantitative analysis and in social and emotional skills, he says:

"For us to be successful, we have to be producing students that the rest of the world wants. Just producing people who are great at legal analysis, they are a dime a dozen out there now," Van Zandt said. "We are trying to differentiate our students in a way that is positive."

Earlier today I had a chance to talk with Dean Van Zandt and learned quite a bit more about the impetus for the program and its background.  Here's what I learned from him.

He's been in his post for over a decade and when he started he decided to undertake a comprehensive review of the law school's plans. The first step was to start looking for applicants with substantial post-college work experience, and a second step was to become the first major law school to conduct interviews as part of the admissions process. He reports that this past year they interviewed 75% of their 4,500 applicants, a substantial investment in manpower and time (although alumni can help with some of the off-campus interviewing). As for work experience, the incoming class stacks up as follows:

• 95% have worked at least one year after college;
• 82% have worked two years; and
• 58% have worked three years or more.

When they started this effort, the Dean assumed that they'd have to compromise on academic quality and be willing to suffer a small decline. But the opposite has turned out to be the case. From the time they started the "work experience" program until today the average LSAT has gone from 164 to 170, a greater increase than that of any other law school during the same period.

Another surprising benefit was to get more applicants coming from the East and West coasts. The Dean explained the dynamic this way: "Normally, aspiring law students will apply to Harvard, Yale, Stanford, and then some 'safe' schools nearer to home. In the Midwest, that often meant us, Chicago, maybe Iowa and Indiana, whereas in the East it would be Columbia, Penn, NYU, and in the West Berkeley, USC, UCLA. But by differentiating ourselves on the work experience parameter we find students outside our home territory are now applying to us."

A key part of the program, and the part of greatest interest to me, is the changed curriculum. It now focuses on six fundamental competencies that Northwestern has decided are of critical importance to its students (more on how these competencies were identified in a moment):

• project management and leadership;
• teamwork;
• strategic understanding of the client's business and organization, as well as how people in organizations make decisions and how they navigate organizations (in this the law school is greatly aided by having Kellogg Business School professors teach the basic strategy course);
• basic communication skills, including:
  • basic exposition;
  • training in formal legal writing and legal analysis;
  • contract drafting; and
  • business exposition, meaning how to take your recommendations and analysis to the client, be it orally, in a one-page memo, or in PowerPoint;
• quantitative analysis, including financial statements and statistics; and
• globalization: What skills do you need to be effective in a global business, how to work cross-culturally (not substantive legal expertise).

The Dean points out that when he graduated from law school technical excellence (along with many many long hours) was enough to make partner in a big New York firm, but no longer. Today, it's all about understanding the client's business.

Students often tell him that they aspire to being "international lawyers," and they start counting up the number of courses in the curriculum that have the word "international" in the title. He jokes that he'd like to sprinkle all the courses with the word just to make students feel better, but the actual advice he gives is different:

• become a very good Anglo-Saxon common law lawyer;
• go to work for a truly international US or UK firm;
• try to get on matters involving their transnational clients; and
• you will soon enough find yourself to be an "international lawyer."

Did he experience any pushback when trying to get the program started?

"Interestingly, much of it was from the existing students and faculty; very little of it was from the alumni, because they understand this is the way the world works."

And how exactly do the new required courses, the previous work experience, and the acceleration of the degree tie in together? "The idea was to put together one integrated package that--we hope!--will appeal to a slightly different cross-section of applicants, and a slightly different cross-section of employers. And limiting it to the small initial size means we don't have to up-end the law school! After all, it's been around for 150 years.," he says, with a smile in his voice.

The emphasis will clearly be on everything that the traditional law school admissions process overlooks:  The ability to lead teams, emotional maturity, interpersonal and communications skills, a degree of business understanding of the world that goes beyond what LSAT's select for, and (the ultimate goal) the ability to work with clients from the start, in an environment where business operates globally and law penetrates the operations of business in unprecedented ways.

Now let's step back a moment and ask how this might change the law school dynamic.

To begin with, what type of student is likely to self-select into the Northwestern program?  I strongly suspect they will be drawn from the ranks of the "adults"—and not just because of the prior "substantive work" requirement.  As we could infer from the "commentariat" I noted earlier, this program will appeal to people who are serious about getting on with their lives and getting to work.  (I would like to imagine it would have appealed to me.)

Then you take those students who already, by hypothesis, have a higher level of emotional maturity than your average shoot-the-lights-out LSAT overachiever, and immerse them for two years in a program emphasizing teamwork, quasi-real world experience, probably a dose of international exposure, and specific training in quantitative analysis including finance, accounting, and statistics, as well as training in group dynamics (teamwork, leadership, and project management).

If you ask me, putting on my metaphorical hiring partner's hat, the graduate coming out of that program is who I want to interview first, before those coming out of the conventional program.  The "accelerated JD's" will have:

• Real world work experience, and presumably a dose of the realism that comes with it about what it takes to earn a dollar;
• Impeccable academic credentials—this comes with the territory;
• A fighting chance to hit the ground running, with a grasp of business fundamentals both from the theoretical perspective and the hands-on perspective; and
• On average, a couple of more years on them than conventional JD's.

All it will take is a few high-profile AmLaw firms showing a revealed preference for those graduates for the next shoe in the marketplace dynamic to drop:  Given heightened demand, law schools will respond to the demand by increasing the supply of graduates with this type of profile.   Northwestern will surely be included:  Indeed, I have asked myself whether this program isn't the Trojan horse designed to take over the entire school in due course. 

In the meantime, in the market's recursive fashion, isn't it likely that more "adults" might find the accelerated JD attractive, and the post-graduation career prospects more promising?  Extend this thought experiment only a tad further to imagine that they would in fact be all-around better associates:  Higher-performing from the start, more realistic about work and therefore likely to stay longer, better suited and better skilled for what they actually have to do and therefore more likely to succeed (which feeds back into predicting lower attrition), etc., all in a virtuous loop.

And the problem of intellectually overqualified emotional dwarves, much discussed at the Georgetown Law conference on The Future of the Global Law Firm, will begin to be ameliorated.  Not through ABA or AALS regulation or accreditation, not through changing a single component of a single state's bar exam, not even through law school alumni pressuring their preferred Alma Mater to turn out people with at least a fighting chance to succeed, but through the market's invisible hand.  Then, how long indeed, before the classic three-year curriculum is gone?

On his cv, it says that Dean Van Zandt majored at Princeton as an undergrad in sociology, and that his Ph.D. from the London School of Economics was also in sociology.   But I'm betting he spent a fair amount of time slumming over in the economics department.