2009/2010/2011 BigLaw Class Years: The Gilded Ones?

Look around your law school campus and you will see the carnage left behind by the financial crisis. Classes of 2009/2010/2011 are left jobless and debt ridden. Among the detritus scattered around campus, however, there are the lucky few who have successfully secured gainful employment at some of the nation’s premier firms. It is my belief that these “survivors” of sorts are poised to have the most market (and hence financial) leverage in the medium- and long-term. There are two phenomena that support my assertion: 1) the seemingly unmovable law firm profit model; and 2) demographic destiny.

First, to quote Mark Twain, the reports of the BigLaw model’s death are greatly exaggerated. While some firms have moved away from traditional lock-step compensation systems and have outsourced the more mundane portions of their work, the fundamental premise of their business depends on starting large classes of associates at the bottom of the pyramid and slowly winnowing them out either via voluntary or forced attrition before they reach the top layers. Many of the survivors of this process who end up at the top of this pyramid are compensated with a consecrated slice of the partnership pie. So how does this ancient and seemingly indestructible profit model help the lucky few who landed summer associate positions? Simple. Supply and demand.

These lucky few will ultimately succumb to the same pressures experienced by any other BigLaw class year. Some will leave for government, some for mid-size/small law, and some will just leave the law period. This inevitable thinning of the 2009/2010/2011 class years will create an abnormally small layer in the BigLaw pyramid relative to the size of the firms’ respective partnerships. Ultimately, when the economy turns around (yes, one day it will be better; even the Great Depression came to an end after all), BigLaw will have more work than mid-level associates to do it. The result of this excess work and limited supply of experienced attorneys means that there could very well be a financial war between firms for mid-level attorneys. BigLaw firms will be unable to fill these voids in their ranks with attorneys from small/mid-sized law firms and the government because they will simply not have the requisite experience to do the work.

Second, viewing the future with more of a long-term lens, old partners, particularly baby boomers, have to retire at some point. Whether by “age-out” clauses in partnership agreements or simply by partners deciding that they have hit the end of the line, there is a large generation of law firm partners who will be heading for greener pastures in the next decade or so. The generations immediately behind them, particularly Generation X and the Millennials, are quite a bit smaller than their baby boomer predecessors. Come time for partnership promotions, there might very well be a shortfall in available talent to take up the reins of the firm; particularly, a shortfall in talent around the time the 2009/2010/2011 classes are up for partner. Those who make through the eight to ten years of hoops stand (I think) a much improved chance for partner compared to their boomer and Generation X peers.

So what’s the conclusion? Those in the Classes of 2009/2010/2011 who are/were able to obtain a BigLaw position may have some serious market power behind them in the medium- and long-term. So long as these individuals can wade through the next two to three years of economic waters, they stand an excellent chance to develop a skill set that will be in high demand during the medium term (i.e., during their mid-level years) due to limited supply. Further, any members of these Classes who manage to survive eight to ten years in their firms also stand an excellent chance of making partner due to demographic pressures on the boomers.

Obviously this is all just speculation. Should the overall size of BigLaw shrink my predictions will not hold. However, given the ever increasing levels of regulation coming out of Washington, I believe that there may just be an enormous opportunity for these lucky few.

Informational Asymmetries, the Emperor's New Clothes and More Cries For Value

Early in 2009, we noted that the recession has exposed numerous deficiencies in the current legal education system. Accordingly, we argued for a systematic change in curriculum and focus. It appears that law students elsewhere are yearning for the same at their institutions. From The Daily Texan:

[C]riticisms [of the University of Texas Law School] are well-founded. In a survey of accredited law schools, Texas was the only school without a mandatory brief-writing course. In fact, only about half of first-year students surveyed reported being able to get into a brief-writing course. As a result, they will not be trained how to present arguments to a court — one of the most basic legal skills.

Instead of rectifying the problem by meeting national practical skills standards, UT Law instead chooses to steer law students away from taking practical courses by offering grossly grade-inflated first-year electives on such totally impractical topics as Race and Gender in the Constitution.

The first-year curve in all courses is set at 3.3; the average in these “electives” is a 3.8. A student in Race and Gender in the Constitution commented, “The class is a complete joke and a waste of time, but the professor gives almost everyone A’s.” Since law students’ employment is determined by their first-year GPA, creating such an exception to the curve is unfair to other students and misleading to employers relying on the veracity of student transcripts. . . .

So law students can game the system and come out Order of the Coif, while not knowing a single thing about the basic exceptions to the hearsay rule? I can vouch for the fact that this is an absolutely accurate characterization of the system as it is constituted both at my institution, and as the authors noted, at others.

But more pertinently, law school seems (oddly enough) to present a sort of transparent information asymmetry cogently illustrated by the student in this article: in many respects, law schools fail to meet the demands and expectations students have upon entering and that employers have when hiring. Yet, it seems like we all know a little bit of what we are getting at the outset; the sales pitch is just all too compelling. In this sense, law school is more like an experience good that shouldn't demand any sort of warranty. But the problems are still exceedingly pervasive. As the authors noted with respect to their institution:

[There is a] deeper problem at UT Law that has drawn criticism from all corners of the legal industry: Lax institutional standards have marginalized the law school’s role in society of preparing its students to be competent, ethical lawyers.

I hate to say it, but this problem is not confined to UT Law. We need major reforms soon, because permitting students to become engulfed in massive amounts of debt with little to no guidance on how to be competent lawyers will (inevitably, I think) continue to dilute the profession's quality, and worse yet, harm students' lives. Law students ought to be more vocal in their cries for change like the authors in the noted article.

In Ben & Tim We Trust? Nightmare #2

Never have I read a wire-report that has more inadvertently used a proper verb to describe the (ongoing and soon to worsen) economic mess that is Federal Economic Policy. Here, the word of choice is "divine." The entire paragraph that caught my fancy reads:

"With officials still grappling to divine the factors steepening the yield curve, a speedy decision on whether to ramp up the Treasury debt purchase program or the related plan to snap up mortgage-related debt seems unlikely."

Divine, as in divination...as in the prophetic method used by the Roman priests to tell the Caesars what the upcoming warring season would bring.

Here's a dictionary definition (from Webster's):

div·i·na·tion

Pronunciation:

\ˌdi-və-ˈnā-shən\

Function:

noun

Etymology:

Middle English divinacioun, from Latin divination-, divinatio, from divinare

Date:

14th century

1: the art or practice that seeks to foresee or foretell future events or discover hidden knowledge usually by the interpretation of omens or by the aid of supernatural powers

2: unusual insight : intuitive perception

Things are so economically bad in this country that our Ivy-trained economists are no more useful at telling us what is going on than the Horoscopes.

Sweet dreams are made of these...

"Swine Flu" Killing "Great Lawyers of Harvard?"

A few weeks ago, in the midst of finals and an apparent pandemic that scared the whole lot of us, a friend passed along this article from Esquire Magazine. The article's an old one, but it poses a very relevant and oft-asked (albeit, in broader strokes) question: "Who's Killing the Great Lawyers of Harvard?" People come to law school for a number of reasons, but usually with the intention of practicing law. Yet, as Esquire explains it, many from Harvard Law's Class of 1990 are no longer practicing law:

A former hippie type now writes the television program The Street and an occasional Ally McBeal. He has no job security, but he's happier than hell and couldn't fathom going back to law. A woman who loved science fiction and crossword puzzles left law to sell cruises and is now a part-time secretary with a temp agency. "A failure, I know," she says, "but I'm finding myself--and at least I'm out of the firms." One partner at one of the country's fanciest firms confides that he's finalizing plans to quit his job. "I'll go crazy if I stay," he says. "But please don't print anything more about me. If my plan folds, I'll still need the firm.

This phenomenon is not limited to Harvard. Many law graduates who obtain legal jobs "quit" the law, and take up other tasks--often successfully--and there's nothing wrong with that. Law school is supposed to open doors, not close them. Yet it does make one wonder why everyone and their brother is dying to leave the legal profession (at least before the economy tanked). There are countless obvious answers: the hours, the stress, etc. Put simply, young lawyers may really be "in trouble."

Let me advance another subtle, yet possible, reason: the law school mentality. Increasingly, students are leaving law school with a compulsive nature that manifests itself in an obsession of self-control. It's a tiring obsession that leads to self-loathing and scorn when we ultimately realize that there are simply some things we cannot control. Swine flu's a good example. The panic was widespread across the globe, but was especially concentrated in our ranks. I'll be candid about it--I was terrified. Not because I thought I was going to get sick or die, but because I couldn't control my fate.

Maybe law graduates who leave the profession are liberated from this Foucault-esque obsession I've observed in myself and my colleagues?

The Greatest 3 minutes and 44 Seconds In TV History?

Click here for: Margaritaville, South Park 3/3

If you want to see the entire episode: Click Here

What's Liberty Got To Do With It (With It, With It)?

Pop quiz Hot-Shots! What does the following mean? What substantive demarcations can be made so as to give the following addressable standards?

The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.

Governmental Stimulus: It's Like Thinking You Can Play Jenga without Taking Gravity Into Consideration

Everywhere one turns today, he hears about how "the government" needs to "stimulate" the economy, and that such "stimulation" will provide a foundation for future prosperity. The implicit premise is that all the money spent by the government will be more wisely spent than if it were left in the hands of private individuals and institutions in this market. I question this premise not on the tried-and-true Hayekian "Use of Knowledge" grounds ; rather my criticism goes like this: what happens when you blindly pull the bottom legs of a Jenga tower (notwithstanding its quality)?

Let's assume, for the sake of argument that the stimulus bill "works" in the short-term (functionality being tied to the decrease in unemployment). Let's also assume that government does indeed "place all the logs" in the places it thinks best. Here, the governmental spending (whose wisdom is questionable at best) is banking on its placement of all sorts of "logs" at the bottom or foundation of the Jenga tower that is our economy. But, such a drastic increase in governmental spending is clearly unsustainable (one eventually runs out of space on the bottom where he can place the logs). What happens when the spending that drove such development goes away because it is thought 'the storm is over?' In other words, what happens when we pull those base logs (notwithstanding the need to place the logs back on the top)? History has shown that we end up right back where we started (i.e. the tower collapses).

Anyone who thinks that President Obama's budget + Stimulus bill + Federal Reserve liquidity will result in a costless return to prosperity need only watch this clip to see what the future holds.

First Impressions matter...

In the hopes of fulfilling my promise to contribute a different perspective to this blog, I am posting the following link to one of my favorite economic policy blogs on the web. The blog, "Long or Short Capital," is written from a libertarian perspective and it is an irreverent look at what's going on in the worlds of finance, law, economics, and policy. This particular piece is very funny in a dark "How Did We Get Here?" kinda way (hence, the new label) [Note: I did not write this article and take no credit for it; I just really liked it]. I hope to keep posting thought-provoking links in the future, and I have an interesting piece (regarding the stimulus and what happens next) waiting final revisions before posting. In the mean time, enjoy this piece...

http://longorshortcapital.com/did-you-get-that-legal-memo-i-sent-you.htm

And to many more,
Freddy B.