Letting go of old ideas.

Author:Henderson, William D.
Position:About law practice
 
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THE LAWYER BUBBLE: A PROFESSION IN CRISIS. By Steven J. Harper. New York: Basic Books. 2013. Pp. xvi, 208. $26.99.

TOMORROW'S LAWYERS: AN INTRODUCTION TO YOUR FUTURE. By Richard Susskind. Oxford: Oxford University Press. 2013. Pp. ix, 165. $18.95.

INTRODUCTION

Two recently published books make the claim that the legal profession has changed (Steven Harper's The Lawyer Bubble: A Profession in Crisis (1)) or is changing (Richard Susskind's Tomorrow's Lawyers: An Introduction to Your Future (2)). The books are interesting because they discuss the types of changes that are broad, sweeping, and dramatic. In suitable lawyer fashion, both books are unfailingly analytical. They both also argue that the old order is collapsing. The Lawyer Bubble is backward looking and laments the legacy we have squandered, while Tomorrow's Lawyers is future oriented and offers fairly specific prescriptive advice, particularly to those lawyers entering the legal field at a time when the number of traditional (what I call "artisan") legal jobs is shrinking.

Many of us working in the legal industry are interested in this topic because we are facing business conditions with no familiar historical analogue. From my own vantage point as a law school professor, things look pretty bleak. As a result of the precipitous, multiyear decline in applicant rates and historical trends in admission and matriculation rates, the number of law students who enrolled as ILs in the fall of 2013 fell below 40,000 (3)--a low-water mark not seen since the mid-1970s. (4)

It is certainly possible to rebound from a thirty-five-year low in entering enrollment, but the statistics are not promising: In 1977, there were 163 law schools accredited by the American Bar Association ("ABA"). (5) In 2013, there were 201, (6) with even more in the accreditation pipeline. (7) This represents a 23 percent increase in the bricks and mortar. Paying this increased overhead might have been sustainable when incoming 1L enrollment peaked at 52,000 in the fall of 2010. (8) But since 39,675 students enrolled in fall 2013, law schools have experienced a 24 percent drop in incoming students over three short years. A decline this large and swift is an enormous financial blow to institutions that have high fixed costs (read: tenured faculty) and no experience coping with large-scale change. Further, the pain is likely to increase as the comparatively larger incoming classes from fall 2011 and 2012 graduate and their tuition revenues leave the building. (9)

Perhaps we should have seen this change coming. Over the last several decades, the nature of legal practice has indeed changed. In 1975, scholars from the American Bar Foundation conducted a major study of the Chicago bar ("Chicago Lawyers I"). (10) One of the most salient findings of the Chicago Lawyers I study was that the legal profession had functionally divided into two "hemispheres," one serving individuals and small businesses and the other working for large organizational clients such as corporations. (11) Which hemisphere a lawyer served turned out to be a remarkably accurate proxy for a lawyer's ethnicity, religion, law school, bar association and social club memberships, home zip code, and annual income. (12) The Chicago Lawyers I study described these two groups as hemispheres not only because they were of roughly equal size but also because their professional interests and networks seldom overlapped. (13)

In 1995, the same core group of researchers replicated this study ("Chicago Lawyers II"). (14) Over the intervening two decades, the organizational sphere had expanded dramatically due to the proliferating legal needs of corporate clients growing in size and geographic scope. The amount of time that lawyers devoted to organizational clients had increased to double that spent on personal and small-business clients. (15) Thus, "hemisphere" was no longer an accurate description.

One laudable effect of this growth surge was that racial and class divisions between the two hemispheres began to crumble, as the corporate bar needed to recruit beyond a handful of elite law schools. (16) But the rapid growth of the corporate sphere also exacerbated income inequality within the profession. Chicago Lawyers II reported that between 1975 and 1995, the mean income of lawyers in Chicago's large law firms (with 100 or more lawyers in 1975 and 300 or more lawyers in 1995) grew from $144,985 to $271,706 in inflation-adjusted 1995 dollars. (17) In contrast, the mean income of a solo practitioner dropped from $115,694 to $80,075 (also in 1995 dollars). (18) Not surprisingly, only 2 percent of solo practitioners were working a second job in 1975, compared with 32 percent in 1995. (19)

The Chicago Lawyers I and II studies are works of rigorous social science. Thus, they provide a useful backdrop for evaluating the big-picture change accounts offered by Harper and Susskind. Two interconnected insights from Chicago Lawyers I and II help make sense of these two dramatically different books.

The first insight is that the ability to make a living as a "people's" lawyer has been on the decline for several decades. Arguably, this has occurred because there have been no giant leaps forward in how lawyers solve legal problems. Today, similar to a half century ago, lawyers meet with clients, talk to them over the phone, write letters, contracts, memoranda, and court documents, and make various in-person appearances on their clients' behalf. In contrast to the legal profession's unchanging nature, manufacturing technology has advanced such that we currently enjoy better and cheaper cars that require fewer workers to produce. Likewise, with the dawning of the digital age, we have more information and no longer pay a daily toll for newsprint. If technology has generated productivity gains for lawyers, greater legal complexity has subsumed the resulting cost savings. As a result, few lower- or middle-class people can afford several hours of a lawyer's time to solve their legal problems. (20) Unfortunately, without substantial gains in productivity comparable to other industries, people's lawyers are unable to profitably tap into the latent demand for solutions to legal problems. If we--the collective legal profession--grasped the full dimensions of this problem, I suspect that we would find it more troubling, as it is at odds with our self-image of promoting access to justice.

The second insight is that the declining fortunes of people's lawyers have been, in economic terms, more than counterbalanced by a surge of growth in the corporate sphere. This aggregated prosperity has obscured from plain view the seismic structural shift slowly occurring within the profession. But a time of inevitable reckoning occurred following the credit crisis in the fall of 2008, when corporate legal departments were no longer able or willing to pay the high fees of large firm corporate lawyers. (21) Since that time, the wealthy lawyers who manage the Am Law 100 (the 100 largest U.S. law firms based on annual revenue) have begun to experience unease as their revenues per lawyer began decreasing or, at best, remained flat. This development ended a pattern of year-over-year growth that had existed since the inception of the Am Law 100 in 1986. (22)

With average Am Law 100 profits in excess of $1 million per partner, (23) hitting a revenue plateau is unlikely to engender much sympathy. But, as it turns out, large and prestigious law firms are prone to collapse. Among the firms included in the first Am Law 100 list in 1987, thirteen failed over the next twenty-five years, a mortality rate of over 5 percent per decade. (24) All these failures share one common hallmark: partners with large books of business lost faith in the enterprise and left for greener pastures, creating a proverbial run on the bank. (25) The responsive strategy of law firm leaders has been to attempt to pay market value to the firm's heavy hitters to keep them in the fold. (26) Yet, to spur growth (or the perception of growth) in a flat market for corporate legal services, a rival law firm may be willing to pay more for partners who have portable clients. The profitability and geographic spread of large law firms create the illusion that they are strong, monolithic institutions. Yet, on the inside, these firms feel very fragile, primarily because the pace of lateral movement among corporate law firms continues to increase. (27)

To ward off failure, leaders of these firms increasingly manage them to benefit equity partners with big portable books of business--a demographic that is, on average, fifty-five to sixty years old, relatively rich, and in no mood to change. (28) Because clients are reluctant to pay for the time of junior associates, corporate law firms cut their summer associate ranks in half between 2002 and 2012. (29) The timing here is key--this change has been occurring since 2002, not 2008. This fact strongly suggests that the large-scale drop-off reflects a change that stretches well beyond any business cycle. Further, to maximize profits for the few, the equity tier is getting smaller, while a greater proportion of junior and middle-aged lawyers are permanently parked in counsel positions or the nonequity tier. (30) This is a new form of leverage that can increase short-term profits, as clients are still willing to pay for midlevel and senior expertise. This is a remarkably aggressive squeeze play, as nonequity partner compensation has stagnated to pump up the income of a smaller class of equity partners. (31) The only way for an up-and-coming lawyer to share in this wealth is to build and control a large book of business. Knowing this, many equity partners have become very territorial about who works on their matters and who talks to their clients.

This turmoil at the top ranks of the legal profession is one of the key fault lines across which both Harper and Susskind walk. With...

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