Legal Evolution PBC is pleased to announce our first public event.  On Tuesday, October 10, author and researcher Randy Kiser of DecisionSet® will give a lecture and Q&A session based on his recently published book, Soft Skills for the Effective Lawyer (Cambridge University Press 2017).

This event is graciously hosted by Chapman and Cutler LLP, 111 W. Monroe Street, Chicago, IL. The event will run from 6 to 7:15 pm in the building’s 8th floor auditorium (doors open at 5:30), followed by a reception at the firm. There is no charge for this event. However, advanced registration is required. You can register online here.



Why attend this event?

If you’re a lawyer or law student, the opening paragraphs from Kiser’s book, excerpted below, provide a powerful answer:

Anthony Sonnett, Ford Motor Company’s trial attorney, had nearly completed his cross-examination of Barry Wilson. After listening to Mr. Wilson describe how he showers, catheterizes, and frequently repositions his paralyzed wife, following an accident in which her Ford Explorer rolled over and fractured her spine, Mr. Sonnett posed his final question to Mr. Wilson: “The silver lining, to the extent that there could be one, it has brought you and Benetta [Mrs. Wilson] and the family closer together?” Mr. Wilson responded: “I think where we were together before, we are together after. I don’t think it’s done more for us. I think it’s — I don’t think it’s a benefit or a plus in any way. I am sorry, I don’t think I can see it that way.”

The jury returned a verdict against Ford for $4.6 million in economic losses, $105 million in noneconomic losses and $246 million in punitive damages. Reviewing the verdict on appeal, the California Court of Appeal honed in on Mr. Sonnett’s “silver lining question” and noted, “This question implied that the family should find a silver lining in what befell Mrs. Wilson. It may very well have been viewed as callous by the jury and might explain, in some manner, the actions of the jury in rendering a verdict so out of line with the amounts requested by the Wilsons’ own counsel.” The question, the court stated, “might well have inflamed the passions of the jury.” Concluding that the award against Ford was excessive, the court reduced the noneconomic damages award to $18 million and lowered the punitive damages award to $55 million.

The silver lining question, according to Adam Liptak, the Supreme Court correspondent of The New York Times, “was a legal classic that has echoed through the appeal of the case.” “The Wilsons’ case,” he opines, “suggests that a lot can turn on little things, including flat-footed lawyers and stupid questions.”

Attorneys can argue endlessly about the appropriateness and impact of the silver lining question. That argument obscures the fact that judgment calls like the silver lining question permeate a lawyer’s daily existence and are not resolvable by statutes, rules, regulations, appellate court opinions or practice guides. These judgment calls are invariably subjective and inherently dangerous; they tend to be more personal than rule-based, more intuitive than empirical. They require a broader set of skills than technical legal knowledge and analysis and necessarily implicate “soft skills” like sensitivity, discernment, empathy, perspective taking and foresight.

In making these judgment calls, whether cross-examining a witness or negotiating contract terms, attorneys rely heavily on their personal experiences and their sense for people. They ask themselves imponderable questions like: How am I coming across to everyone else in this room? Do they trust me? What do they expect of me? Have I realistically assessed this challenge? Am I adequately prepared? Is my sense of what is happening here affected by how I feel about something else today? What will I do if I fail here? This book is about these types of questions — how we pick the questions to ask ourselves about ourselves, how accurately we answer them and how we can improve the soft skills that are ignored in educational testing but turn out to be dispositive in life.

Over their fall break, current Indiana Law 2L and 3L students are eligible to enroll in Randy Kiser’s 1-credit course based on Softs Skills for the Effective Lawyer. We are very fortunate to have Chapman and Cutler LLP also host the class in their Chicago office. I am proud to have played a role in organizing the Kiser Soft Skills course and the Kiser public event.

More about Randy Kiser

Randy Kiser was a very successful practicing lawyer for 20 years before pursuing graduate studies in psychology and developing a second career as a researcher and consultant on lawyer decision making.  Although Kiser has no permanent academic affiliation, his work on the legal profession is among the most rigorous, engaging, and important currently being published, with wide-ranging implications for society, practicing lawyers, and legal education.

Kiser’s 2008 article “Let’s Not Make a Deal” in JELS (the leading peer-reviewed empirical journal on legal topics) documents the pervasiveness of errors among lawyers in the decision to reject a final settlement offer and proceed to trial. Although plaintiffs’ lawyers were twice as likely to make a mistake (determined by getting a judgment less than the final settlement offer), defense counsels’ errors were vastly more expensive for clients — the average costing $43,000 on the plaintiff side versus $1.1 million for the defense.  See 2008 NY Times article on Kiser’s research.

The message that comes through Kiser’s research is that all of these mistakes are fixable by becoming aware of a wide range of inherent human biases and taking appropriate corrective actions. Nonetheless we persist in our decision making ignorance, with clients suffering the economic consequences and lawyers wondering why their careers are stalling.  For the last several years, I have integrated portions of Randy’s seminal book, How Leading Lawyers Think (Springer 2011), into both my Deliberative Leadership and Legal Professions course at Indiana Law. The book does extensive qualitative research on plaintiff and defense counsel who consistently make wise evaluative judgments and thus obtain consistently better client results when going to trial.

You can learn more about Kiser at his DecisionSet® website.

What’s next? See “Crossing the Chasm” and the “Hype Cycle” (024)

Earlier this week came some unexpected good news for the legal ecosystem.  Dan Linna of Michigan State Law unveiled the Legal Services Innovation Index, which provides some very interesting and compelling measures of innovation by: (1) country, (2) practice area, (3) type of innovation, (4) firm size / global segmentation, and (5) individual law firm.

The Legal Services Innovation Index is a project of MSU Law’s LegalRnD, which is a mission-based research center focused on innovation in legal services.  The Director of LegalRnD is Dan Linna, a legal education doer with a multi-faceted background.  Prior to joining MSU in 2014, Linna was an equity partner at Honigman (a Michigan-based AmLaw 200 firm); and before law school, he worked for several years as an IT manager and consultant.  Over the last few years, Linna has been instrumental in organizing legaltech meet-ups in both Michigan and Chicago.

What I admire most about Linna, however, is his ability to mentor young people so they have the confidence and focus to build great legal careers.  See, e.g., LegalRnD’s application of Lean principles to student employment outcomes. The Legal Services Innovation Index is justifiably going to get a lot of attention from the entire global legal services industry — and remarkably, it was substantially built by law students working under Dan’s direction.

Zero to One

In the project Overview, Linna goes to great pains to explain that the Legal Services Innovation Index is a “Phase I, Version 1.0” release that should be viewed as preliminary.  Linna writes:

I’m releasing Phase 1, Version 1.0 of this index to add to and improve legal-industry discussions about legal innovation and technology. My inner perfectionist–a voice empowered during my journey to equity partner in an Am Law 200 law firm–would prefer that I conduct far more research and complete Phase 2 and Phase 3 before releasing anything. But this type of perfectionist thinking is itself a barrier to legal-services innovation. Instead, I will follow the Lean Startup innovation process [example online here] … striving to continuously improve our legal industry discussions about innovation and technology.

Linna notes that the project was inspired by LSC President Jim Sandman’s speech at the 2016 CodeX FutureLaw Conference. Sandman argued that if law firms were ranked and assessed by their use of technology rather than just revenues and profits, we’d find ourselves in a virtuous competition that could potentially redound to the benefit of those who lack access to legal services. (Even if the connection between BigLaw tech and PeopleLaw access is attenuated at best in the year 2017, it’s nonetheless a better vision than pure financial metrics.) When Sandman repeated this call at the 2017 CodeX conference — thus revealing that nothing happened over the past year — Linna committed himself and his Center to the Index project.

Tactically, it’s wise for Linna to be cautious about what the Index data mean — he describes Phase I, Version 1.0 as a “minimum viable product” that will improve with user feedback. Regardless, for the rest of us, it is hard to overstate the importance of this first iteration. Basically, Linna and his students have moved the state of the art from zero to one.  On Monday, conversations about legal innovation took place in a data vacuum.  On Tuesday, we had a system of measurement and classification and corresponding innovation data on 263 of the world’s biggest law firms (that is how many unique firms are in the Am Law 200, Canadian Top 30, and the Global 100).

To their credit, Linna and his crew are trying to frame the conversation as “How can we make this better?”  Regardless, even in its current form, the Index is bound to be extremely influential. Seeing where your firm stands relative to other firms is going to change both conversation and behavior. This is the psychological phenomenon of reactivity, which can be profoundly powerful. See Espeland & Sauder, “Rankings and Reactivity: How Public Measures Recreate Social Worlds,” 113 Am J of Sociology 1 (2007) (discussing law school rankings as an example of reactivity with far-reaching social and institutional effects).

What is the Innovation Index?

The Index in its current form is really two systems of quantification: The Innovation Catalog and The Law Firm Index.

(1) Innovation Catalog

The Innovation Catalog captures legal-service delivery innovations that are currently being implemented by law firms in the AmLaw 200 (US-headquartered firms based on gross revenues), the Canadian Top 30 (based on attorney headcount), and the Global 100 (122 firms on two lists ranked by revenues and headcount).  Innovations are grouped into three categories — products, services, and consulting. The results are presented using Tableau, a popular data visualization tool.

Below is the graphic showing the number of innovation offerings based on the law firms’ home jurisdiction:

Why is the UK in the leader’s position?  Some would argue it is because the UK’s domestic market became saturated 20 years ahead of the US market, forcing deeper strategic thinking on how to adapt and grow.  Another factor might be the residue of lockstep compensation, which tends to create and incentivize a longer time horizon.  Note that these figures have not been “normalized” — i.e., adjusted for the size of the home market.  Because the UK market is much smaller, it makes the UK’s leader position all the more interesting.  Although elite U.S. law firms appear to be running away with the most lucrative financial services work, see Simon & Bruch, “The Strange Tale of How Elite US Firms Surpassed Their UK Counterparts,” Law.com (Aug. 2017) (three-part series), the chart above likely reflects the larger and more contested market for operational legal work.

Below is another Index chart that breaks out innovations by tool or discipline.  The range and diversity of innovations is striking — this is not a market where nothing is happening.

Where the rubber meets the road, however, is a table that breaks down all the data at the granular law firm and innovation level.  See Catalog by Law Firm (last tab). To date, only three firms have one or more innovations in each of the products, services, and consulting categories: Allen & Overy (UK), DLA Piper (US), and DWF LLP (UK).  US-based firms with several innovations include: Duane Morris (7), DLA Piper (7), Fenwick (6), Ogletree Deakins (6), Norton Rose (5), Littler Mendelson (5), Bryan Cave (4), Hogan Lovells (4), and Seyfarth Shaw (4).

One of the most interesting features of the firm-specific table is the inclusion of strategic partners.  These companies are necessary to solve difficult technical problems or resource gaps:

  • Intapp (with Ashhurst (UK))
  • Deloitte (with Allen & Overy) [related to contract management and compliance]
  • Elevate (with Corrs Chambers (AU))
  • HighQ (Corrs Chambers (AU), Norton Rose)
  • Kira (with Clifford Chance and DLA Piper)
  • Neota Logic (with Clifford Chance, Foley & Lardner, Hall & Wilcox (AU), Hive Legal (AU), Husch Blackwell, Littler Mendelson)
  • Thomson Reuters (with Ackerman, Clifford Chance, DWF LLP, Nixon Peabody) [mostly managed service research support]

(2) The Law Firm Index

The Law Firm Index is based on Google Advanced searches for indicators of innovation on law firm websites. The methodology section gives the precise search terms for each category. There’s likely a bias favoring large firms, as they have more lawyer biographies and practice group pages to tout the same innovations.  That said, there are many relatively small firms posting relatively large innovation numbers; and many large firms that are posting relatively small numbers. And for those of us fairly close to this space, there are few if any surprises. To me, they appear face valid.

Here is the breakdown of the average hits per firm website by area of innovation:

This is a very interesting breakdown because the largest category, Blockchain, bears on changes affecting the core business of corporate clients. In some respects, this innovation borders on changes in substantive law and how contracts get formed and enforced. Because this is closer to lawyers’ natural wheelhouse, perhaps it’s unsurprising that lawyers are ready and willing to innovate.  Yet, on service delivery innovations that are directed at reducing billable hours and overall cost, such as automation and process, we see a lot less activity.

The analysis based on country and firm grouping is also interesting and informative:

The big takeaway here is that size + geographic reach appears to be strongly correlated with at least the seedlings of innovation. Cf. Innovation in Organizations, Part III (017) (discussing complexity and size as correlates of organizational innovativeness and explaining why this is likely true in law). Although really large firms have significant challenges with management and communication overhead, there’s no substitute for a critical mass of resources to build new service offerings.

Finally, the Law Firm Index has two breakdowns by individual firm (the last two Tableau tabs) — one based on total Google Advanced website hits and a second based on percentiles.

The Index website repeatedly communicates that these firm-level charts are not a ranking. That said, the differentials among firms are massive, moving from less than 10 mentions of innovations to nearly 15,000.  This raises a very real question for partners — “is it worth trying to get my firm to innovate, or should I take my clients to a market leader firm?”  Cf. Henderson & Zorn, “The Most Prized Lateral of 2015 Wasn’t a Partner,” American Lawyer, Feb. 1, 2016 (discussing media attention given to movement of 4-person process improvement team from a UK Silver Circle firm to a Global 100 UK-Australian firm and predicting that this type of sophisticated capability will eventually attract lateral partners trying to hang onto clients). The failure to invest in innovation may prove to be extremely expensive for late majority and laggard law firms.

Conclusion

Kudos to Dan Linna and his team at MSU Law’s LegalRnD.  For the foreseeable future, your Legal Services Innovation Index is going to be the measuring stick for law firm innovation.  You have given lawyers, law students, and law faculty a useful, tractable, and relatively comprehensive window into the changing legal services market, at least in the large law firm segment.  Going forward, we can be spared the blanket generalization that lawyers and law firms can’t innovate. That by itself is a tremendous public service.  We all look forward to improvements in the months and years ahead.

What’s next? See Inside the Client’s Head: 2017 CLOC Institute Programming (022)

Many lawyers are daunted by the prospect of data, process, and technology.  Yet, retooling might not be that hard.

Below is a list of knowledge, skills, and technologies learned this summer by three of my 1L Indiana Law students. The catalyst was a 3½-week program at the University of Colorado Law School in May combined with 10-week paid internships (still in-progress) at legal employers who value JDs with legal ops skills.

Legal Operations Knowledge and Skills Experience with Specific Software Technologies
1. Process mapping Visio PRO
2. Document automation Contract Express
3. Expert systems Neota Logic
4. Data visualization and construction of metrics dashboards Dundas BI
5. Database structuring and query writing MS Access
6. Artificial Intelligence (AI) — various types and use cases
7. Open source versus proprietary software codebases
8. Speaking parts on calls with firm clients

This is a lot of learning for a 1L summer program. In fact, this is just a lot of learning.   Because rising 1Ls typically lack useful knowledge and experience, they are at high risk of being underemployed.  Yet, therein lies the opportunity: With the right learning structure, these students can learn relatively rare and valuable skills very quickly.

Imagine the transformation of the legal industry if 20% of practicing lawyers acquired these same skills over a similarly short period of time.  The primary obstacles to this outcome may be psychological rather than a shortage of time, money, or ability.

The credit for this quantum leap goes to the Tech Lawyer Accelerator (TLA) at CU Law.  Originally organized by Bill Mooz as part of a practitioner-in-residence initiative funded by AccessLex Institute, the TLA is now in its fourth year.  Because I played a role in its formation, a small number of Indiana Law students get to participate each year. Sometimes the dividends of our work far exceed our contributions and expectations.  That certainly happened here.

Bill Mooz and I are currently working on plans to scale the TLA for the benefit of other law schools and legal employers.  Stay tuned for that.

Here’s a shout-out to my wonderful students at Indiana Law and their first-rate summer employers:   Ingrid Barce and Austin Brady at SeyfarthLean (part of Seyfarth Shaw); and Tony Schuering at Chapman & Cutler. Keep up the good work!

What’s next?  See Honest and Informed Conversations (019)

alanbryanfutureoflitigAs a law professor, I worry about my students’ job prospects.  One way to manage this worry is to study clients and to work backwards from their needs.  Opportunities tend to find lawyers who follow this discipline.

Yet, making generalizations on law clients in the year 2017 is surprisingly difficult. This point was recently driven home by the juxtaposition of two “voice of the customer” examples at the Ark New Spectrum conference in Chicago last month.  The first example came from Aric Press, longtime editor-in-chief of The American Lawyer, who now spends a good portion of his time doing client feedback interviews through his consulting firm, Bernero & Press.

Example 1

Do law firms need to embrace sophisticated tech-based solutions to retain their largest and most important clients?  Aric put some variant of this question to a senior in-house lawyer who controls tens of millions of dollars of legal spend at a client we’ve likely all heard of.  The response was surprising, even to Aric. “I only need two pieces of technology. Email and my phone. And both work fine.”  This same in-house lawyer praised the firm being reviewed for cultivating a relationship of trust that felt personal. That’s comforting feedback for the service providers.

Example 2

The second “voice of the customer” came from Alan Bryan, Senior Associate GC of Legal Operations and Outside Counsel Management at Walmart. Alan presented the chart above, which graphically summarizes some of his views on the evolution of litigation [click on image to enlarge].

Caveat:  Alan Bryan is skilled and careful legal operations professional, which means he understands the range of interpretations that lawyers assign to graphical information.  A major caveat Alan made during his remarks is that the arrows above “are not to scale” — i.e., they do not reflect the quantum of hours worked or dollars spent. The chart instead shows a likely directional change in the relative mix of service providers, including in-house counsel.  The growing green arrow includes, at least in part, non-traditional legal service providers of the type profiled in “Efficiency Engines,” ABA Journal (June 2017).

So what’s the takeaway?

The nature of legal work among the nation’s largest corporate clients is simultaneously changing significantly and not at all.

On one level, this is frustrating because it means any generalization is vulnerable to the killer counterfactual anecdote. Within firms, this means strategy setting can veer toward melee.  The broader “profession” will also struggle to plan and adapt.

On another level, however, these two voice-of-the-customer examples reveal large client segments that are operating on different time tables. Alan Bryan feels sufficiently strongly about the changing nature of law practice that next year he will be teaching the first second full-semester* “Introduction to Legal Operations” course at an ABA-accredited law school. The course will be offered at his alma mater, University of Arkansas-Fayetteville School of Law.

The legal world is changing, albeit unevenly and in ways that defy simple generalizations.  That said, I would be comfortable wagering that over the course of a 40-year career, taking Alan Bryan’s legal ops course will, in cumulative effect, open as many professional doors as a degree from Harvard Law School, albeit HLS appears to be hedging itself in a very prudent way.  See Underestimate Harvard Law’s New Admissions Strategy at Your Own Risk.  As a field, legal ops is disruptive because it focuses on measurable results. See Post 005 (discussing rise of legal ops and CLOC).  You either have the knowledge, skills and experience to deliver, or you don’t.  Credentials and pedigree can’t fill that gap.


 * Since the fall of 2015, legal innovator Ken Grady has been teaching “Delivering Legal Services” at Michigan State University College of Law.  This is a 2-credit course that functionally covers the terrain of legal ops, including, per Ken’s email, “project management, process improvement, technology, metrics, design thinking, and a few other topics.”  Since January 2016, Indiana Law has been offering a 1-credit Legal Operations course during our January Wintersession. If your school also offers a “legal ops” course, please let me know and I’ll amend this post.

What’s next?  See Example of Automating Private Placement Documentation (014)

lawgraduates006The ABA just released 10-months out employment data for the class of 2016.  The percentages of grads employed in full-time/long term Bar Passage Required and JD Advantage jobs is up (72.5% compared to 70.1% in 2015).  However, the total number of these jobs is down (28,029 to 26,923).

Is this good news for law schools?

Not really.  The employment percentage is up only because the number of law grads is dropping faster than the number of jobs. But both numbers — grads (supply) and jobs (demand) — are declining. A true recovery would show the opposite.

A 28% Drop in the Number of Law Grads

The graph above reveals a dramatic drop in the number of law grads.  The green bars reflect historical data.   The orange bars are projections for the next three years based on incoming 1L classes that have already enrolled. (Based on a 10-year historical average, 90.1% of entering 1Ls receive a JD three years later.)  Between 2013 and 2019, the size of graduating classes will drop 28.0%.

This may be the bottom of the trough, as the number of projected graduates is essentially identical for ’18 and ’19 (33,667 versus 33,658).  Yet, it would be mistake to assume that things are headed back to normal.  We have to go back to 1978 to find graduating classes this small.  At that time, the US population totaled 223 million.  Since then, we’ve added another 100 million people.

A population gain that large should translate into a lot more divorces, wills, contract disputes, DUIs, and personal injury claims, etc. And likely it has.  But it may be the case that a growing proportion of these legal problems cannot be cost-effectively solved by lawyers (more on this below).

The Old Era of Bad Employment Data

94percent2010USNAs the job market collapsed in ’08-’09, law schools came under intense pressure to provide higher quality employment data. At the time, the only metric collected by the ABA was employment 9 months after graduation. Yet, the definition of “employed” did not distinguish between jobs that were legal versus non-legal, or full-time versus part-time or temporary.  Because US News used this metric in its ranking formula, it became normal for schools to aggressively count all jobs regardless of quality.

In the 2010 US News rankings, the median employed-at-9-months figure was a remarkable 94.4%.  In contrast, NALP data published in the spring of 2010 showed only 82.0% of law grads obtaining either Bar Passage Required or JD Preferred jobs. Terms of use with member law schools prohibited NALP from reporting school level data. But obviously the numbers weren’t adding up.

As the job market continued to stagnate, law schools got hammered in the press and blogosphere for publishing unreliable, self-serving data.  Former students and alumni filed lawsuits against more than a dozen ABA accredited law schools alleging various theories of consumer fraud.  Industrious law students at Vanderbilt Law used the bully pulpit of the Internet to create Law School Transparency (LST) and demand that law schools release more granular information on employment. And eventually it worked.

The New Era of Data Transparency

The ABA Section on Legal Education and Admissions to the Bar responded to the public pressure by agreeing to collect, publish, and periodically audit granular information on employment outcomes. That information can now be readily downloaded from an online database.  Several other outlets now incorporate these data into online tools to improve decision making for prospective law students. See, e.g., Law School Transparency (LST)AccessLex Institute (Analytix), Educating Tomorrow’s Lawyers (ELT), Above the Law (ATL).

The chart below reflects employment outcomes (i.e., demand for new law graduates) since the ABA stepped into its new role as collector and disseminator of high-quality market information.

ABAjobs2011_16

The key takeaway is that the entry-level market for law grads remains very soft.   Of the six reporting years, 2016 had the fewest number of FTLT Bar Passage Required or JD Advantage jobs. The numbers look better when they are expressed as a percentage of total class size, as in the table below:

2011 2012 2013 2014 2015 2016
63.0% 65.7% 67.1% 71.1% 70.1% 72.5%

Yet this trend is moving up only because we are at a 40-year low in the number of law grads. See Green/Orange chart above.  Enrollments are down because entry-level employment for law grads is down.  That’s the impact of the new era of transparency.

When will law school enrollments increase?  When there is a surge in high quality employment for law grads. It’s just that simple.  Legal education now operates in a real market.

Legal Problems and Legal Productivity

I created Legal Evolution because I became convinced that the biggest problem facing the legal profession and legal education was stagnant legal productivity.  Stagnant productivity is bad because it means that solving legal problems is becoming, in a relative sense, more expensive over time.  Thus, as practical matter, fewer people and businesses can afford to hire a lawyer to solve a legal problem.  Those are the economic forces driving the green/orange chart above.

The problem of legal productivity will be recurring theme here.  But a brief, concrete illustration is especially helpful for this post, as there is a systemic breakdown occurring in the practice of law.  This is a substantial root cause of underemployed law grads, flagging starting salaries, and lower law school enrollments.

The NCSC Landscape Report

NCSC_landscapeThe illustration comes from the The Landscape of Civil Litigation in State Courts, a 2015 study published by the National Center for State Courts (NCSC). The study compiled data from over 925,000 cases disposed of in state courts in ten large counties that encompass major U.S. cities (Chicago, Cleveland, Honolulu, Houston, Indianapolis, Miami, Phoenix,  Pittsburgh, and San Jose).  The sample was constructed so that it would be representative of the nation based on geography. The NCSC also wanted a mix of general and limited jurisdiction courts.

Below is Table 6, which breaks down the judgment size for the 227,812 cases that resulted in judgments exceeding $0.

Judgment amounts

Remarkably, the median judgment was for $2,441, increasing to $5,595 for matters in general jurisdiction courts. These small sums make it very difficult for lawyers to ethically serve clients and also earn a living.  Thus, perhaps it is not surprising that only 24% of cases had the benefit of attorney representation on both sides of the dispute.  Stated in the alternative, 3/4 of cases involve a party that is going it alone without a lawyer.

The Landscape report acknowledges the sharp divergence between “Justice (with a capital J)” and what actually goes on in state court. The only way to fix it, the report concludes, is through “dramatic changes in court operations … to control costs, reduce delays, and improve litigant’s experiences with the civil justice system” (p. 38).  The problem of affordable legal solutions is so big that non-lawyer entrepreneurs are engineering their business models around Rules 5.4 and 5.5 to access the market opportunity.  In the mean time, the organized bar — judges, lawyers and legal educators — wonder why our numbers are falling.

Related Post:  A Measure of Overcapacity in Legal Education (002)

What’s next?  See Units of Analysis and Adopter Types (007)

Between 1971 and 2010, the average entering 1L class at an ABA-accredited law school was 246 students with a very narrow band of fluctuation. The high-water mark was 262 in 2010. Every year since 2012 has set a new historical low. As the chart above shows, the average has tumbled by a staggering 31%.

When I made these calculations, the decades-long stability of entering 1L class sizes grabbed my attention. Economic downturns, shifts in the legal landscape, and even the fallout of ’08 didn’t initially deter enrollment. Yet, what was changing in the background throughout this period was the total number of ABA-accredited law schools. Here is the data in ten-year increments:

  • 147 in 1971
  • 172 in 1981 (+24)
  • 176 in 1991 (+4)
  • 184 in 2001 (+8)
  • 201 in 2011. (+17)

The peak for ABA-accredited law schools was 204 in 2014, though mergers and closures have reduced the number back to 201 in 2016.

Imagine if a hotel, airline, or restaurant experienced a 31% decline in the number of paid customers.  The price competition for marketshare would be disastrous, leading to industry consolidation that would improve pricing power.  Higher education is different, however, in a way that complicates the analysis. Specifically:

  • The biggest cost-driver in higher ed is labor. Because of the extensive protections on professor tenure, most of these labor costs are fixed rather than variable costs.
  • Universities have little experience with shutdowns or reductions in force; further, such actions would likely create severe cultural turmoil.
  • Unlike in private industry, there is no well-established playbook for divesting, acquiring, and merging academic units across universities.

How does the overcapacity resolve itself?

This is conjecture on my part, but based on the analysis above, I think we will see a few more law school closures, but not nearly as many as the grim economics might suggest.  Why? Some law schools have responded to the applicant downturn by creating new non-JD programs. Law bears on virtually all realms of human activity – bringing about the opportunity to create one-year Masters degrees, which appear to have significant demand, particularly in large urban centers.  Other schools are specializing in online education. To the extent such programs are successful, they will be copied by other law schools in different regions.

Will the overcapacity be resolved by a boom in demand for legal services?

This is unlikely.  The sharp decline in law school applicants was due to extensive media and blogosphere coverage of the entry-level meltdown.  This commenced in 2010.   Markets are driven by information.  Over the last few years, the public information on the legal job market became much better.

Also, there is a strong argument to be made that the downturn in the entry level jobs is due to structural factors.  For example, we know from the data presented in Post 003 that for 20 years corporations have been moving lower-level work in-house. In most cases, the workforce has been law firm associates willing to step off partnership track. Profitability has remained high at law firms because the more complex work can’t be cost-effectively in-sourced. During the 2000s, corporate clients began exerting their market power by refusing to pay for junior associates. Not all clients applied pressure, but enough to create uncertainty and turmoil within law partnerships. The solution was to hire a lot fewer associates – something they could do because the mix of work had become more specialized and could be staffed by a mix of staff attorneys, of counsel, and non-equity partners. Because so many firms converged on this same solution, the BigLaw entry level labor market was cut in half.

If corporations are reluctant to buy associate time bundled together with skilled senior partners, the boom in demand for legal services will have to come from a different source.  I think such a demand exists, though legal education will have to retool to tap into it.  That is a topic for another day.

What’s next?  See How Much are Corporations In-Sourcing Legal Services (003)