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Value of a JD and the Legal Market Structure

By Doug Cornelius and Ron Friedmann, December 2008

 About the authors:

Doug Cornelius is the Chief Compliance Officer of private equity real estate company.  He was previously a senior real estate associate and knowledge management lawyer at Goodwin Procter.  Doug blogs on KM and social media at KMSpace and, as of 2009, at Compliance Building; more details at DougCornelius.com

 A note about this exchange:

In late November 2008, Ron wrote a blog post about the value of a law degree in response to an article on that topic.  Doug wrote a public comment.  Ron and Doug then exchanged several rounds of private e-mail messages expanding on the post and comment themes.  We thought many readers of our respective blogs might find this exchange interesting.   The text below reproduces the post, comment, and e-mail exchange (in chronological order) with a bit of copy editing for readability.

 

Ron

[Original Blog Post – JD as Job Credential for non-Law Jobs: Mistaking Cause and Effect? ]

As a non-practicing lawyer, I answer yes to question posed by the article Is the Versatility of a Law Degree Just a Myth? (The National Law Journal, 1 Dec 2008)

The money quote:

“Law schools and placement professionals frequently tout the versatility of a law degree as a path to alternative careers. But even in good economic times, the advantage of a juris doctor degree in landing a job in another field may well be overblown.”

I think a JD is not a useful credential for non-law jobs. When I graduated NYU Law in 1986, I worked as a strategy consultant for Bain & Co. My pre-law school job experience got me the job; the JD got me the “consultant” title, the same as MBAs (in contrast to “associate consultant” for BAs and, in my class, one MD).

I started law school uncertain if I would practice. I heard many lawyers and law placement professionals say how flexible a JD and law practice experience is. I found that with my prior business experience, a few employers (e.g., investment banks) would consider my JD as the equivalent of an MBA. I’ve seen little evidence that the market has changed since then.

Back then, I found many former practicing lawyers with fantastic, interesting jobs. I asked how they ended up not practicing. All had practiced – many for years – and for most, moving to a different career was largely a matter of chance.

That many lawyers end up with interesting non-law jobs does not mean a JD is a path to those jobs or a “flexible” degree. It only means that some lawyers, after they practice some years, can change careers.

 

Doug

[Public comment to blog post] 

Of course one could argue that a JD does not qualify you to practice law either. There are lots of complaints about first year associates being billed at high rates when they have very limited ability to understand and address the issues. Many career paralegals at law firms are more valuable than junior associates.

 

Ron

My blood boils when I think about legal academy.   Beyond your point, one of my former practicing lawyer colleagues worked on complex software license agreements. I used to ask him a couple of times a year to remind me why he needed to go to law school to do that or what he learned there that helped.  He just smiled.  The point is, there was little connection between his training and his work as a lawyer. 

 

Doug

My new position is truly at the intersection at law and business.  That is what originally caught my eye about your post.  It made think back to how unprepared I was for practicing in a big law firm fresh out of law school. There is an enormous apprentice period to translate your legal education into real lawyer skills. I think that is one of the reasons there is such attrition at big law firms.

 Now with lots of experience as a lawyer and an administrator/internal consultant, I am learning a whole new area once again. But the ability to do the job is based on practical experience not the law school education.

 Big law firms will continue with the fallacy that they should be hiring future partners based on one year of law school and law schools will continue with the fallacy that they are teaching people how to be lawyers.

 

Ron

Interesting and realistic assessment.  

I wonder if the apprenticeship you suggest is even to “translate your legal education into real lawyer skills”.  It may be that the apprenticeship is primarily to learn a set of skills barely related to what law schools teach. 

There’s an argument that law school training is neither necessary nor sufficient for much of law practice.  I loved my law school education but I feel the only practical skills I learned were reading cases and constructing appellate arguments.  Ok, perhaps a bit simplistic, but the whole transactional and regulatory side of law is served by only a couple of law school classes.  I know this is heresy to many; I wish I had good data to prove this.  Of course, if the burden of proof were shifted to proponents of the current approach, I’m not sure how well they would acquit themselves. 

Perhaps mutual fallacy serves everyone needs and thus self-perpetuates. Another possible example: GCs whine about cost, law firms provide discounts from exorbitant rates, everyone is happy but outcomes have not really changed. 

Cynical perhaps but “show me the data” to prove me wrong.

 

Doug

I see a couple of related things appearing here. 

I think most transactional associates would agree that law school does not address this side of practice very well. The case study method lends itself better to a litigation practice and especially for junior litigation associates. (Here is an issue. Prepare a memo or brief on the topic.) My law school lacked any meaningful transactional learning. I am not sure if that has changed. I would certainly advocate that law school need to do a better job of teaching a transactional practice. I would need to do some research so see if that is still a problem. 

Every junior lawyer I have talked to is shell-shocked the first few months at a law firm. But is that really different from other professions? Doctors have a lengthy apprenticeship program (for very little pay). Of course if they make a mistake they could kill someone. Does business school really train you to enter the workforce? I think there is a problem here. But I am not sure it is a problem unique to lawyers. Even with their lengthy apprenticeship doctors are overwhelmed as they are given more responsibility. For example, do not get during the 4th of July. Doctors are assigned and promoted on July 1. So you may be one of the first patients this doctor is seeing by themselves on July 4. 

I think the problem with legal field is the pay given to the new associates and the fees firm charge for these associates. Clients see this one-to-one correlation of increases to associate pay as an increase in bills. This is largely true. The value proposition is taken out of the equation. 

We do not complain about the increasing pay of doctors because we the consumer do not pay their salaries, the insurance companies do. They beat down fees and expect discounts. They set rates for procedures. Doctors have figured out how to procedures correctly and efficiently. Gall bladder removal costs $____. Sometimes there are complications and you deal with them if they happen. 

As you point out, another issue is the consumer of the legal services not demanding changes. GCs go back with a discount and accept it. There are few companies trying to change the way they buy legal services. In part because they do not have the volume. 

In volume legal services you do see some standardization. The legal work for originating mortgage loans often had flat rates. In part because the borrower, who pays the lenders legal fees, demanded it.

  

Ron

I’ll separate my reply into two distinct parts: (1) training and pay and (2) market structure overall.

 TRAINING AND PAY

 You raise good points about doctor training but I draw different conclusions.  When medical residents are thrown into the deep end of the pool in July, they are paid little relative to their long term compensation.

 Plus, there are many other docs and medical professionals in the hospital who form both a training team and safety net.  Yes, the July transition issue is a problem, but medical residency is typically 4+ years, sometimes followed by Fellowships.  Junior residents swim in the deep end but mechanisms exist to make sure they don’t drown. And arguably, their relatively low pay reflects that they are still learning.

 Contrast that to BigLaw new associates.  Arriving with little practical training from law school, they start work – and high billing rates – immediately.  In theory, they receive training from more senior lawyers but in practice, they have to work very hard, on their own often, to keep their heads above water.  All the while, they earn a full salary completely in line with their long term compensation path – there is no “training hit” to compensation.

This might not matter but for the billable hour.  Were legal services value based, then it would not matter that first year associates were in the deep end without a life preserver. 

That’s not how it works in the business world.  My own business experiences are probably representative of many professionals.  After college, I worked as an econometrician + data analyst cum consultant.  After law school, I was a strategy consultant.  Mid-career, I went from a law firm practice support to a software company.  In all three instances, I had to learn a lot on the job.  In none, however, did the organization or customers value my work according to hours I spent.  Where prices are based on value, customers don’t have to worry about how workers spend time.  Yes, you are right that in most endeavors, we learn on the job. 

But I think law is unusual (unique?) in charging clients – at least historically – for that on the job learning.

MARKET STRUCTURE

Your comment about third parties paying doctors is crucial.  In health care, market forces control doctor compensation.  Of course, we see huge problems with health care cost so I am not sure that is a model to emulate.

Looking at the legal market, in contrast, it’s hard to see the economic forces at work. Law schools, which have a legal monopoly on training lawyers, pay little attention to real-world needs and considerations.  As you point out, we learn appellate law and little else (where, for example, are the classes on managing e-discovery?).  Law schools happily require 3 years for the revenue it raises when we all know 2 years would suffice.

BigLaw consumers of law grads are happy because the law schools serve as screening system and, at least until recently, BigLaw could make huge profits from the on-job training (such as it is – one might call the modal experience “learning from wasting time because there is no guidance available”) they provided junior associates. If I were cynical, I might add that BigLaw is even happy about the unnecessary third year because that puts many grads in such deep debt that they have to spend more time at BigLaw to pay off debt before making their escape.

Consumers of BigLaw services, the general counsels, pay for all this.  Yet they are happy because they get to work with old friends while whining about costs without really addressing any of the underlying reasons that costs have escalated so much. And since they never learned anything about management in law school, they prefer to focus on case strategy and legal tactics and lack the know-how to control costs other than to bargain down list price a bit.

Earlier this year I wrote a satirical blog post called A Modest Proposal to Regulate Large Law Firms.  Many readers took it seriously and chided the idea of regulation and said it was not the solution.  That anyone could even respond seriously to the idea of regulating BigLaw suggests to me that, at minimum, they see structural problems in the market.

CONCLUSION

It’s not clear to me where the legal market goes.  Many have predicted the demise of BigLaw.  Some say we will see unbundling and a range of alternatives to BigLaw.  I am chastened from my experience of predicting big market changes starting in 1990 only to see more of the same.  Until purchasers of BigLaw fundamentally change how they buy and what they expect, the market will continue as is. 

 

Doug

 I do not see the demise of big law. I see the demise of mid-sized law. As the big law firms continue to grow, they are getting savvier about developing their brand.  Are you more fearful of getting sued by someone who engaged Skadden Arps or your local mid-sized law firm? 

Law school brands are very important. How do you view a Harvard Law School graduate as opposed to a Suffolk Law School graduate? 

The pay side is relatively new. When I graduated in 1995 there was a spread in pays scales among big law firms. The big NYC firms were paying $95k and Goodwin was paying $67k. We recognized the difference in work, hours and expectations. 

At some point, the big law firms decided to take pay off the table so that starting salaries at the biggest law firms was flat. (Have you seen the studies of the Cravath system?: http://www.elsblog.org/the_empirical_legal_studi/2008/07/how-the-cravath.html ) The increasing pay scale has only increased the demand for law students to plunge into the luxurious pay system and relative stability (at least for a few years) of big law. As you point out, you get paid really well to learn on the job. 

You are absolutely correct that the challenge comes from the lack of inaction by general counsel. I see them asking for fee discounts, but not different ways of paying for services. Law firms have gotten used to this method and so have the clients. 

Hourly billing is not going away. We will continue to see erosion in some areas that lend themselves better to non-hourly billing. I can see litigation being broken into chunks with different billing. Perhaps a flat rate to get to a motion to dismiss and a different rate structure for discovery, depositions and trial. I see some transactional work moving to fixed rates. 

Big law profits from inefficiency so there is little incentive for them to change their ways. 

It will be interesting to see what comes out of the UK with Legal Services Act.

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