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of Cornell Law School

 

Fall 2010

 

Volume 36, No 2

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Table of Contents  Featured Article

The Legal Economy

by Thomas Adcock | Illustration by Michael Austin

One pleasant evening in the fat days of 2006—when a mere handful of Cassandras spoke of an American home mortgage collapse that could metastasize into economic crisis, leading to frozen financial markets and, ultimately, worldwide recession—a genial Scottish attorney sat with a prosperous clique of colleagues over dinner in the mahogany-paneled main room of Mercers' Hall in London's Ironmonger Lane.

The attorney, Richard Susskind, set to wondering, “What ever happened to the mercers?” Thus the genesis of his latest book, titled with the provocative question, “The End of Lawyers?” Susskind reckoned the death of his own elite profession by reflecting on the birth of another—the year 1394 when Mercers’ Hall was established as splendid headquarters for lordly industrialists engaged in the diaphanous cloth and silk trade. Like the lawyers of today, the mercers, too, had established an enterprise that incorporated hierarchy and instincts for strategy, organiza­tion, and leadership refined by genteel education. They, too, had apprentices to support and cultivate. They, too, were confident that an army of eager tyros, fresh out of trade schools, would be more than matched by a flow of revenues in search of the best in prestigious product.

For centuries, the lords of the eponymous Mercers’ Hall constituted something akin to a priestly order: they showed themselves to be societally conscious and reliably altruistic, but the main purpose of fraternity was to protect the ways of their commercial kingdom, which they considered as immutable as the wheel.

Susskind, among other things a professor of law at London’s Gresham College and information technology advisor to the Lord Chief Justice of England, recollects his Mercers’ Hall moment in the opening pages of his book:

Perhaps a hundred years from now, maybe more or maybe much less, people might sit in the fine comfort of some vestige of today’s legal world (perhaps an ancient courtroom refurbished as a restaurant…) and, appropriately nourished, speculate in a leisurely manner about solicitors and barristers and advocates and attor­neys, in much the same way as I had been musing about various craftsmen of centuries past.

Who exactly were these people, these lawyers? What was their craft? They were involved with the law, of course, but what did they actually do? Why did we need them? How did they contribute? And why do we not have them any more?

It is Susskind’s grand theme—expressed most recently on these shores in September when he lectured students and educators at New York Law School—that survival of the legal industry, especially in the current recession, depends on its leaders realizing what the old mercers of Ironmonger Lane could not or would not acknowledge: the world turns, and its successful inhabitants must dance to the rhythms.

Shifting sands of national fortune—nowadays global fortune—is nothing new in the science of economics. What is always new and fresh, Susskind maintains, is the best set of reactions to the worst of economic tides.

In the legal context, he urges his readers to:


  • Consider which elements of their workload could be undertaken more quickly, more cheaply, more efficiently, or to a higher quality by technology or, even, outsourcing;
  • Acknowledge that the market will no longer tolerate big-firm lawyers with Manhattan-style billing fees to perform tasks that could be handled just as well by small firms with lower overhead or by solo practitioners with even lower overhead or by lawyers in India or the Philippines or simply by Google research or, even, by non-lawyers;
  • Understand that over the next decade the legal profession will be driven by two forces: a market pull toward the commoditization of legal services, and the pervasive development of new and “disruptive” legal technology.

But wherever Susskind’s lecture schedule takes him, and however much he promotes his long view, he understands that short-term matters are very much on the minds of his audience, if only because they are so urgently frightening. After all, he was in New York the very month that Hildebrandt Baker Robbins released the downbeat findings of its latest forecast for legal employment. As reported in American Lawyer:

  • Twenty-seven percent of the 65,000 non-partner positions at Am Law 200 firms could be eliminated or re-categorized as lower-paying jobs within seven years—which computes to as many as three lifetimes in the context of technological advancement;
  • According to Lisa Smith, managing director at Hildebrandt, some 17,500 of these big-firm, brisk-salaried jobs will disappear forever—well before 2020—due to legal process outsourcing, displacement by non-partnership track lawyers with staff attorneys, and the speedy rise of so-called Six Sigma corporate efficiency strategies accessible via Internet.

(Hildebrandt itself fell victim to the shifting economic landscape. A division of Thomson Reuters, Hildebrandt International was merged in early 2010 with its sister technology consultant company, Baker Robbins. Two hundred forty jobs were lost—permanently—in the corporate shuffle.)

As everyone knows and now dares to declare, citizens of the legal universe are not immune from the discouraging turns of an economy recuperating from “irrational exuberance,” as Alan Greenspan famously characterized the type of troubles from which our nation now seeks recovery. Nor do practicing attorneys, academics, or law students exist in a sunny world on high from a generally glum zeitgeist below.

That said, there are hopeful signs for this year of 2011:


  • Accustomed to a long stretch of prosperity, law firm partners and law school professionals seem to have been scared straight by the warnings of Susskind and his fellow seers. They acknowledge difficulties and uncertainties in the system they built over the mostly good years—a rare admission for lawyers, schooled as they are in the confident mien.

  • Having acknowledged systemic problems, practitioners and campus leaders have begun a restructuring of their respective realms.

  • The roughest patches may have been trod, and a sadder-but-wiser ethos may be seen as the best that is yet to come.

“Throwing your hands up in the air doesn’t seem to me the right way to go,” said Douglas S. Horowitz, a partner in the corporate practice area of Cahill Gordon & Reindel and a member of his firm’s hiring committee. “It is indeed possible that the worst is behind us, and this is reflected in the cautious optimism we see.”

But jobs available to law school graduates—even those from Cornell and other top tier campuses—are nothing as they were during the most recent flush years of 2006 and 2007. Optimism of whatever measure will not alter that leading indicator of an industry in flux, according to Horowitz, who forecasts more conservative employment prospects.

“When things are robust, there is a natural tendency to go in that direction,” said Horowitz. “Maybe we were too optimistic in the past, maybe too aggressive in our hiring.”

He added, “I can understand the frustrations of [unemployed] law students. But for the most part, the law schools do a decent job of going out of the way to try getting their students jobs, par­ticularly when times are tough. Students are pretty savvy, and they’re pretty good at communicating with one another. And, in fact, I think we’re nearing a good spot again. I say that knowing that law firms like my own, and enough of the others in New York, have taken steps to increase hiring.”

John R. DeRosa has lived through three economic slumps affecting the legal industry in his twenty years in the business, the last ten as assistant dean for student and career services at Cornell Law School. This includes the Great Recession, kicked off in late 2007 and inarguably the most serious financial calamity since the Great Depression of the 1930s.

Those persuaded by federal government statistics took heart in a September 2010 report from the National Bureau of Economic Research that found the recession to be over—as of June 2009. But the happy news was disputed by, among others, hundreds of thousands of credit-starved small business owners (according to Fridson Investment Advisors, a Manhattan hedge fund), some 140 of the nation’s largest corporations on the brink of loan default (according to an October 2010 Standard & Poor’s analysis) representing a two-fold increase since January, and nearly fifteen million Americans who were laid off their jobs or who cannot find full-time work that would cover living expenses (according to the U.S. Census Bureau).

Scattered and, it appears, dueling economic statistics focused on the general economy—Mark Twain famously spoke of “lies, damn lies, and statistics”—parallel conflicting assessments of how the recession has affected, and continues to affect, America’s legal universe.

DeRosa’s voice is soft, but he speaks candidly of hard times and has launched initiatives to lessen short-term pain and pave the way toward security in the long-term. With respect to the current hiring climate, he said, “I have never seen anything this bad or this deep. I have never seen a market turn from good to bad as quickly.”

He added, “Four or five years ago, you could come to a school like Cornell, and assuming you wanted one, it was almost certain you could land a good job in a large firm in New York or Boston. Now, firms are cutting their hiring by half, or in some cases by two-thirds.”

In 2008–09, when it became abundantly clear that the go-go economic culture of prior years was dead, for better or for worse, the career services office was segmented in two: equally staffed private- and public-sector job counseling. Further, DeRosa persuaded alumni practicing in both sectors to significantly increase their mentoring activities. At the same time, on-campus counseling put greater emphases on employment opportunities in more and more cities beyond the usual top choices—New York, Boston, Chicago, San Francisco, and Washington, D.C.—and guided students toward wiser choices in personal finance.

There is “guarded optimism” about the current economy, recession or no, according to the results of a law firm straw poll conducted by the New York State Bar Association’s Task Force on the Future of the Legal Profession.

The survey was made during a September 27 meeting in Manhattan, attended by managing partners from twenty-one law firms throughout the state—firms ranging in size from boutiques of twelve or fewer attorneys to offices as large as the meeting host, Patterson Belknap Webb & Tyler.

Still, there is what might be called guarded pessimism on the part of some—Lauren J. Wachtler, for instance, who chairs the State Bar’s Committee on Lawyers in Transition. The committee name offers a gentler construct of the situation for those between jobs, as it were.

“In the foreseeable future, I don’t see that the situation . . . will be getting better, and I’m generally an optimist,” said Wachtler, a commercial litigation partner in the New York office of Mitchell Silberberg & Knupp who is scheduled to take part in a trial advocacy seminar at Cornell Law School in March 2011. “We’ve had just a whole bunch of horrible experiences in the last three years or so, what with layoffs and furloughs,” she said.

“I mean, what do you say on your résumé?” she asked, quoting a frequent question before her committee. “How do you say you were laid off but others weren’t?”

Luckily, perhaps, Wachtler said there is newfound sensitivity on the part of employers to the plight of attorneys on the wrong end of a budget axe.

“Now you can just come out with the straightforward explanation—‘I was laid off,’” she said. “Employers know it’s not your fault, that it’s completely random.”

Stewart J. Schwab, the Allan R. Tessler Dean and Professor of Law, acknowledges that the classes of 2010 and 2011—students who began their academic careers when all was believed to be well, or at least controllable by Wall Street whizbangs—live with the dread of unemployment. On the topic, he told the New York Law Journal, “There is no shame in facing your fears. You shouldn’t ignore them, but you shouldn’t be consumed by them. With the market the way it is, you should recognize that it’s not about you, it’s about the system.”

The system, in terms of the nation’s legal academy, operates in stark contrast to the medical establishment. In 2006, the last year of measurement, the American Medical College Application Service placed 17,000 students in classroom spots limited by the American Medical Association. That compares with 47,600 students processed in 2008 by the Law School Admission Council who were admitted to campuses approved by the American Bar Association, which has no limit on the number of law schools in the country.

While law firm hiring is undisputedly down, there remain plenty of jobs for doctors.

The ABA nose-count of U.S. attorneys stands today at 1,100,000. Is that too many?

“It’s a good question,” answered Deborah A. Skakel ‘83, a litigation partner at Dickstein Shapiro. “Ironically, Cornell just had its largest application pool ever—a fifty percent increase.”

Skakel, like her vested counterparts at other New York firms, reflects confidence of better years soon to come, along with a chastened realization that the system ought to change—and that to some degree it already has.

She, like others, uses the phrase “new normal” as a catchall reference for large-scale change that has been noted by legal publications for the past three years: an industry-wide epidemic of reduced or delayed hiring, furloughs, salary cutbacks, major and minor office expense cutbacks, and reductions in the partnership ranks.

“Economic conditions are improving, but not significantly and a lot more slowly than we’d hoped,” said Skakel of both the general and legal economies. “But I do hope that we’ve bottomed out.”

Her husband and fellow Cornell Law graduate is Joel A. Chernov ‘83, of counsel at Constantine Cannon. He, too, cites a “new normal for law firms that requires both the firm and individual lawyers to be smarter about how they run their practices.”

In the small change department: Kitchens of midtown Manhattan firms no longer display the free, fresh-baked goodies of better days; in the more desperate cases, they have become office storage space. Cable television service and newspaper subscrip­tions are increasingly being canceled at such firms, associates and even partners accustomed to desk publications are being directed to the office library, and catered lunches that could feed a beefy crew of circus roustabouts are history.

 “It now seems as if everyone is finding more efficient ways to operate,” said Chernov, to which he added, “Outsourcing being one of them.”

James Leipold, executive director of the Washington, D.C.-based National Association for Law Placement, said legal outsourcing first hit his radar in 2006. At that time, offshore bucket shops as well as more luxe professional warrens—particularly those in India—were well-established alternative sites for back office tasks in industries such as banking and communications.

In an interview with the news website Metrolic, David B. Wilkins, director of the legal professional program at Harvard University Law School, said of legal outsourcing, “This is no accident. This is a major historical movement. Customers are increasing pressure on companies to reduce costs and increase efficiency. Seeing the way companies were already accustomed to out­sourcing services, such as IT, to India, legal services are only the next step.”

To which Leipold added, “You’re now seeing law firm clients directly sending legal work direct to India.”

The outsourcing of work that was typically performed by junior associates—document review, research, routine drafting—exac­erbates the employment picture for law school graduates looking to big-firm careers for a pair of good reasons: practical training that their alma maters are not in the business of providing and high salaries needed to retire home mortgage-size tuition debts.

“I can remember when I first heard a student tell me he was $100,000 in debt,” said DeRosa. “Then that became commonplace. And then it became $200,000.”

For every hundred thousand, he said, the payback rule of thumb is a conservative $1,000 monthly over ten years. At the topmost, a monthly $3,000 for tuition debt retirement on the ten-year plan may be affordable at the highest current, albeit flat, big-firm salary of $160,000, or about $13,000 per month before taxes. But the legal world’s “bimodal” salary structure—DeRosa defines it as starting pay of $55,000 to $60,000 for most, with the $160,000 figure available to fewer and fewer, and virtually nothing in between—cannot forever support tuition debt load.

Referencing one of the root causes of the Great Recession, DeRosa said of tuition debt, “The situation is not unlike the housing bubble—debt-fueled consumption based on unrealistic return.”

Of America’s long slide into its greatest financial crisis since the days of Herbert Hoover and Franklin Roosevelt, he added, “Over the past few decades, we developed a culture where consumption was done on a somewhat blind basis. Some students literally have no idea how much money they’ve borrowed. The irony is they were infants when the irrationality began.”

Again, are there too many lawyers? Leipold has committed a lot of thought to the troubling question.

“The American legal education is still an extraordinary creden­tial,” he said. “It serves people very well. Almost every other country looks to emulate the American system.

“Having said that, every law school has to look hard at the value provided to its graduates. It costs a lot of money to go to law school, and salaries aren’t really that high. Right now, only about half the nation’s graduates know a net positive investment.”

Leipold paused. “A lot of students make a decision to go to law school in a way that’s not really well-informed,” he said. For example, “Many apply to the most highly rated school they think they can get into, as opposed to the school where they can be highly rated.”

Still, he had not clearly answered the question.

“There is so much need for lawyers, there are so many Americans underserved by the law,” he said. “There are still lots of ways to be a lawyer.”

One way is Common Law, a uniquely structured nonprofit clinic in Queens created by three graduates from low-tuition City University of New York School of Law, class of 2007: Karen Gargamelli, Jay Kim, and Michael Wang. None of them applied anywhere for conventional lawyer jobs.

“The idea came to us at the beginning of the recession, when the home foreclosure crisis first hit,” said Gargamelli. “We sat around a kitchen table in Queens and figured out how to set up Common Law.”

At the moment, the clinic is focused on three areas: helping a group of Bronx homeowners threatened with foreclosure; appearing before New York City’s Environmental Control Board as counsel for Vamos Unidos, an association of pushcart vendors seeking more permits, lower rents, and less harassment from police officers; and litigating in Housing Court on behalf of the Committee Against Anti-Asian Violence, whose Chinatown members fight eviction proceedings from poor neighborhoods undergoing gentrification.

“We didn’t want to use the traditional charity model. It wasn’t radical enough,” said Gargamelli. The typical nonprofit poverty firm, she said, is “set up on the corporate model, only they compete for grant money—from corporations.”

Instead, Common Law collects monthly retainers from grass­roots community nonprofits and performs those legal services expressly required by the community groups. Pushcart vendors, for instance, do not look to Gargamelli or her colleagues for representation in family court matters.

Narrowly defined as their briefs may be, said Gargamelli, “We have a whole lot of work.”

And silk-stocking as her own East Side Manhattan commercial litigation trade may be, Lauren J. Wachtler said of departures from lucrative practice, “I think in the future we’re going to be seeing more and more young lawyers showing us what this profession is really all about.”

In October 2010, Karen V. Comstock traveled from Ithaca to Washington, D.C., to receive the “Outstanding Law School Professional Award,” given by Equal Justice Works, the national nonprofit organization founded in 1986 for the purpose of representing low-income clients in communities where lawyers are few and far between. The annual award recognizes that law school faculty or staff member who demonstrates “outstanding support and innovative approaches to public interest law.”

Comstock joined the career services staff at Cornell Law in 1994 and became assistant dean for public service in 2004, during the second year of a recession that was little more than a blip considering what lay ahead. Still, she arrived on campus at a time when jobs in public interest law—government agencies, nonprofit organizations, or small firms in service to poor clientele—were at a premium compared to the 1970s and ‘80s.

“A tight market has gotten tighter,” said Comstock, who cites the bad economy and financial shenanigans of the Bernie Madoff variety for “dramatically” reducing both capital and interest revenues in the nonprofit sector.

Considering the inherent imbalances in justice American-style—litigation between bank-owned credit card companies versus unemployed debtors in default, or prosecutors versus a growing criminal defendant class born with no viable future or hard-working middle-class retirees slicked out of their pensions—it is hardly surprising that Comstock is quick with a firm answer of “No” when asked if there are too many lawyers.

Thus does Comstock, too, increasingly press Cornell Law alumni to mentor students who intend to show “what this profession is really all about,” as Lauren Wachtler puts it. In addition, she has worked with Schwab and his budget staffers to carve out new and expanded financial support for her students.

For the Class of 2010, for example, the dean’s office created twelve new post-graduate fellowships to bridge the gap between graduation and employment in public interest law. Each fellowship of $10,000 allows Cornell Law graduates to volunteer service to a nonprofit agency, thereby gaining valuable résumé credit. As of November 2010, two of those twelve fellows have landed full-time job offers.

Paralleling the twelve new bridge fellowships were another ten grants, given by Cornell Law’s Legal Information Institute. Now in the second year of this initiative, the institute bestowed grants of $10,000 each to allow students three months of research work for nonprofits during the fall of 2010.

What Comstock calls her “less flashy” responsibilities to students includes “working with students to figure out their situation, helping them write the perfect cover letter, rounding up alumni to help them interview effectively, and getting them to broaden their perspectives.”

Comstock elaborated on the latter point. “There are more jobs out there than maybe students realize, or had looked at before. Going home to a less-competitive market, for instance, can be quite good for a graduate of Cornell Law School.”

One aspect of the legal profession, as presently constituted, unapt to change is what some might term a matter of integrity.

Much was made at the Fordham Law symposium of the paper presented by Harvard Law professor David B. Wilkins, titled “Teams of Rivals? Toward a New Model of the Corporate Attorney-Client Relationship.” Of the Wall Street criminal shenanigans that brought on the Great Recession, Wilkins wrote, “[I]t is only a matter of time before the inside and outside lawyers who represent the banks and other financial institutions we are currently bailing out will be called upon to take their turn in the dock.”
Cooler heads prevailed in the debate surrounding the Wilkins notion. For, as the Fordham Law Review reported:

Even if lawyers did not play a leading role in the economic downturn, some may have been complicit, advising financial institutions on the design of credit swap securitizations and complex derivatives and counseling regulatory agencies on their overseeing duties.

We may, however, never find out the extent to which lawyers were actually involved in bringing about and failing to mitigate aspects of the Great Recession because, as [New York University School of Law professor and legal ethics expert] Stephen Gillers has pointed out, the doctrines of confidentiality and privacy significantly curtail access to such information.


California attorney and ex-journalist Michael Stern compares Professor Susskind’s recollected demise of the ancient mercers of Ironmonger Lane to contemporary, shortsighted newspaper publishers of his acquaintance—as a parallel to those in the legal cosmos who would carry on the hidebound impulse and flout economic change. Stern, a partner in Cooley Godward Kronish’s technology transactions group in Palo Alto, wrote in a July 2009 essay for the website AmLaw Daily:

When I started at The Washington Post in 1970, afternoon dailies around the country were folding under the impact of the TV evening news. …The big question was whether newspapers could remain “relevant” and survive as…the daily agenda for the public sphere. Everyone worried but no one acted, given that newsroom margins were still running at 20 percent or better. Why not let the cash cow just keep mooing? Now, the Internet has finished what TV started. The tipping point for the demise of the urban daily has arrived, and papers are disappearing at a rate that is accelerating like a mudslide in a bad Los Angeles rainy season.

While its consequences are as yet largely unfelt, the tipping point [for law firms] inexorably approaches. Like global warming, the accelerating commoditization of legal work is here, is real, and won’t go away. …[We] need to understand [the dynamics of change], separate out the fatuous from the feasible, and get on with either inventing a future we’re part of or risking being left out of the alternative.

Stern closed his essay with an aphorism from William Gibson, the science fiction writer: “The future has already arrived. It’s just not evenly distributed yet.”

 “One thing was clear from [our] dynamic and lively discussion,” said New York State Bar president Stephen P. Younger, speaking of September’s pow-wow at Patterson Belknap, where he is a commercial litigation partner. “Whether from firms large or small, [attendees] agreed that the profession is ready for permanent, positive changes that will allow us to better serve the modern client while shaping a profession that is satisfying to today’s lawyers and appealing to future lawyers.”

Among the attendees was ABA President Stephen N. Zack, administrative partner at Florida-based Boies, Schiller & Flexner. Zack predicted, “The practice of law will change more in the next ten years than over the past 200.”

The poll reported what it characterized as evidence of change:


  • All twenty-one managing partners said their firms had experimented with “something other” than the billable hours system, with six of the respondents reporting “regular” use of alternative billing methods;

  • More than half said their clients complain about having to pay for the work of first- or second-year associates, and two of the twenty-one reported clients who absolutely refuse to pay for junior associates;

  • Eighteen of the firms offer flexible policies on hours and job-sharing;

  • Sixty-six percent of the firms hired fewer attorneys in 2010 than in prior years, with half expecting to hire a reduced number in 2011.

Far more robust sentiments emerged from a 2009 symposium held at Fordham University School of Law—The Economic Downturn and the Legal Profession—in which the ongoing recession and the Great Depression of the 1930s were frequently linked.

From a foreword to the symposium report, published in the May 2010 issue of the Fordham Law Review:

[T]he past experience of the profession [during President Roosevelt’s New Deal of the 1930s] suggests that economic stress may cause intraprofessional competition and tension, adding to increased external competition in the market for legal services. Intraprofessional strife . . . has the potential to bring about mobility within the profession, unsettle hierarchies, threaten established elites, and open the door for the rise of alternative elite structures.

New Deal lawyers were mostly outsiders, a ‘coalition of minorities—social, ethnic, regional, and intellectual,’ who flocked to Washington, D.C., ‘with their hair ablaze,’ seeking social change for the people and professional change for themselves. The New Deal thus constituted an opportunity for the formation of a counter-elite of lawyers capable of challenging the dominant position of large Wall Street law firms . . .


Consequently, studies of the fate of the profession in the aftermath of the Great Recession [from 2007 onward] must be sensitive to the possibility that the struggles and even decline of some segments of the bar may open the door and allow other constituencies within the profession to rise.

THOMAS ADCOCK is a Manhattan-based independent journalist. A former staff writer and editor at the New York Law Journal, his freelance articles have appeared in U.S., Canadian, European, and Mexican websites and print publications, including Canadian Lawyer Magazine, The New York Times, L’herald de Paris, Frankfurter Allgemeine Zeitung, and the Guadalajara Reporter.

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