Pop goes the law



The Law School Admission Council recently reported that applications were heading toward a 30-year low, reflecting, as a New York Times article put it, \”increased concern over soaring tuition, crushing student debt, and diminishing prospects of lucrative employment upon graduation.\” Since 2004 the number of law-school applicants has dropped from almost 100,000 to 54,000.

Good thing, too. That loud pop you\’re hearing is the bursting of the law bubble—firms, schools, and disillusioned lawyers paying for decades of greed and grandiosity. The bubble grew from a combination of U.S. News-driven ranking mania, law schools\’ insatiable hunger for growth, and huge law firms\’ obsession with profit above all else. Like the dot-com, real-estate, and financial bubbles that preceded it, the law bubble is bursting painfully. But now is the time to consider the causes, take steps to soften the impact, and figure out how to keep it from happening again.

The popular explanation for the recent application plummet is that information about the profession\’s darker side, including the recession\’s exacerbation of the attorney glut, has finally started reaching prospective law students. Let\’s hope so. Marginal candidates and those choosing law school by default might be opting out, and the law-school market may finally be heading toward self-correction.

Still, the bubble has been huge, and the correction will need to be, too. There were 68,000 applicants to the fall of 2012 entering class, while the total number of new, full-time jobs requiring a law degree is 25,000 a year and falling. The onset of the recession drove more students to consider law school as a place to wait out the economic collapse. The number of June 2009 and 2010 admissions tests had surged to almost 33,000. To put that in historical perspective, the June 1987 testing session drew just under 19,000 students. The reduction in the number of LSAT takers in the summer of 2011 to 27,000 merely brought it back to 2008 levels.

For full-time, long-term jobs that require passing the bar, only a dozen law schools out of 200 reported employment rates exceeding 80 percent nine months after graduation. Considering the investment in money, time, and brainpower that law school requires (not to mention the promises that law schools make to prospective students), something\’s gotta give, and maybe it finally has.

When I applied to law school, in 1975, the nation was recovering from a severe and prolonged recession. Even so, I always assumed that I\’d be able to make a comfortable living with a law degree, although I didn\’t think practicing law would make me rich.

Three and a half years later, I became a new associate at one of the nation\’s largest law firms, Kirkland & Ellis. It had about 150 lawyers in two offices, Chicago and Washington. My annual salary was $25,000, which is $80,000 in 2012 dollars. There were rumors that some partners in large firms earned as much as 10 or 15 times that amount; by any measure, that was and is a lot of money.

The unlikely prospect of amassing great wealth wasn\’t what attracted me to the law. Rather, I saw it as a prestigious profession whose practitioners enjoyed personally satisfying careers in which they provided others with advice, judgment, and a unique set of skills. Mentors at my first and only law firm taught me to focus on a single result: high-quality work for clients. If I accomplished that goal, everything else would take care of itself.

No longer. Along with their degrees and dubious job prospects, 85 percent of 2010 graduates from American Bar Association-accredited law schools carried an average debt load of almost $100,000. Average law-school debt for the Class of 2011 broke six figures, and that number has been growing in tandem with unemployment rates for new graduates. Even if a career in law turns out to be the right path, the financial burden can be staggering. If the law ends up being the wrong path, then debt becomes a lifelong Sisyphean burden.

If prospective lawyers allow themselves to be dazzled by headlines about the wealthiest attorneys, like the partner who recently left one big firm to join another where he\’d earn a reported $5-million a year, they\’re making a mistake. Nine months after graduation, members of the law-school Class of 2009 fortunate enough to have any full-time job had a median salary of $72,000, comparable in buying power to the $50,000 median salary for new lawyers in 1990.

That may not sound bad, but even that number is misleadingly high, as it masks a skewed income distribution. Each year 10- to 15-percent of graduates get jobs in big law firms, where the starting salary can be as high as $160,000. But those firms constitute only a tiny, and shrinking, slice of the profession.

Although lawyers working in law firms of more than 160 lawyers account for only 15 percent of practicing attorneys today, their influence is far greater than their numbers. For example, almost all law schools lure prospective students into their J.D. programs with promotional materials that cite six-figure starting salaries for new graduates, even though only some large law firms pay that kind of money, and most schools have little chance of placing any of their graduates in those jobs.

The median starting salary for lawyers graduating in 2011 was $60,000 (a 17-percent drop compared with the $72,000 median starting salary for the class of 2009). Even those numbers overstate new graduates\’ financial reality for another reason: They\’re based solely on salary information for the 65 percent of graduates reported to be working full time in a position lasting at least a year.

At a moment when psychologists, sociologists, and even national leaders are beginning to recognize the importance of well-being and morale to health, worker productivity, and society as a whole, lawyers suffer from disproportionately high rates of depression, alcoholism, and substance abuse. Recent surveys report that six out of 10 lawyers who have been practicing for 10 years or more say they advise young people to avoid law school. As new lawyers scramble for spots in the nation\’s premier firms, some of those venerable legal establishments are failing, and many others have more problems than they realize or are willing to admit.

The lawyer bubble began to form when vital institutions—law schools and the American Bar Association—abdicated their responsibilities in favor of misguided metrics and insularity. Law-school deans are supposed to be the profession\’s gatekeepers, but far too many have ceded independent judgment in an effort to satisfy the mindless criteria underlying law-school rankings, especially U.S. News & World Report\’s annual list.

Those rankings didn\’t exist until 1987; now they rule the law-school world for both students and administrators. Flawed methodology infects each category—quality assessment, selectivity, placement, and resources. But with the acquiescence of the ABA, deans inflate their schools\’ rankings with incomplete and misleading information and encourage prospective students to pursue dreams that, for most of them, are impossible, all in the name of increasing applications, enrollments, and tuition revenues.

In the 1990s, the U.S. News law-school rankings began to gain in popularity and became a key element in the competition for new students. Meanwhile, as applications to first-year classes rose generally, universities increasingly saw law schools as profit centers worth expanding. Recently the Maryland Department of Legislative Services concluded that the University of Baltimore School of Law sent 31 percent of its 2010 revenue back into the general university budget. For private schools, these data are difficult to uncover, but the University of Baltimore report corroborates a widely held view that universities in general impose a \”tax\” amounting to between 20 and 25 percent of their law schools\’ gross revenues.

When U.S. News published its first law-school rankings, in 1987, total law-school enrollment in the 175 ABA-accredited institutions had remained about 120,000 for a decade. Since then, 25 more law schools have come on line, and enrollments have steadily risen, to more than 145,000. By 2010, there were more than 1.2 million lawyers in the United States—almost four for every 1,000 citizens. In Britain, the comparable number is about 2.5; in Germany, it\’s slightly more than 1.5.

Quality assessment is the biggest contributor to a law school\’s U.S. News ranking, accounting for 40 percent of its total score. The category itself is a misnomer because it doesn\’t reflect quality at all. Rather, using statistically suspect samples of scholars and practicing lawyers, it\’s a superficial and unreliable assessment of a school\’s reputation.

Twenty-five percent of every law school\’s total score comes from responses to a survey that the magazine sends each year to four people at every ABA-accredited law school: the dean, the dean of academic affairs, the chair of faculty appointments, and the most recently tenured faculty member. The four receive a list of the country\’s accredited law schools, along with a request to rate each—all 195 in 2012—on a scale of 1 to 5. The survey doesn\’t ask those responding if they\’ve ever set foot on the campuses, met any of the faculty, or have any familiarity with the schools they\’re reviewing. Respondents have a \”don\’t know\” option, but U.S. News doesn\’t disclose how many people use it for particular schools on the list. After all, such meaningful information would undermine the reported response rate, which was 66 percent for the rankings published in 2011 and 63 percent for 2012.

The rest of the quality-assessment component—accounting for 15 percent of the total U.S. News score—comes from a similar 1-to-5 survey that goes to unnamed \”legal professionals, including the hiring partners of law firms, state attorneys general, and selected federal and state judges.\” The response rate is abysmal—14 percent for the 2011 rankings, for example, and 12 percent for 2012. Here again, the extent to which respondents replied \”don\’t know\” isn\’t disclosed. And whether someone returning the survey actually knows anything about any law school that he or she rates is irrelevant. As a matter of statistical procedure, the entire sampling process suffers from numerous deficiencies.

John Sexton, former dean of the New York University School of Law and now the university\’s president, suggested that if the recipients of the survey \”were asked about Princeton Law School, it would appear in the top 20. But it doesn\’t exist.\” Thomas E. Brennan, who founded the Thomas M. Cooley Law School in 1972, when he was a Michigan Supreme Court justice, proved Sexton right. Before 2000, Brennan sent a law-school survey to 100 of his fellow lawyers. His list included Harvard, Yale, and the University of Michigan at Ann Arbor, along with lesser-known schools, such as John Marshall and Thomas M. Cooley. \”As I recall, they ranked Penn State\’s law school right about in the middle of the pack,\” Brennan said later. \”Maybe fifth among the 10 schools listed.\” At the time, Penn State didn\’t have a law school.

The law-school business model permits a perverse market response—raising tuition in the face of declining demand for lawyers—for two reasons. Student demand for law school still exceeds supply, and students have little difficulty borrowing whatever they need to cover the cost of a degree. For decades, lenders faced no risk of default, because the federal government guaranteed the loans. Then, in 2008, out of concern that the credit-market freeze would leave insufficient financing for student loans, the government essentially took over most such lending directly.

Meanwhile, revisions in the bankruptcy laws essentially bar students from ever discharging public or private educational debt. In its totality, the current regime insulates law schools from the problem of graduates who can\’t find jobs needed to repay their student loans, while giving schools no incentive to control tuition costs. Of the various parties involved—students, government, private lenders, and law schools—only the students and, to a growing extent under new, income-based repayment programs, the federal treasury bear any significant risk that such borrowing might turn out to have been imprudent. Today such debt almost always survives a young lawyer\’s bankruptcy filing.

The cumulative impact of these policies is becoming clearer. Vulnerable young people become convinced that anyone can succeed as a lawyer. Because much of their undergraduate audience consists of liberal-arts majors who can\’t decide what to do next, law schools appear to be an attractive default option. Add a universal human affliction—confirmation bias—and the fit becomes too perfect: Law schools tell prospective students what they want to hear, and sure enough, they hear it. The U.S. News rankings then tell them which schools to attend. And easy money for student loans fuels the entire system.

Meanwhile, within nine months of graduating, according to individual law-school survey results self-reported to the ABA, only about half of the Class of 2011 had secured long-term, full-time work requiring a legal degree. Staggering debt burdens thousands of young lawyers who have no hope of getting the legal jobs that inspired them to incur those loans in the first place. Many of those lucky enough to find work in big law firms, traditionally the most envied segment of the profession, soon find themselves trapped in a hell of attorney dissatisfaction because the people running those firms now view their primary mission as perfecting a relatively new business model that emphasizes particular metrics.

The big-law-firm analogue to the U.S. News law-school rankings arrived in 1985, when The American Lawyer, a publication founded by Steven Brill, a Yale Law School graduate, put out its first-ever list of the nation\’s 50 largest law firms, the Am Law 50. It disclosed average equity-partner earnings for each. Beginning with the magazine\’s inaugural issue, in 1979, Brill had already begun reporting on the big money that some lawyers made. But the 1985 listing of the top firms—now referred to as Big Law—was a watershed event. A delicate subject that had been off-limits in polite company became a new, highly public basis for competition among lawyers, a fiercely competitive bunch. It hasn\’t brought out the best in us.

The special role of the legal profession in our society made the impact of rankings particularly insidious. Big Law became big business as a kind of arms race to the top of the new Am Law charts began. With the help of a new cottage industry—law-firm management consultants—the prevailing business model for large law firms accelerated toward a handful of indicators that measure immediate results: billable hours, client billings, and the leverage ratios of all lawyers to equity partners (the higher that ratio, consultants reason, the greater the firm\’s profitability in both upturns and downturns).

Lost along the way to record equity-partner profits were large elements of what once made the law a profession. To paraphrase Aric Press, editor in chief of ALM National Magazine Group, publisher of The American Lawyer, when the bonds of partnership are no stronger than last year\’s IRS income statement, the essential attributes of partnership become casualties.

The principal victims of this phenomenon have been those lawyers who become trapped in the culture of short-termism. That culture is especially rampant among the prestigious big firms, where, as a group, lawyers are the unhappiest. As growth itself became another key element of strategy, increasing numbers of lawyers at larger and larger firms have become dissatisfied with their careers. As attention moved to current-year profits, the new model also led individual partners to jettison longstanding traditions of lifetime loyalty to a single firm in exchange for the promise of more money elsewhere—now.

Among the 200 largest firms in 2000, there were 2,000 lateral partner moves; in 2011 there were almost 2,500 (out of a total of approximately 45,000 equity and nonequity partners). Particularly among senior partners with large client billings, lateral movement among firms has become widespread; recruiting \”stars\” has become a central business strategy for many leading firms. As a consequence, interpersonal and institutional allegiances have become frayed, dangerous destabilization has followed, and some long-established firms have even disappeared.

All of this has persisted because the pyramid model—with equity partners at the top and a far greater number of salaried employees (including most lawyers) filling the bottom and middle—has worked well financially for a few. In fact, things got better for them as they made entry into their select group of fellow firm owners more difficult. As law firms and their profits grew, limits on the number of equity partners brought many partners great wealth. But it also destroyed institutional cohesion. While rainmakers offered their books of business to the highest bidder and reaped enormous benefits, overall satisfaction among lawyers plummeted to record-low levels.

For me, all of this came together in 2008, when I started teaching an undergraduate course at Northwestern about the good, the bad, and the ugly of what it means to be a lawyer. From the first day of the first class, I saw students who had great expectations for their potential law careers but little awareness of the likely reality, even for graduates of a prestigious college who were headed for top law schools. I know now that my students were not alone in displaying this gap between expectations and reality; from talking to young lawyers, I realize that it contributes significantly to the personal crisis that many new lawyers experience when they leave law school and try to get a job.

You might think that the American Bar Association, the profession\’s leading organization, would step in to help deal with the growing crisis. After all, it has a central role in accrediting law schools. Moreover, the ABA\’s stated mission includes promoting its members\’ professional growth and quality of life. But the organization has become a victim of regulatory capture by those it is supposed to oversee.

The picture isn\’t pretty: Students with false expectations, deans with an overwhelming incentive to tell students what they want to hear, and few people with any reason to offer an effective counternarrative. It\’s not surprising that there have been so many more law students than jobs, and so many unhappy lawyers.

Scandals occasionally bring the profession\’s darker side to the fore: A law school gets caught cheating on LSAT scores that it submits to the ABA and U.S. News; a newspaper article describes an unemployed lawyer hobbled with six-figure debt and no prospects of ever repaying it; someone exposes a law firm that exaggerated revenue and profits to help its Am Law ranking; a respected law firm spirals to a spectacular death; a seemingly successful attorney in a big firm commits suicide. Such episodes get headlines for a while, but the underlying culture that produces them survives and, for the elite few, even thrives.

From law schools to the pinnacle of the profession, greed has taken key legal institutions to an unfortunate place. As leaders of the bar, especially law-school deans and many managing partners of the nation\’s biggest law firms, focus on the near future, disastrous long-term consequences have become apparent.

Market forces might help correct the situation. But it was human decisions, not market forces, that created this mess and that will be required to clean it up.

Author Bio: Steven J. Harper teaches law at Northwestern University. This essay is adapted from his new book, The Lawyer Bubble: A Profession in Crisis (Basic Books).