Captive Firms and Jobs

March 9th, 2013 / By Deborah J. Merritt

Kyle McEntee, my co-moderator here at the Cafe, and Kevin Outterson, Chair of the Strategic Planning Committee at the Boston University School of Law raise some important issues about law school firms. I want to thank Kevin in particular for sharing his views and letter to the ABA Section of Legal Education with us.

I agree completely with Kevin and Kyle that we need to guard against post-graduate law schools becoming just another way for schools to pump up employment statistics at the nine-month reporting mark. Some law schools already hire a significant percentage of their own graduates in short-term positions to achieve that result. Currently, the most common jobs in that category seem to be research assistance for the schools’ professors, fellowships at government or public interest agencies (with a small stipend from the school), and school-subsidized work with private employers. These positions achieve some laudable results: they provide a small amount of financial relief to heavily indebted graduates and, in some cases, help grads land more permanent positions. But there is little doubt that law schools also maintain these programs to improve their employment figures.

I’m less worried than Kevin that post-graduate law firms will worsen that trend. These law firms require much more time, effort, and expense to create than the positions described above. Why would a school go to those lengths when it can already report graduates as employed simply by funding low-paid research positions with the school’s professors? At worst, the post-graduate law firm positions will achieve the same reporting results but with more practice-oriented opportunities for graduates. The law school firms also seem to promise more lasting and remunerative employment; Arizona State’s new firm will employ graduates for up to three years. That type of commitment allows a more genuine opportunity to develop practice expertise and a client base than the short-term, part-time fellowships that some law schools currently offer.

We do need to remain vigilant about how law schools report their graduates’ jobs. The ABA’s decision to collect and report information about school-funded jobs was an important step; that information now appears on a special site maintained by the Section on Legal Education. The Section also requires schools to disclose this information on their own websites, using a worksheet designed by the section. Law School Transparency recently documented which schools are complying with that requirement.

This partial transparency is an important step, but there is still room for many abuses. Deans, for example, can ask alumni to hire graduates for a short period surrounding the employment date. Those graduates will register as “employed, short-term,” on either a part- or full-time basis. The jobs can be fleeting and low paid; since NALP collects salary information only about jobs that last a year or more, the school runs no risk of lowering its salary figures. As long as the alum, rather than the school, funds the graduate, the job won’t appear in the “school funded” column.

We need to figure out ways to deal with this type of data manipulation. One approach, which I’ve followed in my own research, is to count only full-time, permanent jobs. My point here is that, however we address this problem (and I agree that it is a major one), I think the problem exists independently of post-graduate law firms. At worst, these firms may fall in the same category as law-school-funded jobs, temporary arrangements with alumni, and other contemporaneous tricks of the trade–but with better experiences and pay for graduates.

A more serious concern raised by Kyle is that law school firms will temporarily mask the real problem, that schools are graduating more lawyers than the economy can support. If post-graduate law firms take work from other practitioners or legal aid organizations, then we are simply shuffling work around. Some graduates will help start-up companies through ASU’s new law firm, but established firms will hire fewer associates. We will all fool ourselves for a few more years that there is enough work for the graduates we’re producing.

As the previous paragraph indicates, there is a self correcting mechanism for that problem. If law school affiliated law firms take jobs from local practitioners, those practitioners will hire fewer graduates (as well as fewer part-time students during law school). Law schools don’t generate legal business (unless their professors start suing one another, divorcing their spouses, and redrafting their wills on a monthly basis), so a cannibal firm will affect other opportunities for graduates.

Schools establishing firms, of courses, may hope that those firms will seize jobs from graduates of other law schools. That may, in fact, happen. If a law school creates a firm that provides excellent training, and partners with its alumni in an appropriate way, the school’s alumni may obtain a local market advantage. In addition to hiring lawyers who have completed residencies at the law school firm, local employers may favor students and immediate grads of that school over students and graduates of competing law schools. The school with the affiliated firm, after all, will have demonstrated a commitment to developing more sophisticated practitioners–and it will be working directly with alumni to achieve that result.

If this competitive motive drives creation of law school firms, I can’t fault the schools. Tight markets spur competition, and I’m sure every law school in the country puts the interests of its graduates above those of other schools. Competition, furthermore, can create winning ideas. If law school firms do provide better training and networking opportunities than other types of temporary employment, then the alumni of those schools deserve to find favor.

I think, though, that law school firms hold potential beyond a zero-sum competition among law schools. A major reason for the mismatch between the number of lawyers (too many) and the amount of legal services provided in our society (too few) is that lawyers are terrible managers. There is a growing literature on our poor management skills, which I will discuss at greater length in other posts. Suffice it to say here that we teach almost nothing in law school about the most efficient ways to structure legal services, we produce almost no scholarship on that issue, and our graduates often remain clueless on those matters.

For too long, lawyers have viewed every legal issue as a sui generis one requiring customized legal research and analysis. And who can blame them? We educate lawyers primarily through appellate opinions that present novel issues of law. Why wouldn’t they structure their law practices to follow the assumptions of novelty, time-intensive analysis, and clients whose needs will lead eventually to a path-breaking Supreme Court decision?

The real promise of law school firms lies in developing new ways to manage law practices. Legal educators, of course, are poorly suited to do that on their own. But if interested educators work with groups of alumni, they may be able to create structures that reach new client bases. Services such as Rocketlawyer and LegalForce have already developed some of the tools–not just online systems and client-friendly software (although those are important), but new methods of managing legal problems.

Law school firms have this potential, I believe, because they are new institutions. When designing an organization from scratch, it’s easier to break old forms. Most law schools also sit in the middle of a huge untapped client base: University faculty and staff. University staff, from office associates and custodians to nurses and groundkeepers, are the mid-income Americans who struggle to find legal services. They earn too much to qualify for legal aid; they don’t earn nearly enough to afford traditional legal services. But what if there were an office, bearing the trusted brand of the University’s own affiliation, that could help those staff fight foreclosures, deal with evictions, navigate divorces, create child custody arrangements, defend criminal charges (against the staff member or, say, a wayward teenager), and handle the dozens of other brushes with the law that occur during a lifetime? If we could find ways to tap that market economically, we would broaden access to legal services as well as employment opportunities.

But, and this is a big BUT, none of that will address the excessive cost of legal education. Serving middle class Americans with legal issues is an important policy objective; so is broadening the services to the woefully served poor. Serving those markets, however, will not service the debt that law graduates carry today. If we want to make legal education and the legal profession work, we need to bring down the cost of legal education, make that education more professionally relevant, and give applicants the transparent information they need to make informed decisions about the scope of professional opportunities. Law school firms can be a step in the right direction by developing new mechanisms for delivering legal services, making legal educators more aware of those mechanisms, and improving the professional training of lawyers (not just through the firms themselves but through integration with the school’s earlier education). None of that will matter, however, if we can’t break the chokehold of high tuition.