Saturday, July 10, 2010

The bursting of the pedigree bubble - William Henderson

                                                            
Indiana Law Professor William Henderson is an empiricist.  He likes to have measurable data.  When I was a graduate student in the political science department at Boston University I had no interest in the "science" part of the field.  Their data was too sparse, their hypotheses narrowed by their limited data.  But 40 years of social science has improved the databases and developed techniques for measurement.    William Henderson at Indiana University is a law professor who has combined an historian's ear for narrative with the social scientist's appetite for data.  His latest post shows that the elite law school brand business model (pioneered by Cravath Swaine & Moore) is cracking under market pressure.


In thirty years of practice I found that lawyers pay little attention to where you went to school.  Adversaries are evaluated on reputation and personal experience.  It was a shock when I came to the academy to learn that elite law school pedigree matters so much.  It never occurred to me when I passed up Berkeley for Rutgers-Newark that I was putting a major dent in my ability to secure a teaching job.  Today I see the worry on students faces over grades and US News rankings.   Is Fordham up or down?  "I have Fordham branded on my forehead" lamented one to me recently, pained because she earlier had Princeton stamped there.  Henderson asks - if grades and pedigree matter so much in the market do they really predict effectiveness as a lawyer?  NO, says Henderson, but their sway can be explained by a kind of managerial self protection:

One of the advantages of going to an elite law school is the presumption that you are a very smart and able lawyer.  If you made law review, graduated Order of the Coif, or clerked for a federal judge, the presumption grows stronger.  Most large law firms are very sensitive to pedigree, though you’d be hard pressed to find any hard empirical evidence why the kid who went to Harvard is a better bet than someone who went to, say, Boston College, Illinois, or the University of Houston.  Although the performance benefits of elite pedigree are little more than a hunch, the entire market for corporate legal services has bought into the notion that better résumés equal a better firm.  As the demand for corporate legal services continued to grow over the last several years, this herd-like branding strategy produced the $160,000+ associate pay structure and the now famous “bi-modal” distribution.


Yet, as the economy has slipped into recession, the pedigree bubble has finally burst.  It is now painfully obvious to everyone that it does not matter where you went to school, or who you clerked for—a lawyer in his or her first or second year of practice is just not worth $275 per hour.[1] A few star lawyers, or a handful of marquee firms, may be able to levy these rates for junior lawyers as part of bundled package of services.  But the vast majority of large law firm partners are experiencing overwhelming downward pressure on fees.  Because of high overhead added during the boom years, many firms are in the unprecedented position of slashing associate salaries to generate a large enough profit pie to keep key rainmakers in the firm.  As a result, elite credentials are now in the process of getting repriced.

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