About closing more law schools....

Yesterday, TaxProf Blog posted a story about the closing of Indiana Tech and raised the question of whether other law schools might close as well.  I think more will, and I said so in 2012, in Changing the Modal Law School: RethinkingU.S. Legal Education in (Most) Schools, 116 Penn St. L. Rev. 1119 (2012):

The world doesn’t need as many ABA-accredited law schools as it has already, just as the world has figured out that it doesn’t need as many U.S.-based BigLaw firms as it once did, and I wouldn’t be a bit surprised if some law schools closed over the next decade or so.

Id. at 1150.  For more about what in legal education needs to change, see, e.g., Rethinking U.S. Legal Education: No More .“Same Old, Same Old,” 45 Conn. L. Rev. 1409 (2013).

Lucy Kellaway is correct.

In today's Financial Times piece:

If one employee offends against a bank’s vision and values, it is [his or her] fault. If 5,300 do, it is the bank’s. Wells Fargo has proved that its culture is a hopeless safeguard to anything. The people who have really transgressed are not the rank and file, but the top managers who set up the wrong incentives and who looked the other way as customers were stitched up.

It really IS about the incentives.

Great minds think alike -- about compensation models for law firms.

I came away from Liane Jackson's ABA Journal article, $10K prize-winning hackathon team dreams up new compensation model for law firms, doing a happy dance:  not just because I liked the ideas put forth by the winner but also because I've been writing about this issue for a while, both by myself and with co-author Randy Gordon (see Nancy B. Rapoport, 'Nudging Better Lawyer Behavior: Using Default Rules and Incentives to Change Behavior in Law Firms, 4 St. Mary's J. of L. Ethics & Malp. 42 (2014) and Randy D. Gordon & Nancy B. Rapoport, Virtuous Billing, 15 Nevada L.J. 698 (2015)).  The short version?  People do the activities that their organizations reward.  If you don't like the behavior, take a good look at your reward structure.

Another news clip about my talk(s) in Bogota.

Here, and here's the original post.  I'm still just amazed that I was asked to speak, and I'm so grateful to Superintendent Reyes!

Jim Thomson and Jesse Sussell have done an interesting new study on Congress's increasing polarization.

I'm lucky enough to be able to claim Jim as a colleague here at UNLV--and he's marvelous.  Check out his bio, which only scratches the surface of why he's so cool.

You can read the summary here, and here's the paper (Are Changing Constituencies Driving Rising Polarization in the U.S. House of Representatives?). 

It's exciting to see something on my fees wishlist become a reality.

I've written about developing behavioral prompts to encourage lawyers to bill timely and accurately, and LinkedIn just pointed me to an article (here) discussing software that helps lawyers do that. 

Steven Davidoff Solomon's interesting take on why law schools won't close.

Here.  I especially liked his point about why incentives favor bailing out law schools rather than closing them:

[A] closed law school is worth little, or most likely nothing, to creditors. The value is only in the revenue stream it produces and perhaps its building. (You could say the books also, but these are increasingly fewer.) And these days, that revenue stream is down 20 to 40 percent, meaning that if law schools were for-profit businesses, most would be failures.

A troubled law school is like Dracula: hard to kill. Creditors will not do so because even keeping a struggling school alive means there is some possibility of repayment.

On the other hand, those closed law school buildings might be valuable to universities, as they can be repurposed for other uses, freeing up different space on campus for things like expanded research space.  So law schools that aren't free-standing should still be nervous if they're underperforming. Now is not the time for complacency.

The Chronicle of Higher Education reports that a former AALS president says that some law schools should close.

Here's the article.  I agree with Michael Olivas about this point, which is why I said the same thing in 2012.

An important report on how universities, private business, and the government can work together to improve research.

See here.  And Rice University's own Neal Lane was one of the co-chairs of the report.  (Go, Owls!)

Post on Law Firm Job Survival Manual blog on cognitive biases.

We combined four different pieces (three from the Financial Times and one from TaxProf Blog) that relate to cognitive biases and the immense pressure that we put on ourselves--and that our jobs encourage) (here). 

New studies on rate increases at law firms--UPDATED

The Wall Street Journal's Jennifer Smith reports that law firms are increasing rates again (here).  I'd love to see those studies mentioned in her article.  The issue of raising rates is, of course, tied to whether those higher rates are collectible.  I could raise my rate to $10,000/hour, but I don't think I could collect any fees at that rate.  And in those practice areas in which rates are reviewed by courts (like my own area of bankruptcy law), raised rates are not a slam dunk.  I'm looking forward to following this story.

Now compare that story to the one that just broke about Weil, Gotshal & Manges laying off sixty associates (here).   That leads credence to my suspicion that, although rates may be going up, the ability of any law firm to collect 100% of the bills based on those new rates may not be going up. 

Hey, thank you, Credit Slips!

Lois and I had a blast guest-blogging (and Lois did all of the heavy lifting). 

This morning's Wall Street Journal article on the costs and benefits of bankruptcy examiners.

Here.  Among the article's points is that the cost of an examiner has to be compared to the benefits.  That's different, I hope, from demanding that the examiner find enough "bad things" to completely offset his costs.  The idea of "funding by bounty" creates a bad incentive to look at trees instead of forests.

But I've seen good examiners (and good fee examiners) in action.  The ability to figure out what went wrong is a necessary part of a reorganization that's successful in the long term.  And to do that, someone needs to be tasked with taking a good, hard look at what happened to create the need for a bankruptcy filing.

I particularly enjoyed the quotes from William Snyder, now at Deloitte, who's been one of the best CROs I've seen over the years.  His common-sense approach, and his ability to deflect what is often very nasty and personal comments as he's working out causes and solutions, is what makes him good.

But back to costs and benefits.  I'm an occasional fee examiner (yes, and a law professor who studies fees, among other things).  I don't think of myself as saving a lot of monetary costs.  Do I find things that should be cut or reduced?  Sure.  Professionals make mistakes, either clerical or in judgment, and typically they're comfortable fixing those mistakes themselves before I have to bring them to the court's attention.  What I do save is time--the amount of time that my team and I spend going over fee applications is time that a busy and understaffed court really can't devote to the same line-by-line review.

That time savings is also true of examiners generally.  If they do their job well, and if they're mindful of what they are costing the estate, then they can get to the bottom of things in a way that other players in a bankruptcy case just won't have the time or financial resources to do.  There is a law of diminishing marginal returns, of course, and examiners who chase down rabbit holes for too long are overspending other people's money.  But a court can take a gander at interim reports versus fees to see whether an examiner is getting out of line.  (And yes, fee examiners can chat with examiners about their bills, too.)

Bottom line?  Look at the need for an examiner and figure out in advance what goals you want that examiner to achieve.  Make sure that those goals are in the order authorizing employment, and monitor the progress of the examiner's work.  And make sure those goals are aligned with the incentives for compensating the examiner.  Avoid a bounty approach, and you're likely to get what you need to get from your examiners.

A law firm that has given up on hourly billing.

I thought that this post might raise some eyebrows (in a good way).  The law firm that announced its rejection of hourly billing is Juan R. Gonzalez PLLC. 

Fascinating video on the changes in legal practice.

Here.  Hat tip to The Legal Whiteboard.

It's more telling when someone who's been a partner at a major law firm complains about the billable hour than when an academic does it.

In yesterday's New York Times, Steven Harper made some very good points about billable hours (here) in light of the DLA Piper fee litigation (here and here).  I write about fees a lot (see here and here, and I have another piece coming out in a symposium issue of the Akron L. Rev. this summer).  My favorite part of Harper's opinion piece?

Lost in the furor surrounding one large firm’s current public relations headache are deeper problems that go to the heart of the prevailing big law-firm business model itself. Regrettably, as with previous episodes that have produced high-profile scandals, the present outcry will probably pass and the billable hour will endure. 

It shouldn’t. The billable-hour system is the way most lawyers in big firms charge clients, but it serves no one. Well, almost no one. It brings most equity partners in those firms great wealth. Law firm leaders call it a leveraged pyramid. Most associates call it a living hell. 

The fact is that billable hours create perverse incentives, because the way to make more money is to take more time or throw more humans into a project.  But billable hours evolved in part because the old way of billing ("$x for services rendered") didn't give the client a feel for how much work went into the bill.   If we want alternative billing to take hold, two things have to happen:  law firms have to figure out a way to calculate an alternative billing method that, at least on average, gives the firm a reasonable profit on its work, and law firms have to give clients some transparent information on what type of work they did on the client's matter.

One possibility is a flat fee that still records billable hours.  If the flat fee bears a reasonable relationship to the work done, then the client can see who did what, but the incentives for throwing bodies at a problem decrease.  The flat fee becomes a cap that controls costs.

The fear--and it's a legitimate one--is that many types of legal work involve unpredictable possibilities.  Let's say that a matter involves litigation.  Some of the expense of litigation involves responding to what the other side is doing.  So if one side is billing by the hour and the other side has a flat fee, then the flat-fee firm may well be held captive by the firm that is billing by the hour. 

On the other hand, major law firms are experienced in doing complicated work--and that experience is reflected in their billable rates.  If a firm is very experienced in, say, debtor-side chapter 11 work, then it can predict many of the actions that the other parties in the case may take.  It won't necessarily be able to predict the timing of those actions or their intensity (although, if it appears opposite those other firms all the time, it will have some idea of what they routinely do), but it has a feel for what's likely to happen in the case.  It's at least possible, then, that the experienced firm can establish a likely range of the fees and expenses that a matter might engender.  ("In the last several chapter 11 cases, our fees and expenses ranged from $x to $x+n.")

So perhaps flat fees might not work, but rough (and I mean "rough") budgets might act as a cap on a firm's choices for how to handle a matter.  Of course, some unpredictable events might make a budget inaccurate--but a firm can bring those unpredictable events to the client's attention and recalculate the rough budget accordingly.

The fact that a former Kirkland & Ellis partner is calling shenanigans on billable hours is significant.  Let's see how others respond to Harper's opinion piece.

All is right with the world this morning.

I'm going to get my Twinkies back.  See here.

Rutgers-Newark's law dean is right (updated).

Dean John Farmer came up with a nifty idea that he puts forth in today's New York Times (here):  have new law grads become apprentices for a couple of years, a la medical school residents.  His idea isn't new--others have proposed it as well--but he makes a good case for marrying the need to serve the middle class with the need to provide job training for law grads.

UPDATE:  Northwestern Law's Dean Daniel Rodriguez has also come out with a provocative and timely essay (here).  Ultimately, a lot of us are going to have to justify legal education in general and particularly in the third year.

Happy Twinkie news....

See here and here.  I'm looking forward to being reunited with my favorite guilty pleasure.

Dinosaur or phoenix?

There have been numerous stories about outsourcing in law practice (for example, here), and lately, I've been reading about outsourcing for other reasons outside law practice (see here for a serious proposal and here for Lucy Kellaway's more tongue-in-cheek one).  All of those stories have me thinking:  are most law schools destined to become dinosaurs, or will legal education become a phoenix?

If law schools continue to deny that applications are down and that law practice has changed (those changes are, in my opinion, permanent ones), and that therefore legal education has to change, they're dinosaurs, and we're just waiting for the rest of the Ice Age to come.  If, however, law schools start to innovate in ways that actually help their students develop the new skills that they're going to need (like Washington & Lee has done with its third-year curriculum), then maybe we can rise from the ashes of an outmoded system.

Personally, I think it's more fun to try to be a phoenix than to try to "wait out" the Ice Age.