Big Law, We Have a Problem

graphThe numbers are out, and they are huge. On September 26th, more students took the Law School Admissions Test (LSAT) than have ever taken a single administration of the LSAT in the history of the exam. Chalk it up to the recession, the economy, or the sudden increase in all things vampire. Whatever the reason, over 60,000 students lined up to take the first step to becoming a lawyer on September 26th. This turnout continues a sudden increase in LSAT administrations that began roughly in 2007. Prior to that, total LSAT administrations peaked in 1990-91, fell through 1997-98, and jumped to modern numbers (approximately 143,000 test takers) from 2001, onward. For the full graph from the Law School Admission Council, see below.

Except previously, there were law firm jobs to absorb the effluence of law students. As the economy foundered, the number of LSAT takers began to increase again, with June 2009 constituting the single largest June administration in the history of the LSAT. June and September 2009 combined represent 13,681 more tests administered over the previous year, or an increase of 17%. If this increase stays constant for the rest of the testing cycle, that would mean there will be 177,136 LSATs administered this year, the largest percentage increase in eight years.

Which could be a real problem.

It might not be news that Big Law is foundering, but it’s still scary. Powerhouse law firms such as Kirland & Ellis and Baker Botts are laying off attorneys while others are cutting back on new hires and decreasing the number of on-campus interviews. With law jobs shrinking, it’s hard not to wonder where all of the students taking the LSAT and applying to law school are going to go.

The answer will probably entail a change in the old conception of learning and practicing the law. In order to survive, big law firms will have to rethink their billing models, law schools will need to retool their career placements options, and law school graduates are going to have to change their expectations of what a law degree means in the marketplace.

Law Firm Changes

At the beginning of the year, The New York Times reported that more big law firms are considering alternatives to the long-criticized billable hour. Our own, albeit anecdotal, research confirms that more firms are moving away from the decades old model of charging hourly rates. One associate we spoke with at a Big Law firm in Texas reports that her firm is accepting work for a flat rate per project. Instead of charging $350 per hour, for example, the firm charges a fee of $500 to draft a particular document. While Jeremy Rosen, partner at uber-prestigious appellate firm Horvitz & Levy, would not agree that the billable hour is dead, he does admit that “…our firm has accommodated client’s requests for flat fee or other alternative billing arrangements when they are mutually beneficial to both sides.” As clients search for ways to fulfill their legal needs and maintain their bottom line, such flexibility will surely continue.

Law School Changes

On the other side of the spectrum law schools, cognizant of the looming problem, are taking steps. Matt DeGrushe, Dean for Career Services at USC Law School told us that that the Career Services Office “…has been actively identifying smaller and mid-sized firms in Southern California” for their students to apply for positions. The office also launched the Career Management Program this fall that oversees student job searches in a much more comprehensive manner.

Other schools are also experiencing additional interest in their externship programs. The National Law Journal reports that at UCLA Law School, annual externship participation jumped from 41 students in 2007 to 74 in 2009. At Arizona State Law School, participation in summer externships rose from 46 in 2004 to 75 this year.

Still other schools are increasing their loan repayment options to encourage students to go into other areas of the law. At UC Berkeley School of Law, the Loan Repayment Assistance Program has been significantly enhanced. According to their web site, “The program is designed to ease the financial burden faced by alumni who pursue public interest or government work, where salaries are significantly lower than in the private sector.”

Law Student Changes

Gone are the days when law school is an automatic back-up plan for History/English/Communication majors who don’t know what else to do with their degree. With law school tuition soaring, students need to know that they can pay off their degrees. They also need to be more inventive about what their legal career can look like.

A second year law student we spoke with decided to go to a lower-ranked law school that gave scholarship money. The student reports that “I could have gone to a higher-ranked school, but it was more important for me to graduate without too much debt.” She also recognizes that her legal career may not look like she thought it would. “There was very little on campus recruiting at my school this year, so I know I’m going to have to be flexible when it comes to the type of legal job I’ll take.”

We spoke with a second year law student at NYU who explained that the changed economic climate meant an opportunity to work at the Commodity Futures Trading Commission (CFTC). The CFTC protects market users against fraud and abusive practices related to commodity sales. While our 2L ultimately desires a job in Big Law, he felt that working at the CFTC would give him a different resume to help him stand out in the crowd. So far, his plan appears to be working as he explains that “I got a relatively high degree of responsibility on a number of cases ranging from complex litigation against sophisticated defendants to nickel and dime (e.g. <$20M) Ponzi schemes. At the end of the day I got exactly what I was hoping for—direct experience litigating cases and some wonderful insight into the financial markets.”

What to Do

The confluence of more LSAT takers and an economic downturn means that law students need to be savvier consumers. The larger applicant pool might allow law schools to be more selective, so record low acceptance rates may be on the horizon. Or law schools, seeing the increase in applications, might increase their entering class size. While this might seem to be a more favorable response from an applicant’s perspective, it could well result in starker job prospects three years hence. Or perhaps much of the present economic tumult will have passed by then. The future of Big Law remains unclear, but law firms and law schools are doing their best to respond to the new economic climate. Hopefully, the 60,746 September LSAT takers will follow suit.

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Article by Jodi Triplett of Blueprint LSAT Preparation.

Nov 16, 2009 - 1:34 pm - By Jodi Triplett
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31 Responses to Big Law, We Have a Problem

  1. Erica says:

    This makes me happy that I did not go down that law school path. Good thing I listened to myself and not my mother.

  2. spags says:

    I appreciate the efforts that law schools are making to help their students find alternate opportunities.

  3. Riley says:

    The numbers are definitely up and I think this will be a competitive application cycle, but the new rules regarding postponing the LSAT also are playing a role here.

    http://moststronglysupported.com/lsatninja/the-numbers-are-in/

  4. Dixie says:

    Jodi-

    Thanks for all the awesome research. As we get near to the 1L summer job search, it’s good to see some 2Ls who weren’t entirely jaded by their experiences so far.

    It will be interesting to see where all the young lawyers who once planned on going directly into Big Law, but had to start somewhere else because of the economy. are in five years. Will they end up going back to Big Law if given the chance, or stay on different paths…

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  6. Beldar says:

    You’re mistaken in suggesting that BigLaw firms are only now starting to consider flat rate or other fee rate alternatives to the traditional hourly rate structure. At the three BigLaw firms where I practiced from 1981 through 1993 (Baker Botts, Weil Gotshal & Manges, and Thompson & Knight), the firms would certainly consider any kind of fee proposal. I’m personally aware of many specific examples of unconventional fee arrangements at all three of those firms, and I’m confident there are many similar examples at their BigLaw competitors.

    Why would you think that BigLaw partners would be oblivious to, or uninterested in, fee structures that would make them more competitive and that might earn them more money on a net basis?

    This post — like much discussion among law students and/or law profs — is focusing on statistical changes at the margins. But be careful not to lose sight of the big picture too. There have always been, and will always be, boom and bust times in legal recruiting. BigLaw itself changes, but incrementally and chaotically. Any one participant’s career path is a bubble that may be borne up or down, with or against the prevailing stream, and due to factors never mentioned in discussions like this one.

    A record LSAT turnout is indeed an interesting datum. But don’t make too much out of it.

  7. JT says:

    Beldar- Thanks for the comment. It’s always nice to hear from someone who survived a Big Law career.

    Our point was not that this was the first time in Big Law history that a flat-fee rate has been considered, but rather what was a non-standard peripheral practice is becoming much more widespread as economic factors are wreaking havoc at Big Law firms. To use your language, this may have once existed at the very margins and now it appears to becoming mainstream.

    It almost seems as if you’re suggesting (though I think I must have read you wrong) that the billable hour isn’t the de facto standard in Big Law. That of course, would be silly, as the billable hour is one of Big Law’s defining features (as discussed below).

    Speaking of which, with regard to the obliviousness of Big Law firm partners to their fee structures, we don’t care to comment. However, we would distinguish between what makes a law firm “competitive” and what “earns the partners most money on a net basis.” The billable hour and the associate/partner earning structure may have been quite lucrative for partners over the last generation, but it has caused enough associate-level misery and inflated billing that we hope a paradigm shift is on the way.

    Nor are we alone in this. The Wall Street Journal discussed dramatic departures from the billable hour recently with their coverage of the Pfizer Legal Alliance. The New York Times recently claimed that the billable hour is “the most basic yardstick of the legal business” and goes on the quote the presiding partner of Cravath, Swaine & Moore (otherwise known as the Big Law of Big Law) as stating that “[t]his is the time to get rid of the billable hour.” Not sure what further authority one would want…

    With regard to blowing the LSAT stats out of proportion, we kind of have to dig in our heels a bit. I mean, let’s be serious. Law Shucks has documented the most intense period of firm layoffs in more than a generation (roughly 15,000 since January 1st, 2008 and 12,000 of those occurred in 2009). In addition to this historically large shedding of associates, almost every Big Law firm in the country has (1) reduced its number of incoming associates (2) frozen associate salaries and/or substantially reduced bonuses and (3) reduced OCI recruiting dramatically. Cravath is actually paying first year paying some first years $80,000 to stay home.

    Even some law schools are offering students money to delay their enrollment, because even law school deans are worried about the glut of people moving into the legal profession.

    And yet, even after all of the above has been exhaustively documented, we learned that more people had taken the Sept/October LSAT than EVER before, a 19.8% increase from 2008.

    This isn’t the margin. Short of three crows flying across the sun, I’m not sure sure what other signs there could be. It’s pretty clear that (1) the job market is bleaker than bleak and that (2) the entire business of law might well be undergoing a paradigm shift and that people applying to law school should be alerted to (1) and (2).

    With all due respect, claiming that it’s all cyclical and these statistics don’t amount to much seems tantamount to writing off global warming as the natural ebb and flow of temperature.

  8. sg says:

    It would be interesting to see the structure of the scores. Just because more people take the test doesn’t mean the number of high scores will increase. Some of these people are just wasting time and money taking the test. They are not qualified. It would be interesting to see if applications to law schools go up accordingly. Probably a greater increase in LSAT takers than law school applicants. I could be wrong.

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  10. Trent says:

    sg-

    I think you’re both right and wrong.

    You’re entirely right that this influx of people could perform poorly on the test. It’s entirely possible. Let’s assume for argument’s sake that the whole test administration got far more answers wrong than any group did before. There will still, necessarily, be more high scores to come out of this test than any administration in history.

    It’s weird the way the test works. The scores are curved such that a score of 172 doesn’t refer to an absolute number of right answers, but rather to a percentile (in this case the top 1%). That’s what’s referred to as the “scaled” score as opposed to the “raw” score.

    So, if 100 people take the LSAT there will be 1 score of 170 and if 1000 take it there will be 10 scores of 170 (that’s actually rather crudely put and not precisely right, but you get the idea).

    Thus, by definition, the more people who take the test the more high scores there will be. Of course, there will be more low scores as well, but a glut of very low scores tends not to change things as much as a glut on the high end does.

    Twice as many scores in the top 2-3% means that top schools will literally have twice as many qualified candidates (again, this is crude and assumes all things are equal). Twice as many scores in the bottom 2-3% won’t have much effect at all, since virtually no schools accept such candidates.

    In this way, more people taking the test does kind of make it harder to get into law school. There is no way, even theoretically, that all 60,000 people could get low scaled scores. Roughly, 1% of these people (or approx. 600) will score above 171.

    But there is one way in which more poor test takers make it actually easier to get into law school. Assume, as we are, that this influx of people scores very poorly, my score will be higher than it would have been otherwise because they’ll all fall into the bottom of the curve and effectively buoy the rest of us.

    I think you might have been suggesting something like this.

    Matt Riley is assuming a bit of this effect in his predictions for December:

    http://moststronglysupported.com/lsatninja/december-lsat-predictions/

    TT

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  12. Colin says:

    I can’t help but think that this has a silver lining that is actually pretty damn thick. People who would otherwise be going to law school solely for the promise of a big paycheck will hopefully be applying less, while those with a genuine interest in becoming lawyers for non solely-monetary reasons will probably be less deterred. Having a higher percentage of lawyers who are in it for an actual love of the game is a good thing, I would think.

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  14. @Trent says:

    Actually, the LSAT score conversions on different forms are compared using a process called equating: http://en.wikipedia.org/wiki/Equating

    Contrary to popular belief, they are not curved. The raw score to scaled score conversion is determined prior to the administration of the test, and the percentile ranks attached to scores can and does change somewhat in different administrations.

    However, more takers will almost certainly lead to more high scores; even if the additional takers are proportionally less qualified, it would be asinine to claim that all of them are.

  15. Trent says:

    I’m fairly certain that’s false.

    I think you’re equivocating between the scaled to raw score conversion and the percentile to scaled score assignment.

    The latter of these is reset every few years by LSAC (though the changes are very slight). So, in a few years a 172 might no longer correlate with the 99% (it might then refer to the (99.5 or 98%).

    But the former, the raw to scaled score conversion, is a product of the actual test-takers who took that actual exam. In a sense it represents your rank among the people who sat for the test that day. When you score a 172, you’ve scored better than 99% of the people who took that test.

    If LSAC used an equating process, then on a given test there could, in theory, be a disproportionately high number of skilled test-takers who scored 172 or above. But if that happened and more than 1% of people scored 172 or above then the number would lose it’s meaning.

    I’ll stand corrected if you have some evidence that LSAC uses equating to determine scaled scores, but I’m fairly certainly they’re a product of raw scores and percentile rankings.

  16. I wrote a book to discourage students from going to law school, at least to let them know what they were in for (LAW SCHOOL RED INK WHITE COLLAR BLUES), but of course the book had no impact whatsoever (except, possibly, to convince a few career services offices to hold off job interviews until December 1). The new book tells the truth about the practice of law for many, but legal publications haven’t rushed to review it because it takes such a harsh (realistic) look at the profession. New book is called ADAM AND EVE GAVE BIRTH TO AN EVICTION LAWYER. Both books are “novels.” Good luck to anyone who tries to practice law in this environment.

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