The Outliers of Law--Embracing Heresy
Malcolm Gladwell's latest book Outliers, the Story of Success argues that what accounts for success is often not what we expect. High IQs or a prodigious ability in computers or exceptional musical talent is not sufficient to explain Nobel Prize winners and Bill Gates and the Beatles. While a certain level of intelligence, skill or talent may be a necessary ingredient for success, it is not sufficient. Luck, opportunity, hard work, support and training all play important roles. Raw ability--intelligence or talent--is only a threshold. When faced with a class of clever boys, as Gladwell repeatedly points out, knowing one boy's IQ is of little help in determining his standing among the group. Extensive research validating that attitude has led psychologist Barry Schwartz (full disclosure: he was my psych professor at Swarthmore) to suggest that elite schools could give up their complex admissions process and simply hold a lottery for everyone above a certain threshold of eligibility--the "good enough candidates"--without producing a loss in their graduates' accomplishments.
In April 2008 the Indiana University School of Law-Bloomington issued a research paper entitled "Are We Selling Results or Resumes?: The Underexplored Linkage Between Human Resource Strategies and Firm-Specific Capital" by William D. Henderson, a respected authority on lawyers and law firm management who may be in need of better title-writing skills.
Henderson describes the "Cravath system" that Cravath, Swaine & Moore developed in the early 20th century in order to distinguish its legal services: "Hire the best graduates from the best law schools; provide them with the best training, and at the end of a six-to-ten-year apprenticeship, promote the best associates to partner." Ironically, instead of distinguishing Cravath's brand, in fairly short order that system became standard industry practice, hence the run-up in associate salaries when increasing demand over the last 20 years from all those wannabe premier law firms outstripped the stagnant supply of premier graduates.
Included in the "peculiar market dynamics" that Henderson notes as a result of the widespread adoption of the Cravath model is 1) the resistance of clients to having those escalating salary costs passed on to them, resulting in their request that junior associates not work on their matters, and 2) the inability of a large proportion of firms who use this model to simply absorb pay raises that can't be passed on to clients.
So-- Voila, the current standoff between valued-centered clients.and expense-laden firms.
What does Outliers and that very long, obscurely-titled paper have to do with one another? Henderson makes the point that law firms able to deliver high quality legal services at a fixed cost are in a position to reap enormous financial rewards. How to do that? He cites empirical evidence that "within a certain range, differences in cognitive ability, such as I.Q., are uncorrelated with contributions to organizational productivity, and that among knowledge workers, organizational productivity is primarily a function of work strategies that are teachable and trainable." Those conclusions were drawn after evaluating engineers and other high-level service providers.
Henderson points out that young lawyers with slightly less elite credentials are willing to work very hard for less than elite salaries, particularly if they are being trained. These lawyers provide firms with the opportunity through knowledge management, business processes, lawyer training and teamwork to develop "firm-specific capital.--i.e., an asset whose value is unique to the firm because it cannot be removed by departing partners nor easily duplicated by competitors." That is, by engaging "good enough" lawyers and aggressively managing them using the tools that other industries employ to provide high-quality, fixed-price services, a firm can make a name for itself and profitably escape the Cravath model. Both Gladwell and Henderson point to the enormous financial success of Wachtell Lipton and Skadden Arps in the 70s, firms started by unmarketable lawyers who addressed underserved niches.
Howrey has just announced that starting this fall it will be paying first and second year associates reduced salaries in connection with a program of limited billing requirements and supercharged career development. During those years, associates will have intensive training opportunities and be seconded to clients, judges and not-for-profit organizations in order to ramp up their skills. Managing Partner Robert Ruyak "said the new approach is not a way to save the firm money. In fact, he said, it's going to cost between $3 million and $4 million to implement once training costs and the unbilled hours the associates work are thrown in."
"The way we see it though is that it's going to cost more in the beginning because we're creating something from scratch, but once we get going and we start having a group of young, experienced lawyers coming out ready to handle client matters, we're going to turn a profit much more quickly than we would under the old model."
Howrey and the few other firms who have introduced a version of this approach have not said that part of their plan is to hire "good enough" lawyers, instead of the most highly-credentialed, but the effect remains similar--they are paying less for their incoming talent on the theory that those young lawyers will be bright enough to learn the types of skills and service that the firms intend to pin their reputations on.
What's the biggest hurdle here? The hurdle that may keep some firms hesitating is the feared implication that by not paying the top entry salaries, which for decades has signaled the pecking order of firms in recruitment, firms adopting this kind of approach do not have "the best" lawyers.
Perhaps now is the time to embrace the heresy that having "good enough" lawyers is in fact good enough to be successful.
Law People Management, Inc.
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