Friday, December 29, 2006

Not Much Difference Between Large Law Firms and Universities

A few years ago McKinsey produced an interesting analysis of which law firms would succeed in the "winner takes all" economy. Thinking back on this, they were both right and wrong in their results. McKinsey said there would be two types of winner: the full-service global reach firm like Clifford Chance and Baker & McKenzie; and the niche compact firms such as Wachtell Lipton, Cravath, and Slaughter and May.

The second part was right but the first was wrong. How so? The second group are actually extensive in the services they offer. What they don't possess are a posse of overseas offices around the globe. Instead they depend on "best friends", and these networks seem to operate well, especially when measured by returns to the firms.

The first group have become a mixed bag. Often made up of mergers or takeovers of a rag-bag of firms that might match or not. So although they have "global reach", they rarely encompass global quality. Clients are picky and are not reluctant to tell such firms that while they are happy to use the firm's London office, they will not use its, for example, Italian offices because they consider them substandard to the main ones. A firm like Baker invests enormous sums of money in trying, not always successfully, to produce the same quality of product in all its offices. But because of its system of hiring predominantly local lawyers, it often is stuck with what the locals produce and have not hired in their own firms. There is always a suspicion about someone who went to work for a law firm from overseas.

The other aspect of the "niche" players is that they are basically self-governing, self-accountable, collegial institutions. The upshot is that lawyers like working for them and enjoy the practice of law. When you look at the global reach firms you see managerialism and audit running rampant. As necessary as they are to complex organizations, they are nonetheless demeaning and essentially sap the collective spirit. The figures for revenue per lawyer and profits per partner demonstrate these differences. Moreover, the bigger firms have stratified into multi-tiered partnerships with fewer equity partners and a greater number of name-only, salaried partners who can pretend. They also have phenomenally high churn rates for associates.

Why then the comparison with universities? This comes about because Oxford University has been deciding on the future of its governance systems. Both government and its quangos, mainly the Higher Education Funding Council, have been exerting quiet pressure on Oxford to change its centuries old system of academic democracy into a more managerialist system with a dominance of outside governors. The academics have rejected these moves by the vice-chancellor in favour of maintaining their present ways. They say that the democracy has been a fruitful and productive mode of governance resulting in high teaching quality scores, extremely high research ratings, many spin-off companies, and a considerable contribution to the economy as a whole. Moreover, the academics enjoy what they do and how they achieve it.

If it ain't broke, why fix it? The pressures of the 20th and 21st centuries are towards centralization of control. We see it especially in government with the UK Treasury setting targets for every bit of government. Targets and audit are shibboleths, which doesn't mean that they are necessarily good or effective.

Let me therefore compare my own university, Westminster, with Oxford. Mine is an institution where the philosophy of managerialism has run rampant. It is an organization which proudly boasts having at least half, if not more, of its staff running the administration instead of teaching and researching. It is a little known fact--and I'd like you to gaze on this nugget of wisdom--that students' main reason for choice of university is how many administrators and managers it employs, since it is these that make their education possible and students adore them. The educators and researchers, of course, play a minor supporting role that is impossible without these legions.

What do these administrators produce? (And here ask yourself, how many obituaries do you ever see of administrators? Answer: hardly any because no one remembers them or even notices them except when they interfere.) Well, they produce reams of indigestible paper and systems based on notions of "best practice" for their "stakeholders" always "going forward". (Just don't ask them what any of that actually means because you would embarrass them as they don't know.) Good start, you might say. None of them does research or teaches. In fact they are actively discouraged from doing so. Most are appointed as permanent positions--no votes or sharing of responsibility here. And the result is that there is an unbridgeable divide between the academics and the administrators (or the now-named managers).

But what else? Out of around 30 departments in my university there are at most four that have obtained excellent research ratings (score of 5) in the last Research Assessment Exercise (RAE). That's not many for all the administrative and managerial work that's going on. (Virtually all of Oxford's departments scored 5.) My own department, Law, was one of the successful ones. We achieved our rating in spite of the university.

Let me be frank about this. Between the 1996 RAE and the 2001 RAE (when we scored 5), the university granted us no funds towards our research. Why? Who knows? I could never get an answer. Other departments were awarded research funds. Nevertheless by our own efforts we pulled the best research rating in the university out of the hat. We created our own research culture and funds. We were good. (It always surprised me that when the results came out that our vice-chancellor never said thank you or complimented us on our performance.)

Moreover, law is a successful discipline within the university. Our teaching is rated highly and our students are gainfully employed, but our faculty-student ratio is the worst and our budget is often raided to bail out less successful parts of the institution. The academic union says stress levels are high and the university's own satisfaction survey shows its members ain't.

Oxford is a stunning success: Westminster passes muster--just. Oxford governs itself: Westminster has a panoply of satraps issuing decrees. Oxford has said there is to be no gulf between administration and academia, while Westminster has said that academics should be subservient to managers. Is my comparison too simplistic? I really don't think so.

Back then to law firms. The really big firms and a number of the smaller ones have adopted the managerialist route over the self-governing ideal. It's usually in the name of efficiency and "best practice", whatever that may be. These are the firms that are squeezing their equity partners. These are the firms that are de-equitizing partners and finding that the courts are now saying that partners are employees with concomitant rights. That is you can't have it both ways. These are the firms that are getting into a mess.

Quietly, their hope is pinned on something like the new "Tesco Law" Legal Services Bill in the UK that will allow them to become publicly floated companies amenable to external investment. According to a Financial Times article, up to 60% of the big law firms want to take this route. They are bewitched and unable to see the reality. It will not bode well.

I say to law firms look at the universities. See how a once-famed institution--the British university--respected worldwide is fading and waning. This is your future. Not for the "niche" law firms, akin to Oxford, they possess one characteristic above others: self -knowledge. Unfortunately for the others, like the other universities, they will be beguiled by whatever management fad comes along. They will march hand in hand with Martin Lukes, the great chief leader of "a~b global", and always be unsure about their competence and abilities, but never admit to failings. And so...they fail.

Friday, December 15, 2006

What Are the Rewards for Going Global?

The Financial Times published an article on the risk of going global for law firms. Whether or not to go global is a hot topic, but lawyers and firms would be advised to avoid the herd instinct. The number of times I've heard from lawyers, "We must merge/open an office there/etc, because Smith and Brown are doing it," is huge.

It all started with the Clifford Chance merger in the late 1980s and so it goes. The problem is that law is not the type of product that typically fits with globalization. Law is prototypically local. (There is too little international law to create an effective counterfactual here.) The major advantage of the Anglo-American law firm axis is that American and English law are extremely malleable and can be formed to fit almost any situation; something which civil code countries' legal systems find difficult to accommodate. I have an article in the forthcoming symposium issue of the Indiana Journal of Global Legal Studies on this topic (draft available here).

Despite this big UK and some US law firms are developing a global reach. (NB. global doesn't really mean global: it means opening offices in the bits of the world that are perceived profitable, ie, China, Europe, Japan, not Africa and not much of South America, and India won't let them in, but see today Linklaters has agreed a tie-up with a Bombay firm.) These big law firms are earning big revenues, but they are incurring big management and resource costs that are eating into those other metrics that quantify the success of lawyers and their firms. It is worth remembering that just because a law firm has offices everywhere does not mean that clients want to use all those offices. Clients are picky: "I'll use your London and Frankfurt offices, but I don't want Paris. I'll use a different firm there." Big doesn't signify uniform quality across the entire domain.

Of the top five law firms by revenue, 3 are English: Clifford Chance, Linklaters, and Freshfields, and all are close to £1 billion, with 2000 to 2500 lawyers, and offices in 19, 23, and 18 countries respectively. Cross-border mergers and capital markets work has been tremendously rewarding for them and spells a success story for the export of English law.

There are, as I've forewarned, significant costs incurred by these ventures. In addition to revenues, profits per equity partner and revenue per lawyer are healthy measures of productivity and performance. And according to Bruce MacEwen, "it's a lot harder to game total revenue and number of lawyers than it is to game profitability. This strikes me as a pretty hard number, all things considered." Clifford Chance has a PEP of £651k and an RPL of £369k; Linklaters and Freshfields fare slightly better at PEPs of £843k/£700k and RPLs of £400k/£369k.

Let's put this into context with Skadden Arps which is number 3 in the top five. Its revenue is comparable to the others, so no difference here, but it's only in 12 countries. But then look at the PEP and RPL which come in at £947k and £505k. Very different. If money were the only determinant, then it's obvious which firm one would rather be in.

The Lawyer and The American Lawyer tables (1-25; 26-50; 51-75) on the top 100 law firms show a preponderance of US firms achieving higher rates of profitability than UK firms. Some of these are rank outliers. Wachtell Lipton with a PEP of £2m and an RPL of £1195k; and Cravath with a PEP of £1.2m and RPL of £638k. Indeed, on a ranking of PEP there is only a single UK law firm in the top 10, namely, Slaughter and May at £1.05m PEP and £504k RPL.

Wachtell, Cravath, and Slaughter are relatively small compared to the behemoths yet they are considerably more profitable and perhaps, slightly more controversially, held in greater esteem by the legal profession. For as much as law firms are business enterprises, lawyers have been slow to slough off their ideals of professionalism. Being ethical remains integral to what a lawyer does, or ought to.

What then are the advantages of globalization to law firms? Bigger revenues but at the expense of lower PEPs and RPLs; a considerably large layer of management with all the difficulties of quality assurance and risk management; and some perplexity over what partnership means in the 21st century, if anything. Sure Goldman Sachs calls its directors partners, but no one is fooled by that. Moreover, the US courts agree with the EEOC that partners may actually be employees, as Sidley & Austin is learning to its cost.

It's not easy for law firms trying to hold together so many divergent strands--business, globalization, profits, partners, equity, de-equitization, ethics, conflicts of interest. Every managing and senior partner, whether in the UK or the US, should read Milton Regan's cautionary tale of John Gellene's travails at Milbank Tweed when he failed to make appropriate disclosures in the Bucyrus-Erie bankruptcy. (See Eat What You Kill: The Fall of a Wall Street Lawyer; and a quirky review in the Harvard Law Review.) It is the legal profession's equivalent of Lampedusa's The Leopard, which describes the trials of the Sicilian aristocracy as they attempt to adapt to the coming 20th century. It contains the line: "Unless we ourselves take a hand now, they'll foist a republic on us. If we want things to stay as they are, things will have to change."

While in the US Tocqueville characterized lawyers as the American aristocracy, the legal profession has within itself the propensity to adapt and change without necessarily diminishing itself. If it wishes to become merely a corporate enterprise then it must be prepared to abandon many of its cherished privileges, eg, lawyer-client confidentiality, and accept the totality of external regulation, even to law firms being owned by non-lawyers. Something already on the horizon in the UK. (See UK government Legal Services Bill.)

In a recent paper I have attempted to theorize about the tension between professionalism and enterprise. They can accommodate each other; where they won't is at the global level. The venture is too big and cumbersome. There is nothing intrinsically wrong with this, but moral claims to privilege and protection are necessarily weakened by this move. In many ways the likes of Wachtell, Cravath, Slaughter know exactly what they are doing, and are being very well-rewarded for it too.

Friday, December 08, 2006

The Art of Students' Writing

To my astonishment someone was able to translate the incomprehensible student's research question posted earlier (see comment). The translator must have been an habitué of Bletchley Park in a previous incarnation.

I spent the last session with my students talking about the art of writing and how they could learn and practise it. Asking them to write research questions is a way of seeing how they can condense and focus their ideas. Sometimes they focus and condense a bit too much. And other times they don't do either. Partly, it is they are not reading the assigned materials that would tell them how to compose research questions. When I tell them to read the materials the quality changes, usually for the better. But too many think, "Oh, a question! Sure, I'll write the first thing that comes into my head and send it to the professor. He'll fix it." That depends if there is anything to fix, of course.

These examples are some recent entries into the Pantheon. And, believe me, I responded to each of these trying to improve them. It's not easy. They appear as they came to me: I have not edited them or changed spellings or altered punctuation.

Does a gap exist in international criminal responsibility?

Should natural environment be assigned with legal rights?

The role (manipulation) of population during the elections in the less developed countries like Ukraine?

Have the decisions of the Security Council provoked a critic

What role does the European Union, as a regional integration body, play in the arena of the United Nations and how it affects transnational relations?"

Is there a correlation between change in legislation and changes in domestic voilence patterns?

How could the international community principlly (UK, US, Frence and Baligum) not intervene in Rwanda after witnessing such atrocities.

Definition of Crimes Against Humanity: Evolution from the Charter of Nuremberg tribunal to the ICC Statute".

Could liberalization of drug laws reduce crime in the U.S?

To what extent did "the sovereignty equality of states" theory work?

Why does capital punishment still exist in the united states?


Wednesday, December 06, 2006

Snakes! the Library!...Again!

My niece attending law school in Greece can't use the library because the local venomous snakes have taken up residence. When I wrote about this in November, I sent a copy of the blog to the head of the law school. Answer? zilch, of course. (His name is Prof Kalavros and here's his email:

This week she came to visit and I, curious as ever, asked about the snakes. Surely they had been dispatched into the wild at last to allow legions of desperate law students to browse earnestly around the stacks. She looked at me as though I were a fool.

"No, they are still there," she said. I was incredulous.

"But I remember you said you were going to complain about them and the other things," I replied.

"We did, but nothing happened."

Then it became clearer. There was a general assembly for students which was held by the political parties--the left, Pasok, and the right, New Democracy--but no one from the university or the law school attended. There was much rhetoric, but it was merely for show. Hence, nothing was done.

Snakes sleep soundly.

I asked about the other things that had been promised. Surely there was access to computers now, especially email. No, not yet. Nor have the promised laptops appeared. The odds are in favour of their never appearing. At least the books must have arrived. Hallelujah! They have.

Only a minor obstacle has newly surfaced. The professors have disappeared. You can't have everything.

What I'm describing may seem barbaric and primitive, and having talked to lawyers in Greece who have been through something similar, the future remains bleak. There is no incentive to change at all. It seems the system is at the mercy of the political parties, but more importantly the system is drenched in corruption.

If you thought the way professors became "baroni" in Italy was bad, I think Greece has a few lessons to offer its less sophisticated brother. Appointments are fixed and entry to law school is tweaked to ensure that anyone who wants to join a law school later, by switching degree or doing a new one later in life, must bribe their way in. The current price of entry is equivalent to the cost of a new Mercedes. This is one of the reasons why English law schools benefit from an influx of Greek students. With the costs of tuition and living in the UK, it is still cheaper to get a degree here than in Greece. If you want to be a lawyer, you then do it via the EU process.

So, for the next four years my niece has got to stick it. She's got to get through this travesty of an education as quickly as possible, so she can begin to learn something afterwards when either she enters practice or goes elsewhere for a postgraduate degree. Until then she is in limbo reading her books and hoping she can pass the exams on her first attempt.

Saturday, December 02, 2006

How dimocratically elapse Presidential electoins...

Last week I gave my research methods students a snap quiz. They had no time to prepare. It was very simple, consisting of four questions: What is a research question? What is a literature review? Distinguish between quantitative and qualitative methods; What type of research method is being employed right now in this document?

Twenty students were present and took the test. I have been spending most of the term reinforcing the meaning of research questions and literature reviews. There could be no doubt that most would get it right. After I graded the quiz, I asked the students how many they thought had correctly answered all the questions. Their opinions ranged from 10% to 25%. This wasn't terribly inspiring. However, a third managed to answer all correctly; a fifth made a single error. But around a half made two or more errors. How could this be?

The most common error was to confuse the literature review with the collection of data. Instead of being about what research had already been done, the students were content to say it was (in the words of one student) "all kinds of sources which gonna be used to write a research". As you can see, it gets difficult at times.

So why that weird title? Throughout the term I have been asking the students to draft research questions for me to critique. And here is one I received. I am offering a bottle of wine to anyone who can decipher it.

"How dimocratically elapse Presidential electoins 2002 in the corruption country like Ukraine, in terms of self-determination of people choices about the on of the candidates Yanukovich."

I can't translate it and I've asked others who all failed to get anywhere. The student was, however, quite pleased with the question and couldn't see any problem. Enough.