Reforming The Legal ProfessionIB
Lawyers don't get a whole lot of love here at WallStreetOasis -- and perhaps we finance guys aren't exactly revered over at jdOasis either. Regardless, there are an awful lot of law-related topics here on WSO, with it being a career path that has traditionally offered similar pay, similar prestige, and -- not sure who'd want it exactly, but -- similar hours.
But, as many of you know, the "legal profession" is currently in shambles. A myriad of kids are going tobecause they have, quite literally, nothing else to do after finishing undergrad, and even a T14 (hell, even YLS) education doesn't guarantee a cushy spot for you in Big Law with that $160K compensation package. Those who do get the job seem to have less of a guarantee of not getting laid off than people in banking, and there aren't exactly many exit opportunities from the Big Law lifestyle.
Well, perhaps there is change that we can believe in with respect to the legal profession.
There was a couple of solid articles about changing the legal profession in last week's issue of The Economist. One discusses the time spent in law school and whether 3 years are completely necessary, and the other discusses increasing competition by allowing private investors access to equity in law firms.
If you don't want to read these guys (you should, they're both great articles), I'll boil it down for you here:
1. Law school is incredibly expensive
The average law student takes out over $100,000 in debt to finance his or her law education, often-times on top of already-existing debt from undergrad. Although I have no empirical evidence to back up the next claim, I'd also wager that a solid chunk of law students majored in the liberal arts and do not have much earning potential outside of a professional degree.
All of this debt means that the price of legal services -- you know, for all of us regular folk -- is inflated. NYU Law has recently been considering allowing students to sit for the bar after 2L, and some firms have been open to the thought of hiring students after 2L, allowing people to forego 3L and save a significant chunk of change. This could be a positive first step, one that could even lead to an undergraduate "law degree" (something like a five-year program, as opposed to a seven-year one).
2. Allowing outside individuals access to equity in a law firm is a positive
Here's the aspect that relates more to the finance world -- giving people the opportunity to invest directly in law firms. Law firms have always given equity access only to partner-level individuals in the firm, under the belief that a law firm cannot be subject to the scrutiny of shareholders because lawyers should not be pressured to make profits.
There's currently a lawsuit in which law firm Jacoby & Myers, if it wins, would be allowed to issue equity to non-investors in New York, New Jersey, and Connecticut. The additional capital would allow the firm to upgrade technology and take advantage of scale, giving people cheaper access to legal services. Legal services are currently billed on a per-hour basis which does not always (haha) incentivize efficiency -- shareholder scrutiny could be the firm step to making leaner, meaner, and less expensive law firms a reality. Which is a must, considering legal services today are at ~160% of 2001 levels while the is only at 130% of 2001 levels.
I think lawyers are kidding themselves when they say there is less pressure to make money now than there would be if non-investors played a role -- obviously there is a huge incentive to make a lot of money and take on clients who can pay. However, the additional capital could work wonders for law firms, if equity-ownership is allowed from the outside.
What do you guys make of this? Should there just be an undergraduate law degree? Should people be allowed to practice after 2 years? How do we fix the problem of overly-inflated prices for legal services? The justice system is already a complete mess on the government side of things -- shouldn't we at least try to lessen the burden for individuals with limited access to legal services on the professional side?
Thanks for reading.
"An intellectual is a man who takes more words than necessary to tell more than he knows."
- Dwight D. Eisenhower