Kramer believes that firms hire too far in advance. They don’t know what they’re getting, and students get locked into their legal specialties prematurely.

Question: Will there be a consolidation of law schools in the next decade or so? 

Larry Kramer:  Not a consolidation.  I mean, again, the legal market grew a lot faster than law schools, so even though the legal market is shrinking some now, I don’t think you’ll see a huge affect.  I think one thing to be aware of, is the legal market is quite segmented, so, you know, the fact of the matter is the elite law schools are not only attracting different students, but they’re preparing them for really different careers, than, you know, the lower tier law schools.

And what’ll be interesting is if the legal market—see, we have no idea, the legal market may just continue to grow or it may, you know, there may be a slight downturn and then it will grow again.  But if it were to continue to shrink, I think the bottom tier law schools will not actually be that affected, because as I say, they’re educating students for what amounts to a different market.  Within the mid top tier schools, if the market shrinks, then presumably there will be pressure at the lower end of the top tier and it’s hard to predict what would happen there.  There may be shrinkage, there might be some schools that phase law schools out, but I think it’s much too soon to say that that’s going to happen and as I say, I think more likely will be just—law schools will need to adapt to a changing profession and as they do, the problem should get solved that way. 

Question: Is the billable hour on its way out? 

Larry Kramer:  I think it’s too soon to say whether the billable hour is dead or not.  It’s hard to imagine it just disappearing.  There is increasing pressure for fixed fee billing.  I think right now everything is in such flux that it’s hard to see quite how it will sort out.  Some of the things that are happening are contradictory, so for instance, you can imagine a large client, a client that generates a lot of business wanting to say to law firms, “We’re not going to pay by the hour.  We want fixed fee.”  But some of them then say, “And we’re going to do it sort of matter by matter and we’ll have a beauty contest for each matter.”  That can’t sustain because competition among the firms then to come in at, you know, at a low billable rate, at a low overall rate rather, only works if there’s sustained business to be had.  You have to make a guess on how this is going to work and you can’t do it if in every single instance you don’t know if you’ll get the business, you don’t know exactly what it’s going to cost you.  So if you have a sustained business relationship with the client, then you can say, “You know, we can do this because we can just go to X-dollars per year and we have a pretty good guess about, some years it may be a little more, some years a little less, we’ll be okay.”  So that’s one possible direction in which things move and then the billable hour could diminish or even disappear and it won’t have a huge affect on the profession. 

You know, another would just be continued pressure to control billable hours much more tightly than has happened.  That could also work.  And there may end up being some sort of mix and there may end up being still alternatives to those two arrangements.  One of the things that needs to get looked at that we’ll see a lot of is, you know, global competition is just emerging.  So as I said, when the legal market globalized, the US initially dominated that—the US and England—initially dominated that.  But, you know, there’s a lot of development happening in a lot of countries and legal services now can be delivered much more cheaply from places that traditionally weren’t a part of this game at all.  And that will also put pressure on firms.

And so as that happens, you may get a split, you know, where a company will say, “Well, we will give this portion of the business out there that is low cost, and then we’ll keep the billable hour, because, but we’re only going to be paying for the high judgment skills.  Right?  So we’ll pay for your top partners and however many hours it takes them, we’re fine with that, because we know we’re getting value for those hours.  And so we’ll do it that way.”   You know, so there’s a lot of still sorting out to be done. 

Question: What do you think about the current process of hiring law students two years in advance?

Larry Kramer:  The current hiring process is a disaster.  I mean, it works for nobody in fact.  From the firm’s perspective, the big issue is they’re hiring people so far ahead they don’t know—not only, they don’t know what their needs are going to be, they also really don’t know what they’re buying.  I mean, the students are committing to jobs at the end of their first summer that they will take in the second summer that then, you know, hopefully lead to offers for jobs that they will take after they graduate.  So from the student’s perspective, they’re making a choice about a career, when at the vast  majority of law schools, they’ve only had required first year courses, they have no idea what’s going to be interesting to them in law really, because they haven’t had any opportunity to explore.

The problem is, competition among the, it’s one of these situations where competition among the firms for, you know, what they regard as who are the best students, at least as far as we can tell now, and that’s what we want to grab, you know, forces the process earlier and earlier.  So while all of the developments that we’ve been talking about would suggest a later process and a more informed process, at the same time, competitive pressures have been pushing it back sooner and sooner and it just keeps getting worse.

I think, you know, a process that would make sense would take place at the very least near the end of the second year, at the, you know, that would be the earliest.  In some sense, it would be better if it took place in the third year.  And when students had really had a chance to develop some interest and skills and could narrow their firm choices to firms that were doing something they were interested in doing, firms would have a strong sense of exactly what their needs were in that area, but right now, it’s hard to see how we move in that direction because as I say, competition just makes it impossible and nobody wants to be the first mover.

Recorded May 5, 2010

Interviewed by Jessica Liebman