THE TROUBLE WITH LAWYERS

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February 12, 1984, Page 006056
The New York Times Archives
Charles Fried is Carter Professor of General Jurisprudence at Harvard Law School. By Charles Fried HEY SAY THERE’S A problem about lawyers: that only the very rich can afford proper legal services. My law students have a problem, too, but not that one. The day they graduate from Harvard Law School they can earn up to $50,000 a year in Wall Street law firms or their equivalents in other large cities. They can’t explain these princely salaries the way doctors do – as the reward for years of privation – since these same firms may have paid them $1,000 a week during their summer vacations (sometimes throwing in a clothing allowance) just to get a hook into them. Ten years down the road, if they are made partners, these privileged young can expect to earn $200,000 a year, while the superstars of the profession pull down more than half a million.

So it is no surprise that some of my colleagues are able to evoke a more than usually powerful frisson of liberal guilt when they berate our first- year students as potential running dogs of capitalism who will grind the faces of the poor in the dirt while serving big business. And for the next three years, the Wertherlike sensibilities of our students are torn between virtue, in the guise of public-interest law or legal aid, and vice, which appears dressed in a three-piece suit carrying a leather attache case.

Of course, this conception of the profession is nonsense on stilts. High- priced corporate lawyers do not spend their days foreclosing on widows and orphans or devising imaginative ways for clients to get away with poisoning our water. Mostly they help businesses deal with each other or with intricate but essentially routine government regulations. Every significant aspect of our life as a nation is supervised, negotiated, litigated, regulated and legislated about by some 600,000 lawyers, and it is entirely inevitable that the ”best and the brightest” of these lawyers end up concerning themselves with the affairs of major business enterprises. Capitalism hasn’t a thing to do with it. If all these corporations were state enterprises in a socialist economy, they would still represent the major economic determinants of the society, and would for that reason continue to attract the most ambitious young men and women trained in the operation of complex institutions. The idea that after some revolution these persons would be content to spend their lives adjusting the petty grievances of ordinary people in everyday life is just another utopian fantasy.

The problem with lawyers, critics say, is the maldistribution of legal services: Only big business and the very rich benefit from the legal system. They say, too, that the only hope for a solution to the lawyer problem lies with crusading public-interest attorneys working not for private clients but for the public good. This is nonsense, too. The rich and the big corporations are more victims than beneficiaries of the legal system. And the hope for a solution lies with business and not outside it; reform of legal practices by corporations has, in fact, already begun. IN ANSWER TO CRIT ics of the profession, I believe the middle class gets quite enough legal services, the poor need other things far more urgently than they need lawyers, and the rich would be a lot better off if they had fewer – for what the rich have, in large part, is too much of what is not a good thing. There are lawyers aplenty for the average middle-class citizen’s occasional trauma or dramatic event: a will, a divorce, the purchase of a home, an automobile tort claim – events which, though rare in any particular individual’s life, are, in general, routine. Tort lawyers work on a contingent fee basis and thus are available for any claim that looks promising. Nor is there any dearth of lawyers willing to provide services for house transactions, wills and divorces. The problem, if there is a problem, is the expense of these services – an expense which may be painfully high to the client, which may be out of all proportion to the value of the service performed, and which would be unnecessary in a more rationally organized society. But, in general, the client can pay, as is shown by the fact that middle-income clients provide a regular income to a large portion of the bar.

The poor have different needs: wills and house transactions are not usually an issue, though divorce, child custody and support are as urgent for the poor as for everyone else. But mainly there are the endless hassles with landlords, finance companies, welfare – situations in which poor persons would certainly be better off were there a savvy, independent, well-spoken person pushing on their behalf. Poor people need this assistance more than others because of their greater dependency, and because they may be less well-educated, less articulate, less familiar with the workings of the system. These special needs of the poor are a natural result of their very poverty, which creates dependency, but also of conditions of social and personal disorganization. A lawyer might help poor people by getting involved as a social worker, therapist, or confidant in a whole host of troubles which are not particulary legal and which for each particular client are not permanently solvable. Only more money, jobs, better education and more stable homes can possibly make a dent on such needs – not lawyers.

But of course many who speak of diverting talent away from Wall Street law firms toward public-interest practice are not thinking about this kind of nurse-practitioner role at all. They are really talking about enlisting the battalions of the quick, ambitious and well-disciplined in the promotion of a particular set of social causes: consumerism, for instance, the redistribution of wealth, the destruction of capitalism, the protection of the environment, alternative energy resources, what have you. But these are political battles and they are fought with the same weapons and according to the same rules as those used by successful corporate lawyer-lobbyists. It is simply that these weapons are being deployed for a different set of goals. Successful public-interest lawyers are the mirror image of their Wall Street classmates. They make far less money but have the satisfaction of creating or overturning a political consensus, of using legal skills to leverage a minority position on the fulcrum of the judiciary into the ”law of the land.” And so public-interest lawyers make a great contribution to the majesty of the law: its complexity, pervasiveness, uncertainty, its crushing dead weight. And for this they have been amply rewarded – if not in money, then in influence and acclaim. And they’re working on the money: A recent statute allows courts to award fees to public-interest lawyers in certain cases, and the fee asked for in at least one of these cases would not embarrass even the highest flier on Wall Street.

Big business has traditionally been served by the great business law firms – the Wall Street firms or their equivalents in other cities. And they do superb work. The superb work is expensive. The senior partner may bill the client at $200 or more an hour for his time, junior partners bill a bit less and the associates’ time is billed at $50 or $60 an hour. No one doubts that the hours billed are really there, but the hours do pile up. An acquisition of a $25 million share in another business can easily cost each participant a quarter of a million dollars. A simple financ- ing of $75 million not requiring elaborate regulatory approv- als may cost the borrower $150,000 in legal fees. And liti- gation expenses cannot even be detailed in such a way – but they are astronomical.

It is this combination of superb work, large fees and princely earnings for the lawyers which lends plausibility to the claim that business enjoys great value from its more than fair share of the legal goodies. I feel that, on the contrary, business would do far better ”enjoying” less legal attention. The only difference I see between the situation of business in this regard and the rest of us is that some businesses have taken increasingly effective steps to loosen the grip of this professional incubus. And while these steps have been driven not by any spirit of public benefaction but by a desire to increase efficiency and cut costs, still I believe all of us may end up as the beneficiaries.

Business managers routinely choose between creating products or services within their companies and buying the products or services from outside suppliers. It has gradually begun to dawn on businessmen that this ”make or buy” decision they use in obtaining spare parts or janitorial services may be applied to the sacred but increasingly costly realm of legal services. Many large organizations have traditionally employed a full-time general counsel and perhaps a legal staff as well, but these lawyers tended to be looked down on in the profession – a bit like gentlemen who had been forced to ”go into trade.” At best, the general counsel of a corporation might be a kind of consigli ere to the chief executive officer. The lower reaches of corporate legal practice, however, were distinctly second class. The really interesting problems, the really crucial work, would be done by one of the great firms. Until recently, few if any high-ranking graduates from leading law schools would consider employment in corporate legal departments – though they would flock to the corporate departments of large law firms.

In the last five years, however, one large organization after another – not just businesses, but universities, hospitals, foundations, too – have turned over the bulk of their legal work to their own legal staffs. The move in- house has narrowed the gap between those who know how to do things – build bridges, design a computer, discover a promising idea worth investing in – and those who know about regulating them. When lawyers are made partners in substantive enterprise, and not just of each other, they are made to feel responsible for the final shape of the ventures they counsel. Not only do they become more conscious of the costs they impose, but they come to speak more simply and directly and to do things in simpler, more direct ways.

To get a lively if not scientific sense of this phenomenon, I asked three companies which do almost all their legal work in-house to allow me to follow one or two important but not unusual legal transactions from start to finish. The firms I chose were three rather different Fortune 500 organizations – a conglomerate holding company, a consumer-products company, and a leading electronics manufacturer. I spent time counting the hours, seeing who made what decisions, estimating the cost, getting a sense of the style of work. At the same time, I was able to learn about morale, compensation, satisfactions and aspirations up and down the legal ladder of these corporate legal departments. And though it was impossible to match these up directly with what would happen in a major law firm, there were indirect and highly suggestive ways of comparing the style, amount of work and cost of the two modes of doing the same legal job.

This is not the place to report the details of my research, but the conclusions are striking. In spite of large differences in corporate style and ways of doing their legal work, the three companies, which had all recently taken the legal function in-house mainly in reaction to the high and increasing cost of outside legal counsel, had saved at least as much money as they had expected. And they were surprised that they had lost nothing in the quality of the legal product, that the product was, if anything, better adapted to their needs.

The general counsel of the conglomerate recalled to me how the company had paid its Wall Street lawyers $20,000 to list additional shares of a security with the New York Stock Exchange, while its own lawyers now do all such work themselves quickly, easily and at negligible cost. This was just impressionistic evidence, but two of the corporations I studied keep detailed time records of all their work and have a fair idea of what their lawyers’ time costs them. When one company borrowed $75 million in European markets, its staff did all the legal work themselves at a cost of some $33,000, while the large firm which did the corresponding work for the company’s bankers charged $75,000 – and then only because this was the maximum fee negotiated in advance. And when the electronics company – together with two co-venturers – acquired a controlling interest in a faltering business, its in-house legal costs for the whole complicated transaction were a little over $100,000, while the law firm for the company acquired charged at least half again as much for a much simpler job.

But reduced costs are not the only benefit. The work is done more quickly and more cheaply because it is done not so much by experts in this or that legal specialty as by men and women expert in the business they work for. As principals, they know the personnel and needs of the company intimately. And they can take risks and make judgments no outside lawyer dares. Legal judgment and business judgment run together.

But more striking to me than any of this was the attitude of these men and women to their work and to their careers. There were differences. The senior executives of the conglomerate led a harried, frantic existence juggling problems, deals and emergencies with a tiny staff. The handful of lawyers were part of that scene and had little time to wonder whether they were acting as lawyers two companies had more orderly but also much larger legal staffs. With the exception of the single senior lawyer in a company hierarchy, the other lawyers readily acknowledge that they earn a bit less than the most successful law-firm partners of their age in the same city, yet they feel they have made a good trade. For one thing, the competition on the way up is less fierce because it’s not ”up or out” as it is in a law firm. But mainly it’s the work they do which compensates them. One young woman only two years out of law school is a member of a small management group which is in charge of planning and implementing all personnel policies for her employer. Since the company has an extraordinary commitment to employment security and career development, this young lawyer feels she is working at the very heart of the enterprise.

An associate general counsel of one of these companies – a man about 40 – told me that he considered it entirely possible that his next move would be to leave the legal department of his corporation and take up the management of one of its major operating divisions. And, of course, several great corporations are indeed headed by their former general counsels.

What does this development portend for the law firms? Nothing very good, I would suppose. Surely the days of large, stratified law firms charging major corporations and similar institutions huge fees for meticulously executed, high-volume, routine work are numbered. Some large corporations may take a while yet coming to the conclusion that they can do this work better and more cheaply themselves. They may, for instance, be saddled with a large traditional corporate legal department staffed by in-house counsel of the old school, to whom the corporation quite rightly would be reluctant to entrust its principal legal responsibilities. Some large corporations are so internally at odds with themselves that outside counsel as a kind of neutral arbiter may seem an institutional necessity. And some corporations, out of conservatism, will be reluctant to disturb long-established relationships. But these are transitional phenomena.

Law firms would like to think that they have a kind of distance, judgment and almost academic posture toward the law which allows them to serve clients particularly well. Much of this is a self-serving fantasy. But there is some truth to the point, too. It may well be that a busy corporate counsel cannot keep up with the most recent academic and judicial developments in some specialized fields. If I am right in my general prescription, the very existence of such specialized developments requiring a mediating priesthood between the regulators and the regulated is itself a sign of social illness. But be that as it may, some role for the outside legal consultant will probably persist. And that is where the independent professional might find a place. That role will not, however, support the traditional huge law-firm bureaucracies.

Litigation is also an area in which outside counsel may continue to have advantages and attractions. Corporate legal departments tend to use outsiders for litigation. Litigation tends to be spread over many communities and to require specialized knowledge of local conditions. Here, too, however, change is in the wind. In large-scale corporate litigation, most of the time and fees are taken up by pretrial maneuvers. Corporations with active legal departments at the very least insist on close supervision of the outside litigator, and some are now taking over the expensive, protracted pretrial stages of the litigation themselves.

Further, there are specialty fields – bankruptcy is a good example – where it would not pay even a very large corporation to develop an in-house capability. If law firms focus more on these intricate specialties – becoming the equivalent in the law of tertiary-care hospitals in medicine – they again will carve out a distinct niche for themselves, though a far more modest one than is the case at present.

At the other end of the spectrum, it is possible that certain transactions will become so routine that corporate legal departments will not wish to handle them, while legal entrepreneurs may devise the equivalent of legal Hong Kongs – offshore key- punching operations – to grind out vast quantities of routine materials at very low cost. Some of the financial reporting work under the Employee Retirement Income Security Act might be an example of this.

Finally, many businesses – especially new ones – are not large enough to be able to mount a full-scale legal department. Law firms would then stand ready to provide a full range of legal services to businesses which can afford either no lawyers or only a limited range of lawyers. Indeed, the ideal type of the lawyer as all-purpose, wise counselor comes closer to being realized in smaller firms dealing with new and smaller clients and in law firms away from the legal meccas of New York, Chicago, Los Angeles and Washington.

If more and more of the best trained and most enterprising lawyers go into corporate law departments, and if once there they view themselves as businessmen as much as lawyers, I believe this will have a profound effect on the self-image of lawyers generally and thus on the law itself. The businessman is bound to be impatient of formality and technicality; he is concerned with efficiency, with the best way of attaining a defined goal. If those attitudes permeate the practice of law, the law itself may become more informal, more concerned with the costs it imposes on society. This cannot help but rub off on the judges. It is too much to expect that judges will soon be drawn from the ranks of corporate counsel. They are likely to be the last bastions of the legal mind’s tendency to exalt its own peculiarities into eternal moral necessities. But judges cannot remain immune to the attitudes of those who plead their cases before them. And so, a more flexible, more pointed attitude toward the law in general would redound to the benefit of the public as a whole.

I cannot be sure, but I would hope that a more businesslike attitude in the profession would result in better delivery of legal services to ordinary people: in the writing of wills, domestic relations, home purchases. As the self-serving mystification about the profession is dispelled, it may become more possible for businesses to offer what is, in effect, a business service. There is no reason why bank trust departments should not actually write wills, as well as serve as trustees and executors – as they now do. They would be sure to do it more cheaply than the small law firms that now live on this kind of practice. And it is mere persiflage to suggest that they will do it less responsibly. It will be a product which they offer, and everyone knows that it is far easier to sue a bank or other large supplier of consumer services for negligence than it is to sue a lawyer for malpractice. Similarly, real-estate brokers might take over a large part of the legal business surrounding home purchases. Perhaps the overall movement will speed the acceptance of such simple and dignified institutions as nonadversary divorce mediation.

And when a decent, regular, efficiently managed and reasonably priced system for delivery of professional services is in place for the middle class, we then may have a standard against which the delivery of analogous services to the poor can be measured. It may require a significant reorganization of delivery systems and a smashing of anticompetitive, guildlike practices perpetuated in the name of professionalism to establish what a reasonable, affordable level of attention might be. Once that level is established, we can begin to think about providing it as a welfare benefit to the poor. As for ”public-interest” lawyers, perhaps they will all finally go into politics – where they belong.

It is unlikely that I am the only one to see these trends. Many sections of the organized bar are likely to have seen them too. Will the empire strike back? The legal profession might push for court rules, regulations, perhaps even legislation, requiring the use of ”independent” – i.e., noncorporate – lawyers. The longstanding ban on the corporate practice of law might be strengthened to block the kinds of beneficial innovations I have been describing, perhaps even extended to require the use of outside counsel in court appearances or in regulatory filings.

Any such moves should be resisted to the utmost. They are the professional equiva

lent of local-content legislation to block competition in automobiles. The arguments for such moves will be all too familiar. The public must be protected against ”excessive” competition, against professionals who owe a duty to employers instead of to their consciences and the courts of which they are officers; the high professional independence and ethics of the traditional bar must not be compromised. If you hear arguments like this, reach for your wallet. They are the familiar smokescreen used by guilds to protect their privileges from competition and progress.

The most likely and most threatening move, however, will work through the uneasy consciences of the most prosperous and prestigious segments of the profession and their acolytes in the legal academy, both faculty and students. They all have some sense that annual earnings of a quarter-million dollars, paid not just to a few stars or to entrepreneurial risk takers, but as a matter of course to a whole segment of a profession, are hard to explain either on grounds of desert or as market rewards. Mobilizing the usual mechanisms of liberal guilt, the profession will continue to press for an extension to the society as a whole of the same overelaborate, inefficient and costly services now furnished to businesses by major law firms. Since there is a limit even to lawyers’ powers of turning a self-serving argument into one that speaks to the common good, one may expect that the focus of this strategy will continue to be the provision of what is called ”equal access” to the poor and to ”public-interest” organizations. Here the legal profession will take a cue from its confreres in the medical profession, who turned the campaign to provide basic health care to the poor and elderly into an unprecedented financial bonanza for doctors. Medicare and Medicaid meant extending to all at public expense the lucrative and wasteful fee-for-service system under which the nonindigent had been groaning for years. The analogous strategy by the legal profession would assure, at public expense, employment and a guaranteed annual wage to the 35,000 lawyers graduating from law schools every year. I hope we will have the wit and will to resist.

source : www.nytimes.com

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