Law Firms and Associate Careers: Tournament Theory versus the Production-Imperative Model
Kordana, Kevin A., The Yale Law Journal
Pray look better, Sir, quoth Sancho; those things yonder are no
Giants, but Wind-mills ....(1)
The career of an associate in a large law firm has been portrayed in stark Darwinian terms: Only the fittest survive the "tournament" that is established by the firm's partners. Such is the tale told by Marc Galanter and Thomas Palay in Tournament of Lawyers: The Transformation of the Big Law Firm.(2) This "tournament theory" explanation for the structure of large law firms has been widely adopted,(3) and has received surprisingly little criticism.(4)
This Note argues that an associate's employment contract does not enact Mr. Herbert Spencer's Social Statics.(5) It demonstrates that tournament theory is inapplicable to large law firms(6) and proposes an alternative model of law firm structure. It argues that, because serious monitoring difficulties do not exist, law firms need not adopt a tournament for their associates. Moreover, it shows that a tournament would not motivate all associates, nor would the tournament be sustainable in the face of changing economic conditions outside the firm. It then presents empirical evidence suggesting that firms are not in fact employing tournaments. This Note proposes that law firm structure is determined not by the operation of tournament theory, but by a production-imperative model. This model suggests that the type of work performed in law firms dictates their structure, that law firms hire associates to keep their costs down and profits up, and that associates come to large firms mainly to improve their lawyering skills and increase their general human capital.
Part I of this Note presents the tournament theory explanation of law firm structure. Part II examines the economics literature about tournaments and concludes that tournament theory is not applicable to law firms. It criticizes tournament theory for predicting too much about law firms--namely, that tournament theory also requires partners to progress through a series of tournaments throughout their tenure at a firm. The Part demonstrates that tournament theory fails to consider that many associates may not be participating in the tournament. It also shows that a tournament would be unstable because of fluctuations in the market outside the firm, and presents evidence that, contrary to Galanter and Palay's assertion, a fixed percentage of a firm's entering classes are not promoted to partner. Having rejected the dominant explanation for law firm structure, the Note goes on to develop an alternative model that more accurately reflects the reality of law firm life. Part III proposes the production-imperative model, in which law firm production requirements, the desire of young attorneys to develop their human capital, and market demand interact to create the associate career patterns characteristic of large law firms.
I. GALANTER AND PALAY'S TOURNAMENT MODEL OF LAW FIRM STRUCTURE
This Part discusses the origin of tournament theory in economics and outlines Galanter and Palay's incorporation of tournament theory in their description of law firm structure. Tournament theory arose when economists attempted to explain a puzzling feature of the labor market. Although ordinary market theory states that workers will be paid the marginal product of their labor,(7) an executive typically receives a dramatic pay increase if he or she is promoted from among several vice presidents to become the chief executive. It seems implausible that only several days after the promotion the new chief executive is contributing dramatically more to the company than he or she had as a vice president so as to warrant the pay increase. Tournament theory attempts to explain why earnings might be tied to job category rather than to productivity. Since it is difficult to determine the productivity of "supervisory or managerial" workers in a bureaucracy,(8) firms turn to a tournament to motivate their workers. The tournament model focuses on the incentives created for all workers by a prize awarded to the "tournament" winner. …