History Rhymes

by Ashish Nanda

As hiring institutions competed to recruit students ahead of their competitors, the date by which assignments were finalized kept creeping forward. Recruiters and schools collectively bemoaned that positions were finalized well before completion of professional training but, despite numerous resolutions, failed to prevent the market from unraveling. Finally, with appointments being made two years before jobs began, the schools and the hiring institutions decided that the dates by which positions were finalized had to be pushed back. The way to do that would be to mandate that offers be made on a particular date and students be given a short window of time to accept or reject the offers.

Does this description appear familiar? Law firms and law schools have been fretting that, with recruitment of new associates coming primarily from the pool of 2L summer associates, and summer assignments being decided early in the Fall of the second year, new associate jobs in law firms are being decided a full two years before they begin. To counter this unraveling, a commission established by the National Association for Law Placement (NALP) proposed on 7 January that all law firms move to a common offer date in January for 2L recruiting and law students who are offered these assignments decide within 14 days.

However, the above characterization not only fits the world of law firms recruiting summer associates in 2010 but it also fits uncannily the world of hospitals recruiting medical school graduates for internships in 1946.

In the first half of the 20th century, as hospitals competed to recruit graduating medical students for internships, the date by which internships were finalized crept forward. Hospitals and medical schools collectively bemoaned that internships were finalized well before completion of medical training but, despite numerous resolutions, failed to prevent the market from unraveling. By 1944, appointments were being made two years before the internships began.

In 1945, the American Association of Medical Colleges (AAMC) resolved that scholastic transcripts and reference letters would not be released prior to the end of the junior year (a date that later was pushed further back to the senior year) and in 1946 decided that all internship offers be tendered at the same time and all acceptance or regrets be communicated within seven days. This approach succeeded in reversing the unraveling of internship appointments but the problem of mismatches in appointments became considerably worse. Students were accepting offers from less preferred hospitals only to be approached later by preferred hospitals. Hospitals were making offers to less preferred students only to discover later that they could have recruited preferred students. Despite rules allowing students a seven-day window to decide, hospitals pressed students to accept internship offers immediately after they were extended and many students reneged on their commitments.

The internship assignments date was pushed back, but mismatches became more common. As students and hospitals unable to find matches in the first round scrambled, many discovered that they had accepted poorer matches when better matches could have been made. Over the next few years, under pressure from hospitals and students that bore the pain of scrambling in subsequent rounds and the mismatches they caused, the offer acceptance window for the first round was compressed from the original seven days in 1946 to 12 hours by 1950. But mismatches continued unabated. Eventually, the medical profession recognized that this problem could only be addressed by conducting simultaneous matching of hospitals’ and students’ preferences. The centralized matching approach, introduced in 1951-52, survives to this day, with high levels of voluntary participation.

What can the legal summer associate recruitment market learn from the experiences of the medical internship recruitment market six decades before? Here are a few predictions on what is likely to happen if the NALP commission’s proposal is implemented.

Implementation of the NALP proposal might stem, and even reverse, the unraveling of the summer placement market to ever earlier dates. But it will exacerbate the problem of mismatches. The suffering caused by mismatches will lead to pressures for further change, which will make the proposed system unstable.

If law firms follow the guidelines of the proposal, the dates by which the summer associate positions are finalized will be rolled back from early Fall to the Spring term. Law firms that renege on the promise to hold back offers till the common offer date will be disciplined by law schools restricting their access to students in future placement years. The disciplining mechanism will work only if “cheating” is verifiable and market demand for summer associates is strong enough that law schools can credibly afford to bar firms from recruiting. Since both assumptions are open to question, there is a likelihood of some law firms “cheating” the guidelines. Further, even if law schools do not make formal offers and demand formal acceptances, there will be considerable room for signaling that an offer is “highly likely” and arriving at an informal arrangement that the student will accept the offer if it is made.

Law schools will not roll back their on-campus interview (OCI) dates for several reasons. First, they will want their students to have as long a recruitment window as possible. Second, they will try to attract all law firms, including those that recruit by limiting themselves to a fixed number of schools. Third, they will want to preempt (or not be preempted by) other schools in giving firms “first-look” at their students. Fourth, at least initially, they will be unsure whether law firms will follow the guidelines and hold off on making offers, formally or informally.

Given that OCI dates are front-loaded during the Fall term, law firms will prefer to conduct fly-back and follow-up interviews early during the term for three reasons. They will not want the summer associate recruiting effort to stretch over a long period of time, since an extended recruiting season is often perceived as disruptive to business. Early interviews will afford firms a longer horizon before deciding to whom to extend offers. They will want to make early impressions on students and not be preempted by potential candidates having intensive exposure to other firms much before them.

Thus, there will be a period of several months between the interviews and the placement of summer associates. The NALP proposal suggests that this is beneficial in two ways. The additional time can help students and firms to get to know one another better before committing to the placements and firms can experiment with innovative recruitment methods. But extended hiring also imposes two costs. One, students will go through a longer period of uncertainty (which includes the winter break). Two, the risk of “cheating” (early offers and commitments) increases. An extended period of uncertainty increases risk averse students’ and hiring firms’ willingness to enter into informal agreements. Hence, after an initial flurry of interviewing in the second year, law firms and students will use the “quiet period” before the formal offers are made to engage in signaling and arrive at informal arrangements.

Law firms will make offers formally on the offer date. Some of these firms would have already arrived at “informal agreements” with the students to whom they make offers. However, once the offers are made, the “offer response window” will be characterized by a period of quiet and inactivity during the first 13 days or so, followed by a mad scramble at the end as the market clears. There is no benefit to the students holding offers from deciding early during the response window. However, there are benefits from deciding later during the response window. Students can use the time to contemplate their choices carefully, gather additional information, and bargain with the offering firms on internship characteristics (time, location, department, nature of work, etc.). Consequently, very few students with offers will choose early during the window. With most choices made towards the end of the response window, the end of the offer response window will experience a scramble of market clearing activity—rejected firms rushing to fill empty slots and second choice candidates rushing to accept new offers.

The proposal, as currently phrased, is silent on how subsequent rounds of offers will be conducted. In the absence of a specific guideline on length of offer response windows for subsequent rounds, law firms will press students for immediate responses, because they will worry that waiting further might lead them to lose lower choice students to other firms. Students will accept outstanding offers out of concern that they may be shut out of the market. This will increase mismatches. Preferred firms will approach students later only to find they have already accepted positions at less preferred firms. Preferred students will become available to firms that have already chosen less preferred students because they couldn’t wait for the preferred students to decide.

Students that are highly valued by most firms (typically, students of top-ranked law schools) will benefit from the proposed system. Valued students will have the luxury of choosing over a two week window among multiple firms. (The NALP proposal recommends that students be allowed to hold up to five offers.) None of the firms that have tendered offers will want to go into the frenzy of subsequent stages, so they will court aggressively students to whom they have made offers. Thus, valued students will have considerable bargaining power versus the offering firms during the acceptance window. Firms that are highly regarded by most students (typically, firms with high Vault ratings) will also benefit from the proposed system. Most of their positions are likely to be filled in the first round. They will not have to worry about other firms “stealing” students by preempting them on interview and offer schedules.

Lower ranked students and firms will lose in the proposed system. Since each student is allowed to hold a maximum of five choices and most schools value students similarly (typically on the basis of school and grades), the first stage will be characterized by some students holding multiple offers and a fairly large number of students holding none. They will enter the market in subsequent rounds, after the preferred students have communicated their rejections. In parallel, lower ranked law firms likely will not be chosen by their first choice students. They will get most of their summer associates from subsequent rounds. Follow-on rounds will be marked by intense pressures to make offers quickly and accept offers quickly, leading to several mismatches. When markets clear, students will be saddled with suboptimal assignments and firms with suboptimal associate classes.

Lower ranked students will resent higher ranked students having the luxury to decide among multiple choices over an extended period of time while they have to respond to “exploding offers;” lower ranked firms will resent higher ranked firms that do not have to enter the frenzy of subsequent rounds. Replicating the 14 day offer response window to subsequent rounds will be very difficult, since it will stretch the decision process well into the Spring term. Moving the initial offer period earlier to give later offer rounds more time will be difficult. Multiple rounds that straddle winter holidays will cause uncertainty and distract firms from year-end business. Moving the initial offer date to early or mid Fall will to Fall will detract the very objective of the exercise, which is pushing back the decision date.

Lower ranked students and firms will press for the first round offer response window to be shortened for reasons of equity. Shortening the offer response window will reduce the asymmetry between the experiences of higher and lower ranked students and higher and lower ranked firms. But it will exacerbate, not circumvent the problem of mismatches caused by frenzied decision-making.

Faced with these challenges, how will the law firm recruitment market evolve? One pointer would be how the medical interns market evolved after AAMC’s decision in 1946 that all offers be tendered at the same time and all acceptance or regrets be communicated within seven days.

The date on which assignments were made indeed was pushed back, thanks to the proposal. However, mismatches became much more common. Once the first round assignments were made, hospitals found that, in subsequent rounds, if students took even a brief period of time before rejecting an offer, it would be too late to approach their next preferred students since they would have accepted offers elsewhere. Students found that if they dallied in accepting an offer, the hospital would move on to the next student on their list. When the dust cleared, students would find that preferred hospitals would have accepted them, had they been prepared to wait for the hospitals to work their way down their priority list, and hospitals found that preferred students would have accepted their offers had they given them some time to decide.

Under pressure from hospitals and medical schools that had to bear the aggravation of participating in subsequent rounds, the window within which students were asked to convey their first choice was compressed over the next few years. The hope was that quick decisions in early rounds would lead to smoother market clearing overall. By 1949, the window had compressed to such an extent that offers were supposed to be communicated by telegram at 12:01 am on a set date and acceptances or rejections of the offers were to be communicated by 12 noon on the same date. Even then, there were numerous complaints of hospitals pressuring students to accept outstanding offers and students pressuring hospitals to move them from alternate (waitlisted) to confirmed status. In 1950, AAMC and American Hospital Association (AHA) jointly urged hospitals and students not to contact each other during the during that 12-hour window. The scramble to arrive at internship decisions only intensified the problem of mismatches.

Eventually, the medical profession recognized that the problems of mismatches and informal pressuring to make or accept offers could only be addressed by conducting automated matching of preferences. After a trial run in 1950-51, a centralized matching approach (following the deferred match algorithm) was introduced for 1951-52. Students and hospitals would continue to exchange information as before. Students would submit a rank-order preference of hospitals and the hospitals similarly would submit a rank-order of applicants, to a central bureau, which would use this information to match students to hospitals. The procedure was voluntary: students and hospitals could choose to go through this process or seek internship appointments on their own. This centralized matching approach survives to this day, with high levels of voluntary participation.

The law firm associate recruitment market is moving in small steps along the same path that the hospital interns market followed sixty years ago. The hospital interns market experienced considerable pain in the transition from an unraveled market to a flawed and unstable common offer date market before arriving at a stable and efficient centralized market. Does the legal profession have to duplicate all the suffering that the medical profession experienced? Or, can we learn from their experiences and circumvent the intermediate step in moving to an efficient and stable labor market?

1 Comment

  1. Cure Neckache

    April 22, 2012 @ 10:20 am

    1

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