Capitalisn’t: How Big Law Firms Shape Capitalism
- November 30, 2023
- CBR - Capitalisnt
In his book Servants of the Damned: Giant Law Firms, Donald Trump, and the Corruption of Justice, journalist David Enrich presents several case studies showing how “Big Law” law firms have used their wealth and influence to capture the justice system, serving the interests of their wealthy clients at the expense of ordinary Americans. On this episode of the Capitalisn’t podcast, he joins cohosts Bethany McLean and Luigi Zingales to discuss how can we restore the integrity of our legal institutions, and what the broader implications for the rule of law are in a society dominated by economic and political interests.
David Enrich: These law firms, they exert huge sway and I think, often, kind of corrosive sway in court, but a lot more of it is actually taking place behind the scenes in Washington and in state capitals and also just in normal, small towns all over the country, more or less on a daily basis.
Bethany: I’m Bethany McLean.
Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?
Luigi: And I’m Luigi Zingales.
Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.
Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.
Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?
Luigi: And, most importantly, what isn’t.
Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.
Bethany: Capitalism is based on the pursuit of self-interest. One of the fundamental questions is how unrestrained this pursuit should be. Milton Friedman famously said that the only responsibility of firms is, to quote, “make as much money as possible while conforming to their basic rules of society, both those embodied in law and those embodied in ethical custom.”
Hmm, who decides what is legal?
Luigi: Ultimately, it is the judicial system. But in their day-to-day operations, businesses have to make many decisions. If the speed limit is 55, is it OK to drive 60 or 65? Also, imagine there is a magic lawyer who can ensure that the firm is acquitted of any possible charge. Should a firm ignore the law and hire that magic lawyer?
Bethany: There are very powerful law firms that, through either sheer brilliance, scorched-earth strategies, or high-level contacts from what we all know as the revolving door, are very effective in protecting firms. More importantly, should law firms who are themselves businesses these days apply those techniques? And if so, how aggressively should they be applied?
Luigi: To try to answer these difficult questions, this week we invited to the show David Enrich, a New York Times journalist and author of Servants of the Damned: Giant Law Firms, Donald Trump, and the Corruption of Justice.
As we mentioned a few weeks ago, we’re interested in analyzing the role enablers play in distorting the capitalist system. In February, we analyzed the business of consultants and last month, the scientists for sale.
In this episode, we’re focusing on the lawyer market. Enrich’s book provides a very interesting history of the emergence of agile law firms through the lens of the history of one of the major ones, Jones Day.
Bethany: One of the important parts of the book and where it has gotten a lot of attention is its focus on the involvement of Jones Day with the Trump administration. We’re actually more interested in Jones Day’s involvement in the defense of some of the most troubled and controversial corporations in America, from Purdue Pharma to RJR Nabisco, from gun makers to Abbott, accused of producing infected baby formula.
In a key paragraph, David writes this: “The work of elite lawyers and law firms has less and less to do with courtroom representation. Instead, it is geared toward helping clients sidestep regulations, control the media, whitewash their reputations, dodge taxes, and hide their money, tasks that don’t even fit under the most expansive definition of work to which clients are constitutionally or ethically entitled.” Wow.
Luigi: Funny enough, the other day I was reading a book about Wirecard, which is the biggest financial fraud since Madoff, and surprise, surprise, what law firm was defending it? Jones Day.
Bethany: The theme of David’s book, or one of the themes of his book, is that what led to the transformation of professional firms into cynical businesses was the increase in competition and size that took place starting in the late 1970s.
Luigi: Ironically, the book attributes a major role in this evolution to a monthly magazine called The American Lawyer, which debuted in 1979. The American Lawyer’s mission was to reveal the industry like other outlets did Hollywood or the NBA, titillating the ego of every major lawyer and fostering a spiraling of their compensation.
In fact, in a recent paper, I documented that the average income per partner of the top 100 law firms went from $600,000 to more than $2 million in 2020 dollars during this period. It’s more than triple in real terms.
Bethany: I think the issue might be more complicated than the rise of The American Lawyer, but let’s discuss it all with David.
One of the insights that I absolutely loved in your book was this idea that we’ve conflated an individual’s right to a vigorous defense with a corporation’s right to a vigorous defense. And I love that insight because I took that conflation for granted. It actually never occurred to me that it was a false conflation. Do you remember when that idea occurred to you that, wow, we’ve done this? And then, how would you chart the history of that, and where do you place that in the pantheon of what’s gone wrong?
David Enrich: Yeah, I do remember when this occurred to me. At the beginning of a project like this, Bethany, I know you know this from your own reporting experience, you start out just trying to contact anyone you can who either currently or previously worked at the organization. And pretty early on, I found people who were willing to talk openly, but I also found a lot of people who were just kind of offended, I think, by the very notion of digging into what law firms do, or holding law firms or lawyers to account for their representation on behalf of clients. And so, I just started talking to people not at law firms, but elsewhere in the legal profession and trying to get my brain around this.
They helped me understand that A, as you just said, it’s not the same. Individuals under the Bill of Rights, when charged with a crime, have the unquestioned right to a zealous and competent legal defense. Corporations aren’t mentioned anywhere.
But even if you accept that corporations are people under the US Constitution, which is questionable, the Constitution only entitles you to a zealous, competent representation when you’re charged with a crime. And the vast majority of services that lawyers and law firms are providing to big companies these days do not involve criminal-defense work. They’re either on civil cases or, more than that, on working to help companies minimize their taxes, whether legally or illegally, to skirt or work within government regulations, to lobby the government, to water down regulations or enforce rules differently, things like that.
Those are services that, while it’s understandable that people and companies want to receive those services, and there’s nothing inherently wrong with providing those services, it’s not something that you can cloak yourself with this constitutional rhetoric about everyone deserving a right to counsel.
When that dawned on me, it really changed the way I viewed this book and the legal industry in general because it became much more about lawyers and law firms making a series of subjective decisions about what kind of services they want to provide, what kind of work they want to do, and for which types of clients.
At that point, it became much clearer that this is really all about the money for a lot of these firms. It’s not about this principled stand about how we’re going to accept whatever client walks in the door. No, they’re actually out there actively soliciting clients, pitching them on aggressive, cutting-edge legal services and legal strategies that often bump right up against the ethical lines that the industry is supposed to adhere to. It really has nothing to do with serving people or even institutions that are under great duress as the government tries to prosecute them for actual crimes. It has nothing to do with that.
Luigi: I’m a business professor, so I read everything through a particular lens, but my reading of your book is that competition to make more money corrupted the ethics of lawyers, and that Jones Day is one of the worst in this dimension.
But then I went and looked at the famous American Lawyer magazine, and Jones Day is only 71st on the list of the most profitable law firms in terms of profit per partner. So, I’m a little bit puzzled here. Are they so much worse than everybody else? If so, it doesn’t seem to pay off to be worse. Try to help me out, reconcile these elements here.
David Enrich: I don’t think they are the worst. I think they are kind of in the middle, actually. I think that part of the reason I picked them as a narrative vehicle for this book is that their arc from this kind of random, obscure Midwestern law firm based in Cleveland into one of the biggest law firms in the world, at least in terms of the number of lawyers they have, is that it really exemplifies a lot of the shifts that have taken place across the industry. But you’re right, if you look at it by profits per partner, they’re way down on the list. Their average partners are not making well into the millions of dollars, the way a Wachtel partner or a Sullivan Cromwell or a Skadden or a Cravath partner might be.
I do think that that’s kind of a random way of measuring it because it doesn’t account for, at the top of the food chain, at a place like Jones Day, the partners are making many millions of dollars a year, but it’s a much bigger place. And so, the spoils, especially as you get a little bit down the food chain, are spread across a great many more partners than you would have at a smaller firm.
Bethany: There’s long been an argument, almost conventional wisdom, that part of what’s gone wrong in America is the concept of shareholder value, for-profit companies mindlessly focused on shareholder value, but law firms are still private partnerships. I’ve heard this often about investment banks for instance, that, oh, if they hadn’t started going public, they’d still be better citizens.
Is there anything to the concept of a partnership? Does the partnership structure make it actually more prone to moral compromise than the shareholder-value-driven corporation? Or is there really no distinction in this day and age?
David Enrich: Well, I think there are distinctions. I’m just not sure exactly which way they always break. To be honest, I’ve done a zillion interviews about this book since it came out last fall, but you’re the first person to ask me that question, so I haven’t actually thought about that. But, off the top of my head, I think that there’s probably something to it.
I think that the one way to make law firms like Jones Day more avaricious would be for them to be publicly traded companies that were also facing quarterly shareholder calls and pressure from shareholders and things like that.
I mean, Jones Day, one of the things that I think distinguishes it not only from public companies but also from many of its peers, is that so much power is held by the top guy at the law firm, and it is always a guy. That allows you to make very swift, speedy, authoritative decisions. It also means that for everyone else in the partnership, it’s a lot less democratic, small-D democratic.
That cuts both ways. That means that you can take advantage of really swift decision-making to enter a new market or to say yes to a certain client or say no to a certain client. It also means that you are held hostage to the whims and sometimes to the ideology of a single person and the small clique that he surrounds himself with.
I think that shareholder pressure works both ways, right? Historically, over the past 20 years on Wall Street, it’s been a great force for pushing companies to become much more short-term profit oriented. But also, there’s countervailing pressures where some investors can at least voice their concerns about ethical things.
And this whole ESG movement, which you guys are obviously well aware of—and also is very complicated and not the panacea that some people present it as—none of that pressure, that external pressure, exists within the confines of really any law firms. I think it’s complicated. I think it cuts both ways for both. It’s a good thing and a bad thing.
Luigi: It’s interesting because, of course, there is the choice of clients, but there is also the choice of behavior with the client. I spoke with some lawyers, and I got very confusing answers because some of them are adamant that you have to do whatever is legal to defend your client. But then I actually read the ABA, American Bar Association’s ethics code for a client-lawyer relationship, and they do say that you have to defend the law with zealous advocacy, blah, blah, blah, blah. But also, they say the lawyer’s duty to act with reasonable diligence does not require the use of offensive tactics or preclude the treating of all persons, including in the legal process, with courtesy and respect.
When I read this, what came to mind was the part of your book about Jones Day defending Abbott and really berating the poor victims, to some extent, because the parents of that daughter who is brain-dead, literally, have no fault.
For those of you who are not familiar, depositions are not done in front of the judge, and so, the lawyers go wild. The cross-examinations in front of the judge are much more civilized because the lawyers don’t want to look like jerks in front of the judge. But the depositions are also made in front of the opposing counsel, and they’re trying very often to intimidate people who are not very confident.
In this particular case, they brought up some stuff like an affair and a drug incident that happened after the incident and were completely unrelated to the incident. It was a pure kind of meanness or strategic action to protect the client, but I think beyond what the client relationship recommends.
David Enrich: Yeah, it’s a winning-at-all-costs mentality that has really transformed the legal profession, I think. And there was a time, not when I was alive, but certainly when my parents were alive, lawyers primarily viewed themselves as officers of the court whose job was to present facts accurately to a judge or jury so that they could ascertain or make their best stab at the truth. And it’s become this no-holds-barred, I think very ethically challenged profession, in part because lawyers have followed this path of zealously representing your clients down a pretty slippery slope.
The example you mentioned with Abbott Labs, when Jones Day was called in to defend the company whose baby formula allegedly poisoned a newborn baby, is I think a good example. Jones Day also, like many of its peers, has represented big tobacco companies and used equally aggressive tactics of intimidation and threats to prevent people from filing lawsuits or to encourage them to withdraw lawsuits once they’re filed.
One of the arguments that lawyers often make when I start bringing up these examples is, we are obligated to zealously represent our clients to the fullest extent possible within the boundaries of the law and our profession’s ethics. And that’s all well and good, but our legal system today is predicated on the idea of two opposing sides in court basically being able to, within the legal rules, go to battle with each other, armed with facts so that judges and juries can make informed decisions.
That system works when there is some equilibrium between the two sides, when both sides have similar amounts of time and resources to spend on a court fight. That equilibrium is completely gone right now. If you’re a big company accused of wrongdoing, you hire a firm like Jones Day or many other law firms, and they will go to the ends of the earth to turn up evidence to support you and to engage in tactics that I think would make a lot of people blush.
On the other side, you have lawyers who are simply less well-equipped to go up against big law firms. There are some big plaintiff-side law firms that do a very good job in these cases, but there are a lot more, including in these cases that I highlighted with Abbott Labs, where the lawyers are just completely overwhelmed and outmatched by this army of lawyers from Jones Day.
At the end of the day, what that means is that everyone’s notion of justice, it really just, I think, is disappointed because you cannot achieve justice when you have one side in a legal fight that has infinitely more financial and other resources at their disposal than the other side does. And that equation almost always plays out in favor of big, rich companies at the expense of people who claim to have been grievously harmed by those companies.
Bethany: In the Abbott case, you detail in such a heartbreaking fashion how the plaintiff’s lawyer was completely outgunned by Jones Day, but to what extent does the rise of these very wealthy, very powerful plaintiff’s firms help offset that? I’m thinking of firms like Quinn Emanuel where the partners actually do better than the partners in big law firms and are highly incentivized to fight it out. Does that only work for big cases where there’s a lot of money at stake, so it doesn’t really address fundamental questions of justice, or is it at least a little bit of a counterbalance?
David Enrich: I think it’s a little bit of a counterbalance. I just don’t think it’s a consistent counterbalance. The reality is that, on a percentage basis, if you look at the number of cases brought, it’s a very small number of cases that are brought by these mega-plaintiff-side firms. So, it’s not that much of a balance in the grand scheme of things.
The other point, though, is that I focus a lot in the book on litigation and court cases, which is really important and for Jones Day is one of their specialties. But so much of what big law firms are doing nowadays has nothing to do with anything going on inside a courtroom.
There’s another chapter in the book where I detail the actions Jones Day took on behalf of RJ Reynolds, the tobacco company, to basically pressure a small town in Massachusetts not to enact stricter regulations on the sale of flavored tobacco products. That had nothing to do with a court fight or anything like that. It was Jones Day writing a threatening letter to this small town that just tied the town in knots out of fear that they might one day be sued.
Even though the letter was filled with these kinds of baseless legal arguments that experienced lawyers said were garbage, it worked really well because the town and the politicians running the town, understandably, had a very limited appetite for pursuing a course of action that risked incurring huge financial damages to their small town.
It’s kind of a representative example of a much broader thing that’s going on, which is that these law firms exert huge sway and, I think, often corrosive sway in court, but a lot more of it is actually taking place behind the scenes in Washington and state capitals and also just in normal small towns all over the country, more or less on a daily basis.
Luigi: Actually, for me on that front, the most horrendous story was the story of Walmart and the way they basically got away with murder, literally, at least the way I understood it, because of the connection that Jones Day had with the Justice Department.
David Enrich: Yeah, that’s right. And it’s a little hard to get into this without opening up the whole Trump can of worms. But one of the things Jones Day has managed to do in the past 10 or 15 years is really transform itself into a law firm that specializes not just in litigation and not just in representing big, powerful companies, but also specializes in election law. They helped run the Trump campaign in 2016. When Trump took office, they had a lot of success in bringing some of their senior people inside the White House and elsewhere in the Trump administration. That paid huge dividends not just to the firm but also to the firm’s clients.
The Walmart case provides a very kind of, I think, compelling case study of that. The Justice Department, under the Trump administration, US attorneys in Texas had been investigating Walmart’s role in improperly and illegally distributing Oxycontin and other opioids. Basically, the conclusion that the Justice Department reached was that this was a criminal enterprise. Walmart knew that it was fulfilling prescriptions for doctors who were basically pill mills. It knew that those pills were ending up in people’s hands who should not have had them, and it led to deadly overdoses.
The US attorney’s office in Texas built what the lawyers there thought was a very compelling criminal case against Walmart. Walmart was represented by Jones Day, and Jones Day’s lawyers appealed to their very recently departed colleagues, who are now in the upper echelons of the Justice Department, for help, basically, neutering this investigation, and it worked.
That is, first of all, very savvy, effective lawyering on behalf of Walmart, which in this case was about to be accused of a crime. But it also is the type of behavior that people I spoke with inside the Justice Department at the time, who include both Republicans and Democrats, said really diminished their trust and confidence in their ability to administer justice impartially. It was, to them, a really vivid example of the ways that big companies through their big law firms can tilt the scale in their favor.
In that case, the Trump Justice Department ended up bringing a civil case years later against Walmart, but it was a much paler version of what the lawyers in Texas, the Justice Department lawyers in Texas, had hoped to bring. That was really a testament to Jones Day working the levers of power very effectively on behalf of their client.
Bethany: I coined a phrase a few years ago—at least, I think I coined it, I might not have—about the shadow justice system. Forget about the shadow banking system, the shadow justice system. I think what you’re talking about is part of that, and that’s the ways in which all these things that are supposed to be pulled out into the light of day and argued in front of a jury so there’s a public record in the courts and the jury hears it are now conducted in the shadows.
Part of that, of course—and I think Judge Jed Rakoff has been pretty vocal on this—is the ways in which big corporations now carve out settlements with the Justice Department, and those settlements are cloaked in such heavily lawyered language.
I’m thinking of the financial-crisis settlements with the banks. Billions of dollars in fines, you can’t tell what happened, who was guilty, who was charged. I guess my question for you is, do you agree with that idea of the shadow justice system, and what do we do about it? Do we just make everything that happens in the law . . . Should it have to be transparent? Should we get rid of this whole system of private negotiations so that it happens in front of a judge and a jury again?
David Enrich: I definitely agree with the way you’re characterizing it. One of the reasons I got interested in law firms in the first place is that I’d spent many years writing about the banking industry, including during the financial crisis, and saw the way the banks, through their law firms, really . . . manipulated is maybe too strong a word, but came close to manipulating the government and really tying the government in knots and making it . . . They succeeded in preventing any high-ranking individuals from ever being held accountable for what happened during the financial crisis, and in the years after the financial crisis as well.
I was in London with the Wall Street Journal back in the 2012, 2013 period, and was closely following the investigations into the London Inter-Bank Offered Rate (Libor), which I don’t know if anyone remembers anymore, but was a global interest rate that was being manipulated by banks and by bank traders.
One of the real themes that emerged from that, I think, is that banks like UBS and Barclays and some of the big American banks as well, that had clearly engaged in a pattern of illegal conduct, they were just absolutely masterful because of their lawyers at owning up to limited types of misconduct that resulted in relatively low-level traders and managers being put on trial.
Even though the culture of these banks was actively encouraging bankers and traders to do this type of manipulative behavior, no one in any sort of executive capacity was ever accused of any wrongdoing. And the more I dug into that, Gibson Dunn was representing UBS, and the way that they had kind of manipulated the immunity programs in both the US and the European Union just struck me . . . I mean, it was brilliant. They managed to get UBS credit for cooperating. UBS then got to basically set the parameters of the investigation that the Justice Department and the CFTC and the US would conduct.
Lo and behold, those investigations, which were run by Gibson Dunn on UBS’s behalf, found that there was a lot of low-level misconduct, but that there was not anything that involved high-ranking executives. The more I reported that out, the less plausible that explanation actually became, but it worked. That, to me, is a really clear example of the shadow legal system. It’s not in the public interest, it’s very opaque, it’s at the expense of the public that has, I think, a right to expect that this type of investigation will be administered impartially, and the actual wrongdoers and the people responsible for the wrongdoers will face some sort of accountability.
What do you do about that? I don’t know. I mean, I like to think in my happier moments that journalism is what you do about it and sunlight being a good disinfectant. But I’m not sure that is really an adequate answer.
Luigi: As a business professor, what I would like to have seen a bit more is the changes in the business model of law firms, because you discuss the impact that advertising brought to competition and the impact that the lawyers magazine brought to that. But my understanding—and here I might be wrong— is that a lot of the source of value for senior partners is the fact that you have a lot of junior associates working their butts off at probably below market rate. And so, they take a cut on that compensation.
Now, why are associates willing to slave away until they make partner? It’s because they plan to make it up later on in life. This system works well only if you have very high growth because if you have high growth, you can increase the number of partners, and so, everybody is better off. It is really the pressure to grow the business constantly, because otherwise this Ponzi-like scheme might collapse. That forces firms to give up any ability, for example, to choose because the same Jones Day . . . The story that you bring up is beautiful about the time of Nixon, when the managing partner of Jones Day refused to defend Nixon.
There was a time when they could afford to do that. I don’t think there is that time anymore. Isn’t that the case?
David Enrich: You’re definitely onto something about this kind of vicious cycle where the more you grow, the more you hire, the more you need to grow and hire to keep increasing your revenue, so that you can afford to recruit more partners, and you can have associates working for them. But the only reason associates are going to work is if they’re on the partnership track, and then you have more partners, and your profits per partner are going to go down unless you grow the pie, which means you need more clients, which means you need more associates, which means you need . . . round and round we go.
I think the place where I maybe start to disagree with you a little bit is that that is in any way exculpatory in terms of the decisions that law firms and lawyers are making in terms of not only which clients to accept, but also the types of work they would be willing to do for those clients. The Nixon example is interesting in that Jones Day turned down representation of Nixon. But if you go back even further than that, for Jones Day, there was a time in the past when the type of advice they were providing big, powerful companies was much different than it is today. That’s not just about Jones Day. I’m only using this example because it’s emblematic of what’s happened throughout the legal industry.
There’s this explosion at a natural-gas facility in Cleveland in the mid-1940s that leveled an entire neighborhood. It killed a lot of people, caused huge amounts of damage. Jones Day was called in to basically assess the gas company’s liability for this explosion. The explosion took place on a Friday. Jones Day spent the weekend trying to research in case law and trying to understand the company’s options for what they were going to do.
That Sunday, they presented the gas company with some choices, and one of them was to fight. You’re going to get sued, but you can kind of deflect and protract this and raise questions about who is actually responsible. Maybe it’s the company that manufactured the gas tank that exploded. Maybe it’s the sewer authorities whose tunnels became conduits for this explosive gas. You can blame the homeowners, on and on and on, just normal tactics. Or you can go another route and just accept liability and make people whole because it’s the right thing to do.
Jones Day advised that the company do that. The next day, that Monday morning, three days after the explosion, they took out an ad in The Plain Dealer newspaper basically inviting people who had been harmed by this explosion to show up at the gas company’s offices the following morning or that morning, that Monday morning, and they would be compensated on the spot.
Jones Day set up shop on the ground floor of this building and processed people’s claims right then and there. I forget the amount of money that was dished up, but I think it was over a hundred million dollars in today’s money. Many decades later, that is still viewed in Cleveland as a great act of civic duty that Jones Day and this gas company, which still operates in Cleveland today, performed.
That’s short-term expensive for the gas company. It may be short-term expensive for Jones Day because they don’t rack up the huge legal bills that would be involved with litigating all of these cases. But in the long run, it means that Jones Day has this very fruitful relationship with a client that continues to prosper in its home market.
I think, to me, the takeaway of that is that you can make decisions at a big and fast-growing law firm in the long-term interest of your clients and, therefore, yourself that don’t necessarily require abusing opposing witnesses or conducting secret pressure campaigns against the government. You can do the right thing and advise your clients accordingly. That’s a story that I tell a lot when I’m talking to lawyers right now, and they look at me if I’m just making it up because it’s so inconceivable to them that a law firm would actually offer that type of advice. I think that that’s striking that that’s so hard for people working at big law firms today to even imagine.
Bethany: Part of what you’re talking about, and you detail in the book pretty convincingly, is the rise of The American Lawyer and Steven Brill and this idea that the amount partners were making became public and became extremely competitive. But isn’t all of this—and I am going to ask this in a sloppy way because it’s something I’m mulling over—part of a larger issue in American life that is sort of the loss of elitism based on professional pride and competence, replaced with an elitism based solely on financial achievement and money, such that in some ways these big law firms don’t really have a choice?
I’m saying that loosely, but in the sense that they’re fighting for talent and for people, what Harvard Law School graduate is now going to accept making less than a couple million dollars a year because then they can’t live in the cities where the other people they view of their caliber are living? It seems to me that it’s part of this larger issue of this replacement or the substitution of elitism based on money for everything else.
David Enrich: This is, again, something I’ve not actually thought of until you just articulated it, but that’s really interesting. I think a big part of this is the role that the law schools play. You arrive at a place like Harvard Law, and from the moment you set foot in the door, you can be the most idealistic person who’s committed to a career in public-interest law, but you are conditioned from the moment you set foot inside Harvard Law School that the expected and accepted and really rational decision is to pursue a career in big law. That happens in very explicit ways and also in some subtler ways.
It’s explicit in that you are literally told that by your faculty advisors that this is the right path for you to take. In slightly subtler ways, it ranges from everything from the fact that all of your peers seem to be heading the same direction, to at Harvard, you have the on-campus recruiting system. The computer system enables you with a single click of a mouse or a button on your phone to submit your resume and your transcript, grades, things like that, to a slew of corporate law firms. There’s no similar system in place for public-interest law firms or even plaintiff-side law firms.
You add on top of that the fact that a ton of people are entering law school with huge debts like student loans and things like that, and it’s almost economically crazy to make a decision other than to go get your tuition paid back, essentially, by spending at least a couple of years in big law. Once you’re going down that path, I think it’s very hard to get out. You get accustomed to making well into the six figures, with the prospects of making well into the seven figures, and it just becomes much harder to change that lifestyle once you are already into the system.
Luigi: First of all, I want to clarify that when I was trying to find the economic model, I wasn’t trying to find exculpatory evidence. I was more trying to find the mechanism to see how we can possibly undo it. The big question is, now that we are here, what are the root causes, and how do we fight them? In this spirit—and again, not to deflect from the lawyers at all, but to try to also understand what else has changed—I think the examples you provide are also examples of different corporations.
East Ohio Gas was a local company, by and large, and so it was very valuable for this company to retain a reputation in the Cleveland area, because as you said, they are still around, and had they not done that, they probably would not be around, at least in Ohio. I think we moved to a world of nowhere corporations and nowhere lawyers. In the past, the corporations had a location, and the lawyers had a town where they grew up and they were returning to, and now we are all mercenaries moving around. And so, reputation has become much, much more difficult to develop and to have an interest in.
To Bethany’s point, the old ethical law of the past—and later I will challenge whether they were all so ethical—but let’s assume for a moment that is true. I think part of the story is that competition eroded the space to be ethical. If you have a privileged position, maybe by birth or by gender or by race, it’s much easier to allow some slack.
John Richard Hicks, a famous economist, used to say that the largest luxury of every monopoly is a quiet life. A quiet life maybe also means you indulge in your preferences, including feeling good about yourself.
But when there is cutthroat competition, you cannot afford that because first of all, you would say, if I don’t do it, somebody else will do it. It’s not like you really feel that you’re saving the world. The only effect you have is that you are one rank down in the statistics or in the competition. Everybody looks at prestige. That’s the other point that Bethany was making, that prestige is only based on money, and so you want to have the highest profit per partner or the highest-paid partner because that makes you more prestigious.
David Enrich: I agree with about 90 percent of what you just said. The parts where I differ is that the law firms themselves make a big thing about being about more than money, and some of them actually go to great lengths—including Jones Day—to do things that are not in the direct interest of their bottom line.
Jones Day has a big pro bono program, for example, where they do a lot of work, including on the US-Mexico border, where they represent undocumented migrants who are stuck in the vortex of the US legal system down there. That’s something that not only is not profitable for them— they spend many millions of dollars a year on this—but it cuts against their image.
They’ve become identified very much with not just the Republican party, but the Trump wing of the Republican party, and representing undocumented migrants on the US-Mexico border is not in keeping with that image, to put it mildly. I think the reason they’re doing that is maybe in part out of the goodness of their hearts. I think that probably is part of it.
But I think part of it is also, from a recruiting standpoint, it allows them to appeal to younger, more idealistic lawyers who, despite the pressure to go with the flow, and despite their financial needs and their interest in making a ton of money, also in the back of their minds, especially when they’re younger, remain kind of idealistic, and they want to do something good with their law degree.
And so, the idea of going to a law firm that spends a lot of time and money and energy doing things that are actually making the world a better place is appealing. I think if you extend that logic a little bit, it suggests that there is more to this than just the financialization of everything. I think the financialization is a big part of it, but it suggests to me that there might be space where you create different incentives that fulfill different needs in people’s brains that will allow you to carve out space for, whether you’re a law firm or a bank or anything else that can appeal to a certain segment of society, both employees and potential clients that are more interested in doing well than in doing good, at least in the short term.
I think, in the long term, those tend to align a little bit better. In the banking space, you have some financial institutions that place a much higher premium and a higher value on ESG or other similar metrics. You have that in higher education sometimes, and I don’t really see why you couldn’t have that in the legal industry as well. It just takes a little creativity and some good marketing and some patience, I think.
The question for a law firm like Jones Day is, why are you always making decisions that come down on the side of the short-term financial interests of the firm? Maybe you should be rethinking your priorities a little.
Again, I’m kind of talking in circles because now the more that I say that, the more I kind of see what you’re saying, Luigi. If you do that, then you’re losing out to competitors, and it makes it harder to recruit more people, which makes it harder to grow, and then you get in trouble. So, it’s complicated.
Bethany: Yeah, I worry that the sort of pro bono work or this highly publicized work that appears not to be about money is just a form of greenwashing. It’s a way of being able to say, we’re not really about what you think we’re about, and it’s very carefully balanced and calibrated at the firm level as to what actual amount of resources are being spent on that.
But I wanted to ask a different question, which is about the role of the press. Do we not do a good enough job of covering this because no one kind of stepped into The American Lawyer’s shoes and did really aggressive reporting around this? Or we did not do a good enough job of covering it because we’re conflicted because lawyers are our sources, and we don’t want to lose our sources?
Before you answer that, just for our readers, I wanted to tell a really quick story. It’s on the plaintiff’s law side of it, not the big law side. But when I was a very young reporter, and I had just signed a contract to write a book about Enron, Milberg Weiss, the once highly powerful plaintiff’s law firm, was representing a lot of the Enron plaintiffs, and they were the people you needed to get in to talk to if you wanted access to former employees and the stories they were telling.
My colleague Peter Elkind, with whom I co-wrote my Enron book, had written a very critical story about Milberg Weiss and Bill Lerach called, “The King of Pain is Hurting.” I went in to see Bill Lerach and assumed that he sort of knew I was working with Peter. About halfway through our discussion getting to know each other, he asked me who I was working with, and I said, “Peter,” and he had me thrown out of the firm. I mean, he literally had me thrown out of his offices. And so, Peter and I did not get any help from Milberg Weiss.
David Enrich: That’s an incredible story.
Bethany: The point is, I’m telling that story to say that it’s real. You pay for the things you write and do in terms of access.
David Enrich: That’s 100 percent true. I think there are two reasons why journalists have not covered this well. One is that we historically pay way too much attention to the notion that we’ve dispensed with earlier, which is that everyone always deserves a lawyer, no matter what.
Second, what you just said, Bethany, and I’ve lived this, too. When I was covering banking and Wall Street for 15 or 20 years, my best sources, many of them were lawyers. It is very hard to write negative stories about your sources. I kind of gradually came around to the viewpoint that part of the reason the lawyers wanted to be my sources was not just because they liked me or liked engaging in the two-way street of gossip. It was that they knew that by cultivating me, it offered a form of insurance.
I can tell you, though, that there have been very vivid examples in my career where I’ve witnessed big law firms really punishing news organizations for writing critical stories, and they cut off access. It’s that simple, and that is a real, powerful disincentive.
Frankly, I’ve seen this with having written this book, some of my colleagues at the Times have gotten blacklisted by some of the law firms. This isn’t about Jones Day, actually. This is about other law firms that have been mentioned in the book, and we’ve lost access as a result of me having written something. It’s not even my colleagues having written it, either. It’s a very vindictive message, and I think it’s deliberately designed to deter journalists from writing about law firms in anything resembling an aggressive way.
Luigi: I think it would be nice to find some solutions. I know it’s difficult, but I was thinking, we should try to copy a page from the lawyers’ review, what is called The American Lawyer, and do a rating of the quality of the work and the ethical element of the work that law firms do.
We can rate the kind of clients they defend, how they defend them. Some of the information you provide for Jones Day, I imagine, can be collected on all the major law firms, including the pro bono work. But if this pro bono work is just the infamous lipstick on the pig, we need to expose that. Instead of having just the profit per partner, also the ethics per partner of the top 100. We should start a publication like this.
David Enrich: I would subscribe. I really—
Luigi: I wanted you to collaborate, not to subscribe.
David Enrich: To me, there’s a slightly more pointed way of doing this, which is that I think journalists should, when they see big law firms doing really aggressive, borderline work for big companies, they should view that as a story and write about it the same way you would write about a scandal in any other industry, and stop viewing law firms as kind of peripheral and accessories and start viewing them as the story unto themselves.
I mean, these are multibillion-dollar institutions. It may well be a trillion-dollar industry, with some of the highest-paid people in our economy, and we should start treating it with the same scrutiny we cover Wall Street or that we cover any other industry.
One of my goals in writing this book is that it would help start a conversation about that. I’m not sure I’ve succeeded in that, but I think that would make a big difference. I think a lot of lawyers and law firms care greatly about the reputation that they have in the mainstream media, and if journalists start really aggressively covering them, I think that that is a way to really change the dynamic inside some of these places.
Bethany: You do cover it in the book, obviously, and we’ve talked about it, which is the role of Big Law in the opioid crisis, but that would actually be a great series in the Times to just really dig into it with each firm and what they did, not just in the case of Walmart, but with all the other companies, too, in order to prevent accountability with opioids.
David Enrich: Yeah, that’s a good idea.
Bethany: Thank you so much for your time, David, and congratulations on a great book. This was really fun and interesting.
David Enrich: Thank you so much for having me.
Luigi: Indeed. Thank you very much. Bye-bye.
Bethany: I’m always fascinated when the lens through which I see things shifts. It’s not so much the information as it is the lens. I’ve always taken it for granted that corporations are owed the same duty of defense that individuals are without ever pausing to think about it. And David’s book forced me to pause and think about that and realize that, no, a corporation is different than an individual. And while an individual charged with a crime is entitled to the most vigorous defense a lawyer can mount, a corporation is not entitled to the same thing.
I do think that, with some exceptions, major law firms are more thoughtful about the reputational risk of taking on really, really potentially damaging clients than maybe David gives them credit for. But I guess from what I’ve seen, I would agree with him that once that client is taken on, it’s a no-holds-barred kind of game. There are very few tactics that are disallowed.
Luigi: But it also is reputational cost. It’s not because this is the right thing or the ethical thing to do. What actually struck me about the book was when Chapman Rose, who was a managing partner of Jones Day, when Nixon was president at the time and asked whether he would defend him, he said, oh, I want to listen to the tape first. And when Nixon did not allow him to listen to the tape, he said no. He said no to the president of the United States, I think mostly out of principle because you didn’t know how things were going to work out. This would be very costly from a reputational point of view to say no to a president. He did it because he didn’t want to do it. He didn’t think it was the right thing to do.
Bethany: Yeah. I think David’s book is really, really powerful in the anecdotes. It’s hard for me to judge how much that really has changed over time, but I think, for sure, what is true, what David documents, and what is absolutely true is the pressure in a law firm to bring in business and to produce profits. Whenever there’s pressure, as intense as it is in those organizations, decisions are made for reasons that don’t have much to do with right and wrong. It does seem that the screening is often, is this case winnable rather than should this case be winnable? And those are two separate questions.
I do think the other part of what he gets at is almost more problematic than the pressure to generate revenues and grow profits per partner. I think that is very real. But I think the other part of it is the growth of the shadow legal system, where so much gets decided outside of public view, where lobbying that happens before a case is even brought, certainly before it goes to trial, dictates so much of the outcome, where giant settlements are carved out in these deferred-prosecution agreements, and nobody can even tell from what’s public what actually happened, and whether a real person did something wrong or didn’t do something wrong.
I guess I’d put in that category the growth of lawyers’ relationships with the press. But it seems to me that the law should be transparent, and the modern law is anything but transparent in how it operates, given all of this. I think that’s more of a problem than the pressure for profits. Does that make sense?
Luigi: Yeah, it does. We really don’t have a lot of analysis of law firms like we should, and they seem to be incredibly important in the way day-to-day capitalism is run. At the end of the day, they’re the ones who decide whether going 60 or 65 is the right thing to do, even if the law says 55.
Bethany: There are things that happen every single day in subterranean ways. I tried to get to the bottom of it when I wrote a piece about the Sackler family for Vanity Fair, this Purdue Pharma issue where the US attorney in, I think it was Virginia, wanted to bring more serious charges against Purdue, and I think maybe even wanted to bring them against some of the Sackler family. After a meeting at the Justice Department, the charges were reduced, and the Sacklers weren’t included.
I might be butchering this a little bit. It might be the severity of the charges rather than the Sacklers being included or not being included, or it might be both, but something happened at the Justice Department, and despite my knowledge of people who worked there and the access I had when I wrote about the Sackler family for Vanity Fair, I couldn’t get an answer. That is cloaked in secrecy as to what happened.
That troubles me. These major things, these major decisions, they shouldn’t be cloaked in secrecy. If I were to play devil’s advocate on that, I would say that there are charges that are brought by AUA’s and US attorneys seeking to make a name for themselves that maybe should be stopped before they get a public airing. This is not a one-sided story where every case brought by a public servant is well-intentioned and substantive, and when something derails it, it’s because of corruption, and the case should have been brought. I don’t think it’s that one-sided. I’m not even sure it’s 50/50. Nonetheless, I don’t like the lack of transparency around how all these decisions get made.
Luigi: I agree. Certainly, everybody makes mistakes, including attorneys general, and sometimes those mistakes are not random, but they might be politically motivated. That said, I think it’s very important to understand what happened, especially when you drop charges, or you don’t pursue charges against somebody who looks like he should be prosecuted. Maybe the attorney general is right, but if he’s right, I don’t see the cost of explaining why it’s right. And if it’s not right, we want to know why it’s not right.
Bethany: It is a really interesting, broad framing of this issue that the very institution, which is the judiciary, the legal system in our country, that is meant to be the most transparent, has become one of the least transparent. That’s happened even as the world has become supposedly awash in information. It plays into one of my favorite theories, which is that the world is awash in information, but not the stuff you really want to know.
Luigi: I think you’re absolutely right. This is definitely true for the prosecutors, but it is also true for a lot of settlements. One of the ideas I had with a coauthor many years ago was to tax very heavily every settlement that was secret because it does impose a cost to society to not reveal what is going on.
Think about the cases of pedophile priests in Boston. The bishop made sure that they were all individually settled, and so you didn’t know the information. While there are clearly incentives for the people involved to settle, it does impose a major negative externality on everybody else because if you have a pedophile priest, you want to know who he is and how to deal with him. The same is true with criminals or bad practices like with opioids.
Bethany: Yeah, it’s really interesting, actually, when you look at all the settlements that got crafted, and “crafted,” I think, is the right word, between big banks and the Justice Department in the wake of the financial crisis. I wonder if you had given banks two numbers, what the delta would have been. In other words, what’s the price you’ll pay if all of this stays secret, and we all agree on the language that gets put out into this very elaborately crafted thing that no one who reads it can tell what possibly happened? And what’s the price you’ll pay if every single thing is public? All of our deliberations, all of our conversations, all of our documents.
I wonder how much of what the banks pay is a payment for secrecy. And that’s depressing, right? I mean, would you say, maybe . . . I wonder, it would be really interesting to know, is the delta a billion dollars? Is the delta a hundred million dollars? What are they paying for the secrecy?
Luigi: Actually, this is a very good idea. They should make it a default that everything is revealed, and then even if you have a settlement, they should disclose what the price was that was offered in case everything was transparent. At least you would know the price they’re willing to pay to keep secret.
Bethany: Yeah. I like our plans to fix the world, Luigi. I think this is a good one.
There is one other aspect of this that I’ve been thinking about that David didn’t really get at, but that I think is part of the problem, and I think that’s that by the secrecy, the government is often covering up its own role in some of these problems. In other words, it’s not that the government is incentivized to have everything come to light, and corporate America wants to keep everything secret, and so you have two parties with opposed interests meeting in a neutral court. I think if you look at the opioid crisis, part of that—we can all argue about what part—was the government’s fault.
I think in the case of the meltdown in the 2008 financial crisis, part of that was the government’s fault, the government’s failure to regulate, and the government’s failure to see the collapse of big firms coming, even though they had examiners in there. And so, if you were to be very cynical, you would say the government is also agreeing to these settlements because it covers their own missteps, too.
Luigi: I think that’s true, but maybe in this particular case, you are too critical of the government because in some cases the government acts in this way because the person that should represent the government is bought and paid for by a corporation. We don’t have, in abstract, “the government.” We have people.
If corporations are very good at capturing these government people, maybe by offering future jobs, like in the case of the Sacklers and the opioids, we know that the label to legalize the opioids was granted by a guy at the FDA who, a year later, worked for the Sacklers. Is it really the fault of the government, or is it the fault of the private sector that is too aggressive in these activities?
Bethany: Yeah. It’s an interesting philosophical question. I’m not sure of the answer to that. And I think there is something beyond the government being bought and paid for that is just human beings’ desire to like and be liked and get along. That is always going to create a degree of regulatory capture, even if you didn’t have money at work.
I think that fits into this broader context that we got at a little bit with David. Far too often in our society, it seems like the cost of doing the right thing, of having high ethics, just means you get left out of the highest-profit-potential jobs in this country, and the cost of being a loyal and good civil servant is now . . . The differential—again, the delta—is just much higher than it was in the 1950s. That, to me, is deeply sad and problematic.
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