Wednesday, July 18, 2007

Slate Sneers at Simpson (and gets everything wrong)

Daniel Gross at Slate is one of my favorite writers about money and business. But in his latest column, he takes a huge swing at Simpson Thacher’s “Chow for Charity” program and misses worse than a 0L trying to answer a question in crim pro.

To recap, Simpson’s “Chow for Charity” allows summers to take a lunch for less than $15 and have the firm donate the difference between that price and the $60 per-person allowance to charity. Sounds a little odd, yeah. Sounds a little elitist, yeah. But it’s real money going to real people -- and in an attempt to paint it otherwise, Gross trips all over himself. Let’s go to the tape:

How does this small piece neatly encapsulate several important trends?

A Touch of Conscience. These days, any company that markets to or needs to hire well-educated proto-yuppies must take bold action on topics of concern ranging from global warming to poverty. Or, if it doesn't actually want to take the action, it must at least appear to be concerned. Doing good isn't a serious commitment or an end in itself. Rather, it's an ornament, like a wall sconce, that makes consumers or employees feel good about themselves and the company. The Times paraphrases a recruiter who notes that such efforts "are part of an emerging trend to add a touch of social conscience to lavish recruiting practices for top students in a competitive market." The greatest desideratum of firms is to undertake publicity-generating good works that don't require them to spend extra money or change the way they do business. Buy some renewable energy, by all means, but continue to maintain that fleet of corporate jets. Chow for Charity is a perfect case, since it doesn't cost the firm a dime.

Uh, small point Bob, but that last sentence is sort of completely wrong. The mistake is concluding that, without this program, the firm is otherwise spending $60 per associate per lunch per day. Maybe the swag skills of New York summers are without parallel, but at my firm, we rarely hit the budget. Sometimes lunch is $10/person, sometimes $25, rarely $40 or more. I’d bet it’s the same at Simpson. So, if 4 Simpson associates we’re going to spend $120 on the tab, but opt for $50 total instead, that’s a $190 check to legal aid—and twice as much total cash out of the firm’s pocket as it would have spent if the associates had stuck to the $120 lunch. It’s a small point, but when you sneer that “Chow for Charity is a perfect case, since it doesn’t cost the firm a dime,” you should probably have a factual basis for your statement.

The New Gilded Age. This is a golden age for corporations, and for the professional firms that service them, such as Simpson Thacher. According to the American Lawyer, Simpson racked up profits of $2.5 million per partner in 2006. (Given that, loudly trumpeting a program that generates about $50,000 in charitable donations seems a little gauche.) But this style of philanthropy neatly encapsulates the frequent obliviousness of the very rich, and of the publications that cater to them, to the nation's glaring income inequality. (Last week, the New York Times ran largely unironic articles about $60,000 beds and $225,000 parking spots.) Only in this new gilded age could a $15 lunch for a 23-year-old student be seen as a self-abnegating act. I can assure you that it is quite easy to gorge yourself on excellent food in New York for $15—a fine all-you-can-eat Indian buffet, a sublime pastrami sandwich from Katz's Deli, four street-side schawarmas. And plenty of New Yorkers would be thrilled to have $15 a day to spend on food. In the recent congressional food stamp challenge, several solons tried, without much success, to live for a week on the average food stamp budget: $3 a day.

Hey, no argument here about the new Gilded Age. I say tax-and-spend, tax-and-spend! (I’ll be looking to count on Gross’s vote for Obama come 2008, as he is clearly concerned with this issue.) But did Simpson really hold this out as a “self-abnegating” act? Yeah, $60 for lunch is absurd. But the truth is, if the company spends any less on lunch for any reason, it’ll be subject to a recruiting massacre on ATL and other blogs for “skimping” and “cheating its summers” and not “keeping up with the other firms.” So Simpson has found a clever way to ratchet down the pressure for high-flying lunches, all the while giving more money to charity than would otherwise go to Masa on a typical day. And this somehow makes it “gauche”? Which leads to the grand-daddy point of all...

Defining Public Service Down. For more and more of us, public service is something that other people do—other people with lower incomes, smaller apartments, and less nice stuff. (For the Iraq war version of this trend, see National Review columnist Jonah Goldberg.) The Times article quotes a recruiter who says law firms do this sort of charity because their recruits are really interested in community work. Now, law school is very expensive, and students take on large sums of debt to pay for it. So it may well be that many of Simpson Thacher's summer associates are just working there for the summer so they can go toil as community organizers upon graduation without excessive debt loads. But most are there because law firms such as Simpson pay massive salaries ($160,000 to start) and provide entree to even more-lucrative gigs at consulting firms, private-equity firms, and investment banks. Today, thanks to the benevolence of Simpson Thacher, you can pursue community work by taking your lunch at Pret a Manger instead of Le Bernardin.

You know how else summers, associates, and partner “pursue community work?” By working for free for poor people and non-profits. It’s simply amazing that someone could write an article about law firms and charitable giving and fail to mention the words “pro bono.” Does Gross not have any lawyer friends? As we all know, pro bono is the major “community work” law firms do and, last year, according to their website, Simpson attorneys did over 50,000 hours of it. That’s not “something other people do,” that’s not “an ornament” or emblematic of the firm’s “frequent obliviousness.” That’s about 70 hours of billable per attorney (730 of them), or roughly 3% of their work (updated--thanks Tom). Put another way, if we assume an average Simpson billable of $400 for all attorneys (which has got to be low), that’s $20 million in donated value for the year. That’s not too shabby.

But wait, there’s more! Let’s contrast that with Wal-Mart, which is one of the leading corporate contributors in the country. Last year, Wal-Mart gave away $270 million in cash. Which is pretty good – but this is for a company with revenues of $340 billion.

Also consider that when Simpson does pro bono work, that comes directly out of the partners’ pockets (and eventually the associates’ too). An hour spent doing pro bono is an hour spent not billing. But it’s laughable to think that Wal-Mart’s management spends 5% of their time helping small businesses, or Chevron’s board spends 5% of their time building houses. And Wal-Mart’s charitable giving doesn’t come out of their executives’ salaries. Instead, it’s spread over all the shareholders. Put another way, with 4.2 billion outstanding shares, Wal-Mart’s charitable giving of $270 million adds up to 6 cents a share. Think of that as money that the company could otherwise add to its 88 cent dividend.

Now, last year, the #4 exec at Wal-Mart got 80,000 shares, meaning the 6 cents a share “lost” to charity cost him...$4,500. Talk about self-abnegating! Meanwhile, a Simpson partner who spent 5% of his time on pro bono cost himself about 10 times that. But mentioning pro bono would ruin the entire premise of Gross’s article, which is how “fake” and “out of touch” law firms are in pretending to do community work.

Summer associates are already a great deal for law firms—their hours are billed out to clients at hourly rates of between $200 and $300, but the firms don't have to pay any benefits.

What is he talking about? The firms don’t bill out our time – they write 85% of it off. And summer associates cost them money until they’re 1st or 2nd years. If Gross wants to uncover nefarious financial conspiracies, he should spend more time reporting on the Bush administration.

Translation: It's a double-winner when kids pick the cheap meals over leisurely lunches...Senior lawyers don't have to spend as much time feigning interest in the ambitions of 23-year-olds...

Finally, FINALLY Gross gets something right. No argument here.


Anonymous Anonymous said...

I don't know, EW - your argument sounds a little like "firm lawyers are so important, so when they give up a little of their time/privilege/perqs everyone should be really grateful." Come on, 50 hours of service to the community over the course of the year is not much to pat yourself on the back about. You're only getting to a figure of $20 billion by using the ridiculous $400 an hour fee. If someone plans to devote their whole career to public interest, 2000 hours a year or something, they might donate only a little more than that.

$400/hour * 50 hrs = $20,000

public interest atty's salary = $30,000

Only because everything about law firms is so overinflated can firm attorneys feel good about giving 50 hours a year (1 hour a week) and spending only $10 on lunch.

Not to say it isn't a good program. Anyone giving money to charity is good. I just wouldn't give too much credit to the law firm.

7/18/2007 9:00 PM  
Anonymous Anonymous said...

seriously, that was one of the worst moneyboxes ever. usually you learn something about business and economics, but that just seemed like the kind of common screed slate tries to avoid. i generally expect them to turn every common complaint on its head. oh well.

7/18/2007 9:23 PM  
Blogger Tom Fletcher said...

Sorry EW, quick numbers check. 50 hours per attorney is only 5% if they bill one thousand hours a year. Methinks they bill two, maybe more. So it's more like 2% of their time. But yes, it is more time donated to charity than most employees' work allows them to donate.

Consider also firms that encourage their attorneys to sit on charitable boards (hint EW, hint). That doesn't get billed pro bono, but has the same charitable effect.

So I agree Mr. Gross goes a little overboard in his criticism. It was his numbers. The $15 lunch as "cheap" (i.e., the cheap lunch is more than the most expensive meal in most towns) is like honey for populist appeals.

7/18/2007 9:33 PM  
Blogger Earl Warren said...

Thanks Tom -- I updated it. I'd be surprised if I didn't make more errors. I haven't done that much math since p-chem.

You're right about the boards -- and don't forget straight cash donations to many legal non-profits.

None of which is to say that "firms are so important...everyone should be really grateful." Obviously, even 5 or 10% pro bono doesn't equate to true public interest work. That's a fair point from the first commenter. But that wasn't my point.

Yeah, firms should do more. I'm happy to be at one that encourages double, triple the pro bono that its competitors do. A lot of firms do way less. My point is only that a) its dishonest to launch such a screed at Simpson w/o mentioning the pro-bono commitment and b) it's REALLY dishonest when you compare it to what passes for charitable contributions at the rest of corporate America.

The law is one of the few professions where you have a professional responsibility to devote some of your time to people who need it. It's also one of the few professions where you can get really, really rich. But the fact of the latter doesn't devalue the act of the former.

7/18/2007 9:56 PM  
Blogger Tom Fletcher said...

Technically, the 50 hours/year is a recommendation, not a requirement or responsibility. You will not be disbarred for never logging an hour of pro bono. You'll just be a jerk.

Here's something to ponder though. While perhaps my thinking is out of style on this point (see this year's wolfpack fundraising), ostentatious charitable giving is considered tacky. Similarly, consider: "Whenever you pray, do not be like the hypocrites; for they love to stand and pray in the synogogues and at the street corners, so that they may be seen by others. Truly, I tell you, they have received their reward."

Should a similar social norm be applied to charitable service, as opposed to charitable giving? By publicizing their works for recruiting and the esteem of others ("the A-list"), has a firm indeed received their reward?

A non-bar related ethics question to ponder tonight.

7/18/2007 10:35 PM  
Anonymous Anonymous said...

A few quickies:

1. The article was quite interesting. Not the kind of analysis you typically read in mainstream U.S. publications so it makes you think.

2. Unless you are an elite plaintiff-side attorney, you can't get "really, really rich" in this profession. Simpson is one of the very top firms in New York and their PPP is only $2.5 million per year. Top hedge fund managers may make 100-1,000 times that per year.

7/18/2007 10:41 PM  
Blogger Tom Fletcher said...

10:41, ¶ 2. I'm a little skeptical of your numbers. I agree that hedge fund managers rake much more than lawyers (by far), but the greatest managers "only" pull one billion (500x our "poor" Simpson partner) according to Wikipedia. The dropoff's pretty steep, by number ten we're down to $300M, or about 100x, your lowball.

There are some very rich hedge funds out there. But there are thousands of hedge funds. Like most investments, many of them suck. And their managers aren't that much richer than lawyers.

7/18/2007 10:52 PM  
Anonymous Anonymous said...

Looks like it's more like 700-to-1: Alpha magazine (not sure if I'd consider it more reliable than Wikipedia) reports number 1 was James Simons of Renaissance Technologies Corp. who made $1.7 billion, numbers 2 and 3 made $1.4 billion and $1.3 billion. Soros made $950 million.

7/18/2007 11:15 PM  
Anonymous Anonymous said...

I think it's crappy that the firm tries to have summer associates doing the leg work for raising money for charitable causes. It puts summer associates in the position of seeming like an a**hole for enjoying a nice lunch. Why doesn't the firm simply take summer associates out to fewer lunches, or cap lunches at $30 (like my firm) and donate that money to charity (unlike my firm)? They're trying to have their cake by having high lunch budges and promising a lavish summer program, and eating it too.

7/19/2007 9:28 AM  
Anonymous Anonymous said...

To the leg work comment - my firm has a v. similar program - and i dont feel bad about the nice lunches. It's just sort of a nice thing if you happen to feel like just having a little salad. of course, the counterarg is that i could just pay for my own darn salad, but ah well.

i think the extent of the pro bono commitment depends on the firm. i've been amazed at how seriously my firm takes it. it's not unusual for people to have >1/3 of their billable hours (my firm counts pb as billable) be pro bono.

random and probably stupid question for anyone who cares to answer - is con law more sort of "common law-esque" a la' contracts and torts, or is it more rules-focused (given the obvious - that there is a doc with rules) like Civ Pro?

7/19/2007 10:10 AM  
Blogger Tom Fletcher said...

10:10, the answer is neither.

Constitutional law is war fought by shadow armies on a darkling plain with secret rules and a very few guideposts. Every now and then you'll find a trench filled with slain orcs.

Sadly, all but one of those lines come from con law cases.

But if I had to answer your question, I'd say "common law." By a mile.

7/19/2007 11:42 AM  
Blogger Isaac Zaur said...

As long as we're talking about the New Testament's view of charity, see also Matthew 6:3: "But when thou doest alms, let not thy left hand know what thy right hand doeth." I like this sentiment as well as this quotation.

It pisses me off that the language has been widely appropriated to mean something completely different--i.e. that a person or organization is totally incoherent in its aims or approaches. I have a similar beef with lawyers' constant (and totally incorrect) use of the expression "split the baby."

Uh oh. When I start to be the language police, it almost always means I'm stressed out. Back to work...

7/19/2007 11:49 AM  

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