The legal market is changing. Can Minnesota’s law schools adapt?

Walter Mondale casts a long shadow on the West Bank of the University of Minnesota campus. There, Walter F. Mondale Hall is the home of the University of Minnesota Law School, from which the former vice president graduated in 1956.

Everywhere you look there is evidence of strong support from the local law profession: the Dorsey & Whitney Foyer, the Robins Kaplan Mezzanine, the Lindquist & Vennum Conference Room in the dean’s office. There’s even a modest plaque in the building’s small elevator, designated the Ross Rosenblatt Ltd. Elevator. There seems to be money in the air: A large sign in the lobby notes the $73.2 million that the school raised through its seven-year “Generations” capital campaign.

But money is also a problem here. Since the 2012-13 school year, the law school has been relying on transfers from the university’s general operating budget to cover its losses, including $2.5 million in the current year. By the end of the 2018-19 school year, current estimates show that the school will have needed $16.1 million in transfers to shore up the law school.

The University of Minnesota is hardly alone. The total number of law school students enrolled in juris doctor degree programs across the U.S. peaked in the 2010-11 school year, with 147,525 students according to statistics from the American Bar Association (ABA). For the current year, that number is down to 113,900 J.D. students, a 23 percent drop.

For 2015, the University of Minnesota admitted 176 law students, down 32 percent from the 260 new students who joined the law program in 2010. The percentage of applicants over the same period dropped 49 percent. But while enrollment has dropped, the budget has been climbing. The law school’s annual operating expenses for fiscal year 2015 were $54.8 million, up 36 percent from FY 2009. The biggest line-item jump was for student aid, which climbed from $4.05 million in 2009 to $14.95 million in 2015. That money goes for scholarships—grants, not loans—to law students.

A lopsided market

David Wippman, who has been dean of the University of Minnesota Law School since 2008, is no alarmist. He does not believe that the sky is falling on law schools and the legal profession. But he notes that many new graduates had trouble finding work during the recession; at the same time, new law schools continued to open—creating too much supply and not enough demand. Simultaneously, the technology and outsourcing trends have been cutting into the traditional book of business for many law firms.

“The net result is that there were too many students graduating from law schools around the country for the number of jobs that were available,” says Wippman. “I think the market is coming back into balance. I don’t think we’re quite there, but it’s getting much closer alignment between the number of graduates and the number of available jobs.”

He says that student aid has spiked because, with fewer overall law students, the competition among law schools has intensified. The most recent ranking from U.S. News & World Report lists the University of Minnesota as the 22nd best law school in the country, out of 196 accredited schools that were ranked.

“The main reason is competition. We’re trying to attract top students,” says Wippman. “Schools are bidding through scholarship support to try and attract the best students, and we have to do that as well if we want to get those students.”

For the short term Wippman expects that trend to continue, but says he’s wary of forecasting too far into the future: “I think we always tend to assume that whatever trend is in place is going to continue forever, and then we’re surprised when suddenly things look very different.”

Ultimately it will be a challenge for the next dean to sort out: Wippman departs this summer to become president of Hamilton College in upstate New York. As Twin Cities Business went to press, four candidates to replace Wippman had taken part in public interviews, but a new dean had not yet been announced.

While some observers believe that the trends will force some law schools to close, Wippman doesn’t see that on the horizon. In the case of the University of Minnesota Law School, he notes that the school’s endowment is “somewhere around $100 million.”

But, he acknowledges, “lots of schools are having financial challenges.” While his law school competitors in Minnesota are private schools, the university’s numbers were made public in a February report to the Board of Regents. The annual subsidy to the law school is declining from $4.1 million in 2013-14 to an estimated $683,000 in 2018-19. Projections call for no transfers needed for the 2019-20 school year.

Updating an old model

It was a different world when Wippman graduated from Yale Law School in the class of 1982.

“It’s much more challenging now than it was when I graduated for students to find employment. I think the path to partnership is longer and more arduous than it was when I graduated,” says Wippman. “Even before the recession, I think we were starting to see a bit of a downturn in demand for legal services.”

Statistics from the American Bar Association tally 24,952 currently active lawyers in Minnesota, up 23.7 percent from the 20,177 attorneys counted in 2006. If the law business is facing challenges, why does the lawyer count keep climbing?

James Leipold, executive director of the Washington, D.C.-based National Association of Law Placement, notes that the size of law school graduating classes continued to increase through 2013 before starting to drop. Leipold notes that several factors may be at work including companies boosting in-house legal departments and baby boomers postponing retirement. He adds that while hiring at big firms may be flat, lawyers can always start their own firms.

“America’s need for lawyers is not going away,” says Leipold. “We’re just beginning to see the effect of smaller classes to the job market now.”

Amid declining enrollment for law schools everywhere, in February 2015 the William Mitchell College of Law and the Hamline University School of Law announced plans to merge, trimming the number of law schools in Minnesota from four to three. The law school combination was completed in December.

The new school, Mitchell Hamline School of Law, has a new dean, Mark Gordon.

But Gordon believes that too much of legal education has been stuck in the past.

He says that the school is working to create a relevant curriculum for today’s legal landscape.

“The legal market is changing dramatically, if you look at the changes in the last 25 years. Legal education has not changed to the same extent,” says Gordon. “How do we create the law school that can really give students a leg up in the market?”

Gordon argues that boost translates into giving students more practical experience before they get out the door. “We’re learning from the medical school model and introducing residencies in our third year,” says Gordon. “We are learning from the business school model.”

Mitchell Hamline is the only law school in the country that has a variance from the ABA that allows students to take up to 50 percent of their coursework online. The ABA limits the enrollment of the so-called “hybrid curriculum” to 96 students at Mitchell Hamline. “It is a totally redesigned way of teaching law, and frankly the demand for it has been incredible,” says Gordon.

Gordon adds that they’ve developed “practice intensives,” mini-courses that make students feel like they’re in the trenches at a law firm. The school has different coursework for students who may want to pursue a career in government instead of at a law firm. Also, the school just rolled out a cybersecurity program for law students.

The University of St. Thomas School of Law is the new kid on the block, founded in 1999. The school has felt the same pinch as other law schools across the country.

In the face of declining enrollment, law school dean Rob Vischer says that St. Thomas has opted for smaller class sizes rather than trying to bring in more students. Currently the school has 345 enrolled students for the J.D. program, down from the peak of 483 students in 2011-12.

Vischer would not disclose financial details for the law school, but says, “We’re a relatively new school. The university still sees this as a growth stock. We’re a smaller operation, but we’re part of a very supportive university.”

But given the changing realities of the legal business, Vischer believes that law schools need to adapt to what has become the new normal. “I don’t think enrollment’s going to get back to anywhere close to where it was,” says Vischer. “Our applications have stabilized now. We expect enrollment to be up modestly, but we don’t expect any dramatic rebound.”

Today Vischer says that St. Thomas doesn’t simply judge candidates by the paperwork that they submit; now it interviews many candidates before admitting them to the school. Once students are enrolled, they are paired with a mentor from the outset. Vischer says that it’s important that students learn some “soft skills” before graduating.

“The future for law school graduates, given what we’re good at, is [to be] problem solvers,” says Vischer. “And if you’re going to be a problem solver, you’ve got to be good at working with people.”

Vischer argues that being the newest law school in Minnesota may have some advantages in building a program that’s more in tune with the business needs of today’s legal market.

“I think it has allowed us to build our program of legal education with an eye toward what the market needs now. We’re a little less fixed in our ways, maybe,” he says. “We have to be providing what society needs, not what society needed 40 years ago. Some of the best legal jobs are not traditional legal jobs, they’re business jobs.”

Technology reduces demand

Once students get out of law school, they quickly discover that the business of law has changed since the recession. Market pressures are driving a wave of mergers in the business. Altman Weil, a national legal consulting firm, tracks law firm mergers. Last year’s tally of 91 mergers among U.S. law firms was the highest total since they began tracking the deals nine years ago.

Ward Bower, a principal with Altman Weil, expects the merger trend to continue as firms look to add new practice areas, bolster their existing practice areas or expand their geographic reach. He notes that 80 percent of the 2015 transactions were multi-city deals, combining firms from different markets.

Once upon a time, corporate clients would hire an outside law firm, which would start the discovery process with “armies of associates reviewing documents.” Bower says, “That was very, very lucrative for big law firms.”

Today, many companies are relying more on their own in-house counsel. At the same time, the advent of technology such as electronic discovery means that much of that work can be handled by non-legal services firms. The bottom line? The average law firm doesn’t need as many law school grads as it once did.

“I think we’re clearly going to see some law schools go under in the next few years, because I think the employment trends are not going to reverse themselves,” says Bower. “Just looking at big law firms, they were hiring twice as many law school graduates as they’re hiring after the recession.”

Bower says that Minneapolis is clearly on the radar of some law firms who are looking to plant a flag in the Twin Cities.

“Minneapolis has been identified as a relatively stable and healthy legal market,” says Bower. “I know there are other firms outside of Minneapolis that would like to be there. They’re going to get there one way or another.”

Bower is not the only one who is forecasting future law school closings.

“Schools are under a lot of financial pressure. It’s hurting the bottom line,” says Kyle McEntee, executive director of the North Carolina-based Law School Transparency nonprofit. “I think we’re going to see some schools close. I don’t know when or how many, but I think it’s inevitable.”

McEntee says that the nonprofit was founded in 2009 in response to law schools touting placement rates for graduates near 100 percent. The group has pushed for more transparency among law schools. In 2013 the ABA updated the Standard 509 form that law schools must file—detailing enrollment, tuition and other statistics—to require more disclosure.

“The way law schools were reporting information was inherently misleading,” says McEntee. “This is a big reason why enrollment has fallen, because now law schools have to be transparent.”

Dorothy Brown, a professor of law at Atlanta-based Emory University, also sees future fallout from the current state of legal education. “The current business model is just not sustainable, which is why you see schools losing money,” says Brown. “Unfortunately every school is after the same students, which means we’re in an arms race.”

Brown wrote a recent commentary for Forbes magazine predicting that the current climate will lead to some law schools shutting down. “We have too many law schools,” says Brown. “At some point a central [university] administration is going to say ‘enough.’ ”

Legal mergers in Minneapolis

As the legal business continues to change, several large Minneapolis-based law firms have been involved in mergers in recent years.

In 2011, Minneapolis-based firm Faegre & Benson announced its merger with Indianapolis-based Baker & Daniels to create the new Faegre Baker Daniels. In December, Minneapolis-based Oppenheimer Wolff & Donnelly and Philadelphia-based Fox Rothschild announced a merger. Oppenheimer had previously been in talks with another Minneapolis law firm, Lindquist & Vennum, but that plan was scuttled due to client conflicts at the respective firms.

In September 2013, Minneapolis-based Leonard, Street and Deinard announced its merger with Stinson Morrison Hecker, a firm based in Kansas City, Mo.. The combined firm started doing business as Stinson Leonard Street LLP at the beginning of 2014.

“We’d been approached many times over the years,” says Lowell Stortz, chair of Stinson Leonard Street of other potential deals. Stortz says that the merger gives the firm a “broader and deeper bench” to offer clients. The combined firm now has 475 attorneys across 13 offices, largely throughout the Midwest.

Stortz expects to see more mergers. “I do think it will continue, especially for forward-looking firms facing a marketplace that isn’t exactly booming.”

Stortz says the firm’s hiring practices have changed with the market, partly because the legal market isn’t growing in today’s economy, but also because firms are now more likely to look for candidates who have very specific skills that will match the needs of the firm’s clients.

“If you took a step back and looked at demand for legal services nationally, especially as it relates to law firms, that’s either held steady or gone down since the recession,” says Stortz. “Our hiring is still at maybe 70 percent from what it was several years ago.”

Jodi Standke, CEO of Minneapolis-based Talon Performance Group, has a front-line perspective on the state of legal business; her firm specializes in legal recruitment. Standke thinks that both law schools and law firms are recalibrating to meet changing market conditions.

“The large law firms, they no longer hire 50 students out of a law school class,” says Standke. “This isn’t just like a one-year fluke. The market has changed, the profession has changed. I don’t think we’ll ever see law firms hiring high numbers of law school students, expecting there to be attrition.”

Today, Standke says, both law firms and corporate clients are looking for candidates who know more than the letter of the law. They want prospective hires to have some business acumen, an ability to work with people, and “emotional intelligence,” which has become a business buzzword.

It has become more common to find law firms that have a professional development director, she says. Standke sees that as a signal of the culture shift in the legal profession, noting, “We never used to see that title.”

In response to the changing legal landscape, Minneapolis-based Dorsey & Whitney launched LegalMine Document Review Solutions in 2008. LegalMine handles document reviews and electronic discovery. Although it’s owned by Dorsey, it offers cheaper rates than the law firm would charge for the same work.

“LegalMine sells its services even in cases where Dorsey & Whitney, the law firm, is not representing any of the parties,” says Bryn Vaaler, chief marketing and professional development officer for Dorsey & Whitney. “It’s been a successful business for us. We’ve seen good growth.”

Dorsey & Whitney is based in downtown Minneapolis, but the firm has 550 lawyers worldwide in 19 offices, including three in China.

Would Dorsey consider a merger?

“It has become a more competitive business. The market is just not expanding the way it was in the ’80s and the early ’90s,” says Vaaler. “Practically speaking, all Am Law [American Lawyer magazine] 200 firms I think these days are constantly assessing the possibilities of combinations or mergers.”

Vaaler declines to speak to any specifics about what Dorsey may or may not be contemplating. But in today’s business environment, most firms have to at least weigh the option of a merger.

“Is it a possibility for us?” Vaaler says. “It’s definitely a possibility.” tcbmag

Burl Gilyard is TCB’s senior writer.

This article is reprinted in partnership with Twin Cities Business.