Status In Law, Finance

I recently suggested that a big part of what management consulting sells is status, to cow firm opponents into submission, and that this helps explain why consulting firms use so many inexperienced recent grads of elite colleges. JustMe commented:

There are basically three things available to graduates of elite colleges that other students, no matter how hard they work, have little or no access to: elite consulting jobs, investment banking, and corporate law.

Kids from elite colleges aren’t much smarter or harder working than those from the next tier, who are cheaper to hire. But elite grads do have much more polish, shine, etc. – in a word, status. If this helps explain an elite school focus in management consulting, can it also help explain a similar focus in investment banking and corporate law?

Corporate law seems easier. If, as I suggested, our inherited sense of who will tend to win a contest in coalition politics uses certain standard status markers, then the status of one’s corporate lawyers can influence attitudes about who will win a court case. So having a high status lawyer can help get folks within an organization to support standing firm, cow lower status opponents into backing down, and influence the verdict of a judge or jury.

For investment banking, a lot of that is about getting folks with deep pockets to open their wallets to back new ventures. The more it seems that important folks associated with a venture are high status, the more others may be willing to affiliate with that venture as customers, suppliers, investors, compliant regulators, etc. So there should be a big premium on having the key person who represents a venture to potential investors be high status.

I remember Bryan Caplan once suggesting that successful real estate agents tend to be the sort of people who were popular in high school, and that house buyers (especially women) prefer to affiliate with a locally popular person as they enter a new community. Investment banking could be similar, but on higher status scale.

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  • AngryKrugman

    Principal-agent problems at the firms hiring lawyers and bankers also play a role. People want plausible deniability when things blow up. No one ever got fired for hiring Cravath. It’s all a status game. What other professions are as obnoxious as lawyers in displaying their credentials? You can literally search by law school attended at almost all law firms webpages.

    • AngryKrugman

      Also, because corporate executives must hire “elite” law firms to signal to bosses/boards they didn’t screw up, it cuts down on the ability of competition to lower prices. The market can’t really respond to high prices by creating more “elite” lawyers–it’s all relative. Nor can one really offer a much lower rate–high prices themselves are a signal of “eliteness”.

  • JMD

    The difficulty I have here is that the empirical claim in the quoted comment, namely that only graduate of elite schools can get high-level jobs is demonstrably false, at least as it relates to corporate law. As AngryKrugman says “[y]ou can literally search by law school attended at almost all law firms webpages.” That’s perfectly true and a little research here shows that if you look at Cravath’s site, or any other of the big firms, you’ll see plenty of lawyers from “non-elite” schools. A quick glance at Cravath’s shows University of Arizona, Ohio State, Brooklyn Law, just to name a few, and other big firms are the same.

    • Matt

      Older partners may come from worse schools, as competition wasn’t so stiff in the 1960s & 70s. If you look at young associates, very few will be from places like Arizona or Ohio State. You have to be top 3 in your class from schools like that to interview with Cravath. Brooklyn law, and other New York based law schools, have slightly better access to NY firm hiring. If you are top 5% at Brooklyn law, you can interview at Cravath, even though it is probably not a better school than Ohio State. Same for Cardozo, Fordham, etc.

    • Kitty_T

      I can only speak to BigLaw. Elite school grads aren’t the only ones who can get into elite firms, but most of the top firms do have more or less (usually more) explicit grade cut-offs in schools outside of the top name-brand schools. (They have them at top schools as well, but there are a lot more call-back slots allotted.) Many don’t formally interview outside of the very top schools at all except as special consideration to a powerful partner who went to Michigan or somesuch.

      Most of the other lawyers I’ve talked to about it are perfectly aware that they are looking for prestige rather than talent. They know that many of the finest lawyers at the firm went to Brooklyn rather than Yale. However, one partner explained that NYU had such a high grade cut-off compared to Columbia because most non-lawyers (i.e.: clients) outside of NYC thought NYU was a state school, so it earned a lawyer no immediate respect. Another rather bluntly said “clients are stupid. They don’t usually know how to judge the actual quality of your legal work. They can, however, read a resume, and they’ve heard about Harvard.”

      Of course, that guy made the same point about having all of your staples in the same spot and on the same angle in the corner of your documents … he was probably right about that, too, come to think of it.

      • What?

        “Many don’t formally interview outside of the very top schools at all except as special consideration to a powerful partner who went to Michigan or somesuch.” ah this level of elitism actually made me laugh.
        The only law firm that doesnt interview at Michigan that is considered elite is Wachtell…because Michigan, unlike Ohio State or Fordham is a top 10 law school.

  • John Maxwell

    “Kids from elite colleges aren’t much smarter or harder working than those from the next tier…”

    Do you have any data on this? I’m seeing a pretty big difference in the lists of notable alumni for Stanford and the University of Idaho on Wikipedia, including the lists of entrepreneur alumni, which would seem at least somewhat resistant to an effect where going to a prestigious university helped one become notable.

  • 10 yr consultant

    “Kids from elite colleges aren’t much smarter or harder working than those from the next tier”

    Why are you so sure of that? Isn’t the reason that students compete harder and pay more to go to the elite schools for the signaling value that they are slightly smarter and harder working?

    There are talented students at non-elite schools. But it is alot easier and cheaper for me to find 5 sufficiently talented and hard working at one elite school than at the schools a tier below. That’s why the cycle

    employers of ‘elite’ careers recruit from ‘elite’ schools because ‘elite’ students go to those schools to get ‘elite’ careers.

    And if you are truly an elite student of comparable skill at a non-elite school, please come find us, we’ll gladly hire you.

    -Big 3 consultant.

    • What?

      “And if you are truly an elite student of comparable skill at a non-elite school, please come find us, we’ll gladly hire you.”

      How would they find you? Big consultants recruit on campus.

  • Michael Wengler

    Kids from elite colleges aren’t much smarter or harder working than those from the next tier, who are cheaper to hire.

    If ANYTHING important in business (or evolution) were linear, this would be a great reason to cut out the elitism. But its hard to imagine something more non-linear than business. One firm of 5 bidding takes the whole bid. How much do you need to save on your hiring to justify coming in consistently second in a process like that?