Kenneth D. Gartrell

By: Kenneth D. Gartrell

Some people say the problem with America is that we have too many lawyers. It is an old idea, but not a very good one. A better way of thinking is to look at the constructive institutional development of the legal profession.

Recent trends indicate the entry of young arbitrageurs into the legal profession. Most are young associates. Most are woman. Most have some international connection. Most have a background or interest in corporate finance and corporate control.

THE GAP

My provisional estimate gauges the Federal and State Court systems no less that 50 years behind on average in handling economic questions for which answers are well known to the average MBA student in American business schools. In light of the rate of potential applications for our knowledge this is an expansive gap.

Judges know much more than juries, of course, but the average judge has little formal training in business or economics. He or she is also older and was likely educated before the rise of modern financial economics marked by wide acceptance in graduate schools of business and economics in the 1970s and 1980s.

On an impressionistic basis, formed over a limited personal sample of 100 cases and 30 appearances in various legal forums over the last 20 years, I place the financial economic sophistication of the legal system on average in the early 1960s. As we fast approach the second decade of the 21st Century, we approach the 50-year gap in knowledge if my assessment is unbiased.

In this immediate realm it should be true, as it appears in all of nature that “nature abhors a vacuum.” The puzzle is to understand what structure and process has developed or will develop to resolve the gap. Speaking institutionally, it is up to the broad legal profession to make a way. As fortune would have, it does appear dynamics are in motion within the broad legal profession.

A SOLUTION

In markets generally (for those of us who believe in such things) this type of “knowledge gap” represents an arbitrage opportunity, a chance to profit by more than a normal rate with less risk than general. It appears bright young people looking for a good income and a chance to make a difference in life see this gap. They pursue career and education strategies to close it with the aid of opportunistic law firms.

THE PLAYERS

MBA, BBA and economics graduates are among the most inclined to entrepreneurism. On this basis, I decided a good way to look for action aimed at closing the legal/financial economics knowledge gap was to observe recent movements of business and economics students into the practice of law.

EXPLORATORY RESULTS

In order to test my ideas about the knowledge gap, I performed a web search of the top 250 law firms in the United States. Here are some quick findings. Most of those with combined business, economics and law educations are:

• Woman,
• Associates,
• Less than 5 years from law school,
• Multi-lingual,
• In highly profitable New York law firms,
• Internationally aware,
• Finance focused,
• Practicing in Private Equity,
• Corporate Departments,
• Employee Benefits,
• Securities,
• Restructuring
• Derivatives, and
• Capital Markets.

OVERALL PATTERNS

Noble Laureate Gary Becker has been following the creation and flow of human capital for a long time. He has much that is valuable to say about it. In his book “Human Capital”, he discusses both the flow of women and selected international populations into the ranks of higher education and the substantial economics incentives that surrounded it in the recent decades.

In my work as an expert witness over the last 20 years, I have tried to bring all the principles I’ve learned as a scholar and teacher in business economics into the courtroom. I have always felt it was my calling to transfer this knowledge for the unbiased use of the fact-finders whether judges or juries. But, because of many complex factors I have to say the results have been mixed.

It gives me heart to see the trend to legal entrepreneurism. Based on the exploratory evidence of this limited survey, I have embarked on a larger research project to provide more detailed and more penetrating analysis of the thesis.