Hostname: page-component-7479d7b7d-m9pkr Total loading time: 0 Render date: 2024-07-12T17:27:47.919Z Has data issue: false hasContentIssue false
  • English
  • Français

How Green Was My Valley? An Examination of Tournament Theory as a Governance Mechanism in Silicon Valley Law Firms

Published online by Cambridge University Press:  01 January 2024

Bruce M. Price
Get access Rights & Permissions [Opens in a new window]

Abstract

The tournament model is a widely used mechanism to control opportunistic behavior by associates in law firms. However, this mechanism can only operate in certain economic (and social) circumstances. When those circumstances do not exist, the model breaks down, and with it the ability to control opportunism in the absence of some alternative mechanism. Prior research has not investigated whether the utilization of a tournament model prevents the opportunistic behaviors identified as grabbing, leaving, and shirking. In order to test the limits of the tournament model, it is necessary to find particular historical moments when the economic environment radically challenges assumptions/premises of the model. The dot-com bubble in Silicon Valley provides precisely such a time and place. This article demonstrates limits to the applicability of tournament theory. Those limits are to be found in the economic environment in circumstances in which: (1) exogenous reward structures offer many multiples of internal rewards; (2) demonstrably high short-term rewards outside the firm starkly contrast with the delayed long-term rewards inside the firm; (3) the managerial strata reduce their emphasis on long-term recruiting of potential partners in favor of short-term productivity by young associates; and (4) firms develop departmental leverage ratios in excess of their capacity to monitor, mentor, and train recruits.

Type
Of General Interest
Information
Law & Society Review , Volume 37 , Issue 4 , December 2003 , pp. 731 - 764
Copyright
© 2003 Law and Society Association.

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

I am indebted to Professors Doug Guthrie, Walter W. Powell, Geoffrey Miller, and Wolf Heydebrand for their thoughtful comments on earlier drafts of this article. Earlier versions of this article were presented at the Social Science Research Council's Program on the Organization as a Social Institution, Berkeley, CA, 2002; the Joint Law and Society and Canadian Law and Society Conference, Vancouver, B.C., 2002; and the Tenth Anniversary Celebration of New York University's Institute for Law and Society, 2003. I am grateful to the anonymous reviewers for their valuable assistance and to Editor Joseph Sanders for his extensive and insightful comments.

References

Baird, Douglas G., Gertner, Robert H., & Picker, Randal C. (1994) Game Theory and the Law. Cambridge: Harvard Univ. Press.Google Scholar
Carmichael, Lorne (1984) ““Work, Incentives, Hierarchy, and Internal Labor Markets,” 92 J. of Political Economy 486.Google Scholar
Demsetz, Harold (1995) The Economics of the Business Firm: Seven Critical Commentaries. Cambridge: Cambridge Univ. Press.CrossRefGoogle Scholar
Galanter, Marc, & Palay, Thomas (1991) Tournament of Lawyers: The Transformation of the Big Law Firm. Chicago: Univ. of Chicago Press.Google Scholar
Galanter, Marc, & Palay, Thomas (1998) “A Little Jousting About the Big Law Firm,” 84 Virginia Law Rev. 1683.CrossRefGoogle Scholar
Gilson, Ronald J., & Mnookin, Rober H. (1985) “Sharing Among the Human Capitalists: An Economic Inquiry into the Corporate Law Firm and How Partners Split Profits,” 37 Stanford Law Rev. 392.CrossRefGoogle Scholar
Gilson, Ronald J., & Mnookin, Rober H. (1989) “Coming of Age in the Corporate Law Firm: The Economics of Associate Career Patterns,” 41 Stanford Law Rev. 567–95.CrossRefGoogle Scholar
Hansmann, Henry (1996) The Ownership of Enterprise. Cambridge: Harvard Univ. Press.Google Scholar
Hansmann, Henry (1989) “New Organizational Forms,” 16 Work and Occupations 323–57.Google Scholar
Johnson, Vincent Robert (1991) “On Shared Human Capital: Promotion Tournaments and Exponential Law Firm Growth,” 70 Texas Law Rev. 537.Google Scholar
Kordana, Kevin A. (1995) “Law Firms and Associate Careers: Tournament Theory Versus the Production Imperative Model,” 104 Yale Law J. 1907.CrossRefGoogle Scholar
Kronman, Anthony T. (1993) The Lost Lawyer: Failing Ideals of the Legal Profession. Cambridge: Harvard Univ. Press.Google Scholar
Kummel, William (1996) “A Market Approach to Law Firm Economics: A New Model for Pricing, Billing, Compensation and Ownership in Corporate Legal Services,” 1996 Columbia Business Law Rev. 379.Google Scholar
Lambert, Frederick (1992) “An Academic Visit to the Modern Law Firm: Considering a Theory of Promotion-Driven Growth,” 90 Michigan Law Rev. 1719.CrossRefGoogle Scholar
Lazear, Edward P., & Rosen, Sherwin (1981) “Rank Order Tournaments as Optimum Labor Contracts,” 89 J. Political Economy 841.CrossRefGoogle Scholar
Leibowitz, Arleen, & Tollison, Robert (1980) “Free Riding, Shirking, and Team Production in Legal Partnerships,” 18 Econ. Inquiry 380.CrossRefGoogle Scholar
Malcomson, James M. (1984) “Work, Incentives, Hierarchy, and Internal Labor Markets,” 92 J. of Political Economy 486.CrossRefGoogle Scholar
Martindale-Hubbell, (1999) Martindale-Hubbell Law Directory. New Providence, NJ: Martindale-Hubbell, Inc.Google Scholar
Mehta, Shailendra Raj (1998) “The Law of One Price and a Theory of the Firm: A Ricardian Perspective on Interdisciplinary Wages,” 29 Rand J. Econ. 137.CrossRefGoogle Scholar
Nelson, Robert (1992) “Of Tournaments and Transformations: Explaining the Growth of Large Law Firms,” 1992 Wisconsin Law Rev. 733.Google Scholar
Orts, Eric (1998) “Shirking and Sharking: A Legal Theory of the Firm,” 16 Yale Law & Policy Rev. 265.Google Scholar
Ribstein, Larry E. (1998) “Ethical Rules, Agency Costs, and Law Firm Structure,” 84 Virginia Law Rev. 1707.CrossRefGoogle Scholar
Rutherglen, George, & Kordana, Kevin A. (1998) “A Fairwell to Tournaments? The Need for an Alternative Explanation of Law Firm Structure and Growth,” 84 Virginia Law Rev. 1695.CrossRefGoogle Scholar
Sander, Richard H., & Williams, E. Douglass (1992) “A Little Theorizing About the Big Law Firm: Galanter, Palay and the Economics of Growth,” 17 Law & Social Inquiry 391.CrossRefGoogle Scholar
Samuelson, Susan S., & Jaffe, Lynn J., “A Statistical Analysis of Law Firm Profitability,” 70 Boston University Law Rev. 185.Google Scholar
Spence, Michael A. (1974) Market Signaling: Informational Transfer in Hiring and Related Screening Processes. Cambridge: Harvard Univ. Press.Google Scholar
Suchman, Mark C. (1994) On Advice of Counsel: Law Firms and Venture Capital Funds as Information Intermediaries in the Structuration of Silicon Valley. Doctoral dissertation. Stanford: Stanford University.Google Scholar
Suchman, Mark C. (1995) “Localism and Globalism in Institutional Analysis: The Emergence of Contractual Norms in Venture Finance,” in Scott, W. R., & Christensen, S., eds., The Institutional Construction of Organizations. Thousand Oaks, CA: Sage.Google Scholar
Suchman, Mark C., & Edelman, Lauren B. (1996) “Legal Rational Myths: The New Institutionalism and the Law and Society Tradition,” 21 Law & Social Inquiry 903–41.CrossRefGoogle Scholar
Swaine, Robert Taylor (1946) The Cravath Firm and Its Predecessors. New York: Ad Press.Google Scholar
Wilkins, David B., & Gulati, G. Mitu (1998) “Reconceiving the Tournament of Lawyers: Tracking, Seeding, and Information Control in the Internal Labor Market of Elite Law Firms,” 84 Virginia Law Rev. 1581.CrossRefGoogle Scholar