Antitrust, the ABA, and Analysis of Law School Cost Variables

Keith Sharfman —  4 April 2006

Josh’s interesting post re the sunsetting of the ABA’s antitrust consent decree, as well as David Zaring’s, are worth some further thought.

One problem with the consent decree is that it is widely misunderstood. All that antitrust law forbids the ABA to do is impose minimum salaries and other conditions of employment. But that is a far cry from a rule against studying compensation levels (as distinct from imposing them) for the purpose of assessing whether a school is using its scarce resources wisely. Nothing in antitrust law forbids that, so long as there’s no agreement to fix compensation at any particular level. When a law school does a self-study in preparation for an ABA site visit, a great deal of data is collected and evaluated to help the site inspection team assess how well the school is doing. Faculty compensation is an important variable in a school’s success, and omitting that variable from study is neither sensible nor required by antitrust. Analysis of faculty compensation levels is no different from analysis of a school’s other strategic expenditures–on plant and equipment, on the library and technology, on student aid, and the like. The consent decree should not be used as a basis for shielding compensation levels from analysis and scrutiny. If, say, spending on academic faculty at a particular school has increased at a lower rate over the the last decade than spending on clinical faculty or on administrative staff, the ABA report ought to be able to note that fact and comment upon it. While antitrust forbids requiring schools to maintain minimum compensation levels, analysis of expenditures in the compensation area without the imposition of any mandates is not forbidden.

Imagine if a large company like GM were to hire a management consulting firm like McKinsey to study its operations and make recommendations. Wouldn’t it be bizarre for McKinsey not to look at GM’s compensation practices? Without looking at that, it would be very hard to get a full picture of GM’s choices and even harder to make any sort of sensible recommendations. Just so with the ABA. It’s hard to write a sensible report evaluating how well a law school is doing relative to its peers without having any sense of how the school is compensating its faculty, which is surely a key variable in the equation. So long as ABA site inspectors aren’t permitted to look at compensation, it will be difficult for them to do ther jobs.

6 responses to Antitrust, the ABA, and Analysis of Law School Cost Variables

  1. 

    Will that ABA give a lower score to schools that have “overpaid” faculty?

  2. 

    Nice post – I suppose a consultant type role is one of the upsides of this ABA process … note that accreditation (for which the consent decree applies) and reaccreditation (where this comparative information might be particularly helpful) are now on legally different planes. Not that I’m sure what to make of that.

  3. 

    Oops. The word “cannot” in the fifth line of the 2d paragraph of my preceding comment should be “can.”

  4. 

    I agree with Keith’s intial point that the mere collection of information on salaries, by itself, isn’t a violation of Section 1 of the Sherman Act. I don’t agree with the view that the only way the ABA can violate Section 1 is to agree to set minimum compensation levels.

    My guess is that the ABA might violate the Sherman Act if it used the level of faculty compensation as a factor in its decision on whether to approve a law school. To use Keith’s example, a finding that a law school is inadequate because it is not compensating its faculty adequately, or the rate of compensation increases is inadequate is implicitly based upon some notion of what is an adequate level of compensation and setting or using that level is a form of price fixing.

    The assumption that faculty compensation is a key variable in “how a law school is doing” is also highly questionable. That assumption essentially makes faculty compensation levels a surrogate for faculty quality. I do not believe a claim that compensation is an adequate surrogate for quality cannot be made without a strong degree of empirical support. Even assuming a relationship between compensation levels and faculty quality, the use of the former to establish the latter faces one really serious problem. Faculty quality can be ascertained directly. ABA site visitation teams do make visits to classrooms to observe faculty teaching. They have extensive discussions with individual faculty and students about teaching. ABA and AALS accreditation teams certainly look at the scholarly output of a law school’s faculty. If they are not trying to get a gauge of faculty quality, why on earth are they bothering which such things? If a faculty is meeting the ABA’s Standards for teaching and scholarship, and a law school can retain such a faculty, who cares what the faculty is being paid?

    The analogy to a business firm’s evaluation of GM is really weak. If McKinsey determined that the management of GM was doing a good job and that GM was able to sustain that level of managerial competence, the amount that GM paid its managers would be irrelevant. If GM could get a good management team and pay the members less than its competitors, then more power to GM.

    The other failing of the analogy to GM and McKinsey is that no matter what McKinsey finds, it has no power to stop GM from producing cars. The ABA does have the de facto power to stop a law school from being able to produce law graduates by withholding its accreditation.

  5. 

    This is an important clarifying point, Keith. I am glad that you made it. I would be very surprised if the DOJ were interested in preventing the ABA from collecting this data.

Trackbacks and Pingbacks:

  1. TRUTH ON THE MARKET » Tenure and the Law Deans - April 4, 2006

    […] While we’re talking about the ABA . . . […]