Networking among the Human Capitalists: Internal Working Networks and the Growth of Large Law Firms

• In Event: 161 - Section on Organizations, Occupation and Work Roundtable Session (one-hour).
  In Refereed Roundtable: Table 05. Social Capital and Networks I

Abstract

The most dramatic change in the law firm as an organizational form has been the precipitous growth in the size of the nation's top firms. In 1960, the largest firm had 125 lawyers, but today the largest firm employed a truly staggering 3800 lawyers. What accounts for the apparently limitless growth of the global law firm?

Traditional economic explanation for large-scale organizational growth – the benefits derived from economies of scale or the monopolization of a market – are limited, as conflict of interest and malpractice rules make efficient administration of larger firms more difficult than smaller firms. Instead, two competing theories regarding firm expansion have emerged. The reputational bonding theory holds that the reputational benefits of the firm attract individual lawyers, who act to reinforce the firm’s reputation and contribute to its growth. (Ribstein 2009) By contrast, the internal referral network theory holds that law firms benefit from an internal network through which attorneys share information, refer clients, and pool skills – and that this network grows and provides more benefits as the firm expands. (McGowan and Burk 2010)

Using the routine press releases issued by law firms to announce client transactions, I construct working networks for the corporate attorneys of law firms, and examine the structure of these networks to test whether firms are merely clusters of attorneys sharing a common brand name or whether there is a strong internal network within the firm. I then test whether these network characteristics are associated with firm stability and survival.

Author

• Alan James Kluegel, University of California-Berkeley