Demise of one more big US firm

Another Biglaw Firm demise - any lessons learned?

Following last year's dissolution of prestigious US law firms like Howrey, now another big well-established and reputable law firm seems to demise in the USA. The large New York based law firm Dewey & LeBoeuf has since January this year had about 70 partners leaving the firm and last Friday the firm told its remaining London associates that it cannot ensure it will pay their salaries beyond the end of this month.

The problems are tracked back to the merger in 2007 between Dewey Ballantine and LeBoeuf Lamb Greene & MacRae. In 2007 LeBoeuf was an impressive New York firm with energy and insurance practices to compete with the best. On the other hand, Dewey Ballantine had a massive pension deficit. One big reason for the failure of the firm seems to be the debt issues.

Another reason for its failure seems to be its culture of "superstars" and the jealousy within the firm towards the rainmarkers and their compensation by the firm. One source asserts that at one point 80 per cent of the firm's profit was distribued to just 10 per cent of the partners.

Please see these articles in The Am Law Daily and Above the Law for further details: "Dewey Hit with WARN Suit as Partner Departures Suggest Merger Didn't Take" and " Gone Dewey Gone: ATL Readers Dish the Blame".

This unequal distribution of profit amongst partners can also be seen as one important factor that accelerates the dissolution. In The Am Law Daily article "Spread Too ThinPatrick J. McKenna and Edwin B. Reeser provide ann interesting analysis of the risks associated with widening the compensation spread among partners. In the article there is a description of how such a spread can destablise a firma and even contribute to a sudden firm collapse. The reasons for this are for example a higher risk of interpersonal conflicts and that laterals also often fail to perform as expected. There is also research showing that top performers quickly fade when changing firms.

Such a firm certainly is in the risk of having less loyal employees. This means that successful partners then easily could move to another law firm as soon as they expect a risk of less compensation due to problems within the firm.

With such a spread on compensation the focus is on the individual effort and the individual stars. Incentives are put on individual efforts. This means it is difficult to argue having the lawyers working with internal projects, focusing on knowledge sharing and the building effective practice groups since this is not rewarded by the firm. There are really no incentives in doing that. Thereby they will in the end fail to be able to support clients in the best efficient way. Does that sounds like the way to build a law firm for the future?

 

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