Wednesday, May 9, 2012

Downfall of Dewey & LeBoeuf: What if the smartest guys in the room aren't!

Even for some of the top paid lawyers in the world at one of the most prestigious firms, poor business practices and overextending on credit can and did lead to the downfall of a practice. 

Isn't it ironic that some of the "best minds" in the legal profession were really not much different than anyone else who took on too much debt and made long-term commitments when at the same time the money coming in to pay those obligations was somewhat uncertain and not guaranteed.

In either case, when the foundation begins to crack the outcome will most likely be the same!

First a timeline of events for former D&L Chairman Steven Davis (Source):
Mismanagement 101 or New Law Firm Economics

James B Stewart’s weekend New York Times article “Dewey’s Collapse Underscores New Law Firm Realities” reveals an old and now unimaginably charming billing practice which he was privy to as an associate at one of Dewey's peers. After reviewing the billing reports a  partner prepared a one-sentence bill --- in calligraphy--- on beautiful stationery which read: ‘For professional services rendered,’ followed by the time period covered and a large number with a dollar sign. (Bold and italics added) Such was the depth of trust between lawyers and clients. It is hard to imagine a more dramatically changed environment than today’s world of AFA’s, outsourcing and “beauty contests.”

In Leverage We Trust

Law firms have long term debts but not necessarily long term assets. Dewey offered unusually lucrative long term contracts to attract lateral partners. They floated bonds. They had lines of credit. Their greatest assets were the lawyers with a book of business and as soon as those started walking out the door the model was doomed to collapse. Law Firm consultant Bruce MacEwen is quoted in the Times story as describing Dewey’s situation as “Mismanagement 101.” (Source)

The downfall for the smartest men in the room may begin the day when they start to believe that they are!

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