Massive growth, explosive profits, high returns and low risk were some of the drivers behind the growth of Big Law in the boom times. But now that times are tougher the driving forces of growth have become ghosts that have returned to haunt the big law firms – as Dewey LeBoeuf is finding out.
The Washington Post’s Catherine Ho looked at the Dewey implosion and some of the reasons behind it.
As recently as December, Dewey & LeBoeuf had more than 1,000 lawyers in 26 offices around the world, annual revenue close to $800 million, and attorneys who had a hand in some of the biggest headline-making deals of the last decade.¶ Now the law firm, the product of one of the largest legal industry mergers in history, is rapidly unraveling.
Employees have been warned the firm could shut down this week, and remaining partners have been urged to seek other job opportunities, according to several published reports. The Manhattan District Attorney’s office is investigating accusations of wrongdoing by ex-Chairman Steven Davis — allegations his attorney denies. And last week, three of the firm’s four-member office of the chairman decamped to other law firms, as of Friday, the new firms confirmed.
A spokesperson for Dewey did not return requests for comment.
The downward spiral has come as a shock to many outside the legal industry, but in some ways the collapse follows a path taken by the Washington law firm Howrey 14 months earlier. Dewey partners departed in trickles at first, then increasingly in waves. There was the D.C. managing partner who left to join King & Spalding in February, followed by the three senior partners who moved to Sidley Austin in D.C. and Los Angeles, and the 12 who then landed at Willkie Farr & Gallagher in London, New York and D.C. Suddenly, partners were moving on at a near-daily rate. Between January and May, the Dewey partnership dwindled from 320 to around 160.
Howrey and Dewey are extreme examples of how rapid expansion during the recent economic boom is coming to haunt firms that sought fast growth.
In its final years, Howrey snapped up large practice groups and entire firms at a breakneck pace, going from a one-city Washington firm specializing in litigation to an international player with 18 offices worldwide.
Dewey built its legal empire with promises of multimillion dollar pay guarantees to lure star lawyers from other firms.
In each case, the firms tried to negotiate a soft landing by merging with another firm, only to have talks go nowhere.
The sprawling firms proved unsustainable when the financial crisis struck and clients pulled back. Dewey, saddled with lower-than-expected profits and mounting debt, found itself unable to pay its partners, and they began leaving in droves.
Legal and bankruptcy experts said they may not be the last to be hurt by an exodus of attorneys seeking greener pastures.
“If you ask me, I think there are going to be a number of law firm insolvencies in the coming months,” said Allan Diamond, a Houston bankruptcy attorney who is representing creditors in the Howrey bankruptcy.
Other large law firms followed a similar pattern of expansion in the 2000s: they ballooned swiftly, either through mergers or lateral hiring, “all with the underlying assumption that the markets would grow and the business would grow,” said Diamond, who is also working on the bankruptcy of a law firm known as Dreier. “Of course, what’s happening is the exact opposite. Starting in 2008 and the global recession, there was a massive contraction of business in the legal marketplace.”
Read more at The Washington Post