The announced closure of prominent law firm Weil, Gotshal & Manges has put a paper by Professor John Morley ’06 back in the news.
In “Why Law Firms Collapse,” Morley explains why apparently healthy law firms can go bankrupt seemingly overnight. That paper has been frequently cited by media outlets since Weil, itself known for bankruptcy work, announced Oct. 28 that it would dissolve after 95 years.
Bloomberg called Morley’s paper “an excellent explainer of what can go wrong.”
Morley argues in the paper that the structure of law firms — owned by partners rather than investors — makes them more vulnerable to collapse than other businesses.
“Partner ownership creates the conditions for a spiraling cycle of withdrawals that resembles a run on the bank,” Morley writes.
When one partner leaves, the remaining partners who bear the loss are more likely to leave, “eventually producing an accelerating race for the exits,” according to Morley.
The paper is based on Morley’s study of three dozen law firm failures.
On the New Law Order podcast last week, Morley said Weil followed the pattern “almost uncannily according to script.”
Morley told Reuters that lessons from Weil go beyond the legal industry.
“In a way, the culture of law firms is a microcosm of modernity generally,” he said. “We are freer to move and freer to do what we want to do, and less connected and less embedded in communities. That’s essentially what’s happening here.”
Morley is the Augustus E. Lines Professor of Law at Yale Law School.
