SBM Blog

Dewey Bankruptcy

The latest chapter in the long unwinding of the venerable global law firm Dewey & LeBoeuf is the filing of this bankruptcy petition on Monday.  WSJ Law Blog not only has details of the firm's expenses, but also informs us that Dewey's "opulent" Manhattan office was featured in the movie Michael Clayton.  New York Law Journal explains why Dewey's bankruptcy raises novel issues, in part because Dewey will be the only law firm ever in bankruptcy that has issued bonds to support its finances.

A Checklist For Law Firm Survival

LegalOnRamp's Paul Lippe, author of the ABA's The New Normal column, predicts 10 of the 250 AmLaw firms will go the way of Dewey & LeBouef by the end of 2013, and offers a 12-item checklist for firm health, that includes this intriguing observation (emphasis added):

Does compensation make enough sense that it can be defended? Many of the smartest people I know, like Bruce MacEwen and Ed Reeser, have written that a 20-1 compensation ratios between partners—as was the case at Dewey, MacEwen notes—make cultural glue impossible. I respect that argument, but the fact is there are lots of high-performing organizations (Broadway shows, Internet start-ups) with large disparities in compensation. But those disparities are well-understood, and they are accepted when things are working. If the law firm thinks paying one partner 20 times more than another makes sense, it has to be fairly transparent and consistent about it. Certainly you can’t act like all partners are created equal, and then treat some as more equal than others. And obviously if the people in the executive committee pay themselves unfairly, it will be a problem.

Will More Big Law Firms Go The Way Of Dewey?

The founder of Axiom, the enfant terrible of legal service platforms, analyzes the wreckage of Dewey & LeBoeuf at Forbes, and predicts the demise of more traditional law firms because they have failed to adapt to a changing world:

The Dewey saga is just the latest development in a series of struggles facing firms. Most of the business world has been transformed repeatedly over the last 50 years, but the micro-economy of corporate lawyers has been preserved in the kind of pristine stillness usually associated with nuclear waste in an underground salt cavern.

What The Meltdown Of A Law Firm Looks Like For Partners And Retirees

In the latest story about the travails of the recently-venerable global law firm Dewey & LeBoeuf, the New York Times says that for partners, losing their jobs "may be the least of their worries":

They are likely to lose the money they were required to invest in the firm. They could lose their pensions. They may have to give back money they have already been paid. And even if creditors eventually agree to accept a small portion of what they are owed, the partners may owe taxes on the forgiven debt.

Current and recently-departed partners are being advised to consult personal bankruptcy attorneys. Information about former firm chairman Morton A. Pierce, who resigned last week, illustrates the magnitude of the problem. According to the Times story, his resignation letter informed the firm that it owes him $61 million.

Meanwhile, retirees are facing the painful reality that the majority of their pensions are unfunded, that is, that the pensions have been paid out of revenues that no longer exist. And the plight of longtime assistants and administrative staff should not be forgotten.

For the intensely interested, WSJ Law Blog has a graphic showing where the Dewey partners have gone.

Law School Grades And Professional Destiny

I do believe that for most lawyers trauma over law school grades lingers throughout life, and that the residual trauma probably explains why blog posts about law school grades get a surprisingly high number of "hits."  But the PTSD topic of the day is not about trauma but about determination -- post-testing self-determination, if you will. In the wake of her appearance in a New York Times story about graduate school grades, Michigan's Senior Assistant Dean for Admissions Sarah Zearfoss had a smart post on law school grades in her blog  A²Z. Among her many wise observations:

It’s not exactly a newsflash for lawyers and law students that BigLaw employers look at grades (in contrast, according to the article, to other graduate disciplines), and I actually think law students tend to put excessive emphasis on their role. Sometimes that means for jobs they had actually had a shot at; sometimes it means candidates don’t work on other key aspects of their professional development, erroneously assuming that a good GPA is going to do all the heavy lifting. Either way, it’s self-defeating. High grades are simply not always a necessary, and never a sufficient, existing condition to getting a law job.

Former Wayne Law Dean on Legal Education "Crisis"

Hastings Law School dean and former Wayne Law dean Frank Wu was interviewed by National Law Journal about his announcement that Hastings plans to cut back admissions by 20% over the next three years. With a 7% decline in applications, Hastings is ahead of the 15% average decline in applications nationally, and has just completed aggressive staffing changes and tuition increases to put the public law school's finances on an even keel in the face of dramatically declining state revenues.  Nevertheless, Dean Wu is not resing easy:

I'll say what most law deans won't: Legal education is in crisis. We're at a crossroads, and unless we collectively reboot this thing, we're in real trouble. Every law school should be thinking about this.

The "Problematic Dark Side" of Aging In The Classic Law Firm Business Model

In "The Age-Old Problem of Age" in AmLawDaily, Steven Harper lays it out:

Most big law firms have evolved—or devolved—into short-term, bottom-line businesses. An eat-what-you-kill approach to compensation encourages partners to keep client relationships away from others who might claim billing credit when year-end reviews roll around. Likewise, the lateral hiring frenzy makes such behavior even more important to attorneys who want to preserve their options and demonstrate their dollar value.

As a result, aging partners have no reason to institutionalize clients by nurturing relationships with younger lawyers. For those who have little or no desire to confront either their own mortality or the prospect of life after their big firm careers, the incentives offered by most firms are unambiguous: Keep what you have and try to keep anyone else from claiming any part of it.

Nonlawyer Ownership of Law Firms: The Best, Or Nothing?

Who's in the driver's seat? Bloomberg News reports that Mercedes-Benz is a potential investor in Jacoby & Myers, the law firm challenging New York, New Jersey, and Connecticut ethical rules against nonlawyer ownership. Jacoby & Meyers is arguing that the rules violate the Commerce Clause  and the firm’s rights of free speech and due process.

Good Jobs Numbers Extend to Legal Sector

Not only did the legal sector add 800 new jobs in February, but adjusted figures released by the U.S. Bureeau of Labor Statistics revised the January legal sector estimate from 1,000 to 3,200, more than offsetting a December loss of 1,100 jobs.

Where Are All The Elite BigLaw Partners?

A column by Vivia Chen, "Too Good for BigLaw," says that although graduates of elite law schools make up a disproportionate number of BigLaw associates, a disproportionate number fail to make it to partner.  Her thesis is that the elites may not have what it takes to make partner, but that the strivers from less prestigious schools do. In his extended commentary on Chen's piece at The Legal Whiteboard, Indiana Law professor Bill Henderson offers four alternate theories to explain the data:

1. Selection effects.  There are enormous selections effects at work.  In effect, we are pitting the #1 to 20 persons at Chicago-Loyola against anyone at U of Chicago.  It is unlikely that factors such as personality and motivation are identical in these two populations.  Another enormous selection effect is intrinsic interest in corporate law -- does anyone really believe that the 75% of Stanford, Penn or Harvard grads who start their careers in BigLaw have a burning passion to do technical, often times repetitive legal work for the Fortune 500? 

2. First jobs.  Elite graduates, whenever given the choice, tend to start at the most elite firms possible.  And, no surprise, these shops are the most highly leveraged and have the highest wash-out rates.  See Zaring & Henderson, Young Associates in Trouble (2008). But here is the big surprise: the next stop on the train is not somewhere else in the NLJ 250. These folks are not moving down; they are moving out.  

3. Inter-generational privilege.  The After the JD study has documented that elite law school graduates tend to hail from more affluent families.  They also evince less interest in corporate law.  See Dinovitzer & Garth, Not that Into You, Am. Law. (Sept 2009).  When mom and dad are both lawyers, and grandpa owned a factory, maybe it's time to focus on art and travel.   In effect, one's inheritance becomes one's safety net. 

4. Influence of admissions criteria.  Over the last 20 years, admissions committees have focused more and more on LSAT and UGPA; conversely, personal statements, letters of reference, and career histories hold very little sway.  This has fundamentally altered the BigLaw pipeline with students who are (excessively?) academic and lack significant brushes with real world adversity--not ideal grooming for a high stress professional service job.  I think these "supply chain" dynamics are uniformly overlooked by employers--big mistake.  Michigan Law circa 1982 is not Michigan Law circa 2012.

5. "A Better Plan B."  I know a lot of people in the law world will cling to the notion that elite law school graduates are running government agencies, leaving the law for Wall Street, and generally living very charmed lives.   I am sure there is something to this theory.  But I doubt it is carrying the load on the BigLaw associate/partner attrition puzzle.  My own class at U of Chicago (Class of 2001) has a broad assortment of legal careers -- but nothing too markedly different than many of the alumni of Indiana Law, where I teach.  Ten years out, lawyers from decent law schools tend to be having interesting careers -- with "interesting" being the core commonality.