Is It Really More Complex Than Greed?

Revisionism is already obfuscating the story of Dewey & LeBoeuf’s demise. If facts get lost, the profession’s leaders will learn precious little from an important tragedy.

For example, the day after Dewey & LeBoeuf filed its bankruptcy petition, Clifford Winston and Robert W. Crandall, two nonlawyer fellows at the Brookings Institution, wrote a Wall Street Journal op-ed piece offering this analysis: “Dewey’s collapse has been attributed to the firm being highly leveraged and unable to attract investment from businesses outside the legal profession.”

Attributed by whom? They don’t say. Anyone paying attention knows that outside investors bought $150 million in Dewey bonds. But apparently for commentators whose agenda includes proving that overregulation is the cause of everyone’s problems—including the legal profession’s—there’s no reason to let facts get in the way.

Another Miss

On the same day that the Winston and Crandall article appeared, a less egregious but equally mistaken assessment came from Indiana University Maurer School of Law professor William Henderson in The Am Law Daily’s “More Complex Than Greed.” Bill and I agree on many things. I consider him a friend and an important voice in a troubled profession. But I think his analysis of Dewey & LeBoeuf’s failure misses the mark.

Henderson suggests, “One storyline that will attract many followers is that large law firm lawyers, long viewed as the profession’s elite class, have lost their way, betraying their professional ideals in the pursuit of money and glory. This narrative reinforces that lawyer-joke mentality that lawyers just need to become better people. That narrative is wrong.”

What’s wrong with it? In my view, not much, as “House of Cards” in the July/August issue of The American Lawyer now makes painfully clear.

What Happened?

Rather than the greed that pervades “House of Cards,” Henderson suggests that Dewey & LeBoeuf’s collapse reveals that the real culprit is the failure of law firms like Dewey to innovate in response to growing threats from new business models such as Axiom and Novus Law. Innovation is an important issue and Henderson is right to push it. But as the story of Dewey’s failure unfolds, the inability to innovate in the ways that Henderson suggests—using technology and cheaper labor to achieve efficiencies and cost savings—won’t emerge as the leading cause.

Rather, greed and the betrayal of professional ideals lie at the heart of what is destabilizing many big-law firms. In that respect, most current leaders have changed the model from what it was 25 years ago. Am Law 100 firms’ average partner profits soared from $325,000 in 1987 to $1.4 million in 2011. Behind that stunning increase are leadership choices, some of which have eroded partnership values. As a result, many big firms have become more fragile. If greed doesn’t explain the following pervasive trends, what does?

•Short-term metrics—billings, billlable hours, leverage—drive partner compensation decisions in most big firms. Values that can’t be measured—collegiality, community, sense of shared purpose—get ignored. When a K-1 becomes the glue that holds partnerships together, disintegration comes rapidly with a financial setback.

•Yawning gaps in the highest-to-lowest equity partner compensation. Twenty-five years ago at nonlockstep firms, the typical spread was 4 to 1 or 5 to 1; now it often exceeds 10 to 1 and is growing. That happens because people at the top decide that “more” is better (for them). Among other things, the concomitant loss of the equity partner “middle class” reduces the accountability of senior leaders.