Lessons not learned - what Dewey's problems mean for the profession
"There is being wise after the fact, and then there is doggedly resisting wisdom's advances in the face of recurring events. What else to make of the storm battering Dewey & LeBoeuf, a firm that has managed to get itself into considerable difficulties despite being a top 25 US practice with revenues north of $900m (£570m)?"
March 22, 2012 at 08:03 PM
3 minute read
There is being wise after the fact, and then there is doggedly resisting wisdom's advances in the face of recurring events. What else to make of the storm battering Dewey & LeBoeuf, a firm that has managed to get itself into considerable difficulties despite being a top 25 US practice with revenues north of $900m (£570m)? Because the unhappy combination of aggressive expansion, high debt and outsized pay for 'star' partners that currently ails Dewey has repeatedly been shown to be a risky way to do legal business.
And the fragility of this model is all the starker in the individualistic US market, given the ease with which departing partners can take clients with them. High growth strategies are inherently volatile – that has been proved time and again in law and numerous other industries. Making it work requires sophisticated management, strong balance sheets or a lot of fortune. There aren't many neutral observers arguing that Dewey has excelled at the former two, and luck always runs out in the end.
That a firm of the size, tradition and brand of Dewey has been so easily thrown into disarray by this strategy only goes to prove the point. Sure, the profession has become used to seeing law firms make widescale redundancies, but a firm boosting its revenues by $25m (£15.8m) while also electing to make more than 100 staff redundant – well, that is new. As is nearly 30 partners leaving within three months.
Don't get me wrong. As a long-time watcher of the legal industry, I do still understand why law firms like Dewey bet big on lateral hires. Despite so often disappointing, astutely judged partner recruitment gives commercial law firms a shot at supercharging their growth and moving up a division. The problem is that law firms too often judge such tactics as a one-way bet – and they're not. The potential returns come with magnified risks and, if you don't adjust your business to manage those risks, you're just naive.
There's a further cultural issue that should concern commercial law firms the world over. Part of what has strained Dewey is its adherence to a star culture in which a small number take home more than 10 times the earnings of the most junior partners.
This winner-takes-all model has become far more pronounced in the US over the last decade, despite seeming to contribute more to unsustainable compensation packages and inter-partner tension than to improved performance. No wonder informed US commentators are increasingly asking the extent to which such models are compatible with the fundamental concept of partnership.
Personally, I'd strongly caution against such a shift in the profession. For all the criticism it has faced, partnership has served the legal profession well over the years. And one thing is certain: if the legal industry consigns partnership to the history books, it had better put something robust in its place, not just hope for the best.
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