US law firm's revenues face scrutiny as upheaval continues

Dewey & LeBoeuf this week set out plans to comprehensively overhaul its management as the US giant moves to allay doubts about its business.

The firm announced plans to demote chairman Steven Davis on 26 March in an overhaul that will see the heads of its most profitable practices – bankruptcy, corporate, litigation and public policy – join a temporary new five-member management team alongside Davis.

The overhaul, which an internal memo said came at the request of partners, will see Davis joined on the new office of the chairman committee by restructuring chief Martin Bienenstock, corporate head Rich Shutran, litigation head Jeffrey Kessler and public policy and Washington head Charles Landgraf.

Davis is set to return to practice and will relocate to London as part of the shake-up, while London partner Stephen Horvath (pictured) will take up a new role as executive partner. Stephen DiCarmine will no longer serve as executive director.

The internal memo to partners states: "This governance change is being proposed to demonstrate the support and commitment of the practice leaders of among the firm's largest and most profitable business areas and to respond to the requests made by a number of you that you would like more direct hands-on management of the firm by its key practice leaders."

The decision to expand the firm's management team for the rest of this year, which needs to be confirmed by a partnership vote in the coming week, comes in response to a turbulent period for Dewey.

In addition to confirming cuts to lawyer and support headcount earlier this month, the firm has seen more than 35 partner departures since January – only some of which were either pushed by the firm directly or left after seeing their pay reduced. The firm had 303 partners on 1 January, including 36 in London.

The departures include 18 partners from its insurance practice globally, with the new management set to focus on restructuring the firm's business away from insurance, which was previously a core practice for the firm. It is unclear what will happen in practices such as corporate and litigation that advise many insurance clients.

Dewey has maintained that its business is fundamentally strong, but has been hit by overambitious expansion – including the recruitment of more than 30 partners in 2011. Guaranteed payouts to a number of partners are acknowledged to have overstretched the firm.

The Am Law Daily reports today (30 March) that New York antitrust litigator Eamon O'Kelly has joined US rival Arent Fox, bringing the number of total partners exits so far this year to 38.

This week it also emerged that Dewey has brought forward negotiations with its bankers over its loan agreements, which were originally scheduled for April. The firm has around $225m (£141m) in debt including a $100m (£63m) revolving credit facility currently being renegotiated with its banks, which include US investment bank Citi, and a $125m (£83m) 10-year bond, which was issued in 2010.

The firm is expected to start paying down some of the principal it borrowed through the bond next year, with one partner suggesting it will move to refinance in order to meet these repayments.

While Dewey would not comment on the bond payments, it is understood that the firm is close to breaching covenants on some loans as a result of the departures. However, a firm spokesman said the discussions with banks were "positive" and "proceeding as expected".

It has also emerged that the firm's revenue figures for 2011 are lower than initially thought, with the firm telling partners cash collections stood at $780m (£492m) in 2011, up slightly on equivalent 2010 figure of around $770m (£486m).

This compares with figures provided to The American Lawyer of $935m (£590m) and $910m (£574m) respectively. One Dewey partner told Legal Week the figures provided to the US publication were based on accrual accounting. However, The American Lawyer's editor-in-chief Robin Sparkman said the title requests financial data based on cash accounting, which is standard in the US.

Partners in London have criticised internal communication with the international offices. One partner said: "We haven't been informed of the exact thinking behind the changes – things are developing at a rapid pace and frankly the changes have left us reeling."