Our Legal Innovation Blog is dedicated to discussing the
latest issues involving knowledge management, business development
and new and exciting technology developments to use for leveraging
your knowledge assets. Under Hot Topics we have gathered more indepth
explainations to our approaches to knowledge management, the
strategic use of IT and business innovation.
- 2012-05-11
Another Biglaw Firm demise - any lessons learned?
Following last year's dissolution of prestigious US law firms
like Howrey, now another big well-established and
reputable law firm seems to demise in the USA. The large New
York based law firm Dewey & LeBoeuf has since January this year
had about 70 partners leaving the firm and last Friday the firm
told its remaining London associates that it cannot ensure it will
pay their salaries beyond the end of this month.
The problems are tracked back to the merger in 2007 between
Dewey Ballantine and LeBoeuf Lamb Greene & MacRae. In 2007
LeBoeuf was an impressive New York firm with energy and insurance
practices to compete with the best. On the other hand, Dewey
Ballantine had a massive pension deficit. One big reason for the
failure of the firm seems to be the debt issues.
Another reason for its failure seems to be its culture of
"superstars" and the jealousy within the firm towards the
rainmarkers and their compensation by the firm. One source asserts
that at one point 80 per cent of the firm's profit was distribued
to just 10 per cent of the partners.
Please see these articles in The Am Law Daily and Above
the Law for further details: "Dewey Hit with WARN Suit as Partner Departures
Suggest Merger Didn't Take" and "
Gone Dewey Gone: ATL Readers Dish the Blame".
This unequal distribution of profit amongst partners can also be
seen as one important factor that accelerates the dissolution. In
The Am Law Daily article "Spread Too Thin" Patrick J. McKenna
and Edwin B. Reeser provide ann interesting analysis of the
risks associated with widening the compensation spread among
partners. In the article there is a description of how such a
spread can destablise a firma and even contribute to a sudden firm
collapse. The reasons for this are for example a higher risk of
interpersonal conflicts and that laterals also often fail to
perform as expected. There is also research showing that top
performers quickly fade when changing firms.
Such a firm certainly is in the risk of having less loyal
employees. This means that successful partners then easily could
move to another law firm as soon as they expect a risk of less
compensation due to problems within the firm.
With such a spread on compensation the focus is on the
individual effort and the individual stars. Incentives are put on
individual efforts. This means it is difficult to argue having the
lawyers working with internal projects, focusing on Knowledge
Sharing and the building effective practice groups since this is
not rewarded by the firm. There are really no incentives in doing
that. Thereby they will in the end fail to be able to support
clients in the best efficient way. Does that sounds like the way to
build a law firm for the future?