It’s getting hard to keep track of all the partner departures from Dewey & LeBoeuf. Thankfully, over at Am Law Daily, Sara Randazzo and Nate Raymond have this handy round-up. The bottom line is that the firm has 53 fewer partners than it did in January: one retired, one left for personal reasons, one went in-house, and fifty (50!) jumped over to rival law firms. You can review the biggest beneficiaries of Dewey defections over here.
So what Dewey do about the problem of fleeing partners? We get medieval on the cowards….
Over at the Daily Journal (sub. req.), Casey Sullivan has this report:
Two sources working closely with the firm and an ex-Dewey lawyer said Dewey has recently enforced a policy written into the firm’s partnership agreement requiring partners to give at least 60 days notice before jumping to another firm.
The policy, according to an ex-Dewey lawyer, states that a partner may not receive a certain amount of profit distributions should that partner violate the 60-day notice period without the firm’s consent. One consultant said partners are weighing whether it makes sense to break code and leave early, risking the potential of lost payments, for lucrative offers elsewhere.
The calculus will vary from partner to partner, of course. A partner with a big book of business might be able to get her new firm to compensate her for lost Dewey dough. A partner who’s less desirable, perhaps someone leaving Dewey because his compensation got cut, might just have to suck it up and deal.
The policy historically was waived, but now, with the firm in the throws of re-negotiating its loan agreement with its primary banks, Wells Fargo, Citibank and J.P. Morgan, the pressure to retain headcount has become paramount. Firms’ loan agreements often contain covenants that require the firm to maintain a certain percentage of its partnership.
Negotiations on the terms and conditions of Dewey’s line of credit, which is up for renewal, are expected to conclude between mid- to late-April, according to an ex-Dewey lawyer and three sources with knowledge of the matter.
Defections + Debt = Danger. As Bruce MacEwen recently reminded us:
Fundamentally, building long-term debt on to the balance sheet of an enterprise whose only material assets are readily marketable and freely mobile human beings is to repeat the classic mistake of the institutions at the core of virtually every post-World War II financial crisis in the United States: It’s to create a timing mismatch.
That is to say, firms doing this are securing long duration liabilities with short duration assets. Should anything imperil the value of the short-term assets, the roof can cave in before you can evacuate the building.
And here’s another peril associated with the toxic combination of debt and defections. A Dewey source tells us, citing an internal briefing by Richard Shutran, “D&L’s loan documents require the firm to have 225 partners, after which the firm’s debt can be accelerated.”
Right now, according to Am Law Daily, the firm has about 270 partners. According to this tipster, about 45 more departures “will cause the firm to implode. If the departure rate holds steady, that will be hit around the end of June. It is more likely that the departure rate will accelerate as the partnership ranks get closer to the 225 number.”
One can understand, then, why Dewey is enforcing the 60-day notice policy, even if doing so might appear unseemly or desperate. Now is not the time for the niceties.