I’ve watched Dewey’s collapse only from a distance, as have most lawyers. And I’m no student of law firm finances or management. But this struck me as I read the news:
And I’m probably overlooking other recent collapses of prominent firms, since I cobbled together that list from the names that came to mind unprompted.
This history suggests that another large, well-respected firm will collapse next year, and it’s a near certainty that a firm will collapse within the next two years. Who will it be?
I did about ten minutes of online research for this post (because I write these silly things on weekend mornings, and I set strict time limits on how much effort I’ll invest in each one [yeah, yeah: It shows]), and I poked around into only three of the recent collapses. Here’s what I learned in my action-packed ten minutes:
Folks are saying about Dewey that it (1) guaranteed a great deal of compensation to newly acquired lateral (and longstanding other) partners, (2) took on debt, and (3) thus collapsed after the firm could not recover from the recent recession.
Folks said that Heller (1) acquired the Venture Law Group, (2) a few short years before the recession torpedoed the firm’s business, and (3) banks thus pulled lines of credit as groups of partners departed.
Folks said that Brobeck (1) relied heavily on high-tech clients, and (2) never recovered after the dot-com bust.
Each of these firms apparently claimed to be performing extraordinarily well until a very short time before Armageddon.
This seemingly tells us two things: (1) Some law firm leaders, like many investors, evidently confuse personal brilliance with a bull market, and (2) if the economy suffers a double-dip recession or some industry collapses unexpectedly, then another big law firm is almost surely headed for the tank.
Who will it be?
A place mired in debt, which seems to be a common theme among the recent collapses? If so, that debt may be announced publicly (as was true of some of Dewey’s debt) or may be hidden from the public (as would be true of, say, bank debt) or even from partners at the firm (as again appears to have been true at Dewey).
Or perhaps the next to fail will be a place stitched together by lateral acquisitions? Those laterals may have been enticed by guaranteed green. They presumably have less institutional loyalty than homegrown partners, and thus may readily move on to yet greener pastures if their current firm stumbles.
Perhaps we should keep our eye on a place with below-average profitability, which cannot fend off other more profitable firms that recruit away key rainmakers?
Maybe we should watch a place that’s outgrown its original quality, and, in the name of growth, has become home to too many mediocre lawyers?
Or perhaps it’s impossible to predict who will collapse next, because that crystal ball is clouded by law firm secrecy? Perhaps there’s a firm that has already guaranteed compensation to a collection of partners and is highly dependent on one industry or client, so that the firm’s demise has already been written, but that future is invisible to an outsider’s eye?
I’ll be interested in reading if the wise men of law firm management — such as Bruce MacEwen or Bill Henderson — choose to venture a guess online. And, of course, I’ll monitor suggestions offered by commenters below.
Mark Herrmann is the Vice President and Chief Counsel – Litigation at Aon, the world’s leading provider of risk management services, insurance and reinsurance brokerage, and human capital and management consulting. He is the author of The Curmudgeon’s Guide to Practicing Law (affiliate link) and Inside Straight: Advice About Lawyering, In-House And Out, That Only The Internet Could Provide. You can reach him by email at [email protected].