Issue of the week: The fall of a legal titan

The mood at New York law firm Dewey & LeBoeuf is suitably funereal, said Christine Simmons in the New York Law Journal. Hundreds of employees packed up their belongings last week, stunned at the speed of “what is shaping up as the largest law firm failure in history.” The firm was a titan of the U.S. legal community, bearing the illustrious name of former New York governor and Republican presidential candidate Thomas E. Dewey and employing more than 1,000 lawyers in 26 countries. Yet it has been brought to its knees seemingly overnight and could be just days from collapse, said Andrew Longstreth and Nate Raymond in Reuters.com. At least 200 of Dewey’s 300 partners have fled since January, and the firm is as much as $230 million in debt. At the heart of its troubles: lavish, multiyear pay guarantees given even in lean years to dozens of partners and star recruits. This was a catastrophic “failure of governance.”

Dewey’s undoing was to have promised more than it could deliver, said Peter Lattman in The New York Times. Created in a 2007 merger between two pedigreed legal powerhouses, Dewey developed a habit of recruiting so-called “rainmakers” from rival firms to bring in valuable clients and speed its growth. These star lawyers were offered contracts worth as much as $10 million a year, 30 times what junior partners made. That pay gap, far bigger than at most corporate firms, fostered a “corrosive partnership culture of haves and have-nots.” When the recession caused a steep drop in the demand for corporate legal services, the rainmakers’ guaranteed mega-salaries ate into the firm’s dwindling profits, and the firm sank deeper and deeper into debt.

Dewey’s fate is a telling example of “Big Law’s unraveling,” said Elizabeth G. Olson in Fortune.com. The “once genteel, clubby world” of white-shoe law firms is now dominated by sharp-elbowed hustling. Dewey was hardly alone in assuming big financial risks in pursuit of swift growth. The traditional track to partner, with its years of slogging up the ranks at a single firm, has been supplanted by a free-agent mentality that would have been unimaginable a generation ago, said Catherine Ho in The Washington Post. Now the “same partners who can instantly boost a firm’s bottom line can walk out the door just as quickly.” Today it’s Dewey teetering on the brink, but others will follow.

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