Sunday, May 6, 2012

Changing nature of law practice led to Dewey's demise

An article from yesterday's New York Times explains that many of the problems that led to Dewey & LeBoeuf's collapse are symptomatic of the legal profession at large. A more mercenary, "eat-what-you-kill" approach to law practice that has eroded collegiality among firm members and clients who now balk at paying for lawyers for tasks that can be performed more cheaply by off-shore legal service providers are among the reasons commentators say that Dewey will give-up the ghost on May 15.

Interestingly, like law schools that cooked their books in order to increase their USNWR ranking, the NYT article notes that Dewey inflated its revenue-per-attorney figures to bolster its image among peer firms for purposes of the annual AmLaw 100 rankings.

Dewey’s Fall Underscores Law Firms’ New Reality

The circumstances at Dewey may turn out to be extreme. But the firm’s messy decline lays bare the harsh realities of today’s law practice, and shatters the perception, still held by many members of the bar, that however transformed in recent decades by the realities of the market, law is at heart still a guild, a brotherhood (and increasingly a sisterhood) — in short, a profession more than a business.

. . . .

In what appears to have been an increasingly desperate effort to hang onto its prestige and profits, Dewey violated some unwritten but still sacred rules of the profession. As the exodus of partners began last year, the firm’s managers publicly disparaged their departing colleagues. In the once-collegial profession, when partners left — no matter what the circumstances, short of embezzlement or fraud — the firm wished them well and said nothing to disparage them.

By contrast, Dewey issued a statement saying that the firm was moving in a “new direction” and that departing partners “didn’t like the change” and were part of “firm-initiated reductions,” implying they were asked to leave. “Trashing your partners: How classy is that?” Mr. MacEwen said. It was also almost surely untrue. “It should be obvious that the partners who leave are the most mobile,” he said.

And the firm seems to have violated another unwritten law: it inflated its revenue in the annual American Lawyer survey of law firm rankings, the AmLaw 100, the equivalent of the Fortune 500 for law firms. The annual survey, which relies on self-reporting, is indispensable to clients, other lawyers and law school graduates choosing firms. After Dewey partners provided Bloomberg News with profit numbers that differed sharply from what the firm had reported to American Lawyer, AmLaw restated Dewey’s 2010 and 2011 results, which dropped Dewey’s revenue per lawyer in 2011 to $750,000 from $900,000 and lowered the firm’s rank based on revenue to 28th from 22nd in 2010. Dewey has defended its reporting and said the discrepancies resulted from differing methodologies.

. . . .

Today, firms bargain over rates and compete fiercely for both their own talent and for clients. Clients have figured out that much of what lawyers do is a commodity that can easily be outsourced far more cheaply. Law firms always had a few dynamic partners who wielded disproportionate influence both within and outside the firm, and another group who may have been highly skilled and specialized, but were rarely seen by clients. They were supported by a broad base of lower-paid associates who developed their skills at client expense and performed, in many instances, relatively menial and repetitive tasks. “There’s a dawning recognition that many partners don’t add much value other than their legal work,” Mr. Clay said. “Many are being asked to leave, or to accept a nonequity, salaried partner status.”

Mr. Saft, the former Dewey partner, contended: “The partner guarantees are symptomatic of the underlying change in the practice of law over the last several decades. Before that, law firms were partnerships. It was an institutional practice, not individuals with portable books of business. Now, everyone has become a free agent. It has changed and destabilized the nature of the legal profession. And once it takes hold, it accelerates. Other firms say they don’t do it, but I wonder if that’s really true.”

You can read the full article here.


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