Last week, we took a look back at the five-year history of Dewey & LeBoeuf, the once behemoth law firm which now teeters on the edge of bankruptcy. While not the first law firm to fail—Heller Ehrman, Thelen, and most recently Howrey have also folded over the past four years—Dewey’s dissolution will be the largest in law firm history. How did such a large organization fail beyond repair?
Most observers agree that the firm was severely mismanaged. But on top of that, Dewey suffered from a total lack of transparency. Law firm transparency is a hot-button issue these days—one that comes up again and again in Vault’s annual associate survey. “Transparency,” in the context of law firms, generally means the extent to which associates are given information about (and, when appropriate, input on) firm management decisions regarding issues such as the partnership track and election process, compensation and bonus metrics, evaluations, client pricing models and the financial outlook of the firm.
One of the questions we ask associates in our annual survey is whether the firm’s leadership is transparent in its decision-making. What did associates at Dewey have to say about transparency at the firm when they completed the survey early this year?
- “I feel that firm management is entirely opaque and associates are given little insight.”
- “Management is at best uncommunicative and at worst misleading about the financial health and future of the firm.”
- “[There is] uncertainty [and] sometimes a lack of communication from management.”
We also asked associates to comment on their firm’s business outlook over the next twelve months. Here’s what Dewey associates had to say:
- “The firm is busy, its prestige and rank are increasing, and people do not appear concerned about their jobs.”
- “Everyone is slammed with interesting and long-lead-time projects right now. Associates are happy to be staffed on challenging projects rather than doc review, etc., and the partners are constantly picking up new projects.”
- “I believe the finances of the firm are in jeopardy. It has become common knowledge that partners are not being paid their draws or amounts above their draws. There have been a large number of recent partner defections, which from what I understand are due in part to the finances and failure to compensate partners…. Associate bonuses are extremely delayed again this year, though management promised at the state of the firm last year that they would be paid earlier. Employee morale over this issue is very low, and there is little communication from the partnership on the issue and what is being done to correct it.”
Perhaps respondent #3 had an office near Chairman Steven Davis?
That a number of associates—who, keep in mind, are trained as attorneys to be ever skeptical—were so confident in the firm’s future further underscores the utter lack of transparency at Dewey. But what’s more shocking is that even partners were kept out of the loop. Unlike most large firms, which are run by committee and where important decisions are made by vote of the partnership, Dewey was run largely by Davis alone, with some input from a select group of advisors. Most partners did not know that so many of their peers had been offered multi-million dollar compensation guarantees, or that the firm had raised cash with a $125 million bond offering in 2010.
As long as finances appear strong and people get paid, a lack of transparency might not seem that troublesome. In fact, several associates (from firms other than Dewey) commented on their surveys this year that they didn’t mind a lack of transparency because of how well their firms seemed to be doing.
But when a crisis strikes, a lack of information only makes things worse. Last month, for example, Greenberg Traurig said it was in merger talks with Dewey. But instead of sticking around to find out if there might be a Greenberg Dewey (Traurig LeBoeuf?), partners at Dewey continued to jump ship, and within a week of issuing its original statement regarding a potential merger, Greenberg Traurig said the talks were over.
Jeffrey Kessler, former chairman of Dewey’s Global Litigation Department (and as of this month, a partner at Winston & Strawn), seemed to sense in advance that the team mentality and solidarity that could have saved the firm was lacking. In March, he delivered what the New York Times called “the law firm equivalent of a locker room pep talk,” telling partners that there was “a crisis of confidence here but the only thing that can sink the ship is us. Instability is creating a problem but give us six months and people will be happy.” Unfortunately, it was too late to rebuild trust among the partners, who had been hit with too many unpleasant surprises over the past few months.
Would more transparency have saved Dewey? It’s hard to know—while the partnership might have been able to take action had it known about the firm’s problems early on, some of the financial missteps made by Davis may have simply been too grave to fix. Still, the rapid implosion of the Dewey partnership underscores just how important it is for firm management to maintain some level of transparency. And it will be interesting to see whether associates at firms run similarly to Dewey--with most of the power concentrated in one figurehead or leader--will demand increased transparency in response to Dewey's collapse.
--Rachel Marx, Law Editor
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