Dewey & LeBoeuff
With a bang, not a whimper
When a law firm gets into trouble, it can be hard to recover
THE chief benefit of the merger of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae may have been a shorter name. The deal, in 2007, created Dewey & LeBoeuf, the world's 23rd-biggest law firm by revenue. The new firm was ambitious. But according to the American Lawyer, a magazine and compiler of legal league tables, revenue for 2010 turned out to be $760m, $150m less than first thought; last year's sum, $782m, was not much better. Dewey has lost 70 of its partners—more than a fifth of the total-and more keep jumping ship. It is said to be considering a "prepackaged" bankruptcy and a merger with another firm, Greenberg Traurig.
The speed of Dewey's decline shows how fragile law firms' finances can be. If a public company gets into trouble, the price of its shares falls, giving investors an incentive to buy if they think the market undervalues it. In companies with physical assets, creditors can demand that they be sold to repay loans. But nearly all law firms are private partnerships whose only real assets are the partners themselves. Not only can they not be sold; they can get up and walk to a new firm. Worse, American lawyers (unlike their British cousins) typically take their clients with them.
Survivors of failed firms talk ruefully about what went wrong-usually, overexpansion in one of two ways. The first is geographical: a regional firm going national or a national one, international. This tends to dilute profits per partner. Offices abroad, especially, can take a long time to turn a profit. The second sort of expansion (Dewey's kind) is to hire hotshot partners from outside. According to lawyers from other firms, Dewey committed two sins: guaranteeing poached partners their first few years of income, and borrowing from banks to pay for them. Unusually, in 2010 Dewey also issued bonds; the first of these mature next year.
Firms with large debts are vulnerable if a big client leaves, a practice area sours or the economy weakens. Partners may sit tight for one bad year, but after another some will scarper with their clients. Firms that have nurtured their own talent are likely to have more loyal lawyers; poachers such as Dewey, fewer. Expensive hires can cause resentment. "There's only 100% of the profit to go around," says Ward Bower of Altman Weil, a consultancy. "To the extent anyone is overpaid, by definition someone else is underpaid."
失去大客户，某一地区业务状况恶化或者经济疲软——这些都会使负担大量债务的公司变得十分脆弱。遇到一个坏年景时，合伙人可能会静观其变，如果情况未能好转，部分人会带着他们的客户溜走。自己出资培养人才的事务所，其律师的忠诚度更高；而到处挖人的杜威就没有那么多忠诚的律师了。（对部分合伙人的）高薪雇用也会引来他人的怨恨。自Altman Weil咨询公司的Ward Bower认为"工资总额是一定的，不可能超过利润的100%，如果一些人拿的过多，显然其他人的报酬就过低了"。
If enough people leave, the firm may break loan covenants with its banks, which can require it to have a minimum number of partners. Loans may be called in at once, or continued only under onerous conditions that can hasten the decline.
To stop an implosion, managers must act decisively, says Randall Miller, of Bryan Cave in Denver. He was managing partner of Holme, Roberts & Owen, which found itself in a tight spot several years ago. An expansion in western states and a split (over that strategy) with the Salt Lake City office left the firm in trouble. Partners were leaving. Mr Bower's Altman Weil helped with a scouring of excess costs. A "brutally honest" conversation with the partners helped convince enough of them to stay to allow the firm to stabilise and survive. It merged with Bryan Cave this year.
来自丹佛博凯律师事务所的Randall Miller认为，为了避免公司走向破产，管理层必须果断决策。Miller是HRO律师事务所的任事股东，数年前HRO律师事务所在西部各州扩张，这一战略失败后又与盐湖城的办事处关系破裂，这使得公司陷入困境，合伙人纷纷离去。Mr Bower的Altman Weil咨询公司帮助HRO削减不必要的开支，十分坦诚地向合伙人阐明了公司的情况。这些努力挽留下足够的合伙人，稳定了事务所的状况，避免其走向破产。今年HRO与博凯律师事务所合并。
But Mr Miller points out that his firm did not take on big bank debts, as Dewey did. According to the Wall Street Journal, the firm has until the end of April to negotiate the extension of a credit line. Dewey's lineage goes back a century. It may survive for another century, but only if its leaders act decisively in the coming weeks. Other firms watch not with glee but with nervousness, knowing that a short run of bad luck could put them on the same wobbly precipice.