This Week in Legal Schadenfreude

When a big law firm experiences difficulties, you can’t miss it in the legal press. And when the challenges become particularly acute, this topic moves into the top-shelf business press.

A prime example is this article from Bloomberg yesterday:

Click on the image to read the work of Bloomberg reporter Paul Barrett. He takes a detailed look at the situation facing Dewey, and even talks about what it may mean for large law firms (and even law students) generally. Here’s a sample, quoting J. Stephen Poor of Seyfarth Shaw:

“Law firms whose business model remains what it has been for more than 30 years — namely, every year we just raise our rates and expect clients to pay up — well, those law firms will find the old ways aren’t sustainable.”

(Just this morning, as I was revising this post, Reuters Legal is reporting that Dewey may have retained bankruptcy counsel.)

Mr. Barrett’s article is required reading. Print it, share it, give it to an aspiring law student. (Thanks to Ron Friedmann and Jordan Furlong for pointing it out; both also mention this one from The Atlantic as well.)

Two aspects of Mr. Barrett’s work contribute to its quality. First, he doesn’t fall for the “some law firms are raising prices” trap that I mentioned earlier this week. The reports that some lawyers are charging $1,000 per hour are not news. They are legal trivia. Anyone who pays close to that is doing so because they have to not because they want to. They won’t pay that for very long and they won’t come back and pay it the following month, retainer-style. You can’t build a large corporate law firm on the backs of $1,000 per hour lawyers.

Second, Mr. Barrett zeros in on what is the real problem at most large law firms: the instability of a high-cost, rainmaker-fueled business model:

Partnership doesn’t nurture broad-minded managers skilled in running sizable operations. In a business increasingly characterized by fierce bidding for talent and high-level defections, many successful attorneys jealously hoard clients and keep an eye on the American Lawyer numbers to see whether they ought to take their “book of business” elsewhere. Under these circumstances, client loyalty at many firms has deteriorated.

Bingo. If Bloomberg wants to continue to add to the quality of the large law firm business model debate, it should publish its own annual list of top law firms. But this one should also include two new columns: (a) percentage of firm revenues among the top 20 billing partners and (b) total debt. The latter one can help separate the firms that can handle some defections from those that likely can’t.

Next week, a longer look at the once and future rainmaker. What was once this:

May now be this:

(To be clear, no right-thinking lawyers take pleasure in challenges faced by any law firm. But this firm in question did tell the New York Times that many partners who departed were “laggards.” What goes around, as someone once said.)