The Dewey chronicles: The rise and fall of a legal titan
By Andrew Longstreth and Nate Raymond
NEW YORK (Reuters) - It was a tale of doom foretold in a pie chart.
On January 27, Dewey & LeBoeuf's partners were summoned to a meeting on the 22nd floor of the law firm's New York City headquarters to discuss the firm's finances. While most of them knew Dewey LeBoeuf faced challenging times, few were prepared for what they were soon to hear from their chairman, Steven Davis.
Using a PowerPoint slide show, Davis presented a grim picture: Of Dewey's approximately $250 million in net income for 2011, about half was committed to pension obligations to retired partners and compensation that was owed to certain partners for the two prior years. Just half the pie remained to distribute to disappointed partners.
The firm was living on the edge, Davis revealed. "You have to own this problem," he told stunned partners, according to a lawyer who attended. Davis declined to comment for this article.
Dewey was once among the 20 largest firms in the United States, with a global reach extending from Los Angeles to Abu Dhabi to Tbilisi, Georgia. But it has been decimated and is not expected to survive. Within a few weeks of the revelations by Davis, groups of partners began defecting. Now, about 200 of Dewey's roughly 300 partners have fled. Last week the firm notified its U.S. lawyers and staff that they could face mass layoffs and that a "closure" was possible. On Friday one of its last major rainmakers, Martin Bienenstock, said he was joining the Proskauer law firm.
Dewey has outstanding bank and bond debt totaling approximately $230 million, according to Bill Brandt, a restructuring adviser retained by the firm. A $75 million loan payment is due early next week, but the parties late Thursday agreed in principle on an extension of a week or two, Brandt said. A spokesman for the firm declined to comment.
Many of the causes for Dewey's troubles have by now been often cited: a sputtering economy, massive debt obligations, and multimillion-dollar, multiyear financial guarantees to partners. What appears to have brought Dewey to its knees, however, is a failure of governance that allowed these challenges to spiral out of control.
Interviews with current and former partners, consultants and others in the industry paint a picture of a firm run by a insular coterie of attorneys and administrators who often withheld crucial information from their partners, undermining their own credibility in the process. Born of a boom-era marriage between a firm with faded cachet and a wealthy if unglamorous suitor, Dewey was determined to buy its way into the pedigreed elite. But when the Great Recession hit, a sense of shared sacrifice and loyalty was in short supply. Continued...