The Bankruptcy Filing of Dewey & Leboeuf
Well, it's happened again: with its May 28 bankruptcy filing (the largest for any law firm in U.S. history), Dewey & LeBoeuf has gone the way of Howrey, Thelen Reid, Heller Ehrman, Brobeck and so on, back to Finley Kumble a quarter century ago. All these firms, and others besides them, were not, as the saying goes, too big to fail. They all were the products of mergers that had a single idea: Let's grow. Why? To expand, to better serve our clients/customers, to get new clients/customers who can use the services we already provide. Great idea - until it turned out not to be a great idea.
Bigger Law Firms, Less Profitable?
Why is bigger so often not better? A forthcoming book on law firm economics called Declining Prospects, by corporate attorney Michael Trotter, suggests a telling answer. As described in a recent issue of Bloomberg Businessweek, the book notes that often the bigger law firms have grown, the less profitable on average they have become. The conclusion is stated clearly by Bloomberg Businessweek: "By bulking up so aggressively, law firms made themselves more vulnerable to economic downturns. Partners at many firms failed to appreciate that all those salaried employees needed to be paid every month, whether or not new business is coming in the door."
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