Last week’s indictments of four individuals formerly involved in Dewey LeBoeuf’s management reverberated through the legal industry. The reactions were varied. Some commentators surmised that the indicted were destined to such fate given the spectacular demise of Dewey. Others noted that the indictments were different since the alleged perpetrators gained no financial reward but instead simply tried to preserve a firm facing catastrophe. And others have observed the human tragedy associated with the indictment of a minor cog in the Dewey wheel, noting the tactics prosecutors use in order to fry the bigger fish.
Not heard in the indictment’s aftermath was any blame directed at outside advisors that steered the Dewey Four where they otherwise would not have gone. No, it seems like any mess made was home grown.
Regardless of one’s view on the indictments, there is a lesson to be learned from the current predicament of the Dewey Four. Whatever each individual’s role in the acts that have caused the District Attorney to pursue prosecution, it is clear that all were involved in a high-risk endeavor as to which none were well suited. Giving each the benefit of the doubt by assuming that they sincerely tried to solve a crisis for the greater good, none were capable of dealing with the transitional issues associated with a law firm in distress.
Some lessons already identified: don’t cook the books; don’t communicate by emails; and don’t naively think prosecutors have no agenda. No doubt these “lessons” have their utility. But the simplest lesson learned from the Dewey indictments is that do it yourself law firm restructuring is fraught with peril.
The alleged conduct leading to the indictments can be traced to Dewey’s excessive bank debt and its decision to refinance through a bond offering. Alleged false statements in connection with the refinance and the efforts to comply with bank loan and bond covenants reflect an internally designed, or DIY, restructuring.
Unfortunately for Dewey and many firms before it, an internally designed restructuring rarely works. In a DIY law firm restructuring:
Those That Try to Solve the Problem Often Had a Hand in its Creation. Too often a DIY approach enlists some or all of the law firm managers that created the issues that require solutions. These legacy managers may be predisposed to stay away from the kind of dramatic steps needed that reject past strategies. Based on the reports of Dewey’s demise, at least three of those indicted were unlikely to eschew the steps that placed Dewey at risk. A third party not invested in the past can more capably deal with the present and future.
Leadership May Have Conflicts. Self-interest often clouds the judgment of law firm leaders. Even while in the midst of a “bet the company restructure,” a leader’s own financial imperatives are similar to the law firm’s owner populace. “Missing budget” not only has severe repercussions to the ownership group as a whole, but it can directly impact the managing partner’s pocketbook. Since the typical law firm leadership team fears the results of bad news more than the bad news itself, the pressure to deliver good news can be immense and unduly influence leadership’s judgment. An outside advisor whose financial interest does not depend on the outcome is more likely to give desperately needed unbiased advice when a law firm faces the precipice.
Leadership is Inexperienced and Its Judgment Untested. Most law firms have never faced a challenge like Dewey’s, and that type of crisis is no place for on the job training. The lack of experience can lead to decisions that may seem good at the time but prove less so later. Sound judgment is critical in any restructure and a first timer seldom has the necessary perspective to consistently exercise the kind of judgment required. This lack of perspective is compounded by leadership’s penchant for keeping sensitive issues tightly controlled. In contrast, an advisor steeped in law firm restructures has none of these limitations, and can prove extraordinarily helpful to the management team needing “another voice.”
Adopting a “Do it Yourself” approach to law firm restructuring is a close analogy to a lawyer representing himself—an adage inducing approach that universally is scorned as unwise and ineffective. In law firm restructuring, a law firm leader seldom gets a “do-over” when the risk of a fatal mistake is greatest. And as is evident in the case of the Dewey Four, the adverse consequences from unguided decision-making can linger for years. Would you DIY your law firm restructure?