A student’s guide to law firm collapse

Who doesn't feel an ache of sympathy for staff at recently collapsed international law firm Dewey & LeBoeuf? When any business implodes, ordinary people pay the price for mistakes made by management.

While the full picture is yet to emerge, D&L's demise doubtless results from the usual recipe of one part over ambition to one part bad timing. A similar cocktail of ingredients led to the crash and burn of Halliwells, the swashbuckling northern firm dead set on becoming a national giant. Halliwells' main problems were a) a collapse of trust among partners, linked to b) a management team with eyes bigger than its stomach, and c) dubious decision making in relation to a massive, glitzy office building that surpassed both the firm's actual needs and any demand from subtenants. Halliwells fell in tragic fashion as the United Kingdom's economic woes deepened in 2010. Litigation over the whole sorry affair continues to this day.

D&L was the product of a merger in 2007. Not a great moment in history for launching a 'new' firm - its capacity for growth must surely have been dented by the damaged global economy. Notably it refinanced its existing debts by raising a reported $125 million via a major bond issue in 2010. This was a highly unusual step for a law firm; the profession has typically always relied on bank loans and partner equity. However D&L's debt was stacked up, it was stacked way too high for the business to survive.

There's one more defunct firm I want to mention - international law firm Coudert Brothers, which floundered and then filed for bankruptcy in 2006. Behind its demise lay a partnership unable to function either harmoniously or adequately. The law firm partnership model can be a powerful thing but it can also be highly problematic when trust collapses or views diverge too greatly. Difficulties must become magnified when you factor in multiple offices across multiple jurisdictions, and problems that emanate from other jurisdictions can still wreck an 'uninvolved' office.

No one knows how many firms, or which ones, will fail in future years, so how do you as a future lawyer make a safe bet when picking your first employer? Some people equate safe with steady; others will tell you that steady Eddie firms lack the innovation and ambition essential to survival in a fierce and changing legal marketplace. There is an argument that so long as you pick a firm with a reputation for good client service and quality legal skills then it doesn't matter if it fails because your talents will be valued by other employers. As an argument it's not entirely flawed: when Coudert split, most trainees followed partners and associates to Orrick. When Halliwells collapsed, the majority of trainees and future starters were rescued by very good firms. Some went with partners to their new firms; others were aided by the efforts of Bristol-based Burges Salmon, which did not even have offices in any of the locations where Halliwells operated.  With D&L, the Law Society has stated its intention to help rescue trainees and future starters, although online comments from former Halliwells staff suggest that they should not expect too much. The Law Society is an easy whipping boy in an opaque and evolving scenario like this. I hope it manages to achieve something for the D&L folk. If only there were some magic-bullet advice in situations like this - such as "contact the JLD". I suspect that the best advice is to be extremely strategic and shameless in networking with anyone you think can help. I would also say that this is where the profession's online community could and should make a difference.

To do my bit, I will state that I have spoken with numerous D&L London trainees, partners and staff over the years and I have confidence in their ability to move beyond this bleak period. I always found them to be intelligent, diligent, professional and supremely well-mannered in their approach, which is why I am sure they will prosper in their new firms.