A massive law firm with one of the largest real estate practices in the city, Dewey & Leboeuf, is facing financial distress, that the New York Times attributed to the changing structure of big law firms.
The firm, whose real estate division is headed by Stuart Saft, cut 5 percent of its lawyers and 6 percent of its staff, 19 of its 300 partners have left since January and 12 more are expected to leave. Tens of millions of dollars in deferred compensation are owed to Dewey’s partners, and the firm did not increase year-over-year earnings in 2010 despite budgeting for double-digit growth.
Much of the problem stems from law firms eschewing the traditional partnership system for a free-agent market, where firms pay big guaranteed contracts to buy talent. And Dewey & Leboeuf has fallen victim to the system, embarking on a hiring spree since being created out of the merger of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae in 2007. Last year alone it hired 37 lateral partners, and protected its own talent by lavishing lawyers with big contracts.
While those expenses grow, revenue from big practices such as real estate have failed to bounce back from the rescession. The combination has led to a significant shortfall, forcing the firm to slash pay and defer payments.
“To say that this has caused a morale problem here is something of an understatement,” said a lawyer at Dewey who spoke on the condition of anonymity. [NYT]