What does the largest collapse ever of a USA law firm last week mean for us?
Down here in the South Pacific last week’s collapse of Dewey & LeBoeuf LLP is not easy to comprehend let alone digest. Will there be a contagious effect here on our shores? Is there any lesson(s) to be learned for fictional mega NZ law firm Norfolk & Chance Limited?
Last week Dewey & LeBouef filed for bankruptcy in Manhattan. The firm originated in 1909, merged in 2007 and at its peak employed some 2,500 personnel including 1,400 lawyers in 26 offices internationally.
At the time of filing for bankruptcy last week the law firm had US$315 million in liabilities including some US $225 million in bank debt and the balance to other creditors including its landlords and former partners. Reported reasons for its melt-down included unbridled growth, aggressive poaching of lawyers and costs and promises thereto, the impact of the 2008 financial crises and the subsequent recession coupled with the timing of the 2007 merger, the impact of a reduced corporate legal spend, disappointing profits and a resultant partner exodus and a firm philosophy purportedly focused on money and bottom line profit rather than a culture of loyalty and collegiality.
There have been other melt-downs of major USA law firms over the last few years and commentators say Dewey will not be the last.
Collateral damage includes hundreds of junior lawyers and support staff out of work which will be gut wrenching given the state of the USA economy and difficulties finding new jobs.
Closer to home some of the NSW and Victorian partners of BDO appear to have been offered a life line by Grant Thornton recently, after having allegedly been expelled by BDO International. A recent Australian Financial Review report suggests this is attributable to events associated with the firm taking on debt of one hundred million dollars to allow partners to cash out their goodwill (ageing and unwanted partners?). Let’s return to NZ’s Norfolk & Chance. What lessons are there for us? In very rough terms there are some 11,000 lawyers servicing a population of some 4 million people (1 lawyer to 363 people)
Is our economy as compromised as the US? No. Is our property sector as ravaged as the US? No. Have our large national law firms merged to the same extent? No. Have more partners of large national firms taken the plunge and set up boutique specialised practices? Yes. Have NZ law firms generally acted prudently with their own profits? Yes. Does being part of Asia-Pacifica and being a long way from Wall St provide a buffer? Yes.
Despite practicing in tougher economic times there have also been winners here in NZ. The odd QC or two have had purple patches and paid their rent by 11am on Monday acting on many new legal instructions occasioned by corporate fraud or the melt-down of NZ finance companies. Lawyers and accountants and liquidators and receivers and registered valuers and others have exploited the insolvency landscape. The creation of the Super City, the Christchurch earthquakes, the Rena incident, the Rugby World Cup, the imminent further or repeated privatization of State owned assets and dropping interest rates all create downstream professional service work.
For the agile, nimble and quick, well-positioned and networked, there will always be opportunities in market-places like the one we find ourselves in now to exploit. I am told Aristotle opined some 2400 years ago “It’s the fastest who got paid, and it’s the fastest who gets laid”. Aristotle in fact had quite a lot to say. Nothing has changed it seems.
For those at the bottom of the food chain, namely those law and accounting graduates who have just slaved away to earn their degrees what poor sods and what rotten timing. Take heart though – 2 decades ago I was in pretty much the same boat. Recently graduated, with a young son, student debt and no job prospects I recall remaining upbeat after sending 300 to 400 CVs to law firms, government departments and frankly anyone (hard copy mind – no internet). The best written response I got was from a very experienced inner-city law firm owner:
“Who the heck wants a team playing, former NZ junior soccer team, Indonesian speaking, client-centric, hard working law grad anyway?”
As Vitalstatistix says: “we have nothing to fear but the sky falling on our heads”.
Unperturbed, and perversely pleased with said response, shortly thereafter I found myself practicing as a junior lawyer in the hallowed halls of Bell Gully Buddle Weir. That law firm kindly assisted me with the purchase of a navy blue Keith Matheson business suit which meant the world to me at the time (though I must confess it became a bit smelly several months later!). The point is there is hope so persevere and get your foot in the door.
It is said that money makes the world go round. Of course, it doesn’t really – the earth spins away with or without money. Jeremy Iron’s character in Margin Call eloquently posed what is money but pieces of paper with pictures on them? However, the reality is that law firms and accounting practices are not happy places to be when money is not sloshing around the sides.
Will NZ see a fall out of the scale of Dewey & LeBoeuf? A boofhead might say yes. I however find that at first glance such an event is not readily plausible here in Godzone and am reliably informed that some of our larger national and other practices have fared very well in these turbulent times. In addition, there has been down-sizing and pruning in our local legal and accounting sectors rather than a gangbusters plan for growth approach. Therefore the measured answer is no, although some further collateral damage is no doubt also inevitable.
History doesn’t repeat itself but it does rhyme (Mark Twain). In the meantime Norfolk & Chance Lawyers Limited will batten down the hatches, set the controls for the heart of the sun, be on the look out for inclement weather, further refine its modern day hunting and gathering skills, and sail on with gay abandon across the turbulent global currents.
Marcus N. Beveridge is the owner of award winning Queen City Law.
Aristotle also said: “there was never a genius without a tincture of madness”.
“At his best, man is the noblest of all animals; separated from law and justice he is the worst”
“The ideal man bears the accidents of life with dignity and grace, making the best of circumstances”.
“Probable impossibilities are to be preferred to improbable possibilities”.