New York Times business page columnist James B. Stewart has a profile in today’s paper, “A Lawyer and Partner, And Also Bankrupt,” recounting how a Manhattan partner at the now-gone Dewey & LeBoeuf law firm, Gregory M. Owens, gradually slid into personal bankruptcy on December 31, 2013. It’s a candid profile, filled with many personal details of an upper middle class professional in financial distress, on the one hand, and offering a dismaying assessment of the structural economic pressures on the highly compensated senior lawyers at many of the large New York and other big city law firms in the United States, on the other. Although Owens filed for bankruptcy, he is in fact employed – no longer as an equity partner, however, but as a non-equity “service” partner, at White & Case. That’s the firm to which his mentor (the equity partner rainmaker who had brought about the M&A deals on which Owens had done much of the detailed, technical work) departed before Dewey & Leboeuf collapsed.
The article contains a lot of personal financial information – salary, alimony and child support, rent, etc. I suppose one could spend a lot of time picking over the details and primly lecturing Owens on what he should have done differently, how he’s misspending his money, or why someone who made $356,000 in 2013 should scarcely be a pity project in the Times. But that’s too vulture-ish for me, and I’m sure I’m not alone in thinking, “There, but for the grace of God …” — more so, in that though the article doesn’t exactly say, it’s hard not to think that financial and professional turmoil had something to do with the breakup of Owens’ marriage.
But Stewart wrote the column, presumably, and Owens revealed his personal and financial situation, in an effort to explain something that goes beyond one individual’s story — the article aims to illuminate structural economic issues that have emerged in the last few years in large-firm, high-end law practice. These lawyer positions were long understood to be a haven in a heartless world for certain smart, technically skilled, professionals, once they achieved a certain level of seniority — but a haven no longer. Indiana University law professor William Henderson, who has certainly done as much as any academic to try and understand the business models of the legal profession and law schools, takes this as a cautionary tale of the many new uncertainties in big firm law practice compared to earlier decades:
“In almost any other context, $375,000 would be a lot of money,” said William Henderson, a professor at the Indiana University School of Law and a director of the Center on the Global Legal Profession. “But anyone who doesn’t have clients is in a precarious position. For the last 40 years, all firms had to do was answer the phone from clients and lease more office space. That run is over. The forest has been depleted, as we say, and firms are competing for market share. Law firms are in a period of consolidation and, initially, it’s going to take place at the service partner level. There’s too much capacity.” He added that law firm associates and summer associates had also suffered significant cuts, which has culled the ranks of future partners.
Professor Henderson goes on to talk in the article about the implications for law schools, which are seeing rapid fall-off in LSAT takers and applications to schools. As he has said in many venues, the pressures on Big-Law business models are not cyclical and merely an overhang of the 2008 recession; the shifts are structural and the returns are simply not, and won’t be, what they were. Although some would contest that big law firm practice is undergoing a genuinely structural shift, I think it is pretty widely accepted in the legal marketplace. But significantly lower returns even to big firm, high end law practice eventually has to have an impact on law school business models, to the extent that they have priced themselves to students on the basis of certain expectations (themselves likely always unrealistic) about the returns to lawyers from legal education.
(Update: Not for the first time am I seduced by James B. Stewart’s narrative skills; PortiaOH points out in the comments, quite correctly, that Owens was contacted by Stewart and refused comment. I initially took that to refer to some specific points of Stewart’s account, but I’m sure PortiaOH is correct to say that Stewart’s account is taken from the public documents in the bankruptcy filing, not from conversations with Owens, no matter how conversational Stewart’s account sounded, at least to me. My thanks to commenter PortiaOH for pointing this out. PortiaOH also makes reference to the Dewey & LeBeouf collapse and the grossly unsustainable pay deals for senior equity partners that in part drove the meltdown; this is something that I commented on at VC several years ago and of course it is important background to this story. I was always fascinated, for example, by the news reports at the time that one or more of the banks that supplied D&L’s lines of credit had written in covenants permitting them to call them in should a certain percentage of equity partners depart the firm in a given quarter (if I recall correctly and I might not).)