* Firm offered big pay packages to insiders and recruits
* Partners themselves were surprised at number of offers
* Defections mount nearly hourly
By Andrew Longstreth and Nate Raymond
NEW YORK, May 3 In its race to become one of the
world's biggest law firms, Dewey & LeBoeuf doled out rich
compensation guarantees to attract and keep top-shelf legal
Now, as the firm bleeds partners and clients on an
almost-hourly basis, these guarantees -- which Dewey appears to
have issued more widely than other firms -- are being blamed for
the firm's unraveling.
Compensation guarantees are promises to pay attorneys a
certain dollar amount no matter how the firm or the individual
performs. They came of age about a decade ago, when the economy
was strong and competition for lateral hires -- essentially
partners from other firms with a book of business -- was
Firms used the offers as a carrot to convince star lawyers
to leave their firms and to provide a cushion as they set up a
Dewey appears to have taken the practice to an extreme. The
firm not only used guarantees to lure new talent, it also
extended them to existing partners, according to former Dewey
Earlier this year, partners with financial guarantees were
asked to take a haircut to help Dewey & LeBoeuf avert a
financial crisis, according to Stuart Saft, a real-estate
partner in New York who left the firm this week to join Holland
The picture did not brighten for Dewey, however. What
started as a trickle of defections has accelerated quickly, with
more than 27 partners leaving this week alone. On Thursday,
mergers and acquisitions rainmaker Morton Pierce departed for
White & Case, bringing the total number of partners lost to
north of 100 since the start of the year.
The firm as of Thursday evening listed about 700 partners
and associates on its website, down from nearly 1,300 lawyers at
the time of the 2007 merger that created Dewey & LeBoeuf.
Until recently, Dewey partners themselves had no idea how
many financial guarantees the firm had handed out. At a
question-and-answer portion of a partners' meeting last October,
firm Chairman Steven Davis was asked how many guarantees the
firm had made, according to a former Dewey partner who was
Davis said guarantees had been extended to about a third of
the firm's roughly 300 partners. The number shocked some
"It was dropped like a bombshell," said a former partner.
In a follow-up question, Davis was asked whether he knew how
much the contracts cost. Davis said he didn't know, according to
Davis is no longer a member of the executive committee or
chairman. Dewey's executive committee voted in late April to
strip him of all his leadership positions after the firm
disclosed that the Manhattan District Attorney had opened a
preliminary investigation of Davis.
The inquiry was prompted by a group of partners who asked
the district attorney to examine "financial irregularities" at
the firm. The precise nature of these allegations could not be
Davis has denied any wrongdoing. Neither Davis nor his
attorney, Barry Bohrer, r esponded to a request for comment.
The risks of large cash guarantees are multifold. For
starters, if the new hire doesn't bring in as much business as
expected, the firm and its existing partners must make up the
Guarantees can also cause divisions among firm lawyers on
fairness grounds. For example, firm managers who offer a
guarantee to an incoming lateral open themselves up to pressure
from the current partnership for compensation bumps, said Alan
Hodgart, managing director of Huron Consulting Group, which
advises law firms.
"What you end up with is this danger of an escalation [in
financial guarantees] when you haven't actually got the profit
to pay for it," said Hodgart.
Dewey & LeBoeuf's practice of offering financial guarantees
has its roots in the early 2000s, when the New York-based firm
known as LeBoeuf, Lamb, Greene & MacRae was seeking to upgrade
its sleepy insurance and energy image. As part of that effort,
then firm Chairman Davis began using financial guarantees to
attract marquee talent.
Davis's biggest coup came in 2004, when LeBoeuf announced it
had hired Ralph Ferrara, a former general counsel at the
Securities and Exchange Commission and a long-time rainmaker at
white-shoe firm Debevoise & Plimpton.
It was a costly acquisition. The firm guaranteed Ferrara $2
million to $3 million for three years, according to The American
Lawyer magazine. It also promised to pay Ferrara an additional
$16 million to make up for his pension at Debevoise in which he
was fully vested.
The expenses didn't stop there. To welcome Ferrara, who was
still at Dewey & LeBoeuf on Thursday, LeBoeuf also recreated his
old offices at Debevoise down to the placement of framed photos,
The American Lawyer reported.
The hunt for key laterals continued after the 2007 merger
that tied LeBoeuf with Dewey Ballantine, a storied Wall Street
firm that bore the name of former New York Governor Tom Dewey.
The merger gave Davis a new platform to pitch to new
recruits, and Davis predicted Dewey & LeBoeuf would be a
"premier New York law firm with global reach." A press release
noted the combined firm would have more than 1,300 attorneys in
12 countries and revenues approaching $1 billion.
Among Dewey & LeBoeuf's biggest catches were Martin
Bienenstock, a highly-regarded restructuring lawyer who came
from Weil, Gotshal & Manges, and Richard Climan, who had been
the chair of the mergers and acquisitions practice at Cooley.
Climan's guarantee was $3.5 million a year, according to The
Recorder, a California legal publication.
Since the onset of the recession, law firms have treaded
more carefully with guarantees, according to recruiters. Many
have shortened the period of time covered by the guarantee and
also added conditions that would protect the firm if the partner
did not meet certain performance goals, said law firm recruiter
It is unclear who at Dewey was making the decisions to offer
the financial guarantees. But former partners say the firm
continued to give them out during the recession and also began
making them to existing partners who threatened to leave.
Some top rainmakers even were offered guarantees without
asking, according to one former partner who said the firm's
management wanted to make lenders comfortable that the Dewey's
key revenue generators were staying.
"They wanted to give us a disincentive to leave," said the