A matter of principals
28 May 2012 | By Joshua Freedman
10 May 2012
18 May 2012
14 May 2012
1 May 2012
2 April 2012
Should they have stayed or were they within their rights to go? The hasty exits of top Dewey partners prior to the firm’s dissolution hardly looks like the honourable path
Not everyone at Dewey & LeBoeuf had the time to spare on a busy day in late January to keep their eyes on a videoconference beamed out from New York.
Some overseas partners could only patch in and out, while their Manhattan colleagues sat around in the head office on the Avenue of the Americas, listening to the then chairman Steve Davis reveal the firm’s financial crisis to the partnership.
It lasted more than an hour. But those who had the patience to remain tuned in can say they watched the moment that, according to some witnesses, changed the course of the firm.
Davis used the summit meeting to tell partners that around half of the firm’s 2011 profit of $250m (£159.21m) was committed to pensions obligations and guaranteed pay to partners on fixed deals. Davis told partners they had to “own” the problem, as has been widely documented in the US media.
“I thought it came as a shock – the magnitude of the problem,” says a former partner who was watching on live video.
But not everyone could keep their feelings to themselves. With hundreds of partners in the room or watching live around the world, global litigation head Jeffrey Kessler took things into his own hands.
“What happened was Jeffrey Kessler stood up, walked into the boardroom and challenged Steve Davis,” the former partner recalls. “That was the defining turning moment in the history of the firm. He openly challenged the management. That was the coup. Kessler walked through the boardroom, took the microphone and basically challenged the authority of Davis. That’s the defining moment.”
Kessler declined to comment. Davis could not be reached.
Davis, who had chaired the firm since the merger of Dewey Ballantine and LeBoeuf Lamb Greene & MacRae in 2007, knew that his time was up.
“He just stepped aside,” another partner confirms.
It was a telling sign of what was to come for him. In late March he was effectively ousted, with his role split into a five-partner ‘office of the chairman’ staffed by Davis, Kessler, bankruptcy head Martin Bienenstock, finance head Richard Shutran and Washington DC office chief Charles Landgraf.
The idea was that the new management was coming in to turn the situation around. A number of people close to the firm saw the personnel change as the right move at the right time and the final hope for saving the firm from collapse.
But even the new chiefs did not deliver, according to former partners – and the four remaining offices of the chairman ended up jumping ship before the firm had even wound up. As The Lawyer went to press, the firm was on the brink of a bankruptcy filing in the US and administration in the UK.
“They came with two mandates. The first one, we’re going to face the accounts; we’re going to eliminate the guarantees. [Second], we’re going to have transparency and corporate governance,” a former partner comments on the new team’s plans. “They failed miserably.
“Had they asked all the partners to take a hit of 40 per cent for one year, they would have done it. They planned to shrink and merge with Greenberg, but they did nothing to try to retain partners. Nobody called to discuss it with us.”
Holding on to partners was always going to be difficult given that a number had seen their profit shares restricted to drawings for the past year. In hindsight, the firm’s imminent dissolution appears inevitable. But the one issue that causes the most anger is the behaviour of some of the firm’s top partners, who instead of waiting around while the firm wound down seemed to leave as soon as they could reach the right deals with rivals. Some, to their credit, only left when there was no money available to fund their practices, taking staff with them.
“They should be punished,” comments a former partner. “This is reckless behaviour. If you’ve accepted a post of being a managing partner of a firm, you can’t run away.”
In the US Kessler joined Winston & Strawn with a team comprising a further 22 Dewey partners. Bienenstock left for Proskauer Rose as part of a six-partner exodus. Executive partner Stephen Horvath, who officially ran the firm following the March management rejig, has agreed a move to Greenberg Traurig, although at press time he had still not jumped. Shutran also stood down, joining O’Melveny & Myers.
Mort Pierce, who once told The Lawyer that he regularly bills up to 3,400 hours a year, quit to join White & Case, again with a team of partners. Pierce was not in the office of the chairman, but was a member of the global executive committee and previously ran Dewey Ballantine.
“The executive committee did the best job it could under the circumstances,” was Pierce’s only comment.
Kessler and Shutran declined to comment, while Bienenstock could not be reached.
“I can’t speak to you,” responded Horvath when contacted and put the phone down.
We’re alright Jack
In London, meanwhile, there is no shortage of anger at the way some partners have played – not least former City chief Peter Sharp. The alleged grievance: looking after themselves before their staff.
At the last count, close to 65 lawyers globally – plus six first-year trainees and a second-year – had followed former office managing partner Sharp to Morgan Lewis & Bockius. In London he took five partners, one of counsel and 11 associates, according to his new firm.
Quinn Emanuel Urquhart & Sullivan, Ropes & Gray and Weil Gotshal & Manges were among the other firms to express interest in what was apparently a highly talented bunch of skilled, well-educated and multilingual Dewey trainees.
But Sharp should never have been in the position of hiring from outside, Dewey staff claim. A London associate at Dewey told The Lawyer that Sharp had effectively assured people that he was not going to leave, even as times became tougher in the last few weeks before he left.
“Peter had met with each of the floors in the building and his message was, ‘There’s a rumour going round that I may be leaving, and I can tell you that’s not going to happen’,” the associate reported. “[He said], ‘You’ll not see that headline’.”
Sharp was right in one sense: no one ever saw that headline on TheLawyer.com because his deal to join Morgan Lewis was overshadowed by news the same day of New York rainmaker Pierce’s resignation.
“Of all the parallels with Captain Schettino […], he fell into the lifeboat and he’s leading the rescue from the shore,” the associate quips.
Francesco Schettino, the captain of the Costa Concordia, was accused of not being the last off the ship when the cruise liner ran aground off the coast of Italy in January.
Sharp’s claim is different. Sharp, who had always been considered one of the market’s nice guys, has attested to running an initiative to take Dewey London trainees to his new home. It was he who called a meeting on 30 April, assisted by fellow London partner Mark Fennessy and Bruce Johnston, to form a steering group to prepare for administration.
But Sharp was not present at a meeting the following week – known internally as the ‘Tuesday meeting’ – where staff were told that their pay could not be guaranteed beyond 31 May.
The pied pipers of Dewey
Indeed, the one figure at Dewey who gains particular plaudits for her attempts to relocate staff is legal HR head Katharyn White. White, HR head Karen Morrissey, Fennessy and restructuring partner Hazel Miller are the stalwarts still standing (although Fennessy and Miller have agreed deals to join Proskauer).
Sources say staff expressed a significant deal of anger at Sharp’s non-appearance.
“It would have been amazing if Peter Sharp had been there to give that message across,” the associate comments. “I get the impression Bienenstock was doing what he could in New York. There are people like that: [Stuart] Saft [in New York], he took care of his people; [Brian] Zimbler [in Moscow] pulled the office with him.”
Zimbler took a team of roughly 20 associates to Morgan Lewis, while one of the Dewey trainees to join the firm was based partly in Russia. Saft took seven associates, three paralegals and two secretaries along to Holland & Knight.
“Since I left I’ve also made introductions to [Holland & Knight] of non-real estate partners, and the firm’s hired two partners and two associates,” reveals Saft. “I had offers for two partners, a counsel and two other [Dewey] real estate attorneys, who chose to go to Venable.”
Some partners who jumped ship before Dewey went down claim one key defence: that everything just happened so quickly.
“Everything happened so fast that people are scrambling to find homes. When you’re trying to do that under time pressure, it’s not easy to do what you want,” claims one former partner.
“If we had a year to plan, we’d have taken our staff,” another ex-partner insists, explaining that his team had roughly 10 days during which they needed to get a transfer deal together.
But the fact is that they put in the effort to find a job for themselves despite the time pressure. One former partner claimed to be working hard to find a new home for the man who delivers the fruit to the office, but for associates, trainees and secretaries without industry contacts, things are tough.
“I think the senior management behaved extremely fair-mindedly,” a senior Dewey departee claims contrastingly. “What happened is the entire executive committee met and conceded that everyone was going to have to find a job, and not just for themselves, [but] for staff.”
Landgraf, for instance, as one of the last to leave, took his small team of associates and staff with him and is currently trying to have a further support staff member recruited.
The argument in Sharp’s favour, aside from time issues, is the power he had – or lack of it. He had been intending to hold together a Dewey London team, but realised there were not enough people left for this.
On top of this, the resignation of Paris managing partner Stephen Walters from the three-person management committee for the UK LLP, followed by Horvath’s decision to follow suit on the last weekend of April, meant that the committee
was no longer quorate and no decisions could be taken.
At that point City restructuring partner Fennessy was appointed ‘special manager’ as part of a five-partner steering committee consisting of Sharp, Miller, Johnston and
tax partner Judith Harger. Only Fennessy, Miller and Harger are still there at the latest inspection.
Criticisms aside, Sharp had a tough time. He put a proposal to head office that would have seen the London office continue with around 15 partners, but this was rejected.
“In mid-March I told [staff] I was not about to disappear. The situation changed,” Sharp told The Lawyer. “There’s so much to this. We got to a point by mid-April where it became impossible to hold together any sort of London practice at Dewey & LeBoeuf. I’d also put a proposal to New York to try to hold together a team – I surveyed the office and put forward what I thought was possible, how that could be a viable practice. It was completely ignored.”
Hopes were raised when the firm engaged in merger talks with US firms including Greenberg Traurig, but these ended up as nothing more than raids on partners.
“We’d been given the impression by New York that they were looking to arrange an acquisition of the firm by a large US firm,” Sharp continues. “The impression we were given was that we could and should be working towards that sort of reorganised but continuing firm. We were [then] informed that Greenberg was only looking at four London partners.”
On 20 April partners in the office told Sharp they could not keep things going. That was when he decided to leave. His resignation came on 3 May.
“That’s the point when I decided the only constructive thing I could do was try to find a safe home for as many people as possible,” he says. “You have to make an on-the-spot decision. By that point it became clear to me that the firm was doomed.
Everyone who had made London what it was was planning to leave immediately.”
But could he have stayed aboard longer?
“I can’t see how that would have been constructive,” he maintains. “Heaven knows what would have happened. What I was throwing myself into was based on a willingness to take a large team, including trainees and support staff. Very few firms would embrace that.
“It’s important to understand that with the Dewey model the managing partner of the office is expected to have a full-on legal practice. In common with other Dewey partners, it was becoming more and more difficult to do the work.”
Sharp is representing Margulan Seisembayev, the former chairman of Alliance Bank, in a case brought by the Kazakh bank against him. His client is set to appear at the Court of Appeal on 18 or 19 June.
“Work couldn’t have been done on that case if I’d been at an almost nonexistent law firm,” he comments.
For Sharp, the argument that partners were under pressure because they were not being paid their full profit shares was more than a fair one. Indeed, a number of London partners who had budgeted for the higher profit share they expected are understood to have been forced to sell their homes to pay their January tax bills.
“Meanwhile, the bank that provided capital loans had notified us that no future facilities would be made available to Dewey partners,” Sharp observes.
Lonely at Garretts
Nobody would pretend that the demise of any firm is easy. But things can be done differently from the way it unravelled at Dewey.
The case of Garretts, the UK arm of Andersen Legal, amply suggests that.
Garretts’ partners were left out in the cold in early 2002 when Andersen Legal accountants struck a deal to join Deloitte & Touche in the wake of the Enron scandal.
Tony Williams, worldwide managing partner at Andersen Legal, stayed as the last one back in the firm’s offices on the Strand until his staff had found jobs.
Williams, who was managing partner at Clifford Chance from 1997 to 1999, had the task of tracking down new homes for roughly 50 partners, 150 associates and trainees and 150 support staff.
The Enron scandal broke in late 2001 and it was obvious by March that the Garretts partners needed to find new pastures. He kept on his HR team, but it was Williams who stayed to the end.
The sight of senior Dewey partners fleeing before the finish troubles him.
“I think it’s pretty unedifying what we see,” Williams contends. “I accept that partners have got to look after their careers, but I’d like to have seen them at least try to take their associates and support staff with them, and perhaps they will when they arrive at their new firms. It’s all too easy to say it happened very quickly, but it had been unravelling for some months.
“They may have moved, but are they still helping with the wind-up? They may be doing things behind the scenes.”
Williams did not even accept a job offer until the case was closed.
“I’d been offered a position with an outfit and I said, ‘No, we’ll wait and see what happens’,” Williams recalls.
Ten years later and Dewey partners have gone about a similar situation in a very different way. One day things might look different, but for now few in the market are saying they made the right ethical choice.
Former Dewey & LeBoeuf London managing partner Peter Sharp has become the villain inside the stricken US firm’s City office. In his interview with The Lawyer
he contends that he did the right thing, but many staff disagree.
Sharp claims he never told staff he would go down with the ship, just that he was not about to disappear any time soon.
But four sources say the message weeks ago was that he would stay on until the end.
“He should have just never said that. He should have kept his mouth shut,” says a partner who was there at the time.
“Obviously he’s a focal point,” a current London staff member comments.
One former partner is unsurprised by the Sharp debacle. “It’s like trying to get hold of a bar of soap,” he remarks about Sharp’s slippery style.
Sharp was not present at the meeting at which staff were informed that their pay was not guaranteed after 31 May. Neither was he there on Wednesday 23 May, when current and former members of the LLP met to discuss the latest situation. He is not well-received in Dewey circles now.
“It’s a horrible time. It’s heartbreaking,” says the current Dewey employee. “I’ve been here a long time. It’s like a family here. It’s hard to see so many people strewn across the City. It’s heartbreaking.”
Sharp claims he was shafted by New York, but many among the remaining staff feel that it is their former boss who has done the shafting.
If the cap doesn’t fit, don’t wear it
Dewey & LeBoeuf’s new management, made up of the so-called office of the chairman of five senior partners and executive partner Stephen Horvath, was brought in to shake up the firm’s financial situation by removing the guaranteed profit share deals for some 100 partners and to introduce more transparency.
But former partners say it did little towards achieving this.
“Horvath did nothing since he came to power,” a former partner comments.
Partners were unaware of the firm’s pensions liabilities until the late January meeting. But even after that partners struggled to glean information from senior figures at the firm.
“The office of the chairman would shut down communication. It was a big failure of the team, especially [Martin] Bienenstock,” says the partner, who describes the restructuring head as a “guru of bankruptcy” and the situation as “quite shocking”.
The more startling revelation, however, is the general failure of efforts to renegotiate the guarantees. As TheLawyer.com reported last month (2 April), the five members of the office of the chairman agreed to have their annual profit shares capped at a maximum of $2.5m (£1.59m) and to accept promissory notes for at least some of the remainder.
This followed a project in March to renegotiate guarantees to the more established partners.
But it has since emerged that a number of these partners actually negotiated more
lucrative deals than thought.
A source with intimate knowledge of Dewey’s remuneration structure told
The Lawyer that two senior management figures had reached deals to add a $3m extension to the $2.5m as a bonus. Some superstars who had been earning up to $6m per year were left with deals ranging from $1m to $2.5m, but not all took such big cuts.
One high-profile corporate partner who joined on a fixed profit share of $6.4m saw his basic pay capped at $2.5m for 2012, but was given an extra $4.4m bonus, meaning his total pay of $6.9m was higher than his original earnings.
Dewey rainmakers needed a serious haircut, but whether they got it is another matter.
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