Posted on 08/10/2003 3:34:07 PM PDT by sarcasm
Law firms
Legally blue
From The Economist print edition
Even law firms are going under
FOR years, Altheimer and Gray was a pillar of the Chicago law scene. Brobeck, Phleger & Harrison had long been a force on the west coast. What both had in common in recent years besides an established place in their respective legal communities was aggressive expansion plans. This year they shared a common fate: liquidation.
In the past year, several venerable law firms have closed. Others are not in great health. In July, Clifford Chance, a London-based global giant, says it delayed its distribution to partners. It has begun talks on increasing its already large debt.
Law firms have traditionally kept their affairs private. Barred from being public firms, they have no incentive to disclose their financial results. In the past they also managed their operations conservatively, with property leases being a rare ongoing obligation and variable compensation paid mainly from accumulated profits, not as pre-determined salary. But in recent years, many law firms launched costly debt-financed expansions. When work turns down, this can become a death spiral. Once a firm begins to weaken, key partners leave, hoping to avoid being stuck with any residual liabilities. Receivables evaporate as clients delay paying bills.
Altheimer and Gray offers a cautionary tale. The 88-year-old firm, based in Chicago with offices in two other American cities and ten foreign countries, is dissolving this summer. The collapse of a firm that once had 350 attorneys around the world is one of the largest in American legal history, and comes after a fruitless search for a merger partner. The fact that its top attorneys were soon snapped up, often at higher salaries than they had been earning, suggests that Altheimer's demise was due to more than a soft economy.
What went wrong? Internal financial reporting was abysmal. Expansion plans added pricey lawyers and new offices (San Francisco and Paris opened most recently). The firm's private equity practice was hurt by the investment slump. The woes of clients such as United Airlines and Montgomery Ward did not help.
Tough times apparently caught many employees by surprise. We had a distorted view of the firm's business, says one former partner, who claims that the management committee did not provide a report on the unfolding financial disaster until two months before the crash. Meanwhile, a lease was renewed on the firm's Chicago offices last year, and office renovations were moving ahead.
Yet by late 2002 Altheimer's roster of lawyers was already falling. Collections from clients, which traditionally slow in the early part of the year, were even more of a struggle this year. Offers to law-school graduates were rescinded last spring, and offers to summer associates were cut back.
Partners (who may ultimately bear responsibility for debts) hope there is enough money in accounts receivable to cover its debt to LaSalle Bank, the firm's lender, as well as to its landlord and other creditors, such as the interior-renovation firm that filed a $1.1m lien against Altheimer for work on its downtown offices.
Good luck to them. Wind-ups often turn out to be long and messy. Brobeck was sued by low level employees and by its landlord. Hutchins, Wheeler & Dittmar, one of Boston's oldest law firms, dissolved in December, but its name still survives in court because of litigation between former partners over the terms of the liquidation. It is a fitting finale.
It is for the employees of the law firm. For every partner, a big city big firm of the type described in this article will typically have 2-3 non-partner attorneys, and 2-3 other employees.
Well I don't want to make light of anyone's unemployment except lawyers, but ~snicker. I mean, the employees knew they were sleeping with and enabling the lowest scum element in society.
That said, I hope the get a real job quickly if they get laid off...
Any info on this? I would just love to read this from another source. It was many law firms that made such recommendations to the IT honchos that only cared about the very bottom line.
I could just see it now, heavy-hitter "rainmaker" attorney has big case, picks up phone for research and Lexus-nexus searches and can't understand a word the guy is saying.....
Right, but how many times does one need a lawyer because some other lawyer has started cranking up the meter?
And they'll keep making more laws to be sure we always will.
Let's see how loud you scream for help when you've been accused of a crime you didn't commit, had a contract you were a party to breached, or been sued when you did nothing wrong. Law schools, by the way, don't exactly turn a profit.
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