Corporate & Securities Law

Proximate Cause and Law Firm Dissolution

By John Wallbillich

Another week, another large law firm enters dissolution. This time, Wolf Block.

When you see a headline like this, it’s easy to link the bad economy to the news, and just move on reading. But sometimes the truth is a bit more complex.

In the case of Wolf Block, we have some rare insight here, from writer Chris Mondics of the Philadelphia Inquirer.

Mr. Mondics has done the reporting and takes the time to trace leadership changes at Wolf Block over the years, how this affected firm culture, and what this all meant when the economy started to go south in a big way. Here’s an excerpt:

For the fact is that Wolf Block’s internal dissension was so great, and the damage to its reputation so pervasive, it never had a chance to recover.

Getting the right mix of people by recruitment and cultivating a reputation as a place where people can be proud to work and where partners refer clients to other lawyers rather than jealously hoard them, is a process that can take decades. It can fall apart with breathtaking speed.

And then the knockout punch, something I think has happened to many firms over the years. Fundamental problems are obscured by a good economy, with increasing work and rates:

The firm hobbled along in a weakened state and even grew, buoyed by the exceptionally robust legal market of the last few years.

But when the economy soured, and the firm’s banker sought to tighten the terms of its line of credit, an essential economic backstop for many law firms, there wasn’t enough bench strength to see it through.

It’s really a great job by Mr. Mondics, and it likely highlights something we will see play out over the next year or two. You can’t really look at firm size, or revenues, or (perhaps) even profits to determine a firm’s inner strength.

So the proximate cause of the Wolf Block dissolution is a unique one. Maybe Tolstoy said it best (stretching the metaphor that a firm can be like a family):

Happy families are all alike; every unhappy family is unhappy in its own way.

(About the firm Anna, Karenina & Associates?)

Full post as published by The Wired GC on March 26, 2009 (boomark / email).