Dewey & LeBoeuf is just like Lehman, except in the most important ways

June 2, 2012

Dewey & LeBoeuf filed for bankruptcy earlier this week and and now has the ignominious distinction of being the largest-ever US law firm to go under. The firm is now moving through the bankruptcy process and creditors’ losses are being tallied. Which is to say that the bankruptcy of Dewey & LeBoeuf is proceeding pretty much as bankruptcies tend to.

That’s why an article with the headline “How Dewey Is Like Lehman” by the usually on-point Stephen Lubben makes such little sense. Lubben wasn’t the only one to make the comparison: Marketplace got into the act too and James Stewart put in the early contribution, saying Dewey’s management was even more reckless than Lehman’s. The similarities to Lehman that they cite can be boiled down to bankruptcy and excessive risk taking.

High leverage, large guaranteed pay contracts for partners and falling revenue killed off Dewey. Sure, Dewey’s decision to lever up was silly and poor management, but that doesn’t make its bankruptcy more comparable to that of Lehman. In the vast catalog of financial failures, a combination of high leverage, high fixed costs and falling revenue isn’t really a distinguishing feature.

The differences between the two bankruptcies are enormous. Lehman was a public company and Dewey was private. Lehman had systemic importance to the US and global economy and Dewey did not. Lehman’s failure caused massive market panic and spurred unprecedented regulatory and political action. Dewey’s failure caused none of those things.

These real, gaping differences are the features that really distinguish Lehman’s bankruptcy as an extraordinary event. Dewey and any number of other garden-variety bankruptcies might have some formal similarities, but in terms of both economic impact and broader meaning they are nowhere near comparable. Post-Lehman is shorthand for the cardiac-arrest fall of 2008 and everything since. Post-Dewey (a phrase no one really uses), there has been some limited and appropriate navel-gazing about law firms’ business business models.

Comparing any bankruptcy to that one should be done very sparingly if at all. Unfortunately, it seems that if any bankruptcy can, in any way, be called the biggest of its type, it will eventually be compared to Lehman Brothers.


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