DEWEY’S L. CHARLES LANDGRAF: THE PLIGHT OF THE LOYAL COMPANY MAN

This is the last — for now — in a series profiling Dewey & LeBoeuf’s former leaders, especially its final four-man office of the chairman. L. Charles Landgraf (Rice University, B.A., 1975;  New York University, J.D. 1978) had been a long-time partner at LeBoeuf Lamb when it merged with Dewey Ballantine in October 2007.

In the 1990s, when LeBoeuf Lamb needed someone to bolster its London presence, Landgraf went. When the firm established a Moscow office, he helped. When duty called to the Washington, D.C. office that he was heading in 2012, Charley landed in Dewey & LeBoeuf’s four-man office of the chairman. It quickly became a thankless job.

A partner’s predicament

According to a Wall Street Journal interview, Landgraf helped out after the firm had failed to meet profit targets for several years. Unable to pay everything owed to guaranteed compensation partners, he and Jeffrey Kessler “spearheaded” a plan (according to Martin Bienenstock in that interview). It would have paid off partners who had taken IOUs from the firm by dedicating six percent of partnership earnings from 2014 to 2020.

Always candid, Landgraf said recently that the plan was necessary because “the firm had a lot of built-up tension about the fact that we had a compensation schedule last year that exceeded the actual earnings, and that had been true for a couple of years.” “Built-up tension” is a delicate description of the plight facing a firm that organizes itself around so-called stars whose loyalty extends no deeper than their guaranteed incomes.

Go along to get along?

My hunch is that the plan to deal with this problem wasn’t Landgraf’s idea. He wasn’t among those listed in the “Senior Management” section of the firm’s 2010 private placement memorandum. Nor was he mentioned in April 2012 when Dewey & LeBoeuf identified for Thomson Reuters seven key players essential to the firm’s survival.

He may fit the profile of many big law partners who have spent years — even decades — in the same firm and retain a deep loyalty to something that has actually disappeared from their institutions, namely, a true partnership and all that it entails. Perhaps they defer too willingly to others who are supposed to be smarter, more knowledgeable and/or have superior judgment. But when things get rough, they step up and do what they can to salvage the situation.

Undue deference revealed

From that perspective, Landgraf’s interview for The Wall Street Journal on Saturday, May 12, 2012 was revealing. A day earlier, Dewey & LeBoeuf’s resident bankruptcy expert Martin Bienenstock had announced that he was leaving the firm. By the time the interview appeared, he was already on Proskauer Rose’s attorney roster.

But during The Wall Street Journal interviewLandgraf — who was then the only remaining member of the original Gang of Four comprising the office of the chairman — let his former partner do all of the talking for a firm that was no longer Bienenstock’s. In printed form, the interview transcript fills seven pages. Landgraf’s words barely consume a half-page.

Bienenstock credited Landgraf and Kessler for the plan that committed future partner earnings to pay guaranteed partner IOUs from prior years. Landgraf said that the lateral contracts were “something we’re looking at. Whether all the contracts were the subject of full discussion or simply known as a technique that was used…is still being reviewed.”

His next line suggested that others at the firm may have been a bit too persuasive in selling him a bad idea: “But the technique of using guarantees of all forms, especially in the recruitment of laterals and retention of key business users, is pretty widespread throughout the industry.”

For limited periods involving laterals? Maybe. For four- or six-year deals involving legacy partners? I don’t think so. For 100 members of a 300-partner firm? Not for something that should call itself a partnership.

Two days after that interview appeared, Landgraf was gone, too. As hundreds of remaining Dewey & LeBoeuf lawyers and staff around the world wondered what might come next, one gets the sense that he was trying to be a good partner to the end.

I don’t know if a final caution applies to Landgraf, but it’s an appropriate note on which to conclude this series: a team player serves neither himself nor his institution when he defers to others as they move the team in the wrong direction. It’s time to empower dissenting voices with Aric Press’s “Partner Protection Plan.”

DEWEY’S RICHARD SHUTRAN — RUNNING THE NUMBERS

This is the fourth of a five-part series profiling Dewey & LeBoeuf’s former leaders. Richard Shutran (Trinity College, B.A., 1974; New York University, J.D., 1978) joined Dewey Ballantine in 1986 and rose to co-chair of the firm’s Corporate Department and Chairman of its Global Finance Practice Group. He left his position on Dewey’s Executive Committee in 2010, but in 2012 became a member of the four-man office of the chairman tasked to save the firm.

The Dewey & LeBoeuf website described Shutran’s transactional practice as “counseling…with respect to leveraged finance and project finance matters, mergers and acquisitions, and restructurings and reorganizations….” That makes him a numbers guy, someone especially well-suited to the challenges facing his firm when it asked him to return to leadership as one of the Gang of Four.

The 2010 bond issuance

Dewey’s 2010 private placement memorandum included Shutran’s biography in its “Senior Management” section. At the time, Bloomberg news reported on the $125 million bond offering for which Shutran said that the bonds’ interest rates were more favorable than the firm’s bank loans. That was true.

As partners were checking out two years later, the Daily Journal reported that Dewey was renegotiating those bank loans: “Richard Shutran, co-chair of Dewey’s corporate department, described the negotiations as standard.” At that point, perhaps they were.

Another “bond” issuance

Meanwhile, the firm was pursuing what fellow Gang of Four member Martin Bienenstock described as “a plan to deal with the shortage of payments to some partners.” In particular, those with guaranteed compensation deals had taken IOUs during earlier years when profits had fallen short of targets. The “plan” was to dedicate six percent of the firm’s income for six or seven years to pay them off, starting in 2014.

In addition to ongoing bank debt, the first wave of 2010 bond payments came due in 2013 and would continue through 2023. Now another debt repayment plan — to a special class of so-called partners — would take another chunk of future partnership earnings from 2014 to 2020.

Funny numbers

At about the same time, Shutran moved to the center of another controversy – also not of his making – relating to his firm’s financial health. He assured a Bloomberg reporter that the departure of Dewey’s elite insurance group “had no impact on our firm’s profitability. That group was break-even at best.” But he also said the firm had earned about $250 million in profits for 2011. The American Lawyer didn’t think that number jibed with what Dewey had provided for the magazine’s annual rankings.

On March 21, 2012, The Wall Street Journal reported The American Lawyer’s retroactive revisions to Dewey & LeBeouf revenue and profits numbers for 2010 and 2011 — by a lot. For example, Dewey’s 2011 average partner profits dropped from $1.8 million to $1.04 million. Shutran suggested methodological differences were to blame:

“‘They’re just not comparable numbers,’ Mr. Shutran said. ‘That’s something people like to pick on.’ Robin Sparkman, the editor-in-chief of the American Lawyer, said Dewey & LeBoeuf’s numbers were given to them by the firm’s management.”

About that bank loan

On April 11, 2012, Dewey identified seven key players essential to the firm’s survival. Shutran wasn’t among them, but he responded to questions about whether the wave of partner defections had triggered bank loan covenants: “It has not had any effect under (the) agreements,” he said. There’s no reason to doubt him.

But the real problem by then wasn’t the bank loans. It was the accumulated amounts owed for annual distributions to partners in excess of the firm’s net income. As Bruce MacEwen’s analysis suggests, whether it’s called mortgaging the future or something worse, the result is the same.

Something went terribly awry at Dewey & LeBoeuf, but here’s the scary part: among big law firms, some of the things that created Dewey’s predicament aren’t unique.

DEWEY’S JEFFREY KESSLER: STARS IN THEIR EYES

This is the third in a series profiling Dewey & LeBoeuf’s former leaders. Apparently, Jeffrey Kessler (Columbia University, B.A., 1975; Columbia Law School, J.D., 1977) has become a prisoner of his celebrity clients’ mentality. A prominent sports lawyer, he analogizes big-name attorneys to top athletes: “The value for the stars has gone up, while the value of service partners has gone down.”

Kessler was a long-time partner at Weil, Gotshal & Manges before joining Dewey Ballantine in 2003. After the firm’s 2007 merger with LeBoeuf Lamb, he became chairman of the Global Litigation Department, co-chairman of the Sports Litigation Practice Group and a member of the Executive and Leadership Committees. Long before he became a member of the Gang of Four in Dewey & LeBoeuf’s office of the chairman, he was a powerhouse in the firm.

Blinded by their own light

Some attorneys have difficulty resisting the urge to absorb the ambitions and ethos of their clients. Many corporate transactional attorneys have long been investment banker and venture capital wannabees, at least when it comes to the money they’d like to make.

Of course, not all corporate practitioners are myopic thinkers. Kessler proves that narrow vision isn’t limited to transactional attorneys. But the rise of such attitudes to the top of many large law firms has occurred simultaneously with the profession’s devolution to models aimed at maximizing short-term profits and growth.

Kessler was a vocal proponent of the Dewey & LeBoeuf star system that produced staggering spreads between people like him — reportedly earning $5.5 million a year — and the service partners, some of whom made about five percent of that. It was the “barbell” system: top partners on one side; everybody else on the other.

In such a regime, there’s no shared sacrifice. What kind of partnership issues IOUs to star partners when the firm doesn’t make its target profits? Something that isn’t a partnership at all.

Lost in their own press releases

Kessler regularly finds himself in the presence of celebrity athletes. That can be a challenging environment. But once you start believing your own press releases, the result can be the plan that he and fellow Dewey & LeBoeuf partner Charles Landgraf “spearheaded” (according to fellow Gang of Four member Martin Bienenstock).

To deal with outstanding IOUs to Dewey partners whose guaranteed compensation couldn’t be paid when the firm underperformed for the year, Kessler helped to mortgage its future: for “a six- or seven-year period, starting in 2014, [a]bout six percent of the firm’s income would be put away to pay for this….”

It’s a remarkable notion. Partners didn’t get all of their previously guaranteed earnings because the firm didn’t do well enough to pay it. But rather than rethink the entire house of cards, it morphed into a scheme whereby future partnership earnings — for six or seven years — would satisfy the shortfall. Never mind that there was no way to know who would be among the firm’s partners in those future years. The money had to be promised away because the stars had to be paid.

Sense of entitlement

Kessler gives voice to the pervasive big law firm attitude that without stars there is no firm. It’s certainly true that every firm has to attract business and that some lawyers are more adept at that task than others. But Kessler’s approach produced yawning income gaps at Dewey. Similar attitudes have contributed to exploding inequality afflicting many equity partnerships. For insight into the resulting destabilization, read the recent article by Edwin Reeser and Patrick McKenna. “Spread Too Thin.”

But does Kessler really think that he and a handful of his fellow former Dewey partners are the first-ever generation of attorney stars? Twenty-five years ago when average partner profits for the Am Law 100 were $325,000 a year, did his mentors at Weil Gotshal earn twenty times more than some of their partners — or anything close in absolute dollars to what Kessler thinks he’s worth today? Does he believe that there are no stars at firms such as Skadden Arps, Simpson Thacher or other firms that have retained top-to-bottom spreads of 5-to-1 or less?

Beyond his prominence in the profession, Kessler is shaping tomorrow’s legal minds as a Lecturer-in-Law at Columbia. For anyone who cares about the future, that’s worth pondering.

DEWEY: PROFILES IN SOMETHING

Some key players in the Dewey & LeBoeuf debacle are also among the profession’s leaders; that makes them role models. Some teach at law schools; that means they’re shaping tomorrow’s attorneys, too. But how do they look and sound without the Dewey spin machine?

Some readers might worry that spotlighting them erodes civility. But civility goes to the nature of discourse; it can never mean turning a blind eye to terrible things that a few powerful people do to innocent victims. Sadly, the personalities and trends that unraveled Dewey aren’t unique to it.

As to former chairman Steven H. Davis, David Lat’s analysis at Above the Law and Peter Lattman’s report at the NY Times  are sufficient; there’s no reason to pile on. Rather, I’ll look at the “Gang of Four” plus one: the men comprising the four-man office of the chairman who replaced Davis as the firm came unglued, and Morton Pierce. Here’s a preview.

Morton Pierce was chairman of Dewey Ballantine when merger discussions with Orrick, Herrington & Sutcliffe failed and LeBoeuf, Lamb, Greene & McRae entered the picture. After spearheading the deal with Davis, Pierce locked in a multi-year $6 million annual contract that he reportedly enhanced in the fall of 2011. In his May 3 resignation later, he reportedly claimed that the firm owed him $61 million.

As he spoke with The Wall Street Journal while packing boxes for White & Case, Pierce said that he hadn’t been actively involved in firm management since 2010. But the Dewey & LeBoeuf website said otherwise: “Morton Pierce is a Vice Chair of Dewey & LeBoeuf and co-chair of the Mergers and Acquisitions Practice Group. He is also a member of the firm’s global Executive Committee.” [UPDATE: Two days after this May 15 post, Pierce’s page on the Dewey & LeBoeuf website finally disappeared. Such are the perils of losing an IT department too early in the unraveling process.] My post on Pierce will be titled “Accepting Responsibility.”

Martin Bienenstock, one of the Gang of Four, was an early big name hire for the newly formed Dewey & LeBoeuf. In November 2007, he left Weil, Gotshal & Manges after 30 years there. He got a guaranteed compensation deal and sat on the Executive Committee as his new firm careened toward disaster. As Dewey & LeBoeuf’s end neared, he maintained a consistent position throughout: “There are no plans to file bankruptcy. And anyone who says differently doesn’t know what they’re talking about.”

No one asked if he had a realistic plan for the firm’s survival. Ten days later, he and members of his bankruptcy group were on the way to Proskauer Rose. The title of my upcoming post on Pierce could work for Bienenstock, too. But because he teaches at Harvard Law School, I’m going to call it “Partnership, Professionalism, and What To Tell the Kids.”

Jeffrey Kessler, another of the Gang of Four, was also a lateral hire from Weil, Gotshal & Manges. He joined Dewey Ballantine in 2003. As a member of Dewey & LeBoeuf’s Executive Committee, he became a vocal proponent of the firm’s star system that gave top producers multi-year, multimillion-dollar contracts — one of which was his.

A sports law expert, Kessler analogized big-name attorneys to top athletes: “The value for the stars has gone up, while the value of service partners has gone down.” The title of my post on Kessler will be “Stars In Their Eyes.”

Richard Shutran, the third of the Gang of Four, was a Dewey Ballantine partner before the 2007 merger. He became co-chair of Dewey & LeBoeuf’s Corporate Department and Chairman of its Global Finance Practice Group. At the time of the firm’s $125 million bond offering in 2010, he told Bloomberg News that the bonds’ interest rates were more favorable than those from the firm’s bank. In March 2012, he said Dewey was in routine negotiations with lenders over its credit line. He also dismissed The American Lawyer’s retroactive revision of Dewey’s 2010 and 2011 financial performance numbers as much ado about nothing. My post on Shutran will be “Running the Numbers.”

L. Charles Landgraf, the last of the four, began his career at LeBoeuf Lamb 34 years ago. I don’t know him (or any of  the others), but my hunch is that Charley (as people call him) is a decent guy. My post on him will be called “The Plight of the Loyal Company Man.”

In future installments, we’ll take a closer look at each of them. Sometimes it won’t be pretty, but neither is what some of them personify about the profession’s evolution.