Client Perception is the essential justification for very high billing rates which firm like Dewey LeBoeuf have been able to demand. But who will want to pay top dollar rates for services which may be interrupted without warning?

• Culpability Gradient
  Perhaps the most obvious difference in incentive among the members of the firm is related to each member's relative participation in alleged misconduct. Closely related to explicit participation in any potential misconduct is the implicit participation by persons that could be deemed to be in a supervisory/managerial role. BankruptcyMisconduct does not have the expertise or desire to make decisive statements as to the trigger mechanisms which would ensnare managerial persons into their own ethical, civil, or criminal problems merely as a result of their supervisory role of others. We can point out some laws and rules which we think may be relevant.
  
  The Lawyers Code of Professional Responsibility governs New York lawyers (similar rules affect lawyers in other states) and it specifically prohibits "dishonesty, fraud, deceit, or misrepresentation" by its rule DR 1-102 Misconduct. Moreover, lawyers are required to report violations of this rule by another lawyer in accordance with DR 1-103 Disclosure of Information to Authorities. We believe that the debatable attorney client privilege exception to DR 1-103 is nullified when a) the misconduct is done by a supervised employee and b) the misconduct includes a crime. Also relevant is the Criminal Code Title 18 U.S.C. § 2 Principals, § 3 Accessory after the fact. , § 4 Misprision of felony.
  
  A "guilty" party may only care about getting one or two more years of profit sharing, and have little incentive to consider the long term viability of the firm. If the personal "downside" for decision maker is large enough, he may perceive his best outcome to be the pursuit of "all or nothing" strategies. Stated simplistically, when there is nothing left to lose a gambler goes "All In". Thus, if persons holding control of an organization are subject to culpability risk personally, they may advocate decisions which are sub-optimal for non culpable players. Suffice it to say that we believe the "Culpability Dynamic" has the affect of complicating an already difficult set of circumstances and may only contribute to Intra-Firm Conflict.

• Career Maturity Gradient
  Just as a bond, a bottle of wine, or a bushel of fruit have a maturity, so too does a personal legal career. There is time spent as a junior associate, a time spent trying to earn a partnership, and hopefully for these participants a time when partnership status has been achieved and a share of firm wide profits is received. (Read our insight on the Decline of Western Neo-Legal Oligopoly Power on the bottom half of the Kasowitz Fee Padding page.) There are vastly differing circumstances affecting members of such a firm based upon their own personal maturity along the lawyer career path. Lawyers sell time, and we each have but a few moments on this earth. We believe that range of Career Maturity results in different incentives for members of the firm.
  
  It may seem counter-intuitive for members of a law firm to prefer a course which does not have the continued existence of the firm as its priority. Those persons for whom the continued existence of the firm is paramount would prefer that the allocation of cash flow to "partners" a/k/a "big people" is minimized whilst the allocation towards working capital and reserve for contingencies is maximized. Directly counter to this interest are persons for whom the maximization of cash flow to themselves is preferred over the deference of funds for working capital and reserves. While the latter may also desire the continued existence of the firm, the magnitude of current cash flows may overwhelm the discounted cash flows that could be attributed to their participation with the firm as a going concern.
  
  A partner nearing retirement has no incentive to reduce his profit sharing, and instead would prefer to maximize distributions. This incentive is arguably directly in opposition to prudent planning designed to ensure firm viability. We believe that the common Career Maturity Gradient may be exacerbated by the extraordinary circumstances to cause Intra-Firm Conflict.
  
  
  
• Pension Entitlement Gradient
  As discussed above in the Operational Risk section, BankruptcyMisconduct recently learned that Dewey LeBoeuf is saddled with substantial liabilities for unfunded pensions. Beyond the financial problems this present the firm, it represents another vector which divides incentive among the membership.
  
  Some portion of legacy Dewey partners hold vested pension benefits. According to a New York based legal consultant, when these members leave "the firm still owes the benefits but has lost some of the revenues that they were counting on to meet those obligations."
  
  Reportedly, the legacy pension accrual scheme has been frozen. Thus, current and future workers will not be receiving these lavish pension entitlements while they are still obligated to divert a portion of profits, and thus cash flow, towards paying these legacy obligations. We need not spend much time explaining how firm instability can be inflamed by such a unilateral wealth transfer mechanism. There is potentially an even more destabilizing influence. This split between those receiving a pension and those funding pension payments complicates game decision among the members, and enhances Intra-Firm Conflict just as it reduces firm Viability.
  
  Legacy Dewey members who hold vested pension benefits may perceive that they should defect Dewey LeBoeuf as soon as possible to maximize their personal financial and retirement circumstances. These members may be at advanced career stages where a lateral, or founding, move needs to be taken now. Staying at Dewey LeBoeuf is the equivalent of having all eggs in one basket. Leaving the firm may provide continuing current income, a vested pension plan, the cessation of profit sharing/reducing contributions to that plan, and avoidance of career disruption in the event of Dewey LeBoeuf's dissolution - all at arguably no cost in terms of changing their vested pension plan viability. To the extent that these potentially departing members are at the tops of their careers, rainmakers, or experience sharing leaders the firm is doubly hurt. Financially for the pension liability surge, and fundamentally for the loss of expertise. In an atmosphere of heavy departures during financial distress, such departures may only accelerate the partnership defects as described below "The Snowball Effect".

• Informant Inclination Gradient
  The criminal aspect intertwined in some of Dewey LeBoeuf's challenges yields another gradient which may differentiate incentive and "game decision outcome" among the firm's membership. Game theory predicts opportunities and pitfalls for the members along the lines of the classic example known as The Prisoner's Dilemma. While we make no statement as to whether criminal or ethical regulatory investigations have or will be commenced, the opportunity for a member to greatly reduce his or her risk necessarily results in higher risk for the remaining members who fail to act first. Stresses induced by radical differences in culpability, career maturity, compensation, and control all contribute to each member's personal Uhland Decision with respect to becoming a whistle-blower or informant.
  
  Beyond the safe harbor protections from criminal or state bar consequences, there exists additional incentive for such a decision. A Whistleblower is generally provided explicit and implicit protection when they inform about their own organization. Benefits may affect career and personal financial circumstances. Ironically, a member may raise his job security by whistle-blowing. A whistle blowing memo is near impossible for a former employer to refute as the root cause in the minds of a jury in a wrongful termination / constructive termination suit. Furthermore, the first to the "deal window" may reap additional benefits of lucrative speaking and writing engagements. See how the opportunistic accountant made out after WorldCom. Then again, easy money from speaking about business ethics may not be of interest to many such as the "Asperger Endowed" or immutably loyal foot soldiers.
  
  Interestingly, a game decision to become a whistleblower may be rational to a broad spectrum of the membership. Members from the least seniority to the highest seniority, and the least culpable to the most culpable could deem themselves ripe. The most culpable have the most incentive to earn immunity, and to frame the course of any official investigation. The genuinely most loyal members may see past the myopic dissonance of extremist professional courtesy - and realize that the earliest bright line identification of culprits unworthy of membership is the only rational choice for Dewey LeBoeuf's ultimate survival. We wouldn't know where to begin a quantitative or predictive measure of this dynamic, so we won't. We believe that the extraordinary disclosed circumstances elevate this internal risk multiplier to a credible consideration. Point is, much less than 1% of the firm's 1,000 plus membership is required to moot the question of whether the firm is "in play" - promising a wannabe prosecutor an easy notch against a target with practically nil public sympathy.
  
  
• Static Segmentation Presumption Error
  Senior management at Dewey LeBoeuf have apparently made an error in their presumption of a static opportunities profile among their members. When analyzing a profit motivated enterprise composed of persons such as a law firm, it is important to remember that each member remains an individual game decision participant. Thus, profit maximization strategies that would normally be employed by a rational employer holding monopolist power are not available to this enterprise. If the firm did genuinely exert monopolistic power over the negotiable wage/profit sharing decisions of all of its members, then a static model of the (presumed unique) sub-segment of "rainmakers" could lead to rational, and stable, asymmetries in control and compensation. But this oversimplification of individual production, mobility, and acceptance can inflame intra-firm conflict, particularly when the differentials are deemed significant or arbitrary.
  
  Failing to understand (or even construct) a relevant model of a multi-player game space is demonstrated in the failures of governmental entities to predict behavior as seen in the Laffer Curve, Winner's Curse, and in most governmental attempts at societal engineering. Similarly, entities run by committees, lawyers, or individuals with eccentric ego influence are susceptible to prediction errors when they have failed to account for dynamic multi-party equilibriums. The ignominious days of the micro-managed New York Yankees under George Steinbrenner's hyper influence illustrates the problem of trying to over-arbitrage talent, and the team's success once liberated from "helicopter management" is indisputable. Long story short, the more BankruptcyMisconduct learns of the extraordinary attempts to apply focused favoritism to certain members within the Dewey & LeBoeuf law firm, the more we believe that teamwork, joint sacrifice, camaraderie, and tradition are being sacrificed to mismanagement. You can only get so much blood from a stone. Squeezing them indefinitely is not only a vain attempt, but looks stupid, is bad for your fingers, and can start to annoy your loyal rockers.
  
  There are large transaction costs buried in each loss of a firm member, especially partners, and with each reassignment of a member. This type of cost is also experienced by the client, assuming the client does not follow the departing lawyer. Just as there are "rainmakers", there are many necessary contributors such as "grinders", "client managers", "nurturers", and "crunch-time loyalists". While large law firms may genuinely hold neo-monopolist power over the associate sub market, we believe that short term focus on rainmaker class of partners can unravel the fabric which supports such an entity whose productive assets are not in machinery, real property, or capital but so focused in talent. The potential for disillusionment among the partners may also "trickle down" to the associate ranks. The sacrifices made by junior BigLaw lawyers in their personal lives are done with a believed rational expectation of a chance at partnership status. As this achievement is diminished, so too is incentive.

• Lower Transaction Costs (Stigma) for Defecting Partners During Firm Distress
  Senior management's admission of problems provides blanket cover for members seeking employment elsewhere. There is no awkward explanation needed when finding a lateral position when your current firm's management has made the public admissions that Dewey LeBoeuf already has made.


• Entity Structure & Market Environment Conduce "The Snowball Effect"
  Large "Big Law" firms are more susceptible to instability due to employee turnover than most other firms, due to the focused contribution of specialized, non-fungible, labor. For such a firm, as each employee is lost, the value and stability of the firm is reduced by a greater proportional amount. The critical points of inflection coincide with 1) the point when the sum of the expected revenues attributable to the remaining employees exceed the fixed costs (including base & guaranteed salaries) of the enterprise and 2) when the actual cash flows realized by the remaining employees are exceeded by the immediate cash flow needs. These needs include ERISA payments, rents, base & guaranteed salaries, fees, expenses, and so forth.
  
  
• Best Opportunities For Earliest Defectors -"Rush for Lifeboats"
  A contributing factor to the "Snowball" effect is that for each individual member seeking employment elsewhere "the early bird gets the (best) worm". Though finding new employment while leaving a distressed firm can be a much quicker process than a lateral move from a stable firm, there are undeniable advantages to those leaving first, particularly in a difficult economy. At the extreme, there simply may not be enough open positions at hiring firms to accommodate all of the members desiring to leave, or finding themselves unemployed in the event of further cust cutting or firm dissolution.


• Lateral Move Decision Most Likely for Best Producers -"Self Selection Bias"
  Members for whom a move makes most sense include department heads, group leaders, rain makers, and most productive workers. These members would most easily find a job with a lateral move. Obviously, these are exactly the same members whose loss would most seriously hurt the old firm. The loss of such valuable members, likely to be well respected internally, acts as a signal to other members, and inflames to the Snowball Effect (a/k/a the Domino Effect).
  
  
• Members delaying pursuit of new employment until after firm implosion are at a disadvantage
  We certainly can not predict for sure when or even if Dewey LeBoeuf will implode, or shrink dramatically to firm recognizable only by name. And neither can its senior or junior members. However, we believe there can be no reasonable dispute to the observation that members who delay the pursuit of, or fail to obtain, a new position elsewhere would be at a severe disadvantage in the event of an actual dissolution of the firm.
  
  These difficult economic times are exacerbated by aggressive corporate cost cutting methods, which are now being applied to a legal services industry with serious "over supply". A "falling tide" lowers all boats - and can seriously delay, or even prevent - the acquisition of a new job for the unemployed. In these times, the safety of maintaining the status quo is an illusion. Proactive career management may be the only risk averse strategy today, as far as continuous employment is considered.
  
  As this concept is similar to the "Rush for Lifeboats" effect, we see a similar contribution to the "Snowball Effect". In the nomenclature as used in graduate studies of Systems Dynamics, as well as entry level electronic signals courses, this type of self reinforcing force is called a Positive Feedback Loop. An example we have all likely witnessed with audio systems is that loud and annoying squeal heard when a microphone is held too close to a loudspeaker system. Though not to be confused with the squeals one could expect during Dewey LeBoeuf's anticipated implosion.
  
  
• BigLaw Firm Status - Two Edged Sword
• High Fixed Costs