Why law firms fail

Law firm failures have become spectacles. Non-lawyers who witness what was once a rare event might take pleasure, because they have never held lawyers in high esteem to begin with. Lawyers at rivals down the street may look on anxiously, concerned about what they might not have read carefully in their own partnership agreement.

We all measure the world by our own experiences. A generation -- twenty years -- passed between the time I stepped foot in San Francisco to interview for a summer associate job at a major law firm, and when I returned to the city by the bay to head a law school.

Between 1990 and 2010, the economic changes that have been astonishing to members of the bar likely have not been all that surprising to everyone else. After all, that time period encompasses the dot-com boom and bust, a phenomenon an order of magnitude (at least) greater than any disruption to established professional service firms.

Chancellor & Dean Frank H. Wu

Nonetheless, I had not expected to find what I did upon my return. I would estimate that fewer than one third of the brand name, top drawer, old shoe partnerships, however defined, were still practicing under the same name and with the same structure. Most of them had vanished, some in major stories reported by the mainstream media; others had reconfigured with varying voluntariness, losing a few colleagues as they did what they had to do.

Meanwhile, a market that had only one major "out of town" firm came to have branch offices of every national outfit. In an entrepreneurial culture where fortunes can be made on an idea that appears to generate negative return on investment, even lawyers have had to adapt. A number of firms subject to dire predictions turned out to be fine.

I have a hypothesis about these dynamics. Law firms fail for many reasons. Among them is not one that might be expected. Very few, if any, of the law firms that have "failed" has foundered because the people employed there were lousy lawyers.

The causes of these debacles are varied: too much debt or space, not enough revenues or collegiality (the latter merely referring to how to divide the former), geographic expansion for it's own sake, promises to lateral recruits that cannot be sustained according to any rational calculations, and so on.

What is more remarkable, however, than what produces the joyless outcomes is what does not. Bad lawyering is not usually the cause. The lawyers at law firms no longer with us generally were capable. As lawyers, they may well have been superlative. Some were "lawyer's lawyers," those admired by their peers.

The busted law firms boasted people with excellent pedigrees. They represented clients who were the envy of their peers. They fought the bet-the-company cases and handled the sell-the-company deals.

Nobody ever says, "Oh, well, they were bad lawyers at XYZ law firm."

They say the opposite, "How could that have happened? They were the best."

And that makes my argument. Smart people overestimate the importance of being a smart person. To be the best lawyer, or the best collection of lawyers, is not enough; it doesn't even guarantee you stay in the game.

It is necessary to be great businesspeople, too. Or to affiliate with great businesspeople, which means recognizing that the technical skills needed to be a great lawyer might (or might not) correlate with the other skills needed to thrive.

These observations are not even altogether original. When I was starting out in practice, more than a few lawyers disregarded or even disdained the business aspects of the profession. Now, even those who lament the transformation of their occupation grant that it belongs within the stream of commerce.

Talent is the means to an end. It isn't the end.

By Frank H. Wu, Chancellor & Dean of UC Hastings College of the Law, Twitter: www.twitter.com/frankhwu

Source: The Huffington Post