{"id":160359,"date":"2025-03-28T04:26:45","date_gmt":"2025-03-28T12:26:45","guid":{"rendered":"https:\/\/lukeford.net\/blog\/?p=160359"},"modified":"2025-03-29T18:11:36","modified_gmt":"2025-03-30T02:11:36","slug":"trump-vs-big-law-2","status":"publish","type":"post","link":"https:\/\/lukeford.net\/blog\/?p=160359","title":{"rendered":"Trump vs Big Law"},"content":{"rendered":"<p>After Donald Trump&#8217;s disgraceful denial of the 2020 election results, I lost all enthusiasm for him.<\/p>\n<p>Until he was indicted in New York on spurious grounds.<\/p>\n<p><A HREF=\"https:\/\/www.aol.com\/pathetic-cowardly-collapse-big-law-123202352.html\">Paul Rosenzweig writes for the Atlantic<\/a>: <\/p>\n<blockquote><p>The Pathetic, Cowardly Collapse of Big Law<\/p>\n<p>&#8230;Trump and his supporters defend these actions on the childhood-playground basis that the Democrats started it.<\/p><\/blockquote>\n<p>That&#8217;s not a childish argument. It&#8217;s a strong legal argument in many instances. In real life, who starts a fight matters.<\/p>\n<p>Grok says: <\/p>\n<blockquote><p>You&#8217;re right\u2014determining who started a fight can be crucial, especially in legal contexts. In law, establishing the instigator often shapes the case, like in self-defense claims where the aggressor&#8217;s identity can decide guilt or innocence. It\u2019s about accountability and intent, which are far from childish concerns; they\u2019re foundational to justice.<br \/>\nThe idea that it\u2019s \u201cchildish\u201d might stem from playground squabbles\u2014\u201cHe started it!\u201d\u2014where the focus is more on blame than resolution. But that\u2019s a narrow view. In adult conflicts, whether physical, verbal, or geopolitical, identifying the initiator provides context, clarifies motives, and can dictate the legitimacy of responses. For instance, historians still debate who sparked World War I because it affects how we judge the players involved.<br \/>\nIt\u2019s only \u201cchildish\u201d if the pointing finger is just petty score-settling, not if it\u2019s about understanding what really happened. Context is everything.<\/p><\/blockquote>\n<p>Rosenzweig: &#8220;Trump\u2019s actions are an attempt to tilt the scales of justice by using the raw power of government coercion\u2014and they\u2019re working.&#8221;<\/p>\n<p>The right has never enjoyed this much success in transforming American institutions (which until now have <A HREF=\"https:\/\/ronyguldmann.com\/conservative-claims-cultural-oppression\/\">predominantly been in the hands of the left<\/a>).<\/p>\n<p><A HREF=\"https:\/\/www.aaronrenn.com\/p\/institutions-and-the-right\">Aaron Renn writes Feb. 13<\/a>: &#8220;Conservatives can\u2019t use the long march strategy because the left isn\u2019t dumb enough to let them penetrate institutions. Instead, conservatives need to do the equivalent of a private equity buyout and restructure institutions from the top down.&#8221;<\/p>\n<p>Grok says: &#8220;Reports indicate that rival firms, such as Sullivan &#038; Cromwell and Kirkland &#038; Ellis, have begun poaching talent from targeted firms, exploiting the instability Trump\u2019s actions have created.&#8221;<\/p>\n<p>The New York Times is flooding the zone on this story, assigning five reporters:<\/p>\n<blockquote><p><A HREF=\"https:\/\/www.nytimes.com\/2025\/03\/27\/business\/trump-law-firms-skadden-arps.html\">Skadden, a Top Law Firm, Is in Talks to Avert an Executive Order<\/a><\/p>\n<p>The discussions come as President Trump has taken aim at WilmerHale, another big law firm. Other major firms are said to be trying to cut deals with the White House.<\/p>\n<p>By Michael S. Schmidt, Ben Protess, Matthew Goldstein,Jessica Silver-Greenberg and Maureen Farrell<\/p>\n<p>The elite law firm Skadden, Arps, Slate, Meagher &#038; Flom has had discussions with President Trump\u2019s advisers about a deal to avert the type of executive order that the White House has been imposing on many of its competitors, according to five people briefed on the matter who were not authorized to speak publicly about private conversations.<\/p>\n<p>The talks represent an extraordinary turn in Mr. Trump\u2019s campaign against law firms and the legal system more broadly, marking what appears to be the first time that a major firm has tried to cut a deal with the president before he could issue an executive order. Recent orders targeting other law firms have restricted the work they can do with the federal government.<\/p>\n<p>The Skadden discussions are also the latest example of how large law firms, afraid of a protracted battle with Mr. Trump, are eager to strike deals.<\/p>\n<p>The White House has signaled that more firms are in the president\u2019s sights to receive executive orders, particularly those that employ lawyers who have worked on investigations into Mr. Trump or on causes that his supporters object to&#8230;<\/p>\n<p>While WilmerHale vowed to fight the order, Skadden was not the only firm in discussions with Mr. Trump\u2019s team, according to two people briefed on the matter, and multiple deals could be announced in the coming days.<\/p>\n<p>It is unclear how the talks got started or whether Skadden will reach an agreement with Mr. Trump. But on Wednesday, the president hinted that such deals might emerge and boasted about his track record of bringing big law firms to heel.<\/p>\n<p>\u201cThey\u2019re all bending and saying, \u2018Sir, thank you very much,\u2019\u201d Mr. Trump said, adding that law firms are saying, \u201c\u2018Where do I sign? Where do I sign?\u2019\u201d<\/p>\n<p>&#8230;In a post on his social media platform, X, on Sunday, Elon Musk singled out Skadden\u2019s work assisting in a lawsuit against Dinesh D\u2019Souza, the right-wing media critic and political commentator&#8230;<\/p>\n<p>The leaders of Paul Weiss said that Mr. Trump\u2019s order would have decimated their business \u2014 and that rivals were looking to poach some of their top lawyers. But the firm\u2019s agreement appears to have emboldened the president and encouraged other firms to consider making their own deals.<\/p>\n<p>The flurry of actions taken by Mr. Trump against law firms has, for the most part, been met with silence from industry leaders. Lawyers have been reluctant to speak out for fear of making their firm a target.<\/p><\/blockquote>\n<p>Grok says: <\/p>\n<blockquote><p>Skadden, a leading law firm, has engaged in talks with Trump\u2019s advisers to avoid an executive order like those recently imposed on competitors such as WilmerHale, Jenner &#038; Block, and Perkins Coie. These orders, part of Trump\u2019s escalating war on elite law firms, restrict their federal government work, revoke security clearances, and target firms linked to past investigations (e.g., Mueller\u2019s Russia probe) or causes Trump opposes. Skadden\u2019s move marks a shift, as it\u2019s the first major firm to proactively negotiate before an order is issued, following Paul Weiss\u2019s earlier deal with Trump. The article cites anonymous sources, highlights Elon Musk\u2019s criticism of Skadden on X, and notes the legal community\u2019s mixed response\u2014silence from most firms, resistance from Perkins Coie, and warnings from legal scholars about threats to the rule of law.<\/p>\n<p>The article frames Trump\u2019s actions as a personal crusade, targeting firms like WilmerHale (tied to Mueller) and Jenner &#038; Block (linked to Andrew Weissmann) for their roles in past investigations. The executive order against WilmerHale on March 27, 2025, exemplifies this, accusing it of \u201cweaponizing\u201d the legal system and abusing pro bono work. Trump\u2019s rhetoric\u2014\u201cThey\u2019re all bending and saying, \u2018Sir, thank you very much\u2019\u201d\u2014suggests he sees these moves as victories in a power struggle.<\/p>\n<p>Skadden\u2019s talks indicate Trump\u2019s strategy is working, pressuring firms into preemptive compliance.<\/p>\n<p>Law Firms\u2019 Strategic Retreat:<\/p>\n<p>Skadden\u2019s negotiations, alongside Paul Weiss\u2019s $40 million pro bono deal, highlight a trend of capitulation over confrontation. The article notes multiple firms are in similar discussions, driven by fear of business losses\u2014e.g., Paul Weiss cited the risk of rival poaching and operational collapse. This contrasts with Perkins Coie\u2019s legal challenge, positioning Skadden as prioritizing survival over principle.<\/p>\n<p>The trigger for Skadden\u2019s talks may tie to Musk\u2019s March 23 X post criticizing its work against Dinesh D\u2019Souza, though its past representation of Musk in the Twitter deal adds complexity.<\/p>\n<p>Implications<\/p>\n<p>Industry Shifts: Trump\u2019s campaign is reshaping Big Law\u2019s landscape. Firms face a choice: negotiate (Skadden, Paul Weiss), fight (Perkins Coie), or stay silent (most others). The article hints at a ripple effect\u2014rival firms poaching talent, as with Paul Weiss, could accelerate if more orders hit, weakening targeted firms\u2019 market positions.<\/p>\n<p>Political Leverage: Musk\u2019s role underscores how Trump allies amplify his influence. Skadden\u2019s dual history with Musk (Twitter) and Mueller\u2019s Ukraine probe makes it a prime target, showing how personal and political grievances intertwine.<\/p>\n<p>Legal Precedent: Perkins Coie\u2019s early court win and Judge Howell\u2019s stance suggest Trump\u2019s orders may face constitutional challenges, potentially limiting their scope. However, Skadden\u2019s talks could reduce the number of test cases if more firms settle.<\/p>\n<p>The article paints Skadden\u2019s discussions as a pivotal moment in Trump\u2019s assault on Big Law, blending strategic retreat with broader threats to legal norms. It\u2019s a compelling snapshot of a profession under siege, caught between political retribution and self-preservation. Yet, its focus on deal-making might overstate Trump\u2019s dominance, given emerging judicial resistance. For Skadden, the stakes are high\u2014negotiating with Trump could save its business but cost its reputation, a dilemma the article captures without fully resolving.<\/p><\/blockquote>\n<p><A HREF=\"https:\/\/www.nytimes.com\/2025\/03\/26\/business\/dealbook\/big-law-trump-onslaught.html\">The New York Times posted Mar. 26, 2025<\/a>:<\/p>\n<blockquote><p>Big Law Splinters Under a Trump Onslaught<\/p>\n<p>The president\u2019s repeated clashes with the nation\u2019s most prestigious law firms has had a destabilizing business effect.<\/p>\n<p>One of the biggest questions has been whether Big Law would band together amid Trump\u2019s barrage. So far, the opposite has happened: Corporate law firms are using Trump\u2019s assault as a competitive opportunity, The Times reports.<\/p>\n<p>As Paul, Weiss was dealing with its own executive order this month, rival firms dove in to try to poach clients and partners.<\/p>\n<p>The firm\u2019s competitors moved in swiftly. Several of Paul, Weiss\u2019s top rivals, including Sullivan &#038; Cromwell and Kirkland &#038; Ellis, tried to poach Paul, Weiss rainmakers within days of Trump issuing an executive order that could have seriously hobbled its business, according to The Times. They took a soft approach with the firm\u2019s leaders, saying that they sympathized with their plight, but that if they wanted out of the turmoil, they could name their price.<\/p>\n<p>The outreach made a bad situation worse. Panic was already roiling through Paul, Weiss over the potentially catastrophic effect of the executive order.<\/p>\n<p>The order restricted the firm\u2019s lawyers from dealing with the government, including entering federal buildings, and said companies doing business with Paul, Weiss could lose their government contracts. Even if the firm successfully fought the order in court, it was feared it would be labeled an enemy of Trump.<\/p>\n<p>The threat of losing the firm\u2019s top lawyers compounded those worries. Some partners were particularly concerned that Scott Barshay, the head of the corporate practice, might leave and prompt others to follow him.<\/p><\/blockquote>\n<p>GianCarlo Canaparo, a Senior Legal Fellow in The Heritage Foundation\u2019s Edwin Meese III Center for Legal and Judicial Studies, <A HREF=\"https:\/\/thedailyeconomy.org\/article\/big-law-firms-face-legal-reckoning-over-race-preferences\/\">writes for The Daily Economy<\/a>:<\/p>\n<blockquote><p>Big Law Firms Face Legal Reckoning Over Race Preferences<\/p>\n<p>Title VII makes it unlawful to discriminate on the basis of race. But many firms\u2019 efforts to \u2018increase diversity\u2019 did exactly that.<\/p>\n<p>It is no secret that many of the nation\u2019s largest and most prestigious law firms went woke. For years, they have publicly championed<a href=\"https:\/\/journals.law.harvard.edu\/jlpp\/ideological-leanings-in-likely-pro-bono-biglaw-amicus-briefs-in-the-united-states-supreme-court-derek-t-muller\/\"> left-wing social causes<\/a>,<a href=\"https:\/\/www.nationalreview.com\/magazine\/2024\/02\/on-paul-d-clements-intolerable-success\/\"> fired conservatives<\/a> for representing conservative clients, and used <a href=\"https:\/\/americanallianceforequalrights.org\/republican-ags-warn-law-firms-on-race-based-hiring-practices-after-supreme-court-ruling-on-colleges\/\">racial preferences<\/a> for applicants and employees.&nbsp;&nbsp;<\/p>\n<p>That last one has gotten them into trouble with the Equal Employment Opportunity Commission, a federal agency tasked with policing employment discrimination.&nbsp;<\/p>\n<p>The Acting Chair of the Commission, Andrea Lucas, has sent letters to twenty firms requesting information about their race-based employment practices. The letters appear to be a prelude to investigations and, depending on how the firms respond, enforcement actions.&nbsp;&nbsp;<\/p>\n<p>The<a href=\"https:\/\/www.eeoc.gov\/sites\/default\/files\/2025-03\/Law_Firm_Letters_-_03.17.2025.pdf\"> letters to the firms<\/a> are titled \u201cReview of [Firm\u2019s] Compliance with Title VII of the Civil Rights Act of 1964,\u201d and reveal shocking practices that top lawyers, like those who staff these firms, should have known were illegal.&nbsp;&nbsp;<\/p>\n<p>For example, about half of the letters suggest that the firms held attorney applicants to different standards depending on their race. It has long been rumored that some of the top law firms required lower GPAs for black and Hispanic applicants than they did for Asian and white students, and would recruit the former from lower-ranked schools than they would the latter. The letters suggest that this rumor was more than speculation.&nbsp;&nbsp;<\/p>\n<p>To prove whether the firms are using different standards for different groups, the letters ask the firms to produce information about their applicants\u2019 race, law school, and GPA. The law firms could refuse to disclose the information, which might raise the inference that they are guilty. Like the good lawyers they are, they will defend their nondisclosure by saying that refusal to provide exculpatory information is not an admission of guilt.&nbsp; Although technically correct, that rule is little help in race discrimination cases, which turn on intent, and the practices documented in these letters are strong evidence that the firms intend to discriminate.&nbsp;<\/p>\n<p>For example, the letters describe the firms\u2019 \u201cdiversity scholarships\u201d and \u201cdiversity internships.\u201d These programs offer priority access to job interviews, pipelines to employment, special stipends or scholarships, or additional pay all given to people because they check a certain identity box \u2014 a plain violation of<a href=\"https:\/\/www.eeoc.gov\/statutes\/title-vii-civil-rights-act-1964\"> Title VII of the Civil Rights Act<\/a>, which forbids employment discrimination.&nbsp;&nbsp;<\/p>\n<p>Some firms, perhaps thinking that they were being clever, outsourced this discrimination to third parties. Kirkland &amp; Ellis, for example, partners with an organization called \u201c<a href=\"https:\/\/www.afroscholars.org\/home-1\/project-one-5dbn8\">Afro Law<\/a>,\u201d which gives \u201cAfro\u201d students a \u201cpipeline\u201d to employment with Kirkland that is denied to applicants of other races. Kirkland and many other firms on the list also partner with<a href=\"https:\/\/www.seo-usa.org\/law\/partners\/\"> Sponsors for Education Opportunity<\/a> (SEO), which despite the less-obvious name, does much the same thing.&nbsp;&nbsp;<\/p>\n<p>As the letters explain, SEO is another fellowship program that partners with law firms to put its fellows on fast-tracks to employment at these firms. It also entitles fellows to extra pay or scholarships, mentoring, and other things that Title VII calls \u201cterms, conditions, or privileges of employment.\u201d Although SEO says its fellowship is open to anyone, the letters document how the fellowship is, in fact, limited to \u201cstudents of color.\u201d Unhelpfully for both SEO and the firms that partner with it, some law schools, like Columbia University, revealed the truth and told students that the fellowship is restricted to, or at best focused on, certain racial groups at the exclusion of others.&nbsp;&nbsp;<\/p>\n<p>Perhaps the lawyers thought that discrimination was permissible if it was outsourced to third parties, but this is delegated discrimination, and it doesn\u2019t fly under Title VII.&nbsp;&nbsp;<\/p>\n<p>The letters also target race- and sex-based staffing quotas. These are demands, usually made by clients, that specific matters are staffed with specific numbers or percentages of lawyers from various race, sex, or gender groups. As<a href=\"https:\/\/www.dailysignal.com\/2021\/10\/29\/how-racial-preferences-pigeonhole-minority-lawyers\/\"> explained elsewhere<\/a>, these programs typically hurt the lawyers they are supposed to help by denying them control over their own careers. Lawyers from the groups on the quota lists are forced to work for clients that maintain such lists whether they want to or not, whereas lawyers who aren\u2019t on the lists remain free to work on whatever they choose.&nbsp;&nbsp;<\/p>\n<p>Then there are \u201cAffinity Groups,\u201d another practice that the firms are not shy about. As the letters explain, these are employee groups organized around race, ethnicity, sex, or other characteristics that Title VII prohibits organizing around. The letters demand to know whether participation in the groups is a factor in getting promoted. But even if it isn\u2019t, the groups are still a special \u201cprivilege of employment,\u201d and therefore prohibited.&nbsp;&nbsp;<\/p>\n<p>The discriminatory practices go on. The letters demand that firms explain their annual reports and plans for increasing \u201cdemographic representation.\u201d They demand that the firms reveal whether they hired or promoted people because they checked an identity box, whether partners\u2019 compensation was tied to \u201crepresentation goals,\u201d and whether the firms paid bigger recruitment bonuses to employees who recruited candidates who checked certain boxes.&nbsp;&nbsp;&nbsp;<\/p>\n<p>Reading through the letters (together, they span 210 pages), one wonders how on earth the most prestigious lawyers with the shiniest credentials our elite universities can offer could have done all this. Title VII <a href=\"https:\/\/fedsoc.org\/commentary\/fedsoc-blog\/understanding-the-liability-risks-posed-by-trump-s-dei-order-1\">is not a new or complicated statute<\/a>, after all. Its core provision says simply that it is unlawful \u201cto discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual\u2019s race, color, religion, sex, or national origin\u201d and to \u201climit, segregate, or classify\u201d individuals in a way which tends to adversely affect their employment. No one needs a law degree from an Ivy League law school to understand it. But perhaps prestigious degrees are precisely the reason that these lawyers misunderstand it.&nbsp;&nbsp;<\/p>\n<p>A degree from those vaunted halls was once a reliable indicator of intellect and good legal judgment. Now, however, it\u2019s a reliable indicator of zealous adherence to a trendy<a href=\"https:\/\/www.goodreads.com\/quotes\/10316292-the-only-remedy-to-racist-discrimination-is-antiracist-discrimination-the\"> ideology that says<\/a> \u201cthe only remedy to past discrimination is present discrimination.\u201d By the dim light of that backward dogma, the law is either a tool of oppression or a plaything to be melded by the <a href=\"https:\/\/dictionary.cambridge.org\/us\/dictionary\/english\/cognoscenti\">cognoscenti<\/a>, but either way, if it commands a benighted outcome, it can be ignored. And so it has been.&nbsp;<\/p>\n<p>Rebels against this ideology who have spent time in these firms will not be surprised by the letters or the practices they detail. In truth, the only surprising thing about the letters is that more firms didn\u2019t get one. When the list went public, heterodox thinkers at other firms reached out to say things like \u201cI\u2019m amazed my firm isn\u2019t on it.\u201d  <\/p>\n<p>To which a twofold response is due: First, save some screenshots and please share them. And second, just wait. We\u2019re two months in; 46 remain.<\/p><\/blockquote>\n<p><A HREF=\"https:\/\/www.newyorker.com\/news\/the-lede\/how-donald-trump-throttled-big-law\">Ruth Marcus writes for The New Yorker Mar. 27, 2025<\/a>:<\/p>\n<blockquote><p>How Donald Trump Throttled Big Law<\/p>\n<p>The President has two goals: to seek revenge and to intimidate lawyers challenging his agenda. Is a top firm\u2019s deal with him a necessary act of survival or a damaging blow to the entire profession?<\/p>\n<p>* The Paul, Weiss deal\u2014and the studied silence of other law firms who have refused to speak out against other recent orders\u2014offers an alarming illustration of how impressively the campaign is succeeding. <\/p>\n<p>* Even before the spate of executive orders, firms were skittish about finding themselves at odds with the new Administration. Now they are terrified, and lining up their own outside counsel. Trump could be coming for them next. On Monday, when the President was asked about his orders against law firms, he made his position clear: firms were to submit to his will. \u201cI just think the law firms have to behave themselves,\u201d he said.<\/p>\n<p>* As the lawsuit proceeds, it is hard to imagine appellate judges\u2014even the Supreme Court\u2019s current conservative super-majority\u2014concluding that the order passes constitutional muster. But it is also difficult to see how Perkins Coie does not emerge grievously damaged. Some clients, new and existing, may be steering business its way in appalled solidarity. Still, clients with issues before the government have to think twice before hiring Perkins Coie. Any corporate general counsel would have a difficult time explaining why retaining Perkins Coie would be in the best interest of shareholders.<\/p>\n<p>* Paul, Weiss presented a juicy target for Trump. Of the major New York firms, its profile was the most decidedly Democratic. <\/p>\n<p>* Even before the spate of executive orders, firms were skittish about finding themselves at odds with the new Administration. Now they are terrified, and lining up their own outside counsel. <\/p>\n<\/blockquote>\n<p><A HREF=\"https:\/\/www.theatlantic.com\/politics\/archive\/2025\/03\/united-states-trump-fear\/682159\/?utm_source=apple_news\">Isaac Stanley-Becker writes in The Atlantic Mar. 24<\/a>:<\/p>\n<blockquote><p>The United States of Fear<\/p>\n<p>For anyone who\u2019s in the president\u2019s crosshairs\u2014or who could be\u2014it\u2019s the dominant emotion of Trump\u2019s second term.<\/p>\n<p>&#8230;Meanwhile, firms are taking steps to protect themselves. One Washington firm hired a vendor to scan right-wing message boards for threats that might bubble up to the White House and occasion an attack from the president. The firm also modified its document-retention policy in preparation for possible government probes.<\/p><\/blockquote>\n<p><A HREF=\"https:\/\/www.wsj.com\/opinion\/why-paul-weiss-struck-a-deal-with-trump-law-firm-business-model-35bf7978\">Yale law professor John Morley writes for the WSJ<\/a>: <\/p>\n<blockquote><p>Paul Weiss and other law firms, unlike most businesses, are owned by their workers\u2014that is, the partners who practice there. As owners, the partners are paid not in salaries, but in shares of the profits. They also can leave and take their clients with them.<\/p>\n<p>This exposes a law firm to the risk of a cascading spiral of partner withdrawals akin to a run on a bank. If one partner leaves and takes his clients with him, the firm will lose revenue\u2014and be stuck with many of the office leases, staff salaries and other expenses that it had before. The result will be a decline in profits, which in turn will mean a decline in pay for the partners who remain.<\/p>\n<p>Once their pay goes down, some of these partners may decide to leave the firm. Their departures may damage the firm even further, pushing more partners to leave, and so on. Worse still is that, by virtue of their status as owners of the firm, the partners face unusual forms of liability that reward them for leaving early and punish them for leaving late. A partner who stays too long at a firm in distress can lose his past and even future pay to creditors of the firm in bankruptcy. A partner who gets out earlier avoids these risks.<\/p>\n<p>&#8230;transactional lawyers can switch firms more easily than litigators can. And they depend more heavily on good relations with the government. As a result, Paul Weiss is more exposed to pressure from the government than Perkins Coie, one of Mr. Trump\u2019s other targets, and Williams &#038; Connolly, which is defending Perkins Coie. Perkins Coie has fewer of its partners devoted to transactional work than Paul Weiss. Williams &#038; Connolly does only litigation, with a specialty in defending against the government. These firms have thus already hardened their businesses to withstand conflict with the government in a way that Paul Weiss never could.<\/p>\n<p>The overall lesson is that Mr. Trump\u2019s attacks on law firms are even more powerful than they seem.<\/p><\/blockquote>\n<p><a href=\"https:\/\/lukeford.net\/blog\/wp-content\/uploads\/2025\/03\/ssrn-2580616.pdf\">John Morley last revised this paper Jan. 21, 2020<\/a>: <\/p>\n<blockquote><p>Law firms don\u2019t just go bankrupt\u2014they collapse. Like Dewey &#038; LeBoeuf, Heller Ehrman, and Bingham McCutchen, law firms often go from apparent health to liquidation in a matter of months or even days. Almost no large law firm has ever managed to reorganize its debts in bankruptcy and survive. This pattern is puzzling because it has no parallel among ordinary businesses. Many businesses go through long periods of financial distress and many even file for bankruptcy. But almost none collapse with the extraordinary force and finality of law firms. Why?<\/p>\n<p>I argue that law firms are fragile in part because they are owned by their partners rather than by investors. Partner ownership creates the conditions for a spiraling cycle of withdrawals that resembles a run on the bank. As the owners of the business, the partners of a law firm are the ones who suffer declines in profits and who have to disgorge their compensation in the event the firm becomes insolvent. So if one partner leaves and damages the firm, it is the remaining partners who bear the loss. Each partner\u2019s departure thus has the potential to worsen conditions for those who remain, meaning that as each partner departs, the others become more likely to leave as well, eventually producing an accelerating race for the exits. This kind of spiraling withdrawal is sometimes thought to be an unavoidable consequence of financial distress. But if law firms were not owned by their partners, spiraling withdrawals would not happen. Indeed, the only large law firm in the history of the common law world that has ever survived a prolonged insolvency (the British and Australian law firm Slater and Gordon) is also one of the only large law firms that has ever been owned by investors. These insights have extensive implications for how we understand law firms and corporate organization more generally.<\/p>\n<p>&#8230;By undermining the formal bonds of money and creating powerful financial incentives to withdraw in times of decline, partner ownership forces firms to rely on informal forces like friendship and loyalty to hold themselves together. Partner ownership cuts the metal nails of contract and replaces them with leather cords of loyalty. Law firms are thus uniquely reliant on informal forms of bonding capital in place of more formal forms of financial capital. The trouble is that if the leather cords of friendship and loyalty cease to bind\u2014if all partners care about is money\u2014then partner ownership has a hard time creating financial incentives that can hold a law firm together.<\/p>\n<p>&#8230;In the same way that the fear of bank runs\u2014which are also uncommon\u2014shapes every aspect of the banking industry, the fear of partner runs may very well shape many aspects of large law firm management.<\/p>\n<p>&#8230;It is often said that law firms collapse because their assets go down the elevator every night. But this does not tell us why the assets fail to come back up. The explanation is not obvious because there are few analogues in regular industry. The employees of ordinary industrial companies can also leave at any time, yet they almost never leave with the speed and finality of law firm partners.<\/p>\n<p>&#8230;The partners\u2019 status as residual risk-bearers is important because it intensifies the partners\u2019 sensitivity to declines in profits and thus to other partners\u2019 departures.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>After Donald Trump&#8217;s disgraceful denial of the 2020 election results, I lost all enthusiasm for him. Until he was indicted in New York on spurious grounds. Paul Rosenzweig writes for the Atlantic: The Pathetic, Cowardly Collapse of Big Law &#8230;Trump &hellip; <a href=\"https:\/\/lukeford.net\/blog\/?p=160359\">Continue reading <span class=\"meta-nav\">&rarr;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[551],"tags":[],"class_list":["post-160359","post","type-post","status-publish","format-standard","hentry","category-law"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/lukeford.net\/blog\/index.php?rest_route=\/wp\/v2\/posts\/160359","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lukeford.net\/blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lukeford.net\/blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lukeford.net\/blog\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lukeford.net\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=160359"}],"version-history":[{"count":23,"href":"https:\/\/lukeford.net\/blog\/index.php?rest_route=\/wp\/v2\/posts\/160359\/revisions"}],"predecessor-version":[{"id":160396,"href":"https:\/\/lukeford.net\/blog\/index.php?rest_route=\/wp\/v2\/posts\/160359\/revisions\/160396"}],"wp:attachment":[{"href":"https:\/\/lukeford.net\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=160359"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lukeford.net\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=160359"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lukeford.net\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=160359"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}