Steven Davis was about to turn his Manhattan law firm into a powerhouse. Then a recession hit, the company collapsed in a high-profile fireball, and Davis gave up his attorney’s license while facing criminal charges.
A decade after the meteoric fall of Dewey & Leboeuf, the former president of the mega firm wants to tell his side of the story.
“I feel a huge sense, really, that I owe all these people an apology,” Davis said in an interview, his first time on camera to discuss the company’s downfall. “At the end of the day, it was my responsibility. I have to accept it and I have to live with it.”
But Davis pushed back against the narrative of the company’s demise that emerged in the years that followed: It was the product of a corporate merger that overpaid star rainmakers even in the face of mounting financial problems.
“A lot of people have pointed out these [compensation] agreements and said, “That’s why the business fell apart,” Davis told Bloomberg Law for the short documentary “Steven Davis and the Rise and Fall of Dewey & LeBoeuf.” ” I do not believe that. I think the concept is actually what has held the company together. It was when people became concerned about whether these agreements would be honored that the company fell apart.
Davis was among a group of Dewey executives facing criminal charges after the company went bankrupt in 2012, accused of falsifying financial information. He agreed to temporarily waive his attorney’s license to avoid being sued a second time after the case ended in a mistrial.
He now lives in London, where he works as a litigation funding consultant, and he has no plans to practice law again. Yet Davis will always be associated with Dewey, a 1,000-lawyer firm that once ranked among the nation’s 25 largest and whose collapse is now seen as a cautionary tale.
No ‘loyalty’, no ‘glue’
Davis led the 2007 combination of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, with ambitions for the New York-based company to rival big players like Skadden and Cleary Gottlieb. He was inspired by the 1980s merger that formed the British company “Magic Circle” Clifford Chance.
Davis said a pre-merger report from consulting firm McKinsey & Co. supported his view, finding the two companies compatible on billing rates and recruitment. The consultants also noted that the pair had relatively few conflicts with clients, limiting the negative impact of the merger, according to Davis.
The Great Recession collapsed less than a year later. The financial crisis halted work in a number of areas and halted Dewey’s rise in its tracks.
Dewey’s lack of an established culture at the still-newly-merged company made it particularly vulnerable in an environment of declining revenue and cost-cutting, Davis said.
“We hadn’t built that loyalty and that glue into the organization to keep people together to see their way through the tough times,” he said.
Much of the blame has been targeted at Dewey’s strategy of attracting high-powered partners with big compensation packages – a feature that added more challenges as the company sought to tighten its belt.
Davis said the company’s deals with rainmakers mostly involved “target compensation agreements,” rather than guaranteed money. But he felt compelled to deliver on the targets, even in the face of mounting profit concerns, given the volume of business these attorneys were bringing in.
“Five percent of the partners produced almost 50% of the revenue and that group of 5% we couldn’t lose,” he said.
“Now, looking back, people might attack that and say, you know, that wasn’t fair,” Davis continued. “Everyone should have been treated the same. But we felt that as a brand new company, we didn’t have that luxury.
A wave of partner defections ensued, largely stemming from growing fears about the company’s ability to meet its financial commitments. Davis acknowledged that the partners’ salary dynamics have also created “hostility” within the firm about the haves and have-nots, and that lawyers are headed for the exit as salary concerns mount.
Dewey filed for bankruptcy in May 2012, just five years after the merger that created the company, with debt of $245 million and assets of $193 million. Davis was removed from his leadership role a month prior after word spread that a criminal investigation was underway.
Davis and former Dewey executives Joel Sanders and Stephen DiCarmine were later charged with more than 100 criminal counts stemming from an alleged scheme to deceive lenders.
Several former high-profile Dewey partners declined interview requests.
At a trial in 2015, a jury deadlocked on fraud and theft charges against the three executives and cleared them of falsifying business records. Sanders was the only convicted, for separate crimes of fraud and conspiracy, but he avoided jail time.
Davis called the lawsuits “totally inappropriate and unnecessary” and said the resulting reputational damage was “frankly irreparable”.
“I think in its brief existence the company has done some good things,” Davis said. “But it is a reality that all of that disappeared in the chaos and turmoil that resulted from the bankruptcy.”
Josh Block and Andrew Satter contributed to this report.