“While it is quite uncertain whether any amount of permissible inquiry by lateral partners would have predicted the business failures of [Dewey & LeBoeuf or other recently dissolved firms], the occurrence of the dissolutions should, nonetheless, cause a partner who is currently or in the future considering joining a law firm to pause and objectively assess the stability of the firm he is considering with the hope of avoiding a dissolution and its impact on their career, clients, and personal finances.”
Attorney Arthur Ciampi has written a timely piece in the New York Law Journal on the need to perform appropriate due diligence on a law firm before making a lateral move. He outlines three basic steps:
1. Tap into your network to gather anecdotal evidence on the firm from current and former partners – and ask some pointed questions (which he supplies) about how the firm handles compensation and debt.
2. Request and review the firm’s partnership agreement or operating agreement for three basic contractual provisions that should be included.
3. Analyze 3-5 years of financial performance including balance sheet data and ‘off balance sheet’ liabilities.
In the past such inquiries have been rare, and even considered “insulting to the prospective firm” according to Ciampi. But times have changed, and what was once unheard of is now simply prudent.