Law Firm Recipe for Disaster: High Debt, Low Productivity, Weak Leaders

A legal consulting firm’s analysis of law firm failures suggests that “poor financial hygiene,” including high debt and low productivity, are danger signs of a possible failure.

Other problems are weak leadership and an unrealistic or nonexistent long-term strategy, according to the report by Hildebrandt International. The consulting firm urges law firms to diagnose and tackle problems early to prevent them from deteriorating into full-blown dissolutions, according to a summary of the report in the National Law Journal.

Hildebrandt analyzed why more than 80 law firms failed, and found that the problems often snowballed after events such as partner defections, failed mergers or overexpansion. Outside events—such as the recent Wall Street meltdown—can also expose and worsen existing problems.

The report (PDF) concludes that Heller Ehrman and Thelen probably won’t be the only law firms to fail. "Recognizing that the legal market is continuing to segment, we expect that we will continue to see a steady number of both mergers and dissolutions, even after the recovery from the current economic downturn," it said.

Updated at 12:32 p.m. to include a link to the report.