This fall marks the 25th anniversary of the death of Finley, Kumble, Wagner, Underberg, Manley, Myerson & Casey. In the mid-1980s, the 19-year-old firm was the fourth-largest in the country by head count, with 19 offices and 1,600 lawyers and support staff. But for many Big Law lawyers over 50, the words “Finley Kumble” are shorthand for poaching talent, paying rainmakers lavishly, and piling on bank debt. Last spring, as Dewey & LeBoeuf went into a death spiral, comparisons to Finley were widespread.
I spent time this summer researching Dewey’s doppelganger and talking to current Am Law 200 leaders about the lessons they took away from Finley Kumble.
Many of them have learned from the firm’s most serious blunders. The American Lawyer‘s founder, Steven Brill, wrote at length about Finley Kumble’s shell game with its account receivables ["Bye, Bye, Finley, Kumble" PDF]. (To record its account receivables as cash, the firm “sold” the receivables to a dummy corporation. In turn the firm loaned the corporation the money to buy the receivables.) That’s shocking, but to my knowledge, that particular practice went to the grave with Finley.
Some firms have taken pains to avoid the notorious firm’s other missteps. K&L Gates, for example, has an unofficial “Finley Kumble line” on its balance sheet. Technically, it’s K&L Gates’s “net income minus its partner advances,” so the firm is able to see how partner draws and firm profits intersect—one is not looked at in isolation from the other. Once that line goes positive during the firm’s fiscal year, partner draws increase significantly. K&L’s global managing partner, Peter Kalis, says he started using the phrase “Finley Kumble line” to illustrate “how pernicious it is to consume money” that a firm has not yet earned.
Still, some of Finley Kumble’s other questionable strategies—raiding firms for talent, paying rainmakers significantly above market, larding up debt—have become common practices in the last 25 years.
Opportunistic hires. Last year was a record for lateral hiring at The Am Law 200 [The Lateral Report, February]. Blame Finley Kumble, in part, for kick-starting this trend. The firm sought out rainmakers around the country who wanted to be paid even more for their books of business. At the time, many firms chided Finley Kumble for this ungentlemanly behavior, but as we know, wooing talent is now an industry norm.
Whopping spreads in partner pay. In the eighties the partner pay spread at Finley was as high as 10:1. At the fat end of the ratio, Finley had three dozen “counsel”—some of whom were paid exorbitantly. These lawyers were major rainmakers for the firm, but did little to no legal work.
Ironically, Finley’s spread in partner pay was prescient. This spring we looked at the spreads in partner pay (including nonequity partners) for 70 Am Law 200 firms ["Mind the Gap," May]. In 2006 the average was 9.4:1. Last year it was 10.6:1. (Five firms reported ratios of 20:1 or higher for 2011.)
In 1984 Finley name partner Marshall Manley told this magazine, “Come back in a few years and see if this system isn’t working. If it doesn’t work . . . we’ll all be gone.” He was only half right about that.