For anyone who writes, the best of times are when events surge at a pace and scale that dwarfs what our brains and our lives can assimilate. We are obviously at one of those times, when truth is stranger, more outrageous, more entertaining, and more frightening than fiction. The military surge in Iraq cannot match the financial, political, and cultural "surge" at home in the United States.
I have taken notes on topics about which I might appropriately comment without running too far afield of the scope of my business. And the list is too long to recount. So I have organized these topics into categories. There is Finance, Law, Politics, and Regulation, of course. There is also Business (my business, your business, everyone's business), Technology, and Culture. There is Main Street and Wall Street, single-home mortgages and global credit markets, investment banking and hedge funds, small-town banks and massive bank holding companies. And then there is the practice of law and the research of law, both of which are intertwined and neither of which will emerge from this plunge into chaos without forever being transformed.
All deserve comment.
Let me start with a simple narrative that captures the wholeness of our present dilemma - that no facet of our current troubles can easily be separated from the central problem we face as a nation: that we are grappling with how to manage our parochial affairs in a world of integrated and impersonal markets, technologies, and environmental forces that now constantly threaten to chew us up like Chaplin's Little Tramp in Modern Times. The lessons of the Bush Administration and the McCain campaign are that, ostrich-like, we continue to bury our heads in the sand and pretend that we still reside within the American Century. Denial is a powerful drug.
On Friday, the venerable San Francisco law firm Heller Ehrman announced its formal dissolution, ending a history that commenced in 1890, spanning 3 centuries and 128 years. While the Heller website remains strangely and blithely mute on this act of self-immolation - indeed, the firm keeps churning out law firm memos as if it had nary a care in the world - the sudden collapse of this major law firm has much to teach us about the times in which we live.
The short version of the story is that Heller dispersed all of its profits at the end of each year to avoid double taxation of its income. As a result, the firm depended heavily on the credit markets to fund its growing global operations (with offices in Beijing, Shanghai, Hong Kong, Singapore, and London) throughout much of each year, until cash flow surpassed costs toward the end of that year. In 2007, the firm settled major litigation cases and lost other cases to competing firms. With the subsequent sharp decline in revenue, partners began heading for the exits. The banks tightened up on credit lines at a time when Heller most needed to rely on debt financing to cover its costs. With a partner base too slender to support its fixed costs, the firm quickly collapsed.
Knowledge Mosaic worked closely with Heller Ehrman. The firm initially spurned our efforts to sell our products to them - we were young, with no established brand and immature products. But we persisted in developing good relationships with the Heller librarians, all of whom we very much liked and respected. In the past year, we finally succeeded in displacing a major competitor in the Heller library. It was a grand moment for us - a testament to our progress as a business and to the changing dynamics of the market for legal information. As a lower-cost provider, however, our success in selling to Heller may also have intimated at the downturn in the firm's financial fortunes.
The sudden demise of Heller may partly be a product of internal business and financial choices that raised the firm's risk profile. It could not survive a revenue downturn at the same time that credit markets tightened. The fecklessness of partners may also have played a role in the firm's collapse. A storied, traditional firm trying to reinvent as a high-powered global firm, it hired partners motivated more by money than loyalty, and when they left Heller essentially found itself hoisted on its own petard.
Life is not a morality play. Heller's rise and fall is not a parable. But the legal profession is also not sitting out the dance with the Devil our policymakers and financial institutions are currently engaging in. There will be many more stories of collapse that resemble Heller Ehrman's before the rubble finally clears and the reconstruction can begin.