Dewey’s Downfall.

In his 2013 New Yorker Article on Dewey & Leboeuf’s downfall, James Stewart details how Ralph Ferrara expanded the firm’s reach into securities litigation. Ferrara negotiated a $16 Million signing bonus and a guaranteed $1.6 Million salary. Luckily, Ferrara brought in $40 Million for a single case in his first year. Successful strategy. Right?

Should the firm have continued the Ferrara model with more lateral partners, more signing bonuses and more guaranteed salaries? Firm leadership’s answer was yes, and Stewart claims it led Dewey to bleed itself to death. Kahneman’s method may have saved his firm from making a decision based on, so Stewart’s article says, mostly emotion rather than calibrated, methodical use of Systems 1 and 2.

Which System?

Is this a question that calls for quantitative or qualitative data? For emotion or numeric data? In short, it’s both. It’s easy to assume that only quantitative data is helpful for questions invoking the global economy, but intuition and emotion can still be quite helpful for questions like whether Ferrara will promote, or inhibit, the Dewey culture?

In essence, this question is multiple decisions rolled into one. On a partner’s cultural fit, Kahneman would say it’s fine to use System 1’s emotional expertise (as Dewey’s leadership did). For decisions on signing bonuses and guaranteed salaries, however, System 2’s objectivity and quantitative magic was needed. How much work did the firm expect to have from the clients offered by new incoming partners? What was the economic outlook (for a hint, google “Lehman Brothers”)?

Some Conclusions.

First, it’s a compound question. While hiring seems straightforward, implementing a growth policy is never a single decision. Break it down.

Second, do your homework. Once you identify the sub-parts of a decision, investigate appropriately. For questions on emotion, like cultural fit, target emotional data (thorough employee surveys, psychological analysis, all the greatest hits). Where numbers form the question mark, however, look to the quantitative wizardry found at your friendly neighborhood economist’s office (Or the Case-Shiller Housing Index indicating a loss of over half of American real estate value. Either one.).


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