The Dewey collapse is a fairly typical story of greed, too much leverage, and borrowing against uncertain future earnings destroying a company. Its also a great example of cargo cult thinking. Law firms see their clients merging and think: we need to get bigger too. Thus, there has been a huge trend in law firm mergers the last couple of decades. Yet, law firms as businesses bear almost no resemblance to the sort of traditional companies that benefit from mergers. There's very little economics of scale in a law firm. They have little to no physical capital, and almost all their value is wrapped up in their people, who are only there as long as it suits them.[1] And legal ethics rules penalize larger firms, because they impute conflicts of interest for every lawyer onto the whole firm.
The only value to merging beyond a certain size,[2] is for the managers and administrators, who can use the mergers as an opportunity to funnel more profits up to themselves. At Dewey, Di Carmine and the CFO, two non-lawyer administrators, were making over $2 million per year. They also had golden parachutes and clauses saying they could only be fired if they committed crimes. Their justification for all that was of course the role they played in the merger. Its notable that at lockstep firms, where partner pay is based strictly on seniority, and there is not a huge incentive for partners who take on managerial roles, merger mania has not taken hold.
The collapse is also a wonderful example of how intelligent people can make dumb decisions based on the narratives they create for themselves. Prior to the merger, LeBouef & Lamb was financially sound, while Dewey Ballantine was facing declining revenues. The folks pushing the merger, Davis and the consultants, painted this narrative of LeBouef merging its way into a prestigious brand, and Dewey shoring itself up with a profitable marriage-partner. Of course in hindsight the narrative was ridiculous. The pedigree of the brand wasn't particularly valuable in the end, and LeBouef was not large enough to successfully absorb an ailing firm that was almost as large as itself.
[1] Law firms face a more extreme version of the "talent exodus" problem that plagues tech companies. At a firm, almost all of the value of the business is wrapped up in the partners. If they leave, they take their billings with them and your bottom line is in trouble overnight. The top partners might want to stick with the firm through a rough patch, but they have an enormous game-theoretic incentive to jump ship because if the firm does implode, the folks that don't leave will be left holding the bag.
[2] Practice areas ebb and flow, so you need enough lawyers to support diversified counter-cyclical practices and to be able to cross sell clients internally. The point of diminishing returns for that are probably a quarter of the size Dewey ended up after the merger.