When I graduated from law school in the 1970s, Dewey, Ballantine, Bushby, Palmer & Wood rolled off the tongue in the same company as Sullivan & Cromwell, Davis Polk & Wardwell, and Cravath, Swaine & Moore, venerable New York firms whose place at the pinnacle of the law profession seemed unassailable. For a young lawyer, a job at any of them was the first step to the golden ring of partnership and, with it, lifetime tenure, prestige and affluence.


Maybe that’s why the seemingly inevitable collapse of a firm like Dewey, since renamed Dewey & LeBoeuf as a result of a 2007 merger, has so rocked the legal profession. Dewey is hardly the first major law firm to fail. Recent years have seen the demise of once-respected names like Howrey & Simon; Coudert Brothers; Brobeck, Phleger & Harrison; and Heller Ehrman. But none had the pedigree of Dewey, named for the former New York governor and presidential candidate Thomas E. Dewey.


As the dire plight of Dewey & LeBoeuf worsened this week, a partner, Stuart Saft, the head of the firm’s global real estate practice, decamped to Holland & Knight. “Apart from the last six weeks,” he told me, his time at Dewey represents “the best five years of my professional career. We worked on the largest and most complicated and interesting deals in the world. That’s what practicing law is all about, not the size of your paycheck. Maybe the business model wasn’t the best. But as lawyers we did fabulous work.” Dewey’s collapse “is as crazy as Arthur Andersen going under,” he added. “It’s a loss. We became a media sensation, and now a great firm is disappearing.”


The circumstances at Dewey may turn out to be extreme. But the firm’s messy decline lays bare the harsh realities of today’s law practice, and shatters the perception, still held by many members of the bar, that however transformed in recent decades by the realities of the market, law is at heart still a guild, a brotherhood (and increasingly a sisterhood) — in short, a profession more than a business.


As dispatches from my Times colleague Peter Lattman have made abundantly clear, Dewey collapsed under the weight of a toxic combination of high leverage, lavish financial guarantees to many partners and faltering revenue. This makes it, in many ways, the Lehman Brothers of the legal profession, although perhaps that’s unfair to Lehman Brothers. Though highly leveraged, Lehman Brothers had enormous assets on its balance sheet — while Dewey, like law firms generally, had scant tangible assets. Nonetheless, that didn’t stop the firm from heavy borrowing of about $225 million, both by issuing bonds and by drawing on a large line of credit.


“This absolutely falls into the category: What were they thinking?” Bruce MacEwen, a lawyer and president of Adam Smith Esq. and an expert on law firm economics, told me this week, as Dewey suffered a new wave of partner defections and the firm’s accelerating collapse appeared unstoppable. “This was Mismanagement 101 across the board. They had a ringside seat for the collapse of Lehman and Bear Stearns. But they had the same mismatch of assets and liabilities. They took on a massive amount of long-term debt, but their assets are short term: they walk out of the firm every day and may not come back, which is what more and more of them did.”


It’s not yet clear how the firm used the debt proceeds. Partners say most of the debt predated the merger with LeBoeuf, and was a rational and cost-effective way to try to manage existing debt. Still, it seems likely at least some of it went to meet the extensive guarantees the firm made to individual partners, some reaching millions of dollars and apparently extending over many years.


Other lawyers and management consultants have been shocked by the size and duration of the guarantees that appear to have prevailed at Dewey. “The guarantees were extremely corrosive culturally because they were divorced from individual or firm performance, which shatters the whole notion of a partnership,” Mr. MacEwen said. “And they were promiscuously awarded.” Although such guarantees have been spreading throughout the profession, the magnitude of those at Dewey “is unheard-of,” said Thomas S. Clay, a principal at Altman Weil law firm consultants. “We recommend only one to two years for a guarantee. And those usually also have some performance component.”