PwC’s goals for its new law firm, opened in September 2017 in Washington, D.C., are seemingly modest. The firm, called PwC ILC Legal, will offer international legal advice to US companies with a footprint overseas. So far, the firm has four lawyers, authorized by the District of Columbia to practice non-US law as special legal consultants. When asked what the potential of the new firm could be, Richard Edmundson, the managing partner of ILC Legal, demurs. “We’ll see how the market reacts,” he says, allowing only that so far, reaction has been “positive.”
But ILC Legal’s narrow remit doesn’t mean that law firms can afford to ignore it, says Janet Stanton, a partner at Adam Smith, Esq., a strategic consulting firm that works only with law firms. “When it comes to legal services, the Big Four are a tsunami coming to our shores,” she says.
Already, PwC has about 3,200 lawyers in its global legal services network, located in more than 90 territories, says Edmundson. That makes PwC the largest legal player of the Big Four, at least by head count. Combined, the Big Four have about 8,500 lawyers working in their legal services divisions, which regularly see double-digit revenue growth. Big Law firms, by contrast, are showing flat to declining demand for their services. A September 2017 study from ALM Intelligence warns that within 10 years, the Big Four could become the largest players in the legal industry. “They’ll start with the commodity work, like any new entrant in any new market has ever done, and they will move up the food chain,” says Stanton.
There is evidence that this is already happening. Some 38 percent of law firm leaders say accounting firms are “best positioned” to win work of “low to moderate” value, according to the ALM survey. But some 62 percent of law firm leaders found those same accounting firms “best positioned” to win work of “moderate to high” value. Within that category is the so-called “bet the company” work – the work for which a client will always want a high-prestige law firm. Stanton says the amount of such bet-the-company work is smaller than most attorneys want to admit, and shrinking. “Everyone says, ‘We handle bet-the-company cases,’” says Stephen Poor, chairman emeritus of Seyfarth Shaw. “A general counsel (GC) told me if she had bet-the-company cases every year, she’d be fired. Her goal is to make sure there aren’t any bet-the-company cases.”
A New Approach to Law
Edmundson says that ILC Legal will provide legal services as part of a multidisciplinary approach. “There is a demand for that multidisciplinary approach, with legal being provided alongside other services,” he says. “Tax and legal go well together. Projects don’t just require legal.” It’s easy to see other services, such as valuation and due diligence, being combined with legal services and sold as a bundle, says Jeffrey Lipshaw, a professor at Suffolk University Law School.
… there’s great value in having someone who understands “at least on a high level, the various machinations and nuances of laws in multiple countries and has the ability to interpret them.”
If Edmundson is correct that clients prefer to buy at least some professional services bundled together, law firms could find it difficult to compete. Lipshaw notes that any sort of cross-disciplinary approach – even within law – can be difficult for big firms. “The accounting firms have got 20-30 years’ experience on the law firms in bundling up and pricing services,” he says.
When he was a GC, Lipshaw says, he might offer to give one firm all his mergers and acquisitions work if they’d give him a discount on the ERISA work. That mostly served to inflame the ERISA partners. Relationships with the accounting firms, he says, tend to be much more institutional, partly because US regulations require partner rotation on auditing accounts (in the EU, the firms themselves must rotate). That experience, says Lipshaw, should help the Big Four build relationships that are more conducive to bundling and flexibility in pricing.
Edmundson also notes that for international projects, time zones are important. Here again, he expects PwC’s global footprint to be an advantage. “If you’ve got a client in the US doing a project in Europe or Asia or Australia, having someone that can manage the advisors’ input in all those zones in a coordinated and timely manner is very important,” says Edmundson.
Poor thinks the advantages go well beyond that. Legal systems, norms and mores vary greatly by country, he says, so someone doing a deal in Poland has very different concerns than someone doing a deal in Italy. Given that, there’s great value in having someone who understands “at least on a high level, the various machinations and nuances of laws in multiple countries and has the ability to interpret them,” says Poor. “I think that’s a real advantage. We’ve seen that work for us. So I see no reason it wouldn’t work for the Big Four.”
The other thing the Big Four stand to offer their corporate clients, says Stanton, is operational excellence. “It’s all about looking for efficiencies and saving time,” she says. “Traditionally, law firms have not done that. Increasingly, GCs want that.”
The larger risk to Big Law firms, then, is not merely that PwC ILC Legal, or the legal services businesses of any of the Big Four, simply encroach on market share. It’s that, with their greater ability and willingness to invest in new technology and business models, the Big Four will change the way legal services are delivered, undermining the Large Law firms. In January 2017, PwC hired about 600 attorneys who were formerly employed by GE. “Clearly, this reflects a decision by PwC that they can enter the market in a more effective way than GE was able to do it,” says Poor. More recently, Deloitte teamed up with Allen & Overy to debut MarginMatrix, a largely automated system that promises to slash the number of lawyer hours needed to help banks comply with new regulations. It doesn’t all go swimmingly, of course: Deloitte Canada formed a new legal entity with Conduit Law, a provider of outsourced attorneys, only to return Conduit to independence 18 months later.
All this helps the Big Four get up the legal learning curve. GCs are very aware of how legal services are delivered and are actively thinking about how they want to assemble their supply chain, notes Poor. By partnering with law firms, technology firms, professional services firms, and yes, by opening up law offices in the US, the Big Four are learning what clients want, how to deliver it and how much clients will pay. For now, of course, ABA rules shield US lawyers from competition in the practice of US law. But there’s no telling how long those laws will stand. “One state court could let it go,” says Stanton.
“The US is half the global legal market,” says Stanton. “When the Big Four are finally able to practice law here, they’ll hit the ground running.”