The Economist has a major article about the intentions of the Big Four accounting firms in the legal market, entitled Professional services: Attack of the bean-counters.
It’s worth a read. Here are some key takeaways:
Size and scale are the Big Four’s major assets—The largest of the Big Four firms, Deloitte, has more than 13-times the revenue of the largest global law firms, such as Baker & Mackenzie, DLA Piper, Latham, etc. The Big Four together have more revenue ($120 billion) than all the AmLaw 100 firms combined ($89 billion). Because the accounting/auditing industry is more concentrated, each serves many more corporate clients than any law firm ever could, and their clients are well positioned, in key leadership functions: finance, tax, audit, strategy, and even the C-Suite.
Pickle in the Middle—The most vulnerable business is not the high-end M&A and litigation work, nor the low-end stuff handled by many smaller firms. The real target is the standardized (and standardiz-able), process-oriented work: “The accountants insist that they do not want to compete with law firms, and that legal services will remain a small chunk of their revenues in the medium term. So far, they have focused on mid-tier, process-oriented work rather than the big deals and lawsuits that elite law firms chase” That positioning puts the Big Four in the same space occupied by the new alternative legal industry players such as Axiom, whose $73 million deal with a major bank, doing precisely this kind of large-scale work, has attracted a bit of attention.
The U.S. can be complacent… so far—The Economist article, after first declaring doom and gloom, goes on to say that the largest legal market, the U.S., can relax a bit because its regulatory structure prohibits non-lawyers from practicing law or owning law practices. “Those in America can afford to be complacent: the accountants’ lobbyists are too busy advancing the interests of their existing businesses to push for an opening of the legal profession. Even if they tried, America’s legislative bodies are infested with lawyers, who would surely fight back.”
The most vulnerable business is not the high-end M&A and litigation work, nor the low-end stuff handled by many smaller firms. The real target is the standardized (and standardiz-able), process-oriented work…
Indeed, the biggest push has been outside the U.S. to date. But there are many observers who think that the moat that the U.S. legal industry has built around itself isn’t impenetrable, and that corporations with real money will begin voting with their dollars for a new regime.
Capital and technology to scale—What’s all that money good for? “Only the likes of PwC and Deloitte can muster the capital and technology (and relatively cheap labour) to industrialise the artisanal model of legal practice that has endured so long. Businesses that spend heavily on legal advice stand to save a fortune. But law firms that are sub-scale and inefficient risk ruin.” That’s the big problem in a nutshell—once the remaining barriers are down, the law firms may be forced to engage in a battle to preserve that middle-level, process work—but they will be hopelessly under-resourced to do it, and whether they have the management chops to make the transition is a big question.
The large law firms that we know today are not going away—that high-stakes litigation and M&A work and other bet-the-company advisory work will still be in good supply for the large global law firms. But the Big Four accounting firms are likely to become an important component of the growing array of legal services providers that are anything but traditional law firms in their approach and their resources.