Introduction – there is a new competition in town…
The global market for legal services has become increasingly competitive during past years. Law firms are facing stiff competition from, not only each other but also from other industries, the major one of them – is the accounting industry.
‘The Big Four,’ which consists of the world’s largest accounting and consultant companies (Deloitte, KPMG, EY, and PwC), have globally emerged into the legal profession. They are acquiring the necessary resources that will allow them to occupy a space traditionally held exclusively by law firms. There are mixed opinions about this development, however, what is agreed upon, is that a new, dynamic legal market is emerging. It is clear that law firms cannot survive by purely relying on the status quo – which does not exist these days. Law firms need to alter their business plans and offer other unique services. It is not enough to stay complacent in this new legal world.
The 1990s – and withdraw from legal services
In order to understand the current day climate, it is important to look at the root of this advancement. In the 1990s, several accounting firms, known then as the ‘Big Five’ attempted to enter the legal profession. They expanded their operations from purely auditing services, into legal networks and facilities.
However, when Arthur Anderson (one of the ‘Big Five’) was indicted for obstructing justice, this bubble popped. New regulations such as the Sarbanes-Oxley Act where implemented, which banned accounting firms from offering non-auditing services to their clients. Consequently, the Big 4 retreated from the legal profession, or… so we thought.
Fast-forward to current events; regulations have changed and the market has globalized. The ‘Big Four’ have created a burgeoning market for legal services combined with non-legal services, and have resurged in the legal field. EY recently purchased Riverview, a UK law firm (link), and PwC announced a coalition with Fragomen, a US law firm.
These are clear indicators that the Big Four have expanded into the legal sector and have not dissolved all their legal operations and connections. The Big Four are no longer solely auditing firms; rather global conglomerates offering a multitude of services.
There are different statutory regulations in certain countries, which restrict the practice of legal services by non-legal professionals. This is apparent in the United States, Israel, India, and Portugal. In these places, professional businesses are limited in the services they are permitted to provide. There are also countries which have passed laws that limit auditing firms from providing certain legal services, such as; Canada, South Africa and Turkey – this is in order to restrict conflicts of interest.
In the United States, there are two main hurdles auditing firms would need to overcome. The first is the Sarbanes-Oxley Act, as well as, a restriction from within the industry itself; the ABA Model Rules of Professional Conduct. This forms the foundation of the ethics rules in almost all jurisdictions in the United States. It stipulates that non-lawyers cannot own law firms or share the fees of a legal service business.
Similarly, in Israel, the Israel Bar Association strictly monitors the Unauthorized Practice of Law. It promotes the ideology that any aspect of the legal profession is reserved exclusively for lawyers. However, in other countries, such as the United Kingdom – the ‘Big 4’ are permitted to offer legal services due to the fact that they have all acquired ABS (alternative business structures) licenses. This is a result of the deregulation of the legal industry because of the Legal Services Act. Thus, the Big Four are facing several roadblocks in expanding their empires worldwide.
It is also important to distinguish that the Big Four are not duplicates of law firms, rather integrated service models. This is their appeal in a global market; they incorporate the legal sector into a multitude of services. The Big Four have made it clear that they do not wish to create a stand-alone law firm, which provides top-notch legal advice. They are not interested in big lawsuits and litigation, for which traditional law firms strive. Instead, they prefer to incorporate their legal services into their areas of expertise, such as; business, finance, taxes, mergers, acquisitions etc. Thus, they are integrating their established specialties with the law in order to create a diversified business structure. There is a focus on consulting, rather than painstakingly detailed legal advice. The Big Four are hoping that their newly acquired legal services will complement their already reputable businesses and not outshine it.
The Big Four’s influence in the legal profession
It is important to evaluate how the Big Four will not only alter but also add value to the legal profession. They have numerous resources, including but not excluding:
- Vast revenue and profits
- Global connections
- Investments in technology
- Multitude of services and service providers.
These attributes, and how they contribute to the legal sector, will be elaborated on below.
1. Scale, size and labor
Firstly, the Big Four operates on a global scale and has far-reaching influence. They have numerous international offices and multi-national connections worldwide. They also have access to international experts in various fields. These experienced consultants have a huge depth of expertise, with ideas rooted in the business world and insights that law firms wouldn’t have considered. This is an invaluable asset for clients who want to operate on a global level.
Similarly, these firms operate on a massive scale, they employ almost 1 million people between them in almost 180 countries, and last year it was estimated to have a joint revenue of $134.3 billion. Thus they have exhaustive resources in terms of labor and capital. These are highly appealing qualities to prospective clients.
The Big Four also have pools of funds and money at their disposal. Accordingly, they have invested in technology and various technological innovations. Technology is a major player in today’s professional world, with everything becoming digitalized and online services preferable.
Technology is also becoming increasingly present in the legal profession; legal tech is booming and paving innovative methods for the sector. An example of this is machine learning and artificial intelligence (AI). These processes generate improved results and provide enhanced legal services. Thus, these companies have the upper hand and will no doubt be a leading force in revolutionizing the legal sector. A new dynamic legal market is emerging with a focus on technology. The Big Four are not only embracing this new age but also initiating the transformations.
3. Service improvement/quality
In 2019 there is an increasingly borderless economy where clients needs and desires require interdisciplinary skills. The legal services that clients desire in today’s day and age, are not exclusively legal issues. They require a multitude of resolutions from various industries. The Big Four offers integrated business solutions, which is preferred in the current market. They can give advice to clients that go beyond legal matters. It provides clients with solutions and options that are easier to manage and more efficient. It also allows clients to incorporate their issues into one service provider. This makes them extremely suitable, as it will ultimately produce more timely and cost-effective results.
The Big Four are not cheap, however, they do offer anticipated pricing. Unlike traditional law firms, they do not rely on billable hours or run an unexpectedly high bill. Rather, their services have set prices, which are based on the services rendered. Clients know what they will be expected to pay at the end of the transaction. In most cases, law firms do not provide a standardized price for their services. Therefore, this structure is useful as it is possible to predict cost.
Similarly, the Big Four provide a multitude of services in one. They incorporate business issues with the law. This automatically cuts costs, as a company will only have to use one service provider for all their business needs. They are a one-stop shop for all things business, which is literally providing more for less.
They also utilize technology and various technological services, which saves both time and consequently money. Artificial intelligence (AI) has been proven to render more effective and efficient results than a human lawyer in certain circumstances. It can read and understand a contract in less than 30 seconds. Thus service quality will improve and costs will drop.
If a client were to choose between this and paying a traditional law firm, it’s a no brainer, which would be preferable.
And to the bottom line… how law firms can stay relevant
It is clear that the legal market is changing and law firms are facing a new competitor. It is therefore essential for them to adjust accordingly and adapt to innovative systems. However, if law firms wish to continue operating in a traditional sense, and not re-establish their entire company, then it is advised they hyper-specialize. Hyper-specializing refers to firms focusing on a narrow set of expertise. These firms do not try and incorporate every field of law, rather focus on a specific aspect of the market. There is a gap in the market for specialized knowledge and expertise, instead of just a broad range of information.
This is one way to compete against alternative legal service providers (ALSP) while retaining their current status. Hyper-specializing gives them a competitive edge, one in which accounting firms cannot compete with or mimic. Accounting firms do not want to solely offer top-tier legal advice or advocacy for their clients; their system and goals are different.
Thus, it is clear that the Big Four have emerged in legal territory. They are redefining the legal profession and so too the services rendered. The multidisciplinary practices that these companies enforce are both time and cost effective. Clients these days do not want routine transactions, but rather integrative solutions to their problems. If law firms want to stay afloat they need to either diversify their services or amalgamate into new spaces.