One of the topics that we occasionally discuss around here is the Big 4 expanding into professional service areas that you wouldn't expect for an accounting firm. In the US, we've seen PwC and Deloitte build enormous digital agencies and just last month, EY announced a partnership with Adobe that will "expand [the firm's] digital experience and web content services, providing digital transformation programs to the Big Four firm’s clients."
The move by the Big 4 into law is most interesting because it seems like a natural frontier for them to get into, given the overlap between some accounting and law services. This post from Adam Smith, Esq. is about as good of assessment of the situation as I've read, boiling things down to a handful of bullet points. First, the advantages that the Big 4 has in resources:
- The combined revenue of the Big 4 is greater than that of the AmLaw 200 firms by fully one third ($135 billion for 2015 for the Big 4 vs. $100 billion for the AmLaw 200); they have a war chest if they care to use it.
- Their employee ranks utterly dwarf those of law firms: About 735,000 professionals and staff in the Big 4 (2015) vs. about 175,000 lawyers and staff in the AmLaw 200 (over four times as many).
- They have name-brand entrée into the boardroom of every Fortune 1000 and FTSE 250 corporation in the world—and then some.
- And perhaps most tellingly of all, when they set their sights on a goal (invading a professional services vertical or an industry) and tell their professionals to march, those professionals…march.
Simplifying it even further: 1) Money; 2) People; 3) Brand recognition; 4) Execution. The only thing missing is motivation. Do they want to do it? PwC does. I'm sure the rest of the firms will follow in due course.
Second, the post picks apart the doubts a lot of law firms might have about an accounting firm trying to get into legal services:
- First, they tried this before in the 1990’s and were repulsed. Well, actually Andersen Legal was hit by a stray bullet from the firefight Enron kicked off and which culminated in Sarbanes Oxley. What happened was hardly a critique of either their business model or their effectiveness in the market.
- Second, law isn’t part of their core competence and it would always be peripheral to their real business. Again, actually their “real,” core business has morphed repeatedly over just the past couple of decades. None would boast their core anymore is “audit,” and the consulting that’s their core now is perilously close to what many lawyers do.
- Third, the legal market is different: Always has been, always will be. For example, what about conflicts? The legal market is far less different than you’re privileging yourself to imagine; it’s one more species of professional service, which is the business the Big 4 have been in for a long time. Global? They’ve done that. High end and commodity, depending? They’re actually frighteningly good at that. Requires brand-name credibility? Thery’ve [sic] got it in spades. Not to mention the global legal services market is huge enough to be quite an interesting target for the Big 4—approaching US$1-trillion in annual revenue.
It's a similar attitude that the ad agencies have had:
[T]he most common complaint is that these shops can’t provide the creative chops that traditional agencies can. In fact, some traditional agency execs have been known to refer to this new breed of shops as “faux-agencies.” They may do so at their own risk. “People who dismiss them as ‘that tax company’ have a misplaced sense of their role in the universe,” said [Pivotal analyst Brian] Wieser. The marketer isn’t hiring an agency because it’s special. It’s because they have a job and they need to get it done.”
The last real barrier preventing the Big 4 from a full-scale assault on legal services is regulation in the US. Generally speaking, non-lawyers can't own law firms (although that could change) and Deloitte's Cathy Engelbert said in an interview last year, "[We] cannot practice law in the United States, given our other businesses and how we are regulated."
Of course, "practicing law" is one thing and "providing legal services" could be another. First, no one navigates the nuances of conflicts better than the Big 4. Second, it's not hard to imagine a cleverly branded advisory service that has a heavy technology component replacing manual legal services. Plus, the Big 4 don't need much time to put the pieces in place. Deloitte and PwC built their digital agencies in a very short period of time (both are less than five years old) so there's no reason to believe that if a loophole in the legal market opened in the US, they couldn't do the same thing. They'd acquire one or two or a half-dozen boutique firms, make some high-profile hires and be off and running.
Don't get me wrong, most Big Law firms will be fine. The Big 4 will never touch litigation, for example. But Big 4 firms aren't going to ignore the overlap between accounting and law forever. They've only just gotten started in the UK and elsewhere. It won't be long before they reach the New World.