It does not take Perry Mason to crack the case that the BigFour intend to be major players in the global legal market. Steve Varley, Ernst & Young’s managing partner in the UK and Ireland made that clear: “We aren’t competing with the business models of traditional law firms, we are offering something new. Having lawyers, accountants, and other professional advisers working side by side will be a real advantage to our clients and ultimately help us to provide a better level of service.” Sounds like E&Y is unabashedly serving notice on the embattled traditional law firm model that they see an opportunity and are poised to pounce on it. And these are not hollow words, either.
What’s the Secret? The BigFour Knows its Advantage
Ernst & Young has made a number of recent moves around the globe that demonstrate its intent to take a big bite out of BigLaw’s hegemony over legal spend. Consider the ABS license that E&Y–along with two of the three other members of the BigFour–has recently secured in the UK. Not only will that enable their legal team to engage in the type of multi-disciplinary practice that Mr. Varley described above, but it will also be a springboard for E&Y’s legal troops to enter new markets. That ease of entry and ability to navigate regulatory roadblocks will be enhanced by the Swiss verein structure E&Y has, something shared by each member of the BigFour. But there’s more. E&Y and its BigFour brethren share several advantages over law firms: (1) a global imprint and brand; (2) sophisticated technology; (3) deep proficiency in project, process, and price management; (4) strong client ties to the C-suites of Global 500 companies; (5) large legal practice groups that already engage in sophisticated legal work (though commonly in the guise of “legal consulting” rather than “engaging in the practice of law–often a distinction without a practical difference); and (6) deep war chests. How deep you ask? The BigFour generate combined annual revenues of $120 billion; the 100 largest revenue generating law firms globally produce a combined $89 billion. Put another way, BigFour revenues are multiple times the size of the largest law firms. Translation: in an era of free-agency, the BigFour are the New York Yankees and BigLaw are the Oakland A’s.
E&Y’s Circumnavigation of Regulatory Barriers
But let’s return to the evidence suggesting that E&Y and the BigFour are deadly serious about taking on–if not taking over–the $650 billion a year global legal market. E&Y has recently been granted a Foreign Practice License (“FLP”) in Singapore, enabling a foreign law firm to establish a branch in Singapore and to practice foreign law there. But how would this work in the case of Ernst & Young that is not a law firm? It’s tricky and additional evidence of E&Y’s intent to extend its reach into the legal vertical–and on a global basis. Follow the steps: (1) two E&Y partners, one formerly the managing partner of the Singapore office of a law firm there, the other E&Y’s General Counsel for the Asia Pacific Region (based in Singapore), established an entity called DA partners last year; (2) E&Y entered Singapore’s legal market by making PK Wong & Associate, a local firm, part of its global network; (3) DA partners used the Wong local presence to secure an FPL license moths later. The result: John Dick (the “D” in “DA Partners”) was quoted in The Lawyer: “We view Singapore as a regional hub for providing cross-border services to clients operating in the ASEAN (sic) region.” (Italics added) Soaring rhetoric without substance? E&Y already has affiliated law firms in Vietnam, Korea, a Chinese firm based in Shanghai, as well as plans for Malaysia, the Philippines, and Thailand. These are countries where it already has in place well-established accounting practices and physical presence, clients, technology, process and project managers, as well as other professionals. Translation: they are not jumping into the legal vertical from a standing start.
Do you get the impression that E&Y has a global strategy for tapping into the legal vertical whose disruption is well underway? If not, take a look at “Attack of the bean-counters” in The Economist and you might reconsider. That piece provides a superb summary not only of the BigFour’s (then BigFive) previous unsuccessful foray into the legal arena but also a sobering assessment of the reasons why its current incursion is likely to be far more successful: (1) the fallout from the global financial crisis of 2008; (2) client dissatisfaction with the inefficiencies of the traditional law firm model and delivery; (3) the huge technological and process investments made by the BigFour that are not shared by BigLaw; (4) regulatory changes–especially in the UK and Australia–but also in China, France, and Germany; (5) the large legal armies the BigFour have amassed (most of whom currently “practice” as consultants rather than “engage in the practice of law” as attorneys); and (6) their breadth, depth, brand, and war chest.
The fifth point above bears further mention–and parsing– because the distinction between “engaging in the practice of law” and “providing legal consulting services” is blurred at best and obfuscates deeper changes in the way “legal” services are currently being delivered. This relates, of course, to the disaggregation of tasks once performed exclusively by law firms and now increasingly the province of legal service providers who do not share the same regulatory constraints as law firms. Among other differentiators, service providers can receive institutional funding, share profits with “non-lawyers”, and create equity both for their lawyers as well as others–such as technologists and accountants–who are instrumental in the delivery process and success of the company. Disaggregation began with “high-volume, low value tasks like document review but has now morphed to higher-value work including sophisticated cyber-security and regulatory “consulting”. Put another way, disaggregation has greatly pared down the number of tasks that require–or are perceived to require–a lawyer performing them in a law firm structure.
The BigFour cannot (yet) set up legal shop as a law firm in the US (though they could certainly establish affiliate US firms connected to their UK and Asian bases) because of the current regulatory scheme. But that does not mean that they cannot–and do not–have robust legal consultancy practices in the States. And consider this: if you were to compare the practice areas those consultancy practices engage in and hold them up side-by-side to AmLaw 100 firms, you would be hard-pressed to tell the difference. What is the difference? It is often nothing more than: (1) a disclaimer that the consultancy is “not engaged in the practice of law”; and (2) risk is retained in both instances (though not emanating from “legal practice), but in the event of liability, the claim against the consultancy would be covered by an errors and omissions rather than a legal malpractice policy. This means that: (1) in a functional sense, the BigFour already have robust “legal consulting practices” in the US, even if they do not deliver those “legal” services in the guise of a law firm; and (2) it will be a virtually seamless transition for the BigFour into the full-blown practice of law once US regulators wake up to realize that the rest of the world’s legal market is moving in another direction.
Are Semantics Creating a False Sense of Security for Law Firms?
The BigFour have already made deep, broad, and economically significant inroads into the global legal market. And that includes the US where, as has been noted, for regulatory reasons, it is labeled as “consulting” rather than “the practice of law.” This begs the question: is it any longer relevant to use “engaging in the practice of law” as the Maginot line to describe the delivery of legal services? And is it useful–as law firm lawyers do– to segregate legal issues from broader business challenges? This distinction is already becoming blurred for in-house lawyers who have far closer ties (including employment and ownership opportunities) with the client(s) they serve than attorneys at law firms. Lawyers should focus on practices that are deeply embedded in other knowledge based professions and the businesses they serve: collaboration, transparency, technology, efficiency, brand, and global presence. These are the defining characteristics of companies that are “winning” in today’s economy. Lamentably, they are not terms or traits one would associate with traditional law firms.
The BigFour have a big foot in law’s door. Whether they enter quietly or thunderously is of little moment. They have the tools and resources to solve complex global problems. Whether those challenges are called “legal” or something else is of minimal consequence. What is important is for lawyers to satisfy client needs and to do so cost-effectively and predictably. To those US lawyers who take comfort in surveys that report that most GC’s remain loathe to use accounting firms for legal matters, consider what CFO’s are already spending on those accountant firms’ “legal consulting” work. And consider too that in multi-disciplinary practice, lawyers may not be the ones characterizing the problem, so what was a “legal” problem becomes a “business” one. Who would win that jump ball: law firms or the BigFour? We may not be there yet but the trend lines point in that direction.
Law firms would be well served to focus on what clients want, because other knowledge-based providers of “legal” services are already offering many of those same services in a far more client-centric way. The myth that only a law firm can deliver all “legal” services has already been debunked, and multi-disciplinary practice, especially by the BigFour, is already a reality (albeit outside the US). It’s time for lawyers to recognize that the traditional law firm model is seen as unsustainable by some imposing competitors as well as by an increasing number of clients willing to entertain new legal delivery options, some of whom they are already well-acquainted with.