Big Four Circle The Legal Profession

By Jonathan Derbyshire

* Accountancy firms are using technology to muscle in on
traditional law firm territory
* Plus: a panel of 10 outstanding examples of pioneering in
integrated services

In March, the head of the UK’s Financial Reporting Council
suggested the time had come to consider breaking up the Big Four
accounting firms. Stephen Haddrill called on the Competition and
Markets Authority to examine the case for “audit only” firms.

The argument for breaking up the Big Four — Deloitte, EY, KPMG
and PwC — and separating their audit function from the range of
other professional services they offer looked quite compelling in
the wake of the collapse of Carillion, the British outsourcing
company which was linked to aggressive accounting practices.

Nor are anxieties about the effect on audit quality of the
expansionist ambitions of the Big Four restricted to the UK. This
year, the International Forum of Independent Audit Regulators said
it had identified accounting failures in two-fifths of the 918
audits of listed companies it inspected in 2017.

Given that the growth of the Big Four has been particularly
pronounced in the legal services market in recent years, leading
law firms will be watching the arguments for and against spinning
off these companies’ audit arms with keen interest.

Some argue that the global business and political climate has
become less hospitable to the Big Four’s designs on the legal
sector. Having surfed the wave of globalisation and the
deregulation of legal services around the world that followed the
UK’s liberalising Legal Services Act in 2007, they now face the
twin forces of protectionism and populism. These political
developments threaten to close lucrative global markets,
particularly in emerging economies that are lightly regulated.

Does all this spell danger for the Big Four’s dream of absorbing
law-related services into their “integrated services model”? One
leading expert has warned the legal profession against celebrating
prematurely.

3,600 PwC lawyers

In a recent article written with Maria Jose Estaban, David
Wilkins, director of the Center on the Legal Profession at Harvard
Law School, declared: “Reports of the death of the Big Four’s legal
ambitions have been greatly exaggerated.”

For one thing, as Prof Wilkins points out, we have been here
before. In the 1990s, the then Big Five (today’s Big Four, plus
Arthur Andersen) made a concerted effort to move into the legal
market. That attempt foundered in the wake of the Enron scandal, in
which Arthur Andersen was centrally implicated and which led to its
disintegration in 2002. The so-called Magic Circle law firms grew
rapidly as the remaining Big Four drew in their horns.

“The legal profession thought they’d banished [the Big Four] to
Middle Earth,” Prof Wilkins says. “But in fact they reformulated
their strategy to take advantage of changing dynamics.”

Over the past decade, the accounting firms have sought not to
replicate the large law firm model but rather to refine an
integrated services model that operates at the intersection of tax,
finance, consulting, strategy, information technology and project
management.

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The Big Four reformulated their strategy to take
advantage of changing dynamics

Nick Roome, head of KPMG’s UK legal services business, recently
told The In-House Lawyer magazine: “Our model is . . . not to go
head to head with law firms. We offer something different.” The
same is true of the other members of the Big Four, whose legal
activities have grown^[1]prodigiously: PwC^[2] employs 3,600
lawyers in 98 countries; EY has 2,200 lawyers in 81
countries; KPMG^[3] about 1,800 lawyers
in 75 jurisdictions; and Deloitte has more than 2,400 lawyers on
its books.

2,400 Deloitte lawyers

The most nimble and innovative law firms recognise they must
respond and also that the Big Four’s multidisciplinary model offers
op­portunities for collaboration. The status quo is not an
option.

“Clients want integrated solutions,” says Prof Wilkins, because
they do not think of their challenges in legal terms — they are
just challenges. “Law firms have to respond to this.”

This need not mean that the complete convergence of law firms
with the providers of integrated, business-oriented solutions is
inevit­able. “There is always room for various forms of
specialisation,” he says.

However, there is one area in which the Big Four do have a head
start and which they plan to conquer: harnessing technologies such
as machine learning and other forms of artificial intelligence to
provide more efficient and better legal services.

Richard Susskind, author of Tomorrow’s Lawyers, an
influential study of the future of the legal profession, and a
consultant to Deloitte Legal, says: “What’s interesting about the
Big Four is their commitment to new technology. They come to a
market where they have no legacy to protect, so they are able to
start with a blank sheet of paper. It seems to me self-evident that
the Big Four will be hoping to emerge as market leaders in legal
technology.”

While most leading global law firms will, Prof Susskind says,
have “a story to tell” about innovation and technology, these are
yet to have shown a decisive effect either on turnover or on ways
of working.

There are exceptions, however. Prof Susskind picks out Margin
Matrix, a digital derivates compliance system developed by Allen &
Overy with Deloitte. Or take Schillings, a firm that has
transformed itself in recent years from a law practice into an
integrated professional services partnership.

Prof Susskind says he often asks law firms who their competitors
are. “They’ll mention someone who looks quite like them. But I tell
them that the competition that will kill them won’t be like
them.”

One-stop shops: the best
in integrated services

EY last year concluded a deal with a travel and expenses company to
help business travellers understand their immigration and tax
obligations

WINNER
EY
After the purchase of Riverview Law in September, the consulting
firm is on its way to integrate a managed legal service with 2,200
lawyers working across 81 jurisdictions. It has used strategic
alliances to integrate and digitise professional services in the
past: last year, it concluded a deal^[4]with Concur, an SAP
travel and expense company, to help business travellers understand
their immigration and tax obligations. The firm is leveraging data
in other products, such as its cash analytics^[5] tool, built on a
Microsoft cloud platform, to help companies aggregate data on their
cash flow by analysing customer and vendor invoices. This enables
companies to use their working capital better. For one client, it
achieved $100m in working capital improvements.

Deloitte
With over 2,400 lawyers, the firm recently launched^[6] its Legal
Management Consulting service line, which combines consultancy with
risk advisory and operational expertise for in-house legal
departments to help them increase efficiency. The legal arm has
become more integrated into the risk advisory and tax businesses.
The firm has a number of products that combine data and technology
with law and professional services such as DoQminer, an AI based
data-extraction tool.

Elevate Services
The legal services provider has grown rapidly since its founding in
2011 to nearly $50m in revenues and a headcount of over 700 people.
The company’s lawyers, engineers, consultants and business experts
work with major corporate law departments. It acts as a strategic
partner to law firms to provide support on a broad spectrum of
business operations, including technology, human resources,
marketing and procurement. It recently launched an operation
in Krakow^[7] in Poland, which it
plans to expand to add an EU hub to its global operations, joining
centres in the US, UK, India and the Philippines.

Exigent
Established in 2003, Exigent has built on its low-cost legal
outsourcing with a range of technology, data analytics and
consulting services. While the majority of its 500 staff are
lawyers, the fastest growing part of the company is its contract
and data optimisation team. The company now employs more than 20
data scientists and contract experts to advise company legal teams
on improving processes and to manage and analyse big sets of data.
It has also developed proprietary software for clients to manage
contracts.

KPMG
The firm, which employs 1,800 lawyers, offers integrated advisory
services with a multidisciplinary focus in Europe. It is growing in
Australia with the hiring of Stuart Fuller^[8], former global chairman
of King & Wood Mallesons. In May, Jürg Birri, KPMG’s global head of
legal services, set an ambitious target of nearly doubling^[9] the size of its
legal services arm to 3,000 lawyers over the next three years. He
expects KPMG’s member firms, spread across 154 countries and
territories, to continue investing in legal service operations.

PwC
In 2013 in the UK, PwC secured an alternative business structure
licence, creating PwC Legal, which was fully integrated into the
advisory business in 2016. With 3,600 lawyers, it is the largest
legal arm among the Big Four professional services firms. It
recently showcased its approach to convergence for an Australian
private equity client when it performed the entire range of tasks
required for a major acquisition. It also made a strategic alliance
with Fragomen^[10], an immigration law
firm with offices in 25 countries, to cater to the increased
compliance on tax and immigration requirements of business
traveller clients. In a first among the Big Four, which are not
licensed to practise US law, PwC opened a Washington^[11] DC office with
international lawyers to bring the global firm to US clients.

Schillings
The UK-based media and private client firm began to reinvent itself
as a reputation business in 2012. It now employs lawyers, cyber
security experts, military experts, risk advisers and consultants
to manage reputation and privacy issues for clients. The change in
what was once a defamation law firm could be a precursor of what is
to come for big law firms as they move away from a focus on
practice areas and industry sectors to structuring around specific
topics or business challenges. Of the 75 employees who earn fees,
half are lawyers.

Thomson Reuters
Over the past decade the news, information and technology company
has made more than 200 acquisitions, including legal services and
legal technology businesses. In 2018, after a series of
divestments, the business began a streamlining process to
reorganise its legal, tax and accounting businesses around customer
rather than service lines. Legal services are expected to account
for 43 per cent ^[12]of company revenues over
the next year.

UnitedLex
The company, established in 2006, works to improve efficiency at
in-house legal divisions and law firms by combining professional
services with technology. It helped DXC Technology^[13] increase its speed
of contracting, which is credited with improving
DXC’s share price^[14], and set
up ULX Partners^[15]to offer outsourced back
office services to law firms. It recently secured a funding
arrangement with CVC Capital Partners worth $500m^[16] to help its
expansion.

Zico Holdings
Zico was one of the first integrated professional service
businesses in south-east Asia, combining 16 professional areas such
as law, consulting, and tax advisory services. The group has had a
number of successes, including work for Uber^[17] and Shopper 360^[18]. The firm now numbers
472 professionals across the holding company and member firms.

Profiles research: RSG Consulting

Culled from The Financial Times Limited

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