Big Four: Do businesses want legal services from the same firms that do their audits?

Big Four: Do businesses want legal services from the same firms that do their audits?

At a glance:

  • PwC, EY, Deloitte and KPMG are winning legal services work with well-known businesses
  • These Big Four firms face a number of potential internal conflicts of interest issues and regulatory challenges between their accounting/auditing and consultancy contracts
  • Some fear the Governmentā€™s spotlight might put businesses off from using the Big Fourā€™s legal services.

If law firms were people, centuries-old names like DLA Piper, Freshfields Bruckhaus Deringer and Linklaters would be the wizened, battle-ready industry veterans Ā­ā€“ the Big Four accounting firms, on the other hand, would be the recently-graduated, canā€™t put down their iPhones for two seconds, office interns.

Yes, the UKā€™s legal sphere is so conservative that, despite having been in the legal field since the 90s and having poached a number of high-profile lawyers and clients, the internationally-recognised Big Four brands are still seen as the underdogs.

But with automation, innovation and global reach on their side, these firms have slowly but surely managed to carve out their very own place in an overcrowded legal space in the last five or so years, with revenues, headcounts and client numbers on the rise.

However, a question mark looms over the subtle success of these accounting giants ā€“ will organisations want to work with the same company that conducts their auditing?

Law firms should not be overly concerned about the presence of the accountancy firms, given that some large organisations might feel uncomfortable about single-sourcing professional services if they are using those firms for audit purposes as well, says Nick Smith, Acquisitions Director at Gateley.

, financial services senior correspondent at investigative regulatory news site, MLex, says:

ā€œThereā€™s this big focus coming from the UK Government and regulators right now on the potential conflicts of interest in the Big Four between their audit and accountancy business and their lucrative consulting contracts. I do wonder if that could be a worry for legal services, too?ā€

Read our report: Are the Big Four reshaping the future of legal services?

 

Regulators are on the hunt for conflicts of interest within the Big Four firms

The UK business world has been rocked by a number of high-profile auditing scandals in recent years, and the subsequent collapse of companies such as Thomas Cook, Carillion, BHS and Patisserie Valerie has done more than raise a few eyebrows in Government.

According to the , checks were undertaken of 103 audits by firms such as PwC, Deloitte, EY, KPMG, BDO and Mazars for the 2020/2021 financial year, and it discovered nearly a third of audits required improvement.

To counter this problem, Business Secretary Kwasi Kwarteng launched a new in March 2021 outlining his plans to improve corporate governance, which included forcing large companies to use smaller auditor firms to conduct part of their annual audit alongside one of the Big Four. The Government also announced plans to increase the number of companies supervised by its new audit watchdog.

But these plans could have a severe impact on the business world. A for the QCA of 166 directors and 50 investors found a majority feared the reforms would ā€œinhibit the ability of companies to grow, create jobs and deliver prosperityā€. 

This increased level of attention could change attitudes towards working with the Big Four, says Maxwell.

ā€œRegulators are trying to put in clear structures to prevent audit standards slipping, which means organisations have to make sure everything is being done in a proper and above-board way.ā€

This may foster fears for businesses considering partnering with the Big Four to carry out legal work, although these businesses may be pulled over the line by the high-level of automation and technology-enabled solutions on offer.

 

Why the Big Four are winning legal work with big companies

In the last five years, PwC Legal UK seems to have doubled its revenue, according to UUĀćĮÄÖ±²„ market research. The company has won international business reorganisation work with gas and oil company BP Plc and Japanese cosmetics company Shiseido (owner of beauty brands Nars and Bare Minerals), and tax litigation work with British Airways, Sky and Virgin Media.

Competitor firm KPMG Law has tripled its revenue streams in the UK over the same period, winning work with Sainsburyā€™s on an international reorganisation project. Deloitte Legal is working with Fujitsu, EE, BT, and Ikea, while EY Law has partnerships with Nokia, Tesco and Merck Sharp & Dohme.

But itā€™s worth pointing out that the type of work the Big Four are winning is noticeably different from the work traditional firms go after.

Marshall Leopold, a former Andersen Legal Corporate Partner and ongoing General Counsel to several innovative early-stage tech companies says:

ā€œA private company might take more of the services from an accountancy firm providing legal services if they can see that it is an integrated service that will save them time, which is at a premium, as well as reducing pain and suffering in terms of their administration.ā€

ā€œIf itā€™s a major publicly listed company, the only services they can safely take are the ones that donā€™t potentially fall foul of any regulatory controls where the provider also acts as auditor. The ideal situation for the Big Four is where they donā€™t really provide legal services as such but instead, supply processes for the client that happen to have a legal content.ā€

Maxwell reached a similar conclusion about the legal services offered by the Big Four. ā€œThe Big Four arenā€™t positioning themselves as standalone law firms - they know thatā€™s not their niche - and theyā€™re not necessarily trying to win traditional law firmsā€™ business,ā€ says Maxwell. ā€œIn the legal field, theyā€™re positioning themselves as disruptors.ā€

ā€œThe Big Four arenā€™t positioning themselves as standalone law firms - they know thatā€™s not their niche."

ā€œSo much legal work can be done in an automated way, say making changes to certain contracts, or dealing with regulatory issues such as GDPR,ā€ she says, pointing out how easily automation technology can be applied when updating contracts to adhere to LIBOR benchmarks.

ā€œOrganisations are no longer forced to go down the traditional law firm route, especially if the Big Four are offering tech-enabled solutions that are better value for money and can be done in half the time. If an organisation is working with one of the Big Four for their audit, tax or consultancy work ā€“ why not add on legal services as well?ā€

Maxwell drew an interesting parallel between the neo-banks that have changed the face of the financial world in recent years ā€“ Monzo, Revolut, Starling, to name a few Ā­ā€“ and the slow-moving legal sector. 

ā€œStartups do offer innovative new ideas and technology, and I think thatā€™s what we can see in the legal sector right now. That might mean traditional law firms have to step up their game to continue to impress their clients and match what the Big Four are offering.ā€

ā€œSo, if theyā€™re losing out on business because theyā€™re not offering what these newcomers are offering, then itā€™s an opportunity for them to improve their services, and I imagine that generally makes for happier customers.ā€

READ OUR BIG FOUR REPORT FOR MORE INSIGHTS


 


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About the author:
Dylan is the Content Lead at UUĀćĮÄÖ±²„ UK. Prior to writing about law, he covered topics including business, technology, retail, talent management and advertising.Ā  Ā Ā Ā