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In the 1990s, the Big Four attempted to muscle into the world of legal services without much success. Their strategy of taking Big Law head-on didn’t work and most retrenched to providing limited services like immigration for their international clients. Today they are back with a different strategy and they look like they are ready for a proper fight this time.

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Big Law Business Model

The biggest law firms are predominantly engaged in providing advisory services to large corporates, public bodies and governments. They advise on complex, ‘bet the company’ issues and charge high fees for doing so. They advise on the largest disputes and will help clients litigate if necessary. Their global networks of offices or ‘best friends’ allow them act on cross-border mandates, an increasing requirement in our globalised world.

Unlike the Big Four, Big Law operates with a relatively high ratio of partners to fee-earners; the Big Four operate above 1:10 and Big Law is less than 1:5. But Big Law makes many of its partners extremely well remunerated, due to the high number of billable hours and high charge-out rates. In the Big Four, it’s all about leverage and client management, with partners often doing little chargeable work.

The New Client Imperative

Since the Financial Crisis of 2008, and now accelerated due to the Pandemic, clients have been looking for ways to reduce their spend on external counsel. They have done this by taking more legal work in-house and have driven down external legal costs through pitches and panel appointments. They are now looking at ways to make the delivery of legal services more efficient by streamlining legal processes, often with the help of external third parties to devise these new processes and/or provide legal managed services.

The new mantra is “more for less”.

At the same time, in-house legal teams have looked to position themselves as strategic advisers to their boards and operations; taking a business advisory role rather than a purely legal advisory one. To mirror this, these teams want external lawyers who are also versed in the business and can provide genuine commercial legal advice.

Big Four Business Model

Rather than take on Big Law head-on in the provision of legal advisory services, the Big Four are playing to their strengths to help clients meet this new imperative.

They are focusing their efforts on their core area of expertise, namely process consulting. Through the provision of legal process consulting, the Big Four are helping their clients to identify which ‘high-volume, low-value’ legal tasks can be streamlined through the use of technology and the right resourcing profile. They are even offering to ‘outsource’ such services through the provision of legal managed services. By utilising technology and getting the staffing ratios right, the Big Four can make good profits from such work. The client gets the service at a reduced cost, and the in-house legal team are freed up to focus on the more rewarding, complex legal issues facing the business.

The Big Four have been aided in their strategy by their deep relationships at the C-suite level within clients and their more collaborative working style; they are more embedded with clients and manage these ‘key accounts’ with ruthless efficiency. Their ability to better utilise tech than the law firms has also helped.

Their Achilles’ heel is the regulatory barriers in certain jurisdictions which stop the auditors from providing other services or where the provision of legal services by a non-law firm is forbidden. They are also generally staying clear of litigation because of the conflicts which would arise.

Having said this, there is plenty for the Big 4 to go after dealing with ‘run-the-company’ legal matters for clients and helping them to drive down costs.

How to Respond

The challenge for Big Law is how to respond to the new threat posed by the Big Four in the legal market. 

In their core ‘advisory’ market, law firms probably need not worry about the Big Four. However, what they do need to worry about are clients who are becoming increasingly demanding of their legal advisors, requiring greater insights and knowledge of their business/industry, looking for more commercial advice and better client service levels, and no longer being prepared to pay to train juniors on the job. This has ramifications for law firm recruitment, training/development and key account management.

In those areas where there is scope to streamline the legal process, say, in handling a large number of lease renewals for a big property landlord, the law firm needs to decide whether it is going to do this itself or bring in an ALSP. Recent research indicates as many law firms bring in an ALSP as part of the solution that they offer the client, as do in-house legal teams engaging directly with an ALSP to provide a service. Heaven forbid, Big Law may even collaborate with the Big 4 to utilise their expertise for the benefit of clients.

The cost and lack of IT capability is likely to be a major barrier to most Big Law firms looking to emulate the legal process offerings of the Big Four, although currently some are trying. Most will just walk away and concede this ground to the ALSPs, including the Big Four.

The only thing that is sure is that this time the Big Four are serious about disrupting the legal services market and are already on the way to taking a large slice of the market. Some law firms may lose out, but some will profit by focusing on what they do best whilst collaborating with ALSPs in those areas where they do not wish to compete.

Read the full Big Four report here