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Ever since the now Big Four accountancy firms first began their push into legal services in the 1990s, legal commentators have tried to frame their entry into the market as a battle over turf. It was portrayed as the traditional law firms up against the accountancy giants and their vast global networks.

But the Big Four鈥檚 latest expansion into legal services is different. It comes at a time of considerable upheaval in the legal industry, with the use of alternative legal services providers (ALSPs) growing significantly over the past five years as they combine technology and process efficiencies to handle high-volume, low-value legal work at a much lower cost.

Against that backdrop, the conversation is no longer about whether or not the Big Four are going to muscle out traditional firms on the most prestigious mandates; instead it is about how the Big Four are benefiting from the growth in ALSPs and how they are changing the way legal services are delivered.

鈥淭he last time they tried to enter the legal profession in the 1990s, their strategy was we鈥檙e just like law firms only bigger. But that鈥檚 not their strategy anymore. Their strategy is we provide a different kind of offering, moving from a fee-for-service model to an integrated solutions model,鈥� says David Wilkins, Lester Kissel Professor of Law at Harvard Law School.

As Wilkins recalls from a conversation with one Big Four legal heads, they are not interested in one-off, bet-the-company matters, they want the 'run-the-company' matters. Consider Bayer鈥檚 $66-billion acquisition of Monsanto in 2016. While the parties were advised by top-tier global mergers and acquisitions (M&A) law firms, including Allen & Overy and Wachtell, Lipton, Rosen & Katz, the post-merger work 鈥� the integration of all the contracts and all the policies and procedures 鈥� was awarded to PwC, he says.

鈥淭he Big Four can offer a far higher integration of technology, project management and process management; they employ a huge number of people across a huge range of specialties and they are way more global than even the most global law firm. This is why, for many kinds of issues that companies face, it鈥檚 a very attractive offering,鈥� says Wilkins.

Different this time around

Such a project and process management, and scalable IT model, is why the Big Four鈥檚 push into legal services could gain more traction this time around. He says: 鈥淭hat model is going to have a lot of purchase in this marketplace.鈥�

Take Deloitte as an example. It employs roughly 330,000 people globally 鈥� the largest of the Big Four by headcount 鈥� spread across more than 100 offices. This sheer size, coupled with its auditing, consulting, risk, financial and tax advisory businesses, means Deloitte lawyers have a different perspective on their clients, enabling them to provide legal services as part of their broader professional services offering.

鈥淥ur strategy is very much rooted in the needs of the client to be offered solutions and not just advice,鈥� says Emily Foges, Lead Partner for Legal Managed Services at Deloitte. 鈥淭he vision for Deloitte Legal has always been that you bring together high-quality legal advice with legal management consulting, legal managed services and legal technology. This way you can provide a complete end-to-end service to the client and achieve the outcomes they are looking for, not just give them advice on those outcomes.

鈥淭hat strategy works on its own, but it works so much better in the context of Deloitte because our clients have access to deep business expertise and global scale.鈥�

This scale matters for large global organisations operating in multiple countries as they can access local expertise in a more joined-up, consistent manner than firms that might rely on local partner networks or only have small offices with limited practice-area coverage.

The growth in the ALSP market has come as pressure on in-house legal budgets has forced organisations to revaluate what work can be kept in-house, what needs to be sent to a traditional law firm and what can be outsourced to an alternative provider.

鈥淢ost in-house teams have traditionally been used to working in a certain way; you either do the work yourself or you ask your panel firms to support you. Whereas, if you are in any other business function, you鈥檙e used to doing it a bit differently; you鈥檙e used to outsourcing scale stuff,鈥� says Anup Kollanethu, UK Head of Legal Managed Services at EY. 鈥淢ore in-house teams are now starting to see how their peers within the business are operating and there is almost an acceptance they have to adapt and use a different approach.鈥�

That outsourcing strategy for high-volume work means general counsel could be more inclined to hang on to some of the more complex work in-house that in the past they might have sent to one of their panel firms because they didn鈥檛 have time to do it themselves.

All of that is helping to change in-house attitudes towards alternative providers. Many organisations have now set up separate ALSP panels in addition to their long-standing law firm panels, with the scope of work being instructed also widening.

鈥淚nitially, ALSPs were more focused on higher-volume, lower-complexity activities a company might outsource, such as manual, volume-based document review in support of M&A or litigation work. But now the types of services that are offered have moved much higher up the complexity curve,鈥� says Juan Crosby, Partner and NewLaw Leader at PwC.

鈥淲e have core offerings focused on this. One integrates technical legal subject matter experts into our wider managed services offering and the second is helping client legal functions transform and manage their budgets in a much more effective way, helping the general counsel office start to reimagine their operating model for legal.鈥�

A fairly significant portion of that change is rooted in the adoption of technology, something Crosby says is a key differentiator for PwC.

鈥淚f you look at the biggest transformation that is happening in law and you look at the way in-house legal functions are revising their operating model, a key component of the change is around leveraging scalable technology,鈥� he says.

Embracing technology

Because PwC helps organisations implement technology across a wide range of business functions, the firm is able to integrate structured data from all those previously siloed systems to give organisations greater insights into their legal data, says Crosby.

That is not only giving accountancy firms such as PwC a competitive advantage, it is also reshaping the legaltech landscape by pushing the boundaries of what technology can do.

“The Big Four put a lot of investment around researching how they can take existing technologies that don’t even relate to the practice of law, but can provide a client solution,” says Bea Seravello, Co‐head of Baretz+Brunelle’s NewLaw Practice. “Law firms are not there right now, they are still struggling with just embracing technology to use in practice.”

This technology‐enabled component is key to the Big Four’s legal services offering, says Fiona Maxwell, financial services senior correspondent at investigative regulatory news publication MLex.

“The Big Four aren’t positioning themselves as standalone law firms — they know that’s not their niche — and they’re not necessarily trying to win traditional law firms’ business,” says Maxwell. “In the legal field, they’re positioning themselves as disruptors. So much legal work can be done in an automated way, say making changes to certain contracts, or dealing with regulatory issues such as GDPR.”

“Organisations 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 — why not add on legal services as well?”

Commercial impact

But it鈥檚 not just about technology. For Deloitte, that competitive advantage also comes from its people 鈥� many of its recent hires have come from in-house roles 鈥� combined with its global reach and commercial model.

鈥淚 don鈥檛 want to ever be offering managed services under a billable-hour model because we need to be incentivised to do the work as efficiently as possible and that means making the best use of technology,鈥� says Foges.

There are competing views over how much impact the Big Four are likely to have on the wider legal industry. Nick Smith, Acquisitions Director at Gateley, says 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.

The expansion of the Big Four is also likely to impact some law firms more than others. Brad Blickstein, Seravello鈥檚 Co-head at Baretz+Brunelle, thinks mid-size law firms in general might not feel the competitive pinch quite as much as larger firms, partly because of the type of work they provide.

鈥淚f you鈥檙e doing business with a mid-size firm, there is a reason you are; it鈥檚 either because you like their cost profile better or the right attorney is there,鈥� he says. 鈥淭he big law firms look like each other, but the mid-sized firms have already staked out some competitive differentiating ground.鈥�

Typically, the type of work that is more ripe for disruption, due diligence for an M&A deal, say, is not the type of work mid-sized firms do, says Blickstein.

鈥淭he other reason is that the biggest single advantage the Big Four have is they have the ear of the C-suite at the big companies and those big companies tend to be working with big firms,鈥� he adds.

That鈥檚 not to say mid-sized firms are completely immune to the Big Four鈥檚 growth plans. 鈥淭hey could be looking at a swath of practices that are in the mid-sized playground and they could just focus on scooping that right up and taking it away from them,鈥� says Seravello. 鈥淭hat is a possibility because they are much more of a machine; they鈥檒l go wherever the greatest opportunity is for them.鈥�

One area that may be safe for now is business-to-consumer work. Wilkins at Harvard Law School says he has not seen any evidence of the Big Four moving into this line of work, while Foges says Deloitte has no plans to pursue this from a global perspective. But Wilkins has seen companies outside of the legal industry, such as investment advisers, bundling legal services with other products as a 鈥減erk" to drive business, so it could be something to watch in the future.

Some law firms may also be too relaxed about the Big Four鈥檚 growing foothold in the market, potentially finding themselves outgunned by the elite firms at the top and squeezed out lower down because they can鈥檛 compete with the Big Four.

鈥淭his is a classic disruptive innovation story in which the top players increasingly move to the higher and higher-value work, which is great except there鈥檚 only room for a certain number of players there,鈥� says Wilkins. 鈥淭he question is how many? It鈥檚 like playing the childhood game of musical chairs: every once in a while, the music stops and somebody has taken away a chair.鈥�

Within the UK, the Big Four are slowly muscling in on the business of traditional law firms. According to market research by UU裸聊直播, PwC Legal UK seems to have doubled its revenue in the last five years, having 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, Virgin Media, Marks and Spencer Group and RBS.

KPMG Law, which has tripled its revenue streams in the UK in the past five years, worked with Sainsbury’s on an international reorganisation project. Competitor Deloitte Legal is working with Fujitsu, BT, EE and Ikea, while EY Law has partnerships with Nokia, Tesco and pharmaceutical company Merck Sharp & Dohme.

Practice limitations

But there are caveats to the Big Four鈥檚 legal services expansion. For starters, not all the Big Four are competing for certain types of traditional legal work. For instance, only PwC and Deloitte list litigation among their practice areas.

鈥淟itigation provides too many complexities, too many regulatory problems and too many conflicts,鈥� says Wilkins.

Law is also not the main priority for the Big Four in the context of their wider businesses. Dr Laura Empson, Professor in Management of Professional Service Firms at London鈥檚 Cass Business School and author of Leading Professionals: Power, Politics and Prima Donnas, says while legal services are a growth area for the Big Four, it remains dwarfed by the rest of their business. Take PwC, for example, while it employs 3,700 legal professionals globally, they account for roughly only 1% of its total workforce.

鈥淭heir legal businesses are tiny in relation to the core elements of their business and this will have implications for the amount of senior management attention and the resources they get,鈥� she says.

That being said, all four accounting firms are gradually increasing their number of fee earners within their legal services teams.

In the last few years, PwC, which employs approximately 400 fee earners within the UK, has employed co‐founder of Radiant Law, Andrew Giverin, Tom Kerr Williams and David Farmer from DLA Piper, and Thomas Colmer from Osborne Clark.

Deloitte has won over former Allen & Overy partner Michael Castle, who leads its legal services team. EY employs former Bird & Bird partner, Julian Balson, ex Addleshaw Goddard partner, Richard Thomas, and former Wragge Lawrence Graham & Co partner, Richard Goold. KPMG poached Alice Killingbeck and Harriet Kwarteng from PwC, and also employs Kate Eades from Greenberg Traurig and Usman Wahid from Bryan Cave Leighton Paisner.

Secondly, the Big Four are facing significant regulatory challenges around their core business to safeguard against further audit scandals. If their audit business is ring fenced, then the ability to cross-sell services to their legal business will be constrained.

“There’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,” says Maxwell.

“Regulators 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. I do wonder if that could be a worry for legal services, too?”

This is part of the reason why the Big Four are seeking to grow their legal services operations, either organically or through acquisitions. Deloitte Legal, for instance, last year purchased tech‐focused law firm Kemp Little. EY has also made two high‐profile acquisitions in recent years, including UK ALSP Riverview Law and Thomson Reuter’s managed services business Pangea3.

Those working in the legal divisions of the Big Four expect the market to continue shifting in their direction over the next decade as trends around outsourcing and technology further accelerate.

“Legal is not a core competency for most large corporations, so outsourcing everyday legal work to specialists will be much more the norm,” says Deloitte’s Foges.

So too will be using technology, she says. Automating routine low-value, high-volume tasks through artificial intelligence and machine learning means lawyers can spend more time focusing on higher-value work instead.

That means the legal services market could become even more competitive in the future than it is now.

鈥淐hange tends to happen very slowly and then very fast,鈥� says Wilkins. 鈥淭hat tipping point doesn鈥檛 mean there won鈥檛 be traditional law firms that attract very high-level talent, but they are going to compete in a marketplace in which there are many other players. For some things you鈥檙e going to want a traditional law firm, but for other things, and probably a fairly large number of other things, you鈥檙e going to want something different and that might be a Big Four solution.鈥�

Big Four strategy in the 90s versus today

Law firms have never been well known for embracing change, but the rise of alternative legal services providers (ALSPs) and the growing presence of the Big Four is spurring leaders to take action.

鈥淏oth ALSPs and the accountants are bringing some disruption into the market and forcing traditional law firms to think a bit differently, and for those firms on the front foot that will be for their good,鈥� says Craig Chaplin, Partner at DWF and Commercial Director of its Mindcrest Division.

DWF completed its acquisition of managed services business Mindcrest last year to complement its legal advisory practice with the ability to handle lower-value, but high-volume, work.

鈥淚t was a way of looking at the world and saying there must be a way of using people, process and technology in an intelligent way to deliver the right outcomes for clients, but so that it doesn鈥檛 cost them the earth,鈥� says Chaplin. 鈥淭hat way we could get a much larger share of the wallet because we didn鈥檛 have to leave the volume stuff on the table.鈥�

While the rise of ALSPs has motivated some firms to rethink how they provide services, David Carter, Chief Product Officer at Norton Rose Fulbright, thinks this is just a surface-level analysis. The trends that have created opportunities for ALSPs to thrive 鈥� new technology, growth of in-house legal teams and deregulation 鈥� are just as relevant for traditional law firms, he says.

鈥淥ur response to the Big Four and ALSPs has been driven more by our simultaneous reaction to the trends enabling their development than by a defensive response,鈥� says Carter. 鈥淚ndeed, we have expanded our capabilities in recent years into areas pioneered by the Big Four or ALSPs, such as legal operations consulting and risk consulting, so the movement is both ways.鈥�

Revamping business models

While firms are increasingly recognising that standing still is not an option, the traditional partner model can sometimes act as a handbrake on meaningful change.

鈥淯ltimately the thing that really restricts law firms is their structure, which prevents them from behaving differently,鈥� says Bea Seravello, Co-head of Baretz+Brunelle鈥檚 NewLaw Practice.

鈥淭he core of our strategy when we listed on AIM was to take advantage of the flexibility created by deregulation and the way we can offer services to our clients,鈥� says Nick Smith, Acquisitions Director at Gateley. 鈥淭his strategy is about diversifying our revenue streams to become even more relevant and valued by our clients, and offering lawyers a structure that gives an alternative career opportunity to the traditional partnership model.鈥�

Such flexibility allows ABS firms to raise capital from outside investors to pursue, for instance, acquisition opportunities or investment in new business lines in a way that would be more challenging for the traditional law firm model where partners would have to give up potential profits from their own pockets to fund any spending sprees.

Chaplin says DWF鈥檚 decision to move to the ABS model was driven in part by clients questioning whether they were getting the best value for money from their law firms because of the way those firms were structured, particularly how partners were remunerated.

鈥淲e realised we could move to a structure that enabled us to provide enhanced legal and business services without much internal disruption. It wasn鈥檛 a massive pivot for us and it鈥檚 really helped us be more competitive because we can attract a different type of talent,鈥� he says.

Given the potential funding flexibility that converting to an ABS model can provide, the big question is why haven鈥檛 more firms done so?

鈥淔rankly, more law firms don鈥檛 adopt this model because the power of inertia in most is second to none,鈥� says Chaplin. 鈥淪ome private practice law firms are resistant to change and the people who would like to see things done in a different way are quite often not the people in charge. The incentive structure for law firms isn鈥檛 necessarily designed to prompt change because senior partners close to retirement are not incentivised to invest and gamble the profits of their remaining few years by betting large on a new innovative technology.鈥�

While different firms would have different voting mechanisms, typically firms would need at least a majority vote and, in some cases, much higher, including unanimity. The higher the bar is set, the more difficult it would be for traditional firms to convert, he says.

According to Smith, it鈥檚 not about whether the partnership model is wrong and the ABS model is right, it鈥檚 about what is right for a firm鈥檚 individual business. Yet he doesn鈥檛 think regulations are too restrictive for firms still operating under a partnership model to compete with ALSPs and the Big Four.

鈥淲e鈥檝e never said the partnership model is defunct. We fully believe, in the next years and decades, there will be examples of very successful law firm operations that are still run as partnerships,鈥� he says.

Technological advantage?

Given the importance of technology to the Big Four鈥檚 delivery model, surely law firms should be ramping up their tech investments to fend off this challenge. To a point, firms say, but it鈥檚 not a magic bullet.

Carter, for instance, doesn鈥檛 believe new technology will necessarily favour the Big Four or ALSPs; it will simply favour those law firms that do embrace it over those that don鈥檛. Also, while the Big Four鈥檚 model is built around using technology at scale to drive efficiencies, Smith doesn鈥檛 see their tech focus as a threat to firms of his size.

鈥淔rom a technology standpoint, certainly in the mid-market, there is a heavy emphasis on service and a lot of what clients value is difficult to replicate with technology,鈥� he says. 鈥淏ut efficiency is key so as an operator the question you have to ask yourself is to what extent can I preserve the value my client sees our operations providing to them, but at the same time doing it in an increasingly efficient manner? That鈥檚 where technology can help.鈥�

For Chaplin, technology will increasingly allow large in-house legal teams to become more self-sufficient, but it won鈥檛 automatically enable law firms to become more competitive.

鈥淵ou can spend a lot of money trying to keep on top of technology and buying the right solution, but it won鈥檛 necessarily get you to where you want to be,鈥� he says.

One way law firms could potentially differentiate with tech is by staking out an expert niche and then building a solution around it. DWF, for example, has invested in what Chaplin calls the 鈥淔errari鈥� of ediscovery software, something that would be too expensive for many small and medium-sized firms to do themselves.

鈥淎s an alternative provider, we can help those firms become more competitive because they can retain a bigger share of the litigation fighting purse,鈥� he adds.

Natural evolution

Chaplin expects that in the future, as more corporate legal teams seek managed service solutions on top of traditional legal advice, there will be increased collaboration between law firms and ALSPs, akin to DWF鈥檚 acquisition of Mindcrest.

Yet there is no real alarm among law firms over the Big Four鈥檚 expansion into legal services. 鈥淭here have always been trends and changes that are relevant to how we operate and there always will be,鈥� says Smith. 鈥淭here will always be a role for the very best in what you do. So my view is it鈥檚 not a takeover of legal services, it鈥檚 a change in the legal services market, and over time there will be a greater delineation of which type of customer wants to buy their services from which type of provider.鈥�

If you flick through the myriad best employers lists published in newspapers and magazines, the Big Four accountancy firms are usually somewhere near the top. Fortune, for instance, currently ranks EY, KPMG, PwC and Deloitte all inside its top 50 places to work, while just two law firms, Perkins Coie and Orrick, rank inside the top 50. In another poll published by Working Mothers magazine, Deloitte, EY and PwC were all ranked inside the top 10 of family-friendly companies.

Benefits at the Big Four

David Wilkins, Lester Kissel Professor of Law at Harvard Law School, says the Big Four are concentrating huge resources in this area. They have large human resources departments, extensive training and development programmes, and more advanced agile working arrangements. Yet those benefits come at a cost if you are a lawyer who wants to be running the whole show, he says.

Brad Blickstein, Co-head of Baretz+Brunelle鈥檚 NewLaw Practice, thinks the focus on process and technology might not appeal to all.

鈥淟aw school teaches you to look for the differences in matters, so it鈥檚 quite hard to then come out of that thinking and forget all about the differences and instead focus on the 95% of everything that鈥檚 the same,鈥� he says. 鈥淭hose who have had that mind-shift are going to fit nicely into a Big Four, but if you take the everything-is-different approach, then a law firm is going to be more appropriate for you.鈥�

Salaries are also likely to be an influencing factor. While take-home pay for newly qualified lawyers at the Big Four is pretty attractive, top talent can still earn more at traditional firms. PwC, for instance, offers newly qualified lawyers 拢72,000 a year, according to Legal Cheek. That puts it roughly on a par with firms such as Mischon de Reya, Pinsent Masons and CMS, but about 拢10,000 less than you could earn at Magic Circle firm Linklaters and roughly half of what you could earn at an elite US firm such as Kirkland & Ellis or Latham & Watkins.

Innovation agenda

So why would a lawyer swap a career at a traditional firm to work at one of the Big Four?

鈥淭he candidates we talk to are really fired up by the innovation agenda, basically reimagining the future of law and being part of that story; that for them is very exciting,鈥� says Emily Foges, Lead Partner for Legal Managed Services at Deloitte. 鈥淭hey are also excited about working closely with different expertise in the firm, so being on a team with people who have huge amounts of experience in other disciplines rather than just being on a team of lawyers.鈥�

Likewise, for Juan Crosby, Partner and NewLaw Leader at PwC, the appeal of pursuing a career at his firm is not only the chance to work for one of the top global professional services firms, it is also the opportunity to work alongside a variety of experts with different skillsets and approaches to those of a traditional law firm.

鈥淭here鈥檚 still a requirement for exceptional legal skills; we have invested very heavily in subject-area expertise and that鈥檚 what we as lawyers bring to PwC. But they are enabled by a model that can deliver for clients much more efficiently,鈥� he says.

There is also a strong emphasis on personal development and growing digital IQ. Crosby says: 鈥淭here are very structured programmes that enable all employees to go through different types of training that can improve their skills for working in a digital age.

鈥淲e have exceptional technical lawyers in the areas they focus on, but now they鈥檙e visualising and demonstrating some of the legal concepts they think about day to day using tools they wouldn鈥檛 have been able to do before. So there鈥檚 the ability to amplify the effect of, or message in, their work through different types of mediums, which can be far more impactful in helping clients understand legal issues.鈥�

Experience gained at a Big Four firm could also prove valuable later, says Dr Laura Empson, Professor in Management of Professional Service Firms at Cass Business School.

鈥淚f you spend a few years in a Big Four firm, learn how firms of this complexity operate, take from it what鈥檚 useful, and then move somewhere else and become a big fish in that pond, because you鈥檙e someone who鈥檚 just come from one of the Big Four, it鈥檚 not a bad career move,鈥� she concludes.

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