Bottom line, the accountants are coming
The Word of Gold: the Big Four's growing presence in legal services adds up to a major threat to law firms
Until now, most ABS activity in the UK has focused on legal services for consumers, above all in personal injury. At first sight, there have been few incursions into corporate and commercial law. Slater & Gordon, for example, offers business law services, as does Knights, a Midlands law firm bankrolled by former Dragon’s Den inmate James Caan. But a new investigation by the Economist, entitled “Attack of the Bean Counters”, reveals that this comparative immunity is now under serious threat.
In fact, despite the setbacks of the past, culminating in the catastrophic demise of Arthur Andersen (from which Dundas & Wilson skilfully escaped), the accountants never completely went away. The inequality of arms between the Big Four and Big Law is striking. Combined, the worldwide billings of PWC, Ernst & Young, Deloitte and KPMG are $120 billion, dwarfing the $89 billion of the world’s top 100 law firms. By headcount, PWC is the world’s 10th biggest legal practice, and plans to boost legal services revenue to $1 billion by 2020.
Concerns about conflicts of interest have been at the heart of opposition to ABS, and indeed conflicts between Andersen’s consulting and audit arms were widely seen as key to its collapse. For a time afterwards, accountants lost interest in legal services and sold off their non-tax operations, but three factors drew them back. First was the recession, which sharply reduced their traditional fee income. Secondly, the globalisation of corporate clients made international reach a potent selling point: EY Legal has expanded from 23 countries to 64 since 2013. Already, the Big Four’s combined share of revenue of the top 10 law firms in each jurisdiction where they operate ranges from 4% in China and 6% in the UK, to 20% in Germany and 30% in Spain. Thirdly, came deregulation and the emergence of ABS.
The UK is juicy prey for these big beasts, the more so because accountants are not yet allowed to own or control law firms in the biggest market of all, the US, nor in Brazil, India or Canada (which, however, is changing). For the moment, the most lucrative capital markets and M&A work of City law firms is not under threat, as accountants focus on areas such as tax and regulation. But that is unlikely to last. As Damon Runyon once observed: “The race is not always to the swift, nor the battle to the strong, but that’s the way to bet.”
The Economist highlights the potential for accountants’ propositions to trigger conflict within clients. According to a recent survey by American Lawyer magazine, 90% of general counsel said they would not buy from an accounting network, but they may well end up being overruled by the chief executive and finance director, lured by the attractions of a global one-stop shop selling tax, audit, consulting and legal in a competitively priced package. Long term, there is no compelling reason why US corporate counsel should have a different attitude to their counterparts elsewhere.
It is hard to argue with the Economist’s conclusion that while the “bet the farm” work of the global law firm elite is comparatively safe for the moment, the mid-market is under immediate threat, and long term, no one can rest easy. The profession’s typically “artisanal” approach to service delivery cannot stand. With a combination of deep pockets, sophisticated business skills, global networks and client lists to die for, the accountants will be formidable adversaries. As it states, “The Walmarts and Amazons of professional services are at the gates, and the legal industry’s halting pace of creative destruction is set to accelerate as a result.”
Stephen Gold was the founder and senior partner of Golds, a multi-award-winning law firm which grew from a sole practice to become a UK leader in its sectors. He is now a consultant, non-exec and trusted adviser to leading firms nationwide and internationally.
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