Late this past week my partner Janet and I had the opportunity to participate in a panel at the 23rd annual Thomson Reuters Marketing Partner Forum (held this year in Orlando) on the “rise of the Big 4″—and, we took it to mean, all other species of non-law firm legal service providers.
Here’s how the official agenda (which, full disclosure, we had no hand in drafting) described it:
Invasive Maneuvers: Emerging Markets, Client Demand & the Rise of the Big 4 in Legal Services (Breakout)
If the recent formation of the ABA Commission on the Future of Legal Services is any indication, the United States legal system is very much aware of the long term ramifications of the UK Legal Services Act of 2007 on non-US legal engagements. For corporate clients interested in streamlining their legal fees and working with fewer partners, the Big 4’s newly-accredited legal services have acted as de facto siren’s calls away from the dreaded billable hour. This conversation examines the long-term impact of the Big 4 on process-oriented work in the legal market and considers how these firms are bolstering their proximity to a larger slice of the proverbial pie.
Bruce MacEwen, President, Adam Smith, Esq.
Anne L. Ristic, Assistant Managing Partner, Stikeman Elliott LLP
Janet Stanton, Partner, Adam Smith, Esq.
Melanie Zaletsky, Global Head of Strategic Innovation, Hogan Lovells US LLP
As I said, we interpreted the topic and description as an invitation to have a discussion beyond the scope of the Big 4 per se. But first, some data points we offered up to open the session. (Those of you who may have seen an Adam Smith, Esq. presentation will recognize our fondness for data.)
- Last year about 5—10% of US law school graduates went to work for an accounting firm;
- PwC, EY, and KPMG have all secured ABS licenses in the UK; only Deloitte has, to date, demurred;
- PwC has announced publicly its intent to grow its legal services revenue to $1-billion by 2019 (closer than you think), which would make it an AmLaw 20-size provider;
- And all three of the firms currently active have made some high-profile hires, including practice heads in areas including finance, corporate, project finance, and private equity, from firms such as Addleshaw Goddard, Baker & McKenzie, Berwin Leighton Paisner, DLA, Freshfields, McDermott Will & Emery, Olswang, and Weil Gotshal.
A logical-enough starting point seemed to be to ask the law firm panelists, Anne and Melanie, whether their firms were seeing encroachment from the Big 4 in any of their markets, Hogan Lovells being of course thoroughly international and Stikeman relatively Canada-centric. Their answers were consistent: So far, yes, around the margins of their practices and in areas where, as they put it diplomatically, their lawyers did not feel a compulsion to compete. But Melanie hastened to add they watched what the Big 4 were up to very attentively and Anne agreed, saying that the Stikeman followed their market activities very closely. Indeed, the Canadian Bar Association, and the governing body in Ontario (Stikeman is based in Toronto) were actively exploring the functional equivalent of permitting ABS arrangements in Canada.
Janet and I noted that the combined revenue of the Big 4 is substantially greater than that of the AmLaw 200—about $150-billion for the Big 4 combined vs. just barely north of $100-bilion for the AmLaw firms.
An audience member who had worked for a Big 4 (un-named) for ten years volunteered the following (I paraphrase):
- We’re global, in far more cities and countries than the most far-flung law firm;
- We’re in, or have immediate entree to, essentially every Fortune 1000, through one or more of the doors of audit, tax, and consulting; our brand could hardly be more widely recognized;
- As a corporation, we not only have the luxury of being able to invest retained earnings, but we can reward our top performers with stock options and not just current ordinary income; and most fascinating and powerful of all
- When we decide to target an industry—be it technology, in San Jose, or autos, in Detroit—we can assign 10,000 professionals for an entire year to build up process maps, workflow diagrams, analytic tools, and so forth, and to build a deep and rich resource in thought leadership; this is not viewed as extraneous or peripheral in the least, but is in fact a standard part of one’s career path. These professionals are then plunged back into client relations in the targeted vertical.
In the opening session of the MPF event itself, data was presented showing—this struck me as not exactly coincidental—that the inflation-adjusted growth in revenue of all private law firms (from solo’s to AmLaw #1) in the US was $300-billion in 2005 and in 2015 was…$300-billion. Meanwhile, the amount spent on legal services provided by not-law-firms, including the amounts spent on inhouse departments, have grown nearly 50% and last year totalled about $137-billion.
Finally, the panel touched upon the topic featured in the agenda’s description: the implications of the UK’s Legal Services Act for North America. Conceptually it seems to me there are three possible views on this:
- Never happen here, so next question (thank you, bars of the 50 states).
- May or may not happen here, but in the meantime the Big 4’s, Axiom’s, Riverview’s, NovusLaw’s, Clutch’s, Integreon’s, LegalZoom’s, et al., of the legal world are scooting right along doing virtually whatever they want to do, or certainly what they need to do, so it’s an academic debate. Or
- Yes, the functional equivalent of the LSA will have to come to North America sooner or later; that’s the way dynamic global markets work. You cannot erect a barrier against talent, ideas, or capital at the water’s edge.
Personally, I subscribe to a blend of ##2 and 3, roughly as follows.
Yes indeed, a lot of #2 is happening already right under our noses, and clients, not so incidentally, seem to be delighted. Particularly in a part of the market beneath the dignity of BigLaw, LegalZoom is loudly and publicly on a mission to create “clients for life,” where a youngish person with perhaps a question about a house closing, a pre-nup, an employment discrimination issue, or a corporate or partnership formation, will start with the automated tools and over time move up into LegalZoom’s standing army of human lawyers. Without question, this provides legal services to a non- or inexcusably under- served portion of the market today.
So, too, #2 is happening with the Big 4 and tax, employment, and immigration law issues.
But #3 would be the headline revolution, and I believe it is inevitably in the cards not just thanks to the dynamics of markets—”don’t fight the tape” is an old Wall Street mantra, but it embeds the identical logical notion that markets will have their way—but also thanks to what we know about the history of social-policy and judicial challenges to guild restrictions on qualifications for entrance and the “unauthorized practice” of X, Y, Z.
First, note that pretty much every successful challenge to guild restrictions has been based on a combination of antitrust, commerce-clause, and free speech. This was true of the 1977 Bates decision permitting lawyer advertising and was the genesis of the UK’s Clementi Commission itself, which led to the LSA. Second, how many of you noted the Supreme Court’s February 2015 decision in North Carolina State Board of Dental Examiners vs. FTC? In summary it upheld the FTC’s challenge to the licensing board’s practice of excluding nondentists from the market for teeth whitening—as anticompetitive and an unfair restraint of trade. Of particular note are these lines:
The Court has rejected the argument that it would be unwise to apply the antitrust laws to professional regulation [absent extenuating circumstances and] particularly in light of the risks licensing boards dominated by market participants may pose to the free market.
So if a challenge to The Rules of Professional Conduct’s prohibition on non-lawyer ownership were either brought by (say) a Big 4, or conversely if an action to prohibit (say) a Big 4 from providing “lawyerly” services were brought by a lawyer or law firm, my money would be on the prohibition falling.
And as an economically trained lawyer, business owner, and New Yorker, my reaction would be: “Bring it on.”