New Entrants

More of a pressing issue in the UK than in the US, given the Legal Services Act opening the door to outside investment and non-lawyer ownership.  Much or most of the ink has been spilled on the upstart or “new model” entrants (Axiom, Riverview, Radiant, and to some extent Lawyers on Demand and PeerPoint), but for purposes of today I want to take a contrary stand and focus on the announced and the perhaps unannounced but plausible plans of the Big 4 accountancies (Deloitte, EY, KPMG, and PwC) to provide legal services.

A few data points:

• The combined revenue of the Big 4 is greater than that of the AmLaw 200 firms by fully one third ($135 billion for 2015 for the Big 4 vs. $100 billion for the AmLaw 200); they have a war chest if they care to use it.
• Their employee ranks utterly dwarf those of law firms: About 735,000 professionals and staff in the Big 4 (2015) vs. about 175,000 lawyers and staff in the AmLaw 200 (over four times as many).
• They have name-brand entrée into the boardroom of every Fortune 1000 and FTSE 250 corporation in the world—and then some.
• And perhaps most tellingly of all, when they set their sights on a goal (invading a professional services vertical or an industry) and tell their professionals to march, those professionals…march.

The counterarguments to the Big 4 mounting a meaningful threat to BigLaw are essentially three, none of which I would count on as a bulwark safeguarding my core business model:

• First, they tried this before in the 1990’s and were repulsed.

  Well, actually Andersen Legal was hit by a stray bullet from the firefight Enron kicked off and which culminated in Sarbanes Oxley.  What happened was hardly a critique of either their business model or their effectiveness in the market.

• Second, law isn’t part of their core competence and it would always be peripheral to their real business.

  Again, actually their “real,” core business has morphed repeatedly over just the past couple of decades. None would boast their core anymore is “audit,” and the consulting that’s their core now is perilously close to what many lawyers do.

• Third, the legal market is different: Always has been, always will be. For example, what about conflicts?

  The legal  market is far less different than you’re privileging yourself to imagine; it’s one more species of professional service, which is the business the Big 4 have been in for a long time.  Global? They’ve done that.  High end and commodity,  depending?  They’re actually frighteningly good at that.  Requires brand-name credibility?  Thery’ve got it in spades.   Not to mention the global legal services market is huge enough to be quite an interesting target for the Big 4—approaching US$1-trillion in annual revenue.

Maybe they don’t seem to be coming yet, but our hunch is that if you could see just over the horizon you might be less sanguine.

Now to that one big issue.

The issue that trumped everything else put together was the US/UK, or New York/London, axis.  Where is it going, what does it mean, how will it play out, what on earth should we do?

Every time we’ve gone to London for the last few years this has come up, but on each visit the drumbeat around the topic seems to increase in volume and intensity.  This time it’s safe to characterize it as an obsession—which US-based firms with offices in London share; it’s not limited to the UK firms on their home turf.  This expressed itself in many ways.  Here’s a sampling of what we heard, sources unidentified for obvious reasons

• Should we seek a merger?
• We’re seeking a merger!
• Or should we just expand our US capability?
• Does “the US” mean we have to have bricks and mortar there or can we do it through a sales team? Why can’t we reach in from outside?
• Are the Americans going to take over London?
• Partners born and raised under the umbrella of the Magic Circle are too comfortable there to ever leave; and they wouldn’t have a clue where to start if they did.
• Magic Circle partners with their eye on the main chance are jumping ship to US firms.
• Middle market US and UK firms will be just fine if they tend to their own back yard.
• Middle market US and UK firms are going to have to respond to the world going global—there’s no place to hide.
• They are taking work that rightly belongs to us! (This righteous observation was offered in both directions.)
• Why on earth do we need US capability? The world is moving to global deals done under English law.  Nobody asks for US law any more.
• I’m sitting here in London doing exactly what I did for 20 years in New York: Deals under New York law across the table from New York lawyers. Nothing else has changed except my clients are in Europe, the Middle East, and Asia and not in New York, Chicago, Texas, or California.
• The US is the end-game; without meaningful US capability, we can’t lay claim to being a truly global firm.
• US firms are grossly mismanaged; sometimes I wonder whether they’re managed at all!  In looking at potentially transformative transactions, who cares what one lousy partner in [Austin/Boston/Charlotte] thinks it means to him?!  US firms just aren’t run as serious businesses.
• There will never be a [successful] US/UK merger! Never!  The cultures are fundamentally too different. (Perhaps this fellow hasn’t heard of HoganLovells, but it didn’t seem the opportune moment to interrupt his flow.)

There may be other possible views on this topic that we’ve omitted, but if we’d stayed another week we surely would have heard them as well.

How to make sense out of all these inconsistent and contradictory opinions? What can one sensibly conclude from this cacophony?

Actually, my own conclusion is perfectly straightforward:  This is a market in severe disequilibrium.  The status quo seems untenable to many, yet whether the way ahead calls for advance, retreat, or some sort of flanking maneuver if for no other purpose than to buy time, is impossible to tell.  Grow and expand offerings?  Shrink and specialize?  Pay royally for marquee talent? Focus on process optimization and near-shoring? (Both?) Merge/invest in best friends/go it alone?

In other words, confusion and inconsistent readings of the landscape seem to reign. From this, in turn, I conclude that market dynamics will not indefinitely tolerate this state of affairs.  Something has to give.  In other words, if we were to have the same set of meetings five or ten years hence, I find it impossible to believe that this state of “great blooming, buzzing confusion” will still prevail.

So what, then, do I hypothesize will “give?”