Big Four vs. Big Law: The Race to Change Legal Services Delivery

By J. Stephen Poor, Chair Emeritus, Seyfarth Shaw LLP

“They’re trying to look more like us.” That is the quote given to Big Law Business by Joe Andrew, Global Chair of Dentons, with regard to the reemergence of the Big Four as competitors to Big Law.  This is in response to a recent paper published by ALM Intelligence entitled “Elephants in the Room.”  This was all further punctuated by news late last week that PwC has launched a U.S. law firm to advise U.S. clients on international matters.

On the face of it, Mr. Andrew seems precisely correct. For those of us of a certain age, we remember the Big Four’s (five at the time) emergence with the multi-disciplinary wave at the beginning of this century.  For reasons discussed in the ALM paper (Enron, regulatory environments, etc.), their growth slowed dramatically after the early 2000s. Nevertheless, they never went away.  As the legal industry continues to change, however, the Big Four have reemerged on the consciousness of buyers of legal services and garnered attention from Big Law leaders.

Certainly, some of their raw numbers are impressive. Simply looking at the number of lawyers, they would be in the top 15 of global firms.  PwC, for example has 2500 attorneys.  Those attorneys are scattered across the globe – in fact, PWC has lawyers in 85 countries.  The other three firms are not far behind PwC.  Other numbers, however, are much less impressive.  ALM reports, for example, that PwC’s revenue from these 2500 lawyer is $500 million.  This is compared to PwC’s overall reported revenue in 2016 of $35.9 billion.  Again, the other Big Four were in the same ballpark.

Given the relatively paltry revenue generated – certainly as compared to their overall revenues – why is this market of continuing interest to the Big Four?  ALM nicely lays out the opportunities they see. As a core strategy, however, they seem to be trying to grow revenue from a fairly large, fragmented market (ALM estimates the total global legal market at $600bn) by relying on their deep client relationships and the belief that the market values interdisciplinary solutions.  Given their size and their continued tenacity, it is clear that they have the resources and desire to build something lasting.

Big Law sees this as a risk. 69% of respondents listed accounting firms as a significant threat to their firm’s market share. This was, by far, the highest perceived risk.

In fact, the continued presence and reemergence of the Big Four poses a risk to Big Law.  But not because they want to “look like us.”

As a lookalike, they fall short. Size only matters if it can be translated into profit growth. While the study did not discuss the profit driven by the legal arms of the Big Four, the revenue generated by their practices pale in comparison to similar Big Law practices. Moreover, their presence is focused to certain practice segments – they miss, for example, the litigation market which is a significant component of many practices.  They are also limited by regulatory restraints in the large US market.

Looking like us is not the risk. Changing the way legal services delivery looks is the risk. In fact, ALM observes that the Big Four are evolving a second operational model premised on a managed services concept.  Examples abound: EY Law hired a managing director from Axiom to run an operation in Ireland. PwC just bought GE’s tax practice. Deloitte has made a number of plays in this arena.  In short, they seem to be expanding their operational model beyond “looking like us.”

The Big Law model is being challenged on many fronts. Start-ups –both pure tech plays and combination plays like Atrium – are nibbling at one edge. In house teams have been beefing up and taking away market share from Big Law. Other alternative service providers are continuing to grow market share.

Against this backdrop, the Big Four – with enormously deep resources – are reemerging in the field.  If they just try to “look like us”, they simply become yet another set of competitors.  In that model, they certainly have advantages but they have equally strong disadvantages.  It is a very different story if they deploy their capital to develop service offerings utilizing tech and people in a different way than currently offered by Big Law.   If they choose this path, they have the resources to dramatically change the complexion of legal service delivery.  Time will tell if this is the path they choose but the risk is here, not in the Big Four looking like Big Law.

For more essays from Stephen Poor (@stephen_poor) and Seyfarth on change in the legal industry, visit Rethink the Practice.