Bloomberg Law
July 3, 2018, 5:19 PM UTC

New Market Forces Exploit Cracks in Big Law’s Armor

J. Stephen Poor
J. Stephen Poor
Seyfarth Shaw LLP

The last month has seen interesting developments in both the traditional legal industry as well as the less-traditional portions of the industry. In both cases, they reflect the continued emergence of a more nuanced industry, rather than the monolith that existed historically.

On the traditional side, when looking at AmLaw results of revenue growth of 5.5% and net income increases on average of 6.1% (even accounting for the somewhat uneven results among quartiles of the AmLaw 100), it is difficult to see anything other than solid results. While there is increased volatility in the industry, one can see the argument from an AmLaw attorney to simply stay the course.

At the same time, however, interesting things continue to happen in the non-traditional side of the industry that bely the validity of this argument. UnitedLex, for example, continues to strike new relationships. Recently, it announced a deal with LeclairRyan to form ULX Partners. ULX Partners will “rebadge” (the new name for outsourcing, I suppose) legal support personnel. (For a deeper look into the UnitedLex development, see the post by William Henderson at Legal Evolution entitled, “ULX Partners: UnitedLex develops solution to law firm innovation risk”). This is on top of other relationships UnitedLex has forged with two corporate legal departments, GE and DXC.

The continued movement of UnitedLex into outsourced legal support, overshadowed news around the continuation of the Big Four’s seemingly inexorable march into the legal industry. This time, the news centers on Deloitte. Last month, it acquired the global components of Berry Appleman & Leiden (BAL), a US-based immigration firm. Even more recently, it became the final member of the Big Four to acquire an ABS license in the United Kingdom. At 1,800 lawyers, Deloitte is the smallest legal provider among the Big Four. Yet, at slightly less than $40 billion in revenue, it is the largest of the Big Four.

Put aside the sheer magnitude of the numbers associated with members of the Big Four ($40B in revenue?). Consider for a moment the aforementioned acquisition of BAL by Deloitte. For a US-based law firm, it might be easy to discount the significance of this move. After all, most firms do not have large immigration practices, and Deloitte made the clear point that it was not acquiring a US presence.

To do so would be foolish. The Big Four have made it clear that they are after “run the company” matters and are prepared to bring their capital and relationships to bear to penetrate this market. Earlier this year, Matt Ellis, managing partner for tax and legal at Deloitte, was quoted thusly in the Financial Times: “We’re planning on using our technology and advisory skills to transform legal services and help address many of the challenges lawyers …. are facing in today’s increasingly complex legal environment,” (“Deloitte Muscles in on legal services in UK”, Financial Times, January 9, 2018). The BAL acquisition is another example of this commitment. With all the talk of “high value” or “bet the company” matters, the reality is that this segment of the market is a staple of most law firms.

Moreover, the belief that US regulatory issues will operate as a shield only goes so far. Of course, the US regulatory framework precludes a Big Four attorney from standing in court and representing a client. It does not, however, preclude Big Four personnel from performing work for which a law license is not necessary. As work is continually deconstructed, the risk is that this type of work will be siphoned off by the Big Four as they find more process-driven ways to perform the work (not unlike UnitedLex). For example, Deloitte already partnered with Allen & Overy a couple of years ago to handle flows of work connected with the OTC derivatives market in Europe. Given their access to capital and their clearly stated intentions, the Big Four may be the largest force likely to reshape the legal industry over the coming years.

For a traditional law firm, finding a path in this complicated environment is challenging. It is made more difficult by the fact that, on both sides of the question, observers tend to take extreme positions. The traditionalists prefer to either ignore or minimize the impact of these developments. And, why not? The strength of the industry performance in 2017 – while not pre-recession levels – points to a continued demand for legal services delivered by traditional law firms. Advocates for “NewLaw,” on the other hand, look forward to the demise of the traditional law firm model and the rise of different types of providers or technology. In turn, they point to the continued dissatisfaction of corporate buyers with the current system of legal delivery.

The problem is that each side reacts to a portion of an increasingly nuanced industry. Yes, overall, traditional law firms had a solid performance in 2017. Even within that solid overall performance, however, the continued breaking of the industry into different performing segments is once again apparent. The reality is that the industry is slowly being reshaped by market forces into a far more nuanced structure – one that is far more challenging to navigate by both buyers and providers of legal services.

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