Accounting / Accountants, Biglaw

King Kong Is Coming To Crush Your Practice With A Calculator

'Big Four' accounting behemoths are opening law firms. Biglaw should be scared.

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The legal world has a big new player in town. But this isn’t just another Biglaw 800-pound gorilla, spawned by the latest routine mega merger. No, this is a potential King Kong of the legal industry — a behemoth that’s scaling skyscrapers in search of helpless Biglaw lawyers and firms it can crush like cockroaches before taking their clients.

And worse yet: there are four of them.

Biglaw, meet Biggerlaw, a group of international apex predators that not only know how to grab market share, but also how to work magic with calculators.

Several weeks ago, PriceWaterhouse Coopers (“PwC”) announced it was opening its first law firm on US soil. Initially the firm, called ILC Legal, will be staffed with attorneys who focus on multinational companies drawn from the 3,200-strong pool of attorneys that are part of PwC’s network of affiliates. The firm will focus on international law for now, but PwC maintains that there’s nothing to stop it from expanding into other areas in the future, if it sees fit. The firm plans to offer its clients a holistic, business-oriented counsel in keeping with PwC’s larger suite of business strategy services.

The move by PwC is the latest development in a story that most lawyers thought had ended in the early 2000s. Back in the late 90s, the “Big Five” accounting firms (PwC, Ernst & Young, KPMG, Deloitte, and Arthur Andersen) had none-too-quietly been ramping up their networks of affiliated law firms and wholly-owned subsidiaries, and were beginning to directly compete with the biggest of Biglaw firms.

The threat they presented can hardly be overstated. While all of the Big Five were nominally accountancy outfits, specializing in auditing the finances of large companies, each had been branching out for decades into a more generalized practice of business strategy, management, and analysis. They had colossal books of business just itching to be cross-sold to their affiliated law firms. Adding legal services to their mix of offerings just made them even more of a one-stop shop for any large business’s needs. Large law firms, moored in the 19th-century view of their industry that still largely exists today, were struggling mightily to compete. Why send your money to a law firm that can only give you the lawyer’s perspective, when Ernst & Young can get you in the room with a lawyer, a CPA, a tax analyst, and a fleet of business strategists for a comparable price?

The Big Five made aggressive efforts both in the US and abroad to further deregulate the legal industry to allow for more non-traditional legal services companies, to permit fee-sharing with non-attorneys, and other moves that would make them even more competitive with Biglaw.  Everything was poised for a major takeover, until it wasn’t.

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And Then There Were Four

When the Enron scandal broke, it directly crashed the Big Five’s efforts to conquer Biglaw. Arthur Andersen was engulfed in scandal and went bankrupt, bringing the Big Five down to the current Big Four. Congress took action and passed the Sarbanes-Oxley Act, which forbade auditing firms from providing non-audit services — like legal practices — to their audit clients. The ABA rejected a number of proposed revisions to the model ethics rules that would have paved the way for the accounting firms to move into the industry. As the Economist reported at the time, “Accountancy firms’ drive in the legal arena is dead.”

But as Billy Crystal might say, it turns out they were only mostly dead. The Big Four scaled back their operations significantly in the wake of Enron and Sarbanes-Oxley, but the dream lived on.  Each of the Big Four firms has redeveloped its legal networks in the last decade, quietly amassing thousands of lawyers that they stand ready to deploy as part of their general business strategy services packages. They’ve expanded aggressively in developing economies throughout Asia and Africa, places that traditional law firms have been slow to move into. Given the current administration’s emphasis on deregulation, it’s not hard to imagine them making a legislative push to force their way into the market, either by repealing Sarbanes-Oxley or loosening restrictions on the ownership of law firms by non-lawyers.

In the meantime, the Big Four will continue to cross-sell their legal services with their non-audit clients, who make up a bigger and bigger cross section of their books of business. They’ll also continue to poach high-value attorneys from the Biglaw world through a combination of high pay, interesting work, and excellent quality of life — every one of the Big Four has been listed for a decade or more as one of Fortune magazine’s 100 Best Companies to Work for.

It Ain’t Over Till It’s Over

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There’s still plenty of time left on the clock, however. As much as the Big Four are trying to take a bite out of Biglaw’s apple by offering legal services, some forward-looking firms have been biting right back, expanding their own services into business consulting, accounting, and strategy.

For example, McDermott Will & Emery spun off a subsidiary called McDermott+Consulting.  Focusing on lobbying, strategy, and analytics for the health care industry, they’re going straight at the kinds of non-legal, business-facing services the Big Four would traditionally offer and trying to make it their own. If the pitch for the Big Four is “your business consulting needs, plus law,” McDermott is offering “law, plus all business consulting needs.”

Some firms are looking outside the counselor-client model altogether in their attempts to expand the ways they make money. Baker, Donelson, Bearman, Caldwell & Berkowitz started a venture capital fund to invest in legal services providers and develop new technologies for use in the legal industry. Why spend time looking for the best software to serve your clients with when you could just own the software and sell to other attorneys?

The accounting firms have a vast network of clients to sell to, essentially unlimited resources to build their networks and hire away talent, and all the time and patience in the world. The only thing stopping them, for the moment, are regulations that could fall away with the stroke of a pen.

It’s probably just a matter of time before Biglaw and the Big Four are competing fully in the open market. If Biglaw doesn’t up its game, steal a page out of the Big Four’s playbook, and rise to the challenge, it’ll be Biglaw, and not the accountants, that gets written off.

James Goodnow

James Goodnow is an attorney, commentator and Above the Law columnist. He is a graduate of Harvard Law School and the co-author of Motivating Millennials, which hit number one on Amazon in the business management and legal communications categories. You can connect with James on Twitter (@JamesGoodnow) or by email at jgoodnow@fclaw.com.

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