How the Big Four Accounting Firms Are Disrupting the Legal Industry
Most people are aware of the big four accounting firms. It is less well known that they have been delving into the legal industry in recent years.
Th big four accounting firms by revenue (globally) are Deloitte, PWC, EY and KPMG. These are the four largest professional services firms in the world. They offer a variety of services from audit & assurance, management consulting, actuarial and more recently, legal services.
In the 1990s the big five (current big four, plus Arthur Andersen) made a substantive effort to delve into the legal market. This failed after the Enron scandal centrally implicated Arthur Andersen. However, the four have since become strongly aligned with legal services. This was born out of flatlining revenues in the traditionally strong audit and tax divisions, forcing them to seek new business lines to keep growing.
As of November 2018.
- 3,600 PWC lawyers globally
- 2,400 Deloitte lawyers globally
- 2,200 EY lawyers globally
- 1,800 KPMG lawyers globally
How are they approaching the legal industry
Instead of building full service firms the big four are concentrating on legal areas which complement their existing consulting services. For instance, PWC offers tax, advisory, employment, finance and regulation. Currently, these giants have resisted focusing on high-value work such as capital markets transactions or mergers and acquisitions. Instead focusing on mid-tier process oriented work. This is positive news for traditional law firms who rely heavily and compete for high ticket items such as these. However, this is likely to change in the future with accounting firms adapting as their legal workforce and expertise grows.
They have also been seeking to grow their practices in under utilised emerging markets where international law firms have a small presence. These mammoth accounting firms are able to utilise these markets because there is a large accounting presence in these areas. A notable area where the big four is growing their presence is East Asia.
How the legal market will compete
Managing partner at Herbert Smith Freehills, Andrew Pike has acknowledged the big four are expanding their offering into legal services. However, he isn’t concerned, instead embracing the notion of healthy competition. He similarly acknowledges the evolution of the legal market but thinks it’s too early to tell if they will be able to branch out as full service competitors to large law firms.
Other firms such as Gilbert + Tobin are focusing on the technology and processes to present a more diverse offering to businesses across all industries. This is an effective way to compete with accounting firms diversifying their offering. However, smaller firms will struggle to adopt such a strategy as it will require flexibility to accept the disruptive nature of new technologies. This is particularly crucial with many businesses seeking alternative legal service providers who have integrated technology with their legal offering.
Regulations have restricted the big four firm’s growth with restrictions on practising law in America which accounts for over a third of global legal spending. Instead, there are only a few countries which allow full integration of accounting and law firms.
The big four have had substantial success with expanding into complementary legal services. Only time will tell if they will be able to make the same offering as full service law firms. However, regulations will need to become more lenient to enable this growth. Traditional law firms should meanwhile attempt to diversify their offering by adopting new technological processes. This is to ensure differentiation from the big four’s legal service divisions.
Gopi currently works in the content team as a Legal Intern for Lawpath. He is in his fourth year of a Bachelor of Law and Commerce (Accounting) at Macquarie University. Gopi is interested in cyber law and future innovations in the legal industry.