George Beaton muses over the rise of the $10bn (yes, ten) billion law firms within 10 years
Recently in a discussion with a number of large law firm managing partners I mused whether there might be ten $10 billion global law firms in ten years’ time. This proposition led one of the discussants to suggest I need to have a cold shower. Being averse to cold showers in the winter, I have been thinking more deliberately about the prospect and have concluded it’s quite possible.
The accountancy example
The prospect of ten legal juggernauts should scary for many of today’s BigLaw firms for good reasons. One has only to look at the evolution of the accountancy profession and crunch a few numbers on the legal profession to see why. In 1989, only 23 years ago, the Big 8 existed. Then two mergers amongst them gave birth to Ernst & Young and Deloitte & Touche, leaving the Big 6. In 1998 PricewaterhouseCoopers was born, leaving the Big 5, reduced to 4 by the implosion of Arthur Andersen not long after. Some of these firms date back in trans-Atlantic terms to the 1920s when, for example, Arthur Young Broads Patterson and Peat Marwick Mitchell served international clients from offices in the UK and the USA.
Analysis the Beaton450 league table shows the modern Big 4 range in size from $20bn to $27bn, each employing well over 100,000 people around the world. Each is larger than many of their clients. Each is a very successful firm. On a global basis few, if any firms, can challenge the Big 4. In the talent recruitment marketplace they are they first choice for most graduates in most countries. It’s daunting for any firm competing head-on with the Big 4.
A mega firm merger
Similar analysis of law firms in the Beaton450 shows the largest four ranging in size from $1.9b to $2.3b, which is 10 per cent of the size of one of the Big 4. So perhaps a cold shower is warranted? But wait, if law firm numbers 1 and 2 (Skadden Arps and Baker & McKenzie) by size merged (for the sake only of the arithmetic) and the merged firm grew at 10 per cent per year, it would take nine years to reach $10b (in today’s dollars). If annual growth was 5%, it would 17 years to reach $10bn.
And, as with accountancy, if two mega firms merge, others will follow.
Perhaps the real question is ‘Why won’t the global legal industry evolve in the same way as the accounting industry?’ The cold shower can wait.