06 Sep 2021

'A very attractive offering' - the Big Four's growing legal services reach

Big Four's latest strategy to handle high-volume, low-value legal work at much lower cost could see some law firms feeling the pinch, says report

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A new report from LexisNexis indicates just how much the Big Four's legal arms have grown in the past few years, with their global reach and tech integration potentially leaving some law firms outgunned. 

Against a backdrop of growing use of alternative legal service providers (ALSPs), the Big Four have shifted their approach to the legal industry. Rather than trying to look as much like traditional law firms as possible, only bigger, they’re combining process efficiencies and tech to provide everyday legal services at scale.   

They aren’t interested in ‘one-off, bet-the-company’ work, they want the 'run-the-company' work, says Harvard Law School’s David Wilkins in the report. It cites Bayer’s $66bn acquisition of Monsanto in 2016, which saw the parties advised by top-tier law firms including Allen & Overy and Wachtell Lipton Rosen & Katz but the post-merger work given to PwC.

The higher integration of technology, project management and process management coupled with huge numbers of employees across a range of specialties could make for an attractive offering, says Wilkins, adding that it could mean the Big Four’s push into legal services “could gain more traction this time around.”

And indeed they seem to be seeing solid growth, with research from LexisNexis indicating PwC Legal UK has doubled its revenue in the last five years to £100m and KPMG Law’s UK arm almost quadrupling it, from £12m to £45m.

These numbers may pale in comparison to big commercial law firms, but the data is only for the UK and the Big Four’s legal arms extend worldwide. Estimating their revenues is also tricky given that some of the services they offer, like legal ops consulting, might not strictly be viewed as ‘legal work’.  

All four are also gradually increasing the number of fee earners within their legal services teams and have hired talent from top firms. PwC has by far the most in the UK, with roughly 400, while Deloitte and EY each boast around 170 and KPMG just shy of 150.

The report contains interviews with senior figures from the Big Four's legal arms, including Emily Foges, former chief executive of legaltech company Luminance, who joined Deloitte in London last year to become lead partner for legal managed services.

She tells the report that Deloitte Legal aims to bring together legal advice with legal management consulting, legal managed services and legal technology. “This way you can provide a complete end-to-end service to the client and achieve the outcomes they are looking for, not just give them advice on those outcomes," she says.

“That strategy works on its own, but it works so much better in the context of Deloitte because our clients have access to business expertise and global scale.”

This scale matters for large organisations operating in multiple countries, says the report, as they can ‘access local expertise in a more joined-up, consistent manner than firms that might rely on local partner networks or only have small offices with limited practice-area coverage.’

The rise of ALSPs has come as pressure on in-house legal budgets has compelled businesses to re-evaluate what work can be done in-house, by panel firms or alternative providers.

Anup Kollanethu, UK Head of Legal Managed Services at EY, says in the report that most GCs would keep the complex work for themselves if they had the capacity but often don’t because so much of their time is spent dealing with the day-to-day and the demand for doing more with less. This combined with seeing other business functions outsourcing large-scale work makes it clear, he says, why the ALSP market has grown so much.

Many organisations have set up separate ALSP panels in addition to their long-standing law firm panels, with the scope of work being instructed also widening. The types of service offered by alternative providers have also “moved much higher up the complexity curve,” says Juan Crosby, partner and NewLaw Leader at PwC.

“The Big Four put a lot of investment around researching how they can take existing technologies that don’t even relate to the practice of law, but can provide a client solution,” says Bea Seravello, co‐head of Baretz+Brunelle’s NewLaw Practice. “Law firms are not there right now, they are still struggling with just embracing technology to use in practice.”

There are competing views, though, over how much the Big Four are likely to impact the wider legal industry. Some believe that law firms don’t have too much to worry about as some large organisations might feel uncomfortable about single-sourcing professional services if they’re using those firms for auditing too.

Also, not all the Big Four are competing for certain types of traditional legal work. Only PwC and Deloitte list litigation among their practice areas, with litigation providing “too many complexities, too many regulatory problems and too many conflicts,” according to Wilkins.

Law is also not the main priority for the Big Four in the context of the wider business, despite being a growth area. Cass Business School’s Dr Emma Empson says in the report: “Their legal businesses are tiny in relation to the core elements of their business and this will have implications for the amount of senior management attention and the resources they get.”

Another important consideration is that the Big Four are facing significant regulatory challenges around their core business to safeguard against more audit scandals. And their audit business being ring fenced would constrain their ability to cross-sell services to their legal business.

The expansion of the Big Four is also likely to affect some law firms more than others, according to the report. Brad Blickstein, Seravello’s co-head at Baretz+Brunelle, argues that mid-size law firms might not feel the pinch quite as much as larger firms as the type of work more ripe for disruption, like due diligence for an M&A deal, is not the type of work mid-sized firms do.

“The Big Four have also have the ear of the C-suite at big companies and those big companies tend to be working with big firms,” he adds.

Having said that, the Big Four could look at “a swath of practices that are in the mid-sized playground and they could just focus on scooping that right up and taking it away from them,” says Seravello. “They are much more of a machine; they’ll go wherever the greatest opportunity is for them.”

Some law firms may also be too relaxed about the Big Four’s growing place in the market, according to the report, potentially ‘finding themselves outgunned by the elite firms at the top and squeezed out lower down because they can’t compete with the Big Four.’

“This is a classic disruptive innovation story in which the top players increasingly move to the higher and higher-value work, which is great except there’s only room for a certain number of players there,” says Wilkins.

Those working in the legal divisions of the Big Four expect the market to continue shifting in their direction over the next ten years as trends around outsourcing and technology further accelerate.

“Change tends to happen very slowly and then very fast,” says Wilkins. “That tipping point doesn’t mean there won’t be traditional law firms that attract very high-level talent, but they are going to compete in a marketplace in which there are many other players. For some things you’re going to want a traditional law firm, but for other things, and probably a fairly large number of other things, you’re going to want something different and that might be a Big Four solution.”

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