Big Four Blurring Lines of Legal Landscape

By now, the news that EY acquired Riverview Law has made the rounds in the legal media. This is one of many recent moves the Big Four has made into the global legal market, and their forward momentum shows no signs of slowing.

While buyer resistance and regulatory challenges exist, the strengths of the Big Four provide them with an excellent position to continue to expand in this market. Their multi-disciplinary history, their more varied skill sets, their focus on process and client experience, and their history in blurring disciplinary lines will work to their advantage.

A brief look into the Big Four’s history and experience in building consultancy and advisory practices provides insight into their roadmap for the growth and integration of legal services into their business model – and how incumbent law firms can push forward and compete.

Blurring Lines

The Big Four are now the world’s largest consultancies. Between them, they account for about 40% of the global market of about $150B (PwC and Deloitte for example have revenues north of $16B each). According to The Wall Street Journal, revenue for the Big Four from their consultancy/advisory practices is up 44% since 2012. This contrasts with the growth in revenue from auditing of about 3%.

As you may recall, three of the Big Four divested their consultancy practices following the passage of Sarbanes-Oxley and the fiascos of Enron and WorldCom. They have since rebuilt – and rebuilt with a vengeance. The tools for this rebuilding are fairly straightforward. Each of the Big Four has utilized their capital to make strategic acquisitions (see, for example, PwC’s acquisition of Booz & Co. – among many, many others). They leverage technology both for execution and advice around deployment to clients. They have managed to build relationships throughout organizations – not simply finance, but operations, human resources, technology and on and on. In the process, they have remade themselves. George Beaton aptly describes it this way:

They blur traditional disciplines to the point you don’t recognize them, and they are inventing new integrated services. That’s why they’re called the Big Four: there’s no collective name now that gives expression to what they are, as they are so diversified.

Lessons for the Legal Market?

It would appear that they are trying to repeat this pattern in the legal industry. This is not new information of course. The most recent shoe to drop was EY’s aforementioned acquisition of Riverview Law – a UK based managed services firm and one of the darlings of the ALSP industry. While much was made of the acquisition in the legal press, the acquisition itself was simply the latest in a series of moves by the Big Four. Interesting but predictable. What is far more interesting, and indicative of the future, are the announced goals for Riverview post-acquisition. In a recent article in Legal Futures, Chris Price – global head of alliances for EY – set out the following objectives:

• To expand the Riverview staff from 100 to 3,000

• To utilize EY’s service center in Bangalore to find further service improvements
  • (Oh, by the way, Bangalore happens to be EY’s center for AI and robotic process automation technologies)

• Open centers globally

• Contract with Riverview’s legal technology

• Bring EY’s client relationships into the Riverview offering.

Sound familiar? This pattern fits neatly into the history and experience the Big Four have accumulated in building enormous consultancy practices. Those lessons are being applied to the legal industry and the pace of that application is clearly picking up. As noted earlier, the Big Four have grown to have 40% of the global consulting practice. If they simply garner 5% of the much larger global legal market, that amounts to approximately $30B (ALM Intelligence). This is, of course, ten times the size of the largest Big Law firm by revenue (Kirkland at $3.165B). Does anyone believe, however, that the ambitions of the Big Four are limited to 5%? Put the larger market aside for a moment. The smaller sub-market for managed legal services is predicted to grow from $2B to $55B in 2025 (Thomson Reuters/Adam Smith Esq). This is market segment with no large incumbents. Even focused on that limited segment, there is still an enormous opportunity for growth by the Big Four.

Buyers of Legal Services May Be Big Four’s Biggest Barrier… For Now

Much has been made of the barriers to the penetration of the legal industry by the Big Four. Regulatory restraints – both in the US and globally – and potential conflicts are real issues for the Big Four to confront. There is no doubt but that these issues will slow the growth of their legal arms. The same could be said of their growth of consultancy practices, however. They seem to have found a way through that thicket.

Relying on regulatory restraints provides false comfort to Big Law. More to the point is the changing nature in the way legal services are purchased. Certainly, there will be buyer resistance to the Big Four – accepting change is a slow process in this industry. Buyers’ viewpoints, however, are changing. Although corporations are operating in a complex global regulatory and legal environment, they must do so within budgetary and resource restraints. This environment has fostered the rapid growth of the legal operations profession. Further, corporate legal departments need to be at the table as business partners solving business problems – not just lawyers.

These drivers are changing the way legal departments approach sourcing work. More and more, corporations and their legal operations professionals are looking at the overall delivery of legal services – of which the actual practice of law is a subpart. Certainly, there will always be a component of the legal buy where the corporation is buying bespoke legal practices. That scope is narrowing, however, and larger and larger portions of the corporate buy is the delivery of legal services. This distinction has enormous significance to competition in the market and provides an opportunity for the Big Four.

Over the next few years, it will take a focused effort by incumbent law firms to compete on these changing terms.