Deloitte Takes Aim at U.S. Legal Services Market With Tech Unit

Deloitte is ramping up its efforts to provide legal-related services to companies in the U.S., a move likely to mean more competition for law firms.

The Big Four accounting outfit is launching a new unit designed to “transform the business of law” through consulting and technology services for corporate legal departments, Deloitte told Bloomberg Law. The company’s U.S. Legal Business Services practice will work with in-house legal offices to streamline functions that track client contracts, invoices, eDiscovery, and other core functions.

The launch, which the firm is announcing Monday, represents perhaps the most direct effort yet by a Big Four member to compete with law firms and alternative legal service providers in the U.S. It comes as several states are considering loosening rules that ban law firm ownership by nonlawyers—changes that could ultimately allow the Big Four and others to compete more directly for legal services business.

“The Big Four have been constantly testing and pushing the envelope in how they provide legal services in the U.S.,” said Lucy Endel Bassli, a consultant to law firms and corporate legal departments. “I think this is healthy.”

Deloitte and the other Big Four behemoths—KPMG, EY, and PwC—have begun challenging law firms on their own turf in recent years. The onset of Covid-19 has created new opportunities, as corporate legal officers take stock of their capabilities and needs, said Dan Lange, a Deloitte partner.

“Legal departments are open to far broader solutions than they ever were in the past,” Lange said.

‘A Big Grand Opening’

The idea for the new practice had been years in the making, said Don Fancher, a Deloitte Risk and Financial Advisory principal.

In part, it was brought about by Deloitte’s Chief Legal Officer program, launched in 2015, which provides leadership training and other services. Through conversations with CLOs, “it became very clear and apparent” that there was a need for a legal services practice in the U.S., Fancher said.

The announcement is significant, long-time legal industry observers said. Although Deloitte has already been offering individual tech products and services to aid U.S. clients, they said a broad-based approach—specifically including ways to improve contract management, a particular pain point within many corporate legal shops—could find traction.

Deloitte’s new practice could be seen as “a big grand opening” of a business that had previously been appraising the market through soft product launches, said Bassli, the legal consultant.

Deloitte had previously provided the services it lists as part of the practice mostly for clients outside of the U.S., said Ron Friedmann, founder of the Prism Legal tech blog.

“The significance of this announcement as I see it is the addition of experienced and widely respected talent based in the U.S., talent that can help Deloitte bring those services to U.S. clients,” said Friedmann via email. “The opportunity around managing contracts is large. Clients have talked about this for years but made limited headway.”

The legal industry isn’t the only one in which the Big Four have to walk a delicate tightrope.

The professional services giants already face intense “church-state"-type pressures, for example, both in the U.S. and abroad, to show that their accounting and consulting work doesn’t infringe on their ability to conduct impartial audits on top companies.

The new practice will be led by Mark Ross as principal, Lewis Christian as managing director, and Rich Levine as managing director. Levine was vice president and chief of staff for Bloomberg Law from 2015-2017.

Competing and Cooperating

The Big Four are currently shut out of co-owning law firms or other operations that provide legal advice. American Bar Association Model Rule 5.4 bans attorneys and law firms from sharing “legal fees” with nonlawyers except in limited situations. It also prohibits attorneys and nonlawyers from entering into a partnership “if any of the activities of the partnership consist of the practice of law.”

Several states, including Arizona, California, and Utah have begun over the last two years working to relax or rescind those rules. That could give the Big Four an opportunity to compete directly with leading U.S. law firms that have far fewer resources and a significantly smaller footprint.

Overall revenue for the Big Four in fiscal 2019 ranged from about $29.8 billion to $46.2 billion—roughly 10 times the size of the largest four U.S. law firms, which boasted gross revenue between $2.9 billion and $4.2 billion that same year. Deloitte Legal’s roughly 2,500 lawyers work in more than 80 countries and the rest of the Big Four boast similar global reach.

Deloitte and the others have greatly expanded their legal divisions in other continents over the last few decades—with the U.S. representing one of the last large markets they’ve been unable to fully access. The rules in many countries overseas, including in the United Kingdom, allow these companies to offer traditional legal work they cannot in the U.S.

The company has also found unconventional ways to gain a foothold in the legal industry stateside. That includes its alliance with the law firm Epstein Becker Green, announced last year, which offers expanded employment law and workforce management services to clients of both entities.

Law firm leaders may want to seek out similar arrangements, observers have said, rather than focus too much on direct competition. Deloitte’s Ross said there will continue to be plenty of opportunities for law firms.

“This is not a zero-sum game,” Ross said. “The legal ecosystem, it continues to evolve, it continues to morph. Clients are always going to need legal advisory services in the U.S. Deloitte will not be providing those services.”