The accountants re-enter legal. Meh!

There are countless articles on the threat of the Big 4 re-entering the legal market. Yes, they’re cashed-up, capable and well-connected, but I don’t think it will be as smooth a road for them as many are predicting. A deeper analysis suggests there are six factors that will limit their growth.

#1 The one-stop shop segment is small

Many senior buyers regard the ‘all eggs’ approach as risky and lazy.

The essence of the Big 4 value proposition is one-stop-shop: buy all your business advisory services from us and there will be lower transactions costs, a deeper understanding of your needs, more integrated advice, higher levels of service consistency, better coordination and greater convenience.

The problem is many sophisticated legal buyers just don’t buy it!

For operational, run-the company work maybe, but for bet-the-company and reputation-sensitive matters, buyers generally prefer horses for courses. They back themselves to pick out tried and tested specialists, rather than relying on one firm to wheel out all their colleagues. Intuitively, these buyers recognise the benefits of cognitive diversity and are wary of the party line or groupthink. They feel it’s easier to hold a specific firm accountable (and sue-able) for their advice when it’s more discrete.

#2 Brand limitations

The evidence would suggest that many clients tend to shy away from accountants when it comes to solving their most complex business problems (except in tax).

PwC is the most well-known and powerful brand in the global business services market. The other Big 3 are not far behind them. Over the years they’ve leveraged these brands to develop massive global management consulting depth, breadth and reach.

Notwithstanding these advantages, firms like McKinsey, BCG, and Bain still are thriving at the top-end of the consulting market.

After decades of organic investment, PwC had to resort to paying top dollar to buy Booz & Company to make serious inroads into the high-value segment. Interestingly, they settled on Strategy& for their consulting business brand. It appears that PwC thought their own brand was a net negative in fighting the likes of McKinsey.

Top graduating MBA students across the globe prefer the specialist consulting firms over the Big 4. I can only imagine it will be the same at the premier law schools.

#3 Ring binders

Top GCs will run a mile if they feel they’re being “ring-bound” in handling their complex matters that they feel require bespoke solutions.

I did a small consulting project for Booz about a year before they sold out to PwC. Yes, it was all my fault :o). In speaking about competitors, they referred the Big 4 as “ring binder” consultants. What they meant was that the Big 4 consultants were good at following a predefined process documented in a ring-bound manual. What was implied was that the Big 4 consultants couldn’t really think for themselves.

While grossly disparaging, there is a small element of truth in these comments. In order to achieve scale and process efficiencies, resource fungibility, accelerated learning and service consistency across all business lines, the Big 4 have sought to codify their approach and have trained their consultants in how to use it. One can only imagine they’ll adopt a similar method in legal to achieve similar benefits.

The standardised approach is brilliant for repeat work but can come unstuck if things vary widely from the norm.

#4 Conflicts

The Big 4 are just that. Four! This will inevitably put major limits on their penetration of the legal market.

I was shown some recent analysis that listed the number of different law firms and freelancers engaged by the ASX50. The list had over 300 names on it. I can’t vouch for the precision of this research but intuitively it feels right.

One of the key reasons for this fragmentation is conflicts. Most legal clients are particularly sensitive to the same advisors being involved, directly or peripherally, on both sides of a transaction or a dispute.

The threshold test of perceived conflict in legal matters is much higher than say helping competing companies implement an enterprise software system.

The large mid-tier firms like Grant Thornton, BDO, RSM, and Pitcher Partners (in Australia) will be loath to enter legal, beyond tax, for fear of disenfranchising their major referrers of work.

#5 Similar constraints

While the revenues of the Big 4 are over 12 times that of the world’s largest law firms, their DNA is still based on a traditional partnership model. This means they operate with many of the cultural, operational and financial constraints of law firm partnerships.

The winners of the future, especially in the non-BTC segments, are more likely to be law and technology companies (like Axiom and Elevate Services) with nimble and lean management capabilities, clear strategic focus, the ability to deliver it and access to capital. The Big 4, as well as most incumbent law firms, will struggle against these competitors.

#6 The club

For the Big 4 to make serious inroads into legal, quickly, they will need to poach some heavy-hitters from heavy-hitting firms. Assuming they can offer better incomes, they’re asking these lawyers to leave their club.

This is what a typical lawyer rainmaker will weigh up in considering the move..

The new club is a lot, lot bigger and I will have even fewer decision rights. The new club will pander less to my specific needs given it already has dozens of heavy hitters. The new club will ask me to fit into their service style and product ‘packaging’. The new club will be run by beancounters.

Nah! I’d rather stay.

 Author

Joel Barolsky is Managing Director of Barolsky Advisors and Senior Fellow of The University of Melbourne. He has worked with over 100 of Australia and New Zealand’s top professional service firms as a strategy advisor and facilitator. Joel is the lead author of the 2017 Thomson Reuters Peer Monitor Melbourne Law School State of the Legal Market Report.  He was a Principal of Beaton Research + Consulting for many years. For further details go to http://www.barolskyadvisors.com

The accountants re-enter legal. Meh! first appeared on LinkedIn 24 November 2017 where it provoked a large number of comments for and against his argument.