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The Big Four Challenge Big Law

17 October 2019|Litigation

By Wayne Nitti

The Big Four accounting firms – KPMG, Ernst & Young, PriceWaterhouse and Deloitte – have been testing the legal market waters over the past few years, and it’s starting to make Big Law nervous.

The accounting firms, which are currently restricted by the Sarbanes-Oxley Act and state bar rules to provide domestic clients with legal services, have been growing their legal services divisions both here and abroad. While Sarbanes-Oxley prohibits auditing firms from providing non-audit services, the accounting firms have been generating substantial revenue by providing assistance with mergers and acquisitions, legal tech, global equity management, tax law and compliance services, among other things.

KPMG’s legal services division revenue rose by more than 30 percent in 2018 in a record-setting performance, according to the firm that expects growth to continue in a burgeoning market that’s stoking concerns among traditional law firms about potential competition.

These global accounting firms have sheer size and resources on their side when it comes to competing with Big Law. In fact, “if the accounting firms entered full-fledged legal practice, they’d instantly be among the largest firms in the world.”

Some large law firms have tried to mitigate this threat by partnering with accounting firms in order to have access to the Big Four client base. But “befriending” the leviathan may not be enough to stem the tide.

With a broad network of client relationships and decades upon decades of goodwill built up in other professional service sectors, the Big 4 appear an existential threat to a lot of law firms out there.

Despite the ethical obstacles in place, Utah, Arizona and California are already investigating whether to relax their bar rules to make legal representation more affordable. These states recognize that by relaxing the rules at a state level, they are opening the door to the Big Four without running afoul of Sarbanes-Oxley.  

Big Law is not without recourse. Like the Big Four, law firms have hard-won, long-standing relationships with clients that will be difficult for the accounting firms to overcome. Moreover, there is always the possibility of overreach by the accounting firms; it’s much easier to change the course of a 40-foot catamaran than it is to change the course of an ocean liner. “With competing stakeholders across other service sectors . . . a Big Four legal practice [might] buckle under its own weight and fall behind more nimble, dedicated law firms.”

Listening to client demands, being proactive about providing Big Four services, and adopting a more agile position may be a law firm’s best bet

[An] ABA Report noted that a 2016 study had found the following disturbing pattern of behavior: "At least since the onset of the recession in 2008, law firm clients have increasingly demanded more efficiency, predictability, and cost effectiveness in the delivery of the legal services they purchase. In the main, however, law firms have been slow to respond to these demands, often addressing specific problems when raised by their clients but failing to become proactive in implementing the changes needed to genuinely meet their clients' overall concerns."

To stay competitive, Big Law must recognize the threat posed by accounting behemoths and act accordingly. If those Western states allow Big Four to provide legal services at a local level, a whole new battleground may present itself. Law firms should prepare themselves for the challenge.