The Big Four - are they a threat to the legal sector?
The Big Four are the largest accounting and professional services firms in the world, namely, Deloitte, EY, KPMG and PwC.
Over the past ten years, the Big Four have expanded their legal services beyond tax law to full offerings and have integrated this with their other professional services including tax, finance, consultancy and project management. Their business model focuses on offering a multidisciplinary service to clients and so they are exploiting a different avenue into the legal market than that pursued by traditional law firms. The Big Four have the advantage of a strong brand and international reach. They are also likely to be ahead of conventional law firms in terms of technology adoption. They pose a threat to traditional law firms and represent a wave of change that seems to be sweeping the legal sector at the moment.
The move towards legal services has been accelerated by the Legal Services Act 2007 which liberalised legal services and introduced the alternative business structure (ABS). This is essentially a new type of law firm. PwC, EY and KPMG gained approval for alternative business structure (ABS) licences in 2014 and Deloitte secured its licence in the summer of 2018. The ABS licence allows these firms to own, manage and invest in law firms so that even non-lawyers can become partners in law firms.
This is not the first time that the big accountancy firms have tried to move into the legal sector. In the 1990s, the Big Five as then then were (Arthur Andersen, KPMG, the legacy PwC and Ernst & Young) were expanding their legal offering. However, in 2001 when the Enron scandal unfolded, Arthur Anderson including Anderson Legal collapsed, the other firms scaled back their legal arms.
Currently, the headcounts for each firm stand as follows:
PwC has 3,600 lawyers in 98 countries
EY has 2,200 lawyers in 81 countries
KPMG has 1,800 lawyers in 75 countries
Deloitte has 2,400 lawyers in 80 countries
The Big Four are in the top 10 firms by revenue in France, Italy, Russia and Spain.
PwC has the largest legal offering amongst the Big Four. PwC has also joined forces with Fragomen, an immigration law firm, enabling it to better serve business traveller clients who must comply with various tax and immigration requirements. PwC is also the first of the Big Four to open an office in Washington DC so that their international lawyers can advise US clients.
Deloitte have entered into an agreement with Berry Appleman & Leiden, a US immigration law firm, to buy some of their offices including London, Singapore and Brazil. This is again to be able to provide more well rounded services to business traveller clients. In 2016, Deloitte joined forces with Allen & Overy to develop a tech product called MarginMatrix. The technology helps banks to navigate derivatives regulation.
The Big Four seem to be targeting mid-tier legal work rather than competing for work with the top 20 law firms because they audit many of the very top firms.