In 2007, the Legal Services Act created a provision that allowed licensed bodies to offer legal services alongside other business areas. Whilst this legislation didn’t take off straight away amongst BigLaw firms, PwC became the first member of the Big 4 to launch an alternative business structure, PwC Legal, in 2014. Since then, all of the Big 4 have launched an offering.
In many ways, it made perfect sense for the large accountancy firms, who each have a captive, global client base that can be better served across business and practice lines by a single, more integrated offering. With their accounting and legal teams under one roof, it’s a huge pull for clients. It also offers benefits to the firm itself. More contact with key clients, means loyalty will grow. In addition, these companies are starting from fresh, which means they are ideally placed to take full advantage of new technology, and not hampered by the generally more slow moving law firm model. Instead, they are able to piece together a more cost-effective and efficient offering enhanced by modern developments.
So how should law firms react to this challenge? Should they be worried? Of course they should… but within reason.
Naturally, law firms will still have their place. PwC isn’t taking the Tier One banking work away from A&O, the largest PE mandates from CC or K&E, or the bet the farm litigation cases from Cleary or Slaughter and May. Rather, these new companies are much more of a threat to the mid-tier, which is precisely the tier that is most in need of change. If they want to compete, they will have to adapt (easier said than done at a time where PEP has fallen and in an industry where profit is king). But those who are able to invest in efficient legal solutions – particularly in areas where technology can replace hundreds of hours of work, such as document review and research – will be well placed in the battle for market share. The only way to compete is to fight on the same terms with technology-based legal services, additional service lines, and added value. That value might even come from spinning out these technology services – could the accountancy firms themselves end up enabling this…? Well, that might require a change in law firm model and, as the prevalence of a law firm floats increases (DWF did this just last week), change is certainly possible. Its overall success, however, is yet to be seen.
There have been a slew of investments and acquisitions over the past few years that have sent a strong signal that an alternative ecosystem is becoming increasingly normalised – maturing, even. We have seen successful business models and constant market demand, while customers have seen proven value. The market, however, is disjointed. There are the ABS structures mentioned above, the document/discovery companies that are providing alternatives to large teams of paralegal/discovery lawyers, and other technology companies helping to make law firms more efficient.
So what does the future hold? It is safe to say that there will be huge consolidation. Traditional law firms, Big 4, NewLaw, LegalTech firms, and legal process outsourcers or managed legal services providers, will start to join forces. Creating a truly, integrated legal service model. In fact, there is nothing stopping clients being part of this. For example, HSBC has well over 1000 lawyers on their books.
Ultimately, the future is bright for legal services but unfortunately not for everyone… Those looking to challenge will need to change, adapt, and invest. I suspect we’ll be hearing those words more and more as the market develops.
The Route1 Team