The ‘Big Four’ accounting firms (Deloitte, PwC, KPMG and EY) have been rebranding for a while now. In a process that began decades ago, they have transformed their perception among both clients and the general public. They are no longer book-keeping auditors but shiny new ‘professional services’ firms with their fingers in many exciting and highly profitable pies. Naturally, this includes the legal industry, which has been experiencing a long-term boom of its own. Although this is not exactly a new trend, there has been a recent escalation in the Big Four’s efforts to establish themselves in the legal markets. Generally, these efforts can be split into two components: talent and tech. Increasingly, the impact of this intrusion is being felt at every level, from aspiring solicitors applying for training programmes to anxious managing partners hoping to maintain the status quo.
As any aspiring city lawyer will know, the competition for training contracts is high. Still, there is competition among firms to market themselves as good places to work, thus attracting applications from the highest calibre of potential trainees. The amount of investment in human capital over the past few years clearly signals that the Big Four are ready to challenge established city firms in recruitment. For example, PwC has recently boosted its NQ salaries to roughly 90,000 per year – a value in line with those of many silver circle firms. This followed an announcement earlier this year in which the firm stated its aim to double the size of its legal division over the next three to four years. KPMG went one step further in May, claiming to do the same by 2022.
The other component of this drive to increase personnel is lateral hires. Perhaps the main problem Big Four firms have faced whilst luring clients away from traditional law firms is a perceived lack of prestige. The former has often been accused of treating legal services as an afterthought in relation to accountancy and consultancy. To dispel these criticisms, Big Four firms have sought to poach experienced lawyers from established firms to increase their legal credentials; prestige can’t be bought, but prestigious lawyers certainly can be.
With that in mind, it is clear that the apparently endless financial resources of the Big Four come into play when wooing top legal talent. For reference, in 2020, the law firm with the highest revenue was Kirkland and Ellis, with 5 billion USD; the highest-ranking UK firm was Clifford Chance, with 2.3 billion USD. These are by no means poultry sums, but considering that the highest revenue among the Big 4 was Deloitte with 43 billion USD, it’s clear that the latter has more room to invest heavily in individuals whose reputation could enhance that of the firm.
Of course, there are additional perks that prompt top lawyers to make the switch to the Big 4. The companies’ sheer size means that various opportunities, such as working abroad or career transitions, are far more viable. Furthermore, the cut and thrust of competition for clients are not as intense at Big Four firms, given their ability to pluck clients from their existing consulting and accountancy catalogues. Overall, it is easy to see how the Big Four can upgrade their legal practices at an accelerated rate. Having thrown the gauntlet down by stepping up their pursuit of top legal talent,
As alluded to in the last paragraph, one function of the legal services departments at Big Four firms is to provide these services to existing clients, enabling these firms to flesh out their client list. Furthermore, the reverse is true in that potential clients may go with a Big Four legal department due to the additional services they can provide in tech or consultancy. In an increasingly complex world, clients’ technical, legal and financial issues can often intersect, making Big Four legal departments an ideal port of call if clients are looking for ‘end-to-end service’
Another battleground in which the Big Four have the upper hand is the investment in legal tech. Over the past few years, legal tech has rapidly risen up the agenda, having previously been considered ‘the slow younger brother of fintech’. In 2021, Thomson Reuters revealed in a ‘Business Leaders Report’ that investment in legal tech is the number one strategy to boost performance. It is difficult to track individual law firms’ short-term investment patterns, but Gartner predicted in 2021 that legal tech investment from in-house legal departments will more than triple by 2025. Meanwhile, more and more legal tech companies are rising to prominence. Again, in 2021 we witnessed the first legal tech IPOs. Meanwhile, some companies reached valuations of over 1 billion USD.
In practice, this explosion in legal tech innovation has enormous implications for the legal industry. One feature of the big law sector is that there are few ways in which a firm can gain a competitive edge. Legal tech has changed that, and firms are now scrambling to upgrade their legal technology, thus cutting costs and enhancing clients’ experience. However, it is not a level playing field given the financial resources of Big Four firms combined with their pre-existent connections with the tech sector (including their own legal tech incubators for start-ups in the space).
In the short to medium term, top law firms will not see themselves displaced at the top of the food chain by the Big Four. It seems clients still place a premium on expertise and specialisation. In fact, following the announcement of EY’s split, there is uncertainty surrounding the future of these firms’ legal services divisions. However, the integration of tech and legal services is a trend that doesn’t look to be slowing down; the Big Four are positioned to take advantage of this. Furthermore, with more and more firms publicly and privately acknowledging the threat posed by Big Four firms, it’s clear the threat is here to stay.
Whilst the top firms will always be able to trade on their expertise and reputation, small to mid-level firms may be forced to take a hit as the Big Four firms ramp up their efforts to disrupt the legal sector.