India is about to open its legal market to foreign-based firms. This is not a sudden development; India was a signatory to the 1995 General Agreement on Trade in Services (GATS) treaty of the World Trade Organization that paved the way. And though there will be limitations governing foreign firms’ ability to set up legal practices in India—most notably they cannot engage in matters governed by Indian law nor can they appear in court—they can set up offices there and are free to partner with Indian lawyers/firms to circumvent the aforementioned proscriptions.
A spate of recent data confirms all but an elite group of law firms are experiencing an unprecedented existential challenge. And while profit-per-partner (PPP) remains high even outside that small band of differentiated firms- thanks to thinning the herd, internal cost-cutting, mergers, and unending lateral cherry picking- their sustainability is in doubt.
There is a legion of causes: the law firm partnership model, disaggregation, the ascendancy of service providers, fierce competition among firms, and incursion by other professions- most notably the Big Four.
It does not take Perry Mason to crack the case that the BigFour intend to be major players in the global legal market. Steve Varley, Ernst & Young’s managing partner in the UK and Ireland made that clear: “We aren’t competing with the business models of traditional law firms, we are offering something new. Having lawyers, accountants, and other professional advisers working side by side will be a real advantage to our clients and ultimately help us to provide a better level of service.” Sounds like E&Y is unabashedly serving notice on the embattled traditional law firm model that they see an opportunity and are poised to pounce on it. And these are not hollow words, either.
What’s the Secret? The BigFour Knows its Advantage
Ernst & Young has made a number of recent moves around the globe that demonstrate its intent to take a big bite out of BigLaw’s hegemony over legal spend. Consider the ABS license that E&Y—along with two of the three other members of the BigFour—has recently secured in the UK. Not only will that enable their legal team to engage in the type of multi-disciplinary practice that Mr. Varley described above, but it will also be a springboard for E&Y’s legal troops to enter new markets. That ease of entry and ability to navigate regulatory roadblocks will be enhanced by the Swiss verein structure E&Y has, something shared by each member of the BigFour. But there’s more. E&Y and its BigFour brethren share several advantages over law firms: (1) a global imprint and brand; (2) sophisticated technology; (3) deep proficiency in project, process, and price management; (4) strong client ties to the C-suites of Global 500 companies; (5) large legal practice groups that already engage in sophisticated legal work (though commonly in the guise of “legal consulting” rather than “engaging in the practice of law—often a distinction without a practical difference); and (6) deep war chests. How deep you ask? The BigFour generate combined annual revenues of $120 billion; the 100 largest revenue generating law firms globally produce a combined $89 billion. Put another way, BigFour revenues are multiple times the size of the largest law firms. Translation: in an era of free-agency, the BigFour are the New York Yankees and BigLaw are the Oakland A’s. [Read more…]