Big Four’s Big Bite
“Just when you thought it was safe to go back in the water …” Thirty years ago, that was the tagline for Jaws 2, the 1978 second instalment to the iconic shark movie, Jaws, that three years earlier kept many movie goers from daring to dip a toe in the water never mind venture out for a swim.
The odds of being killed by a shark are 1 in 3,748,067. Furthermore, according to the Florida Museum of Natural History, you’re more likely to be killed by fireworks (1 in 340,733), lightning (1 in 79,746), drowning (1 in 1,134), a car accident (1 in 84), stroke (1 in 24), or heart disease (1 in 5).
However, if you’re a law firm, the odds of being badly bitten by one or more of the Big Four professional services firms are chillingly high.
Altman Weil’s 2018 Law Firms in Transition Survey reports that 46.4 per cent of firms surveyed see the Big Four as a potential threat while 9.3 per cent of firms are losing work to them now. For firms with more than 250 lawyers, the numbers are more frightening: 65.6 per cent consider the Big Four a threat and 11.5 per cent are losing work to them now.
Much of the danger is that the Big Four carefully target their ideal clients, move in with stealth and swiftness, and capture is usually silent.
I cut my legal teeth in the late 1990s working with Ernst & Young LLP in Canada where, for a time, my highest-profile and, frankly, most interesting internal client was Donahue LLP, an audacious enterprise set up in 1997 as Canada’s only multidisciplinary (MDP) law firm.
While landing into Donahue as its sole marketing advisor was like parachuting onto the Titanic—iceberg and all—it was a spectacular, privileged and unique experience. And became, in an odd twist of fate, the genesis for my legal consulting practice.
Donahue was a fascinating operation especially from the inside when EY was the only Big Five firm—before Arthur Andersen LLP’s demise in 2002—to have an embedded MDP law firm.
At its highest tide, Donahue ran as a full-service business law firm with 130 lawyers located in Toronto, Montréal and Calgary with many considered big-name talent.
The firm offered legal services that included all aspects of corporate/commercial, along with financial services, mergers and acquisitions, employment and labour, wills and estates, health and workplace safety, energy, real estate, environmental law, intellectual property, and business immigration. You name it; Donahue had it.
Constant change was the name of the game in many respects, and that included its name that morphed from Donahue & Partners to Donahue Ernst & Young LLP and finally, Donahue LLP all in the space of six short years.
Ultimately, while Donahue continues to exist in other jurisdictions, it wound up Canadian operations in 2003. Still, its creation thanks to capital pumped into it by EY along with brand traits of sheer audacity, top talent, and brashness in how it did business provided a superb learning experience for every member of today’s Big Four who most certainly won’t fail in providing legal services this time.
No Fear, No Failure
That’s because each of the Big Four professional services firms is armed with internationally recognized brands, legions of professionals of numerous descriptions, infrastructure that has been built up for the last 30 years or more, access to significant and sophisticated business tools and systems, and capital resources and financial acumen to run efficiently and effectively.
The Big Four are also equipped with four big advantages that, in many cases, remain elusive to law firms. Law firms wanting to remain competitive will need to step lively to provide counterbalances especially in terms of brand differentiation, industry alignment, price accountability, and sterling client service — each of which must intimately involve every client and their experience with the firm from start to finish.
Big Advantage One: Pricing
Due to their historical accounting acumen, the Big Four are bound to have strong relationships with senior decision-makers on the financial team of a current or prospective client. And when a company’s CFO is calling the shots, pricing of legal services becomes prevalent.
This is precisely when Big Four accountants who know their margins cold and can make numbers talk, have supreme advantage over law firms in providing fast, creative and agile pricing structures for legal service offerings.
Big Advantage Two: Referral Clout
There’s an advantage of referral clout when each of the Big Four continues to absorb legal practices into their international service lines along with securing alternative business structure (ABS) licences that enable them to service multinational clients.
Globalization of their legal services positions them as direct competitors to many of the world’s largest law firms that have international reach.
Big Advantage Three: Process Drivers
Professional services firms are masters of process and efficiency. This comes from their accounting foundations where an intimate understanding of and facility for math and money comes to the fore. While much of this work may be considered formulaic and process-oriented, following regimented standards such as GAAP—generally accepted accounting principles—provides strict structure.
Structure informs process, which provides boundaries and enables the use of forms and templates while also revealing deficiencies and highlighting procedures that are ripe for challenge and change.
Big Advantage Four: Project Management
International headcounts for the Big Four range from roughly 200,000 to 270,000 with an average of 2,150 of those heads belonging to lawyers.
Project management within these professional services firms—regardless of what the project is—has been an ingrained practice for many years. This means that executing a client matter can be the work of many hands: quickly scoped, creatively priced, and allocated to appropriate talent of all professional disciplines, levels and jurisdictions — legal and otherwise. This, in turn, can help speed efficiency, maximize turnaround, deliver on expectations, and be respectful of the budget.
Follow the Money
While the Big Four have expanded services beyond accounting, their foundation is finance. And just as lawyers are risk-averse, accountants are financial surprise-averse — be it positive or negative. That’s why they target predictable legal work that’s based on corporate operations and volume in which a healthy profit margin delivered with regularity and consistency can be secured. In short, they want “standard operating procedure” business.
The Big Four each operate globally and use a one-stop-shop platform offering legal business services that complement and align with their core offerings of audit, tax, and accounting. Because their focus is predicated on predictability of financial returns, this helps them hone in on expanding services to current clients, and targeting growth markets and key industries that provide consistent returns on investment.
The Bottom Line
As they have to date, the well positioned, well branded, well-known and well-financed Big Four will continue to eat into the legal services market.
Law firms wanting to remain vital and vibrant need to daringly position themselves to stand apart from one another as entirely unique in the legal market. And they need to consistently prove their differentiating traits to clients, prospects, referrers, stakeholders, friends, threats and, just as importantly, themselves every single day.
As for the relentless encroachment of the Big Four, there will be no drama, no flash and no splash. And no blood in the water until they take their next bite.[Disclosure: EY became a client of mine in 2011 with the creation and execution of a first-ever Canadian national advertising campaign to build brand awareness. Surveys showed the firm moved one position and, in some cases, two positions ahead of its nearest competitor. The ad campaign continues to this day.]