Gavin Howe
The Big Four accounting firms—Deloitte, Ernst & Young (EY), KPMG, and PwC—have been increasingly encroaching on the legal services market, leveraging their strong corporate ties, investment in technology, ability to integrate legal services with other offerings, and reputation for quality work. This has led to traditional law firms facing competition and losing clients to the Big Four. While regulatory hurdles currently prevent the Big Four from practicing law directly in certain jurisdictions, they are still able to compete with law firms in several areas of client service. To stay competitive, law firms need to recognize the threat posed by the Big Four and develop strategies to differentiate themselves, such as embracing innovation and adapting their pricing models to be more agile and cost-effective.
| Characteristics | Values |
|---|---|
| Rigidity in pricing | Traditional law firms have a rigid pricing model, usually an hourly rate |
| Revenue | The Big 4 have far more revenue to invest in technology and talent |
| Technology | The Big 4 are better positioned in the arms race to increase efficiency |
| Regulatory risk and compliance services | Regulatory hurdles prevent the Big 4 from practicing law directly, but they are still able to compete in some areas |
| Skepticism | Lawyers are naturally skeptical, which makes them risk-averse and less innovative |
| Broader business focus | The Big 4 see the enterprise as the client, rather than the GC, which gives them broader reach |
| Talent | The Big 4 are hiring top talent and are becoming attractive alternative providers |
| Multidisciplinary approach | The Big 4 are integrating their legal services into a multidisciplinary approach |
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What You'll Learn
Law firms need to take the threat of the Big Four seriously
The Big Four accounting firms—Deloitte & Touche, Ernst & Young (EY), KPMG, and PwC—have been increasingly encroaching on the legal services market, and law firms need to take this threat seriously. While regulatory hurdles currently prevent the Big Four from practicing law directly in certain jurisdictions, they are aggressively competing with law firms in several areas of client service.
The Big Four have several advantages over traditional law firms. Firstly, they have significantly more capital, which allows them to invest heavily in cutting-edge legal technology and become market leaders in the technological arms race. This enables them to increase efficiency, address the "more-for-less" problem, and provide better data-driven insights. Secondly, the Big Four have strong ties with corporate executives and a broader reach within corporations, often having the ear of well-heeled clients. They also have a more flexible pricing model compared to the traditional hourly rate structure of law firms. Additionally, the Big Four have been successful in attracting and hiring top talent, including highly talented lawyers, further enhancing their capabilities and competitiveness.
To effectively compete with the Big Four, law firms need to recognize the threat and develop strategic responses. They must focus on innovation and find ways to become more agile, adapting their pricing models to be more commercially viable. Law firms should leverage their specialized expertise and focus on providing high-end, complex legal services that require a deep understanding of the law. Additionally, law firms can strengthen their client relationships and focus on delivering exceptional service to maintain client loyalty.
While the Big Four currently focus on mid-tier work and have not directly competed with the top 20 law firms, this may change over time. Law firms need to take proactive measures to adapt to the evolving landscape and remain competitive in the face of the growing threat posed by the Big Four.
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The Big Four have more capital to invest in legal tech
The Big Four accounting firms—Deloitte & Touche, Ernst & Young (EY), KPMG, and PwC—have been making inroads into the legal services market, which was once the exclusive domain of law firms. Their vast financial resources have enabled them to invest heavily in legal technology, giving them a competitive edge over traditional law firms.
The Big Four have significantly more capital than traditional law firms, which they can use to invest in cutting-edge legal tech and gain a strategic advantage. For example, KPMG's revenue in 2019 was $29 billion, compared to $3.7 billion for the world's largest international law firm, Kirkland & Ellis. This disparity in revenue allows the Big Four to invest in technology that increases efficiency and enables low-cost legal billing, such as AI-powered document drafting and contract analysis tools. By automating commoditized legal tasks, they can reduce the need for trainees to bill for administrative work, providing a solution to the "more-for-less" problem that law firms face.
The Big Four's ability to invest in legal tech is also enhanced by their different conceptual approach to business. They view themselves as professional service firms, offering enterprise solutions rather than purely accounting or legal services. This allows them to provide holistic services to their clients, including HR, IT, R&D, and financing, and to integrate legal services with other offerings. Their strong ties to corporate executives and global presence further contribute to their competitive advantage.
While regulatory hurdles currently prevent the Big Four from practicing law directly in certain jurisdictions, they are aggressively hiring talented lawyers and expanding their legal services capabilities. They are targeting mid-tier work with the ultimate goal of competing with the top law firms. Law firms need to recognize the threat posed by the Big Four and develop strategies to remain competitive, such as embracing innovation and adapting their pricing models to be more agile and cost-effective.
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Law firms need to be more agile and data-driven
The Big Four—Deloitte, Ernst & Young (EY), KPMG, and PwC—have been leveraging their strong ties with corporate executives, investing in technology, and integrating legal services with other offerings. They have also been hiring top talent and making strides to address the "more-for-less" problem. Their huge revenues put them in a better position to invest in legal technology and increase efficiency, enabling low-cost legal billing. For example, AI can automate commoditized legal work and remove the need for trainees to bill for administrative tasks.
Law firms, on the other hand, have struggled to innovate and shift their pricing models away from the traditional hourly rate. They have also been slow to recognize the competitive threat posed by the Big Four. According to a Thomson Reuters survey, 20% of large law firms reported competing against a member of the Big Four in the past year, and 23% lost client business they had expected to win.
To compete, law firms need to be more agile and data-driven. They should understand the psychological differences and similarities between accountants and lawyers and focus on providing enterprise solutions rather than pure accounting or legal services. By embracing innovation and technology, law firms can increase their efficiency and better meet the needs of their clients.
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The Big Four have strong ties to corporate executives
The Big Four accounting firms—Deloitte, EY, KPMG, and PwC—have strong ties to corporate executives. They are increasingly competing with large law firms, despite regulatory hurdles that prevent them from practising law directly in jurisdictions like the US.
The Big Four have deep relationships with C-suite executives and offer a wide range of services, including audit, assurance, taxation, management consulting, valuation, market research, corporate finance, and legal services. They have vast revenues, with PwC reporting the second-highest revenue among the Big Four in 2023 at $53.1 billion. This gives them significant capital to invest in legal technology and become market leaders.
The Big Four's broad service offerings and strong corporate relationships enable them to provide enterprise solutions and a holistic approach to their clients. They view the enterprise or business as their client, as opposed to law firms, which typically focus on the GC. This broader perspective allows them to have a wider reach within corporations and better understand their clients' businesses.
The Big Four's ability to integrate legal services with other offerings and their strong corporate ties pose a significant threat to large law firms. Law firms need to recognise this competitive threat and develop strategies to combat the incursion of the Big Four into the legal space.
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The Big Four can provide international coverage
The Big Four accounting firms—Deloitte & Touche, Ernst & Young (EY), KPMG, and PwC—have increasingly become a threat to large law firms. While regulatory hurdles prevent them from practising law directly, they have been able to compete with law firms in several areas of client service. For instance, PwC has launched its own law firm, ILC Legal, which provides non-U.S. legal services to multinational companies.
The Big Four have a competitive advantage due to their strong ties with corporate executives, investment in technology, ability to integrate legal services with other offerings, and reputation for quality work. They also have a broader reach within businesses and offer enterprise solutions in areas such as HR, IT, R&D, and financing. Their vast global networks enable them to provide international coverage and compete in 72 countries.
The Big Four's substantial revenues, estimated at $29 billion for KPMG in 2019, give them significant capital to invest in legal technology and market themselves as providers of efficient, low-cost legal services. This positions them well to address the "more-for-less" problem and appeal to clients seeking cost-effective solutions.
To compete with the Big Four, law firms need to recognise the threat and develop strategies that play to their strengths. While the Big Four can offer international coverage, law firms can focus on specialised, high-end legal work and leverage their expertise to differentiate themselves. Law firms may also need to re-evaluate their pricing models and embrace innovation to remain competitive in a rapidly evolving market.
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Frequently asked questions
The Big 4 have a broader reach within businesses and have access to C-suite executives. They also have more capital to invest in technology, which helps them address the “more-for-less” problem.
The "more-for-less" problem refers to the challenge of providing more services at a lower cost. The Big 4 are better positioned to address this issue due to their higher revenues and technological investments.
Traditional law firms often use a rigid hourly rate pricing model, which can be inflexible and less cost-effective for clients. The Big 4 have more flexibility with their pricing and can offer alternative models.
Law firms can focus on understanding the psychological differences and similarities between accountants and lawyers. By doing so, they can develop strategies that leverage their unique strengths and effectively compete with the Big 4's technological offerings.
Law firms should recognize the threat posed by the Big 4 and take it seriously. They can also consider forming alliances with the Big 4 to provide complementary services. Additionally, law firms can work on dialing back their skepticism to promote innovation and effective leadership.
