THE WORLD has changed in the decade since the Big Four were trying to build law firms; this change has occurred not only in the accounting space but in the legal market as well. The Legal Services Act has brought about a number of changes to the way that legal services can be delivered, paving the way for multi-disciplinary practices (MDPs). Does this mean that we are coming closer to seeing accountants and lawyers once again working together in the same firm? And how can we avoid the demise of MDPs that we witnessed in the last decade?
When I joined Ernst & Young’s associated law firm Tite & Lewis in 2000, the advisory landscape presented a different picture from the one we see today. We still had a Big Five in accountancy and all of them were gunning for growth on whatever platform they could justify. Among their lofty ambitions was the desire to grab a hefty slice of the lucrative legal services market and most of them had already started their ascent of that particular mountain: K Legal at KPMG and Landwell at PwC, as well as Tite & Lewis.
I was drafted in from mothership E&Y to be sales director at the fledgling UK law firm and the MDP story was laid before me. The main story, of course, was that clients of all shapes and sizes would benefit enormously from the joined-up thinking and working of an integrated accounting and legal service offering.
The plan was to dominate certain aspects of the legal market by utilising the combined might of budgets and vast client banks that existed at the time within the large accounting firms. It was not without its challenges but the logic appeared sound and progress was certainly being made before the Andersen collapse and subsequent Sarbanes-Oxley legislation made the whole notion of MDPs counter-intuitive to a profession wedded to one service offering above all others: audit. If firms wanted to retain audit as a central part of their business then all non-audit services were suddenly put in jeopardy, as tighter independence rules took hold. The associated law firms were the first to bite the bullet.
I understand the decision-making. The Big Four, as they now are, still generate the vast bulk of their recurring revenues and around 50% of total annual income from audit-related services. Why would you risk killing the goose that lays the golden egg?
However, a multi-disciplinary approach to professional services is still a desirable option for many clients and it remains a huge opportunity for someone to change the landscape once more. The trouble is, can the accounting firms tackle this while retaining their interest in audit? They seem to be able to build advisory practices (consulting to you and me) but perhaps law is still a step too far.
Is it time for the tail to wag the dog? In light of the opening up of the whole legal services market in 2011, a brave law firm might just fancy taking a shot at this from the other perspective.
Unhindered by a need to protect audit fees, one of the Magic Circle law firms could easily acquire or build a whole plethora of non-audit accounting services to complement its legal offerings and provide a one-stop shop approach for clients. The legal market is awash with discussions and debates on “alternative business structures” although, for the most part, these seem fixated on fairly conservative changes. It will be interesting to see if one of the big firms is willing to show some real ambition and whether the accountancy firms are ready to respond.
Mike Jones is managing director of Intrinsic Values
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