The Wall Protecting U.S. Law Firms from Big Four Competition Cracked a Bit Last Year — And That Crack Just Expanded

After offering legal services for two or three decades elsewhere in the world — the Big Four accounting firms (PwC — the former Pricewaterhousecoopers, Deloitte, EY — the former Ernst & Young, and KPMG) are now taking tangible steps to move into the U.S. legal industry.

Last Wednesday (June 6) Deloitte UK and the San Francisco-headquartered immigration law firm of Berry Appleman & Leiden LLP (BAL) announced an agreement that gives U.S. businesses market access to Deloitte Global’s immigration legal services worldwide — including the U.S. — while adhering to the traditional rules that have insulated U.S. law firms from Big Four competition.

This comes on the heels of PwC’s formation nine months ago of a new law firm called ILC Legal in Washington, D.C. — the first entry into the U.S. legal market by a Big Four firm (see here).

These initial moves by two of the Big Four could signal a tectonic shift in the competitive landscape for legal services in the U.S.

As prominent legal consultant Bruce MacEwan put it after PwC’s announcement last year:

“[The Big Four] have incredible resources in terms of capital, thousands of high-powered professionals, brand equity, and entrée into every Fortune 1000 board room ….

“If the Big Four want to come at Big Law, they can. And they will be pretty successful.”

Outside the U.S. the Big Four’s presence in the legal industry’s landscape is old news. Each contains law practices similar in size and sophistication to the largest law firms in the world (see here and here). Each with, “an average of 2,200 lawyers working for them in 72 countries (see here and here).”

But until the cracks in the wall described above, the Big Four had no footprint in the U.S. legal market. That’s because ethics rules in U.S. jurisdictions bar “nonlawyers” from owning a law firm. (A single exception is a D.C. Bar rule whose wording allows nonlawyer ownership but the entity itself must have the “sole purpose [of] providing legal services to clients”.)

Meanwhile 64% of responding law firm partners surveyed last year singled out one competitive fear above all others: “Accounting firms moving into the legal industry”.

Unsurprisingly* — bar regulatory officials staunchly resist changing the ownership rules (A sampling from the two states where I’m admitted: Illinois and New York).

So if U.S. lawyers write the rules for “their” bar regulatory groups, how can the Big Four enter “their” market?

Those who seek market protection by legal technicalities may find themselves facing unwanted competition … by legal technicalities:

  1. Deloitte’s entry this week to the U.S. legal market is structured as an “alliance” with the law firm’s seven U.S.-based practices — and as an outright purchase of the firm’s eight non-U.S. practices. No violation of nonlawyer ownership rules in the seven U.S. states covered by the “alliance”; and in the relevant foreign jurisdictions there’s no bar to outright ownership by nonlawyers.
  2. PwC’s law firm entity ILC Legal is located in Washington, D.C. Under the D.C. bar rule cited above — that entity may be owned by nonlawyers (here, an accounting firm or its affiliate) if that entity itself (the law firm ILC Legal) has the “sole purpose [of] providing legal services to clients”. ILC Legal has been reported to offer “foreign legal services to U.S.-based multinational companies”, and to be, “not practic[ing] U.S. law.”

The U.S. legal industry’s wall against the Big Four has long barred access by U.S. businesses to an important source of sophisticated lawyers, technology and business process management — and price competition.

Since the goal of this blog and my law practice is to secure and maintain the legal health of client companies, I’m rooting for more and deepening cracks in this pernicious wall.

 

 

*  I know and respect sincere advocates who oppose nonlawyer ownership of law firms based on considerations of attorneys’ professional independence. I believe that it’s possible to secure such professional independence without the anti-competitive effects of the current rules.