Part 1 of this four-part post introduced a February 19, 2019 Forbes article, “Clients Need Legal Services But Not Necessarily Lawyers” — by Mark Cohen, both an accomplished business attorney and former chief executive of his own (non-law firm) business.

Part 1 introduced Cohen’s observations about the process management and technological benefits of “disaggregating” what law firms and in-house departments traditionally have viewed as “legal” tasks. In this connection he wrote about “alternative legal service providers”:

“Law is not solely about lawyers anymore ….”

“Several new-model legal service providers … have replaced law’s brute force, labor intensive lawyer-does-all model with data-driven, customer-centric, automated, corporatized, scalable, collaborative, multi-disciplinary, and well capitalized service models.  These providers are often managed by business professionals and entrepreneurs, not licensed attorneys …”  

Why this “disaggregation” of “legal tasks” now?

Because, says Cohen:

“‘Legal problems’ have become ‘business challenges that raise legal issues.’ The complexity, speed, and new risk factors impacting business—together with the impact of the global financial crisis, technological advances, and globalization—have changed the legal buy/sell dynamic.

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My client was an Amsterdam-based investor who wanted to build an aviation services business in the United States.

As a corporate and commercial lawyer whose practice largely emphasized the transportation sector, I needed to get this client the best advice possible on positioning its new business from a U.S. federal income tax perspective.

This meant choosing between tax attorneys who practiced in a law firm versus tax accountants who practiced in an accounting firm.

Minimizing tax and keeping the IRS off their back was not just a “legal” problem. It was more like a business problem that had a legal aspect.

For their business savvy, tax law expertise, familiarity with how the IRS treats such foreign investors — and a cost advantage — I recommended a regional accounting firm instead of tax attorneys in a law practice. 

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I ended Part 2 of this three-part post with this:

“Naysayers contend that Big 4 accounting firms cannot enter the U.S. market for legal services due to ‘regs and laws’ the ‘preclude Big 4 entry’.

“Is that really true?”   

No, it’s not.

First — Big 4 accounting firms’ entry into the U.S. market for legal services has already begun — as I’ve covered in past posts:

  • PwC (Price Waterhouse Coopers) opened a law firm in Washington, D.C. in September 2017.
  • Deloitte UK and the San-Francisco-headquartered immigration law firm of Berry, Appleman & Leiden LLP announced an agreement that gives U.S. businesses access to Deloitte Global’s immigration law services worldwide — including in the U.S. — in June 2018.
  • EY (Ernst & Young) announced its acquisition of Riverview Law in August 2018 — a UK-based “alternative legal service provider” — what some call a “law company”.

Second, former Am Law 200 partner Stephen Embry makes the case that the above moves are only a part of larger developments across the Big 4 accounting firms that signal their likely entry into the U.S. market for legal services in a big way.

In his article earlier this month, “U.S. Law and the Big Four: Who’s Afraid of the Big Bad Wolf?“, Embry does a deep dive on statements of two lawyers who presented at a recent conference for business lawyers:

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I concluded Part 1 of this three-part post by asking:

For business owners and managers, what could the Big 4 accounting firms offer to client companies that a conventional law firm does not?

In his U.S. Law and the Big Four: Who’s Afraid of the Big Bad Wolf?“, Stephen Embry, formerly a national litigation partner with the Am Law 200 firm of Frost Brown Todd — one of the 200 highest grossing law practices in the country — addresses this question.

Embry looks at it from inside the legal profession: What do “we” — conventional law firms — have to fear from the Big 4 accounting firms entering the U.S. market for legal services?

“The Big 4: Think Different

“What are the Big 4 doing differently that poses a threat [to U.S. law firms]? [Rutger] Lambriex [a lawyer with Ernst & Young’s new legal arm that practices in the U.S.] said it best: ‘We approach problems as business issues that require legal attention’. He continued, ‘you have to understand what the relevant areas of law are (with respect to any problem) but also what are the relevant business issues.’

“So cyber security is not just data breach litigation to use one of Lambriex’s examples, it’s a fundamental business problem that EY [Ernst & Young] is poised to holistically and synergistically solve. Legal plays a role but it is their desire and ability to help clients through the entirety of the business issues that will ultimately enable the Big 4 to make inroads.

“Lawyers? Too many see legal as the tail wagging the dog. Why do clients say they want lawyers to understand their business better? Because we [lawyers] fail too often to see beyond the legal problems. We don’t see that the most important thing is not legal but business. The Big 4 recruit business problem solvers and innovators while lawyers look at pedigree and law school academic records.”

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My most recent post urges business owners and managers to seek terms of service from their legal services providers that are consistent with the basic management disciplines that they require in every other part of their companies — other than legal.

That means finding alternatives to the terms of service that conventional law firms usually insist on — terms of service usually at odds with basic management disciplines.

This post addresses one place to look for those alternative terms of service: Legal services from accounting firms.

It will surprise nobody that when U.S. lawyers consider the array of service offerings available to their business clients that they think in terms of their own wellbeing:

What’s out there that might threaten our lunch?

Until recently, Stephen Embry was a national litigation partner with the Am Law 200 firm of Frost Brown Todd — one of the 200 highest grossing law practices in the country. He has spent most of his career specializing in the defense of mass tort actions for large corporate clients.

In a piece entitled “U.S. Law and the Big Four: Who’s Afraid of the Big Bad Wolf?“, he offers his view of the Big 4 accounting firms as a near-term, viable, competitive alternative to law firms in the U.S.

Though he offers this view from the standpoint of what law firms have to fear from the Big 4 accounting firms as their potential competitors.

“I have written before about the Big 4 accounting firms and the threat that these firms may pose for U.S. lawyers and law firms.

“The response has typically been a bit like that of the first two pigs in the old 3 Little Pigs nursery rhyme who arrogantly believed their houses of straw and twigs would protect them from the Big Bad Wolf.

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In Part 1 of this two-part post I wrote that the conventional business law firm does not compete on the terms of service — does not adhere to management disciplines — that best serve client companies:

  1. Know what the price will be before you agree to pay it.
  2. Don’t accept assignment of two lawyers to do the work of one.
  3. Every lawyer your company pays should be fully qualified to do the work you pay them for; don’t pay apprentice-type junior lawyers for their on-the-job training.
  4. Avoid labor-intensive use of lawyers on routine tasks. Automate what can be done by artificial intelligence and other tech-enabled solutions;

And low rates were not among the terms of service I emphasized:

“Picking the ‘low cost provider’ when choosing your company’s lawyers is dumb.”

What’s a good first step towards these better terms of service — towards your lawyers adhering to the same management disciplines you require of every other function in the business — other than legal?

Get your company the terms of service — insist on basic management disciplines — in increments. Start somewhere.

Let’s say that federal income tax is a problem area for your company:

  • You can look for a boutique law firm that’s focuses on tax;
  • You can check out an accounting firm for the tax advice you need; or
  • You can seek out an individual lawyer who practices within a conventional law firm — but retain solely that lawyer — avoid the “cast of thousands” that conventional firms try to add on.

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Competition creates the value that the customer gets. There’s no substitute for it.

Take a look at this morning’s Wall Street Journal (subscription required):

“Charles Schwab, Fidelity Escalate Brokerage Price War”.

Featuring a picture’s-worth-a-thousand-words chart showing Schwab’s average commission per trade going from $12 in 2015 down to a little more than $7 — along with similar moves over the same time frame by TD Ameritrade and E*Trade.

Here’s the kicker:

“Schwab kicked off the latest round of price cuts with an announcement Tuesday morning that it would double the number of ETFs [exchange-traded funds] that can be bought and sold at no cost on its platform. Fidelity followed within the hour saying its platform would likewise expand its commission-free lineup to include more than 500 ETFs.”

“Fidelity followed within the hour.”

Not so the marketplace for lawyers’ services to companies.

I am not saying that you should pick lawyers based on price. Picking the “low cost provider” when choosing your company’s lawyers is dumb.

What I am saying:

A company should be able to expect that its outside lawyers will compete based on non-price terms of service that meet basic management disciplines that owners and managers require in every other part of the business — other than legal. 

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There really is no such thing as a “harmless” legal document.

Yet we all from time to time get requests to execute paperwork that we’re told is “a formality” or “merely technical” or “just something the lawyers want us to sign”.

The urgency of circumstances, or peer pressure, or a misplaced inclination to do-it-yourself lawyering, can weaken our resolve to act wisely.

Sarah Bradley, co-founder of a private equity fund called Kainos Capital, LLC, claimed in Delaware Chancery Court two weeks ago that two of her fellow co-founders, aided by the fund’s chief financial officer, cheated her out of her ownership stake and management role in the fund.

Or tried to at least. That’s what her lawsuit contends.

Central to this, she argues, is the fact that they obtained her signature on a “Conversion” document whose terms said that she had thereby consented to converting the fund entity from a limited liability company (LLC) to a limited partnership.

Bradley alleges that her two co-founders got her signature on that Conversion document by having the fund’s chief financial officer tell her — “fraudulently” as she put it — that the document’s sole purpose was to qualify for specified tax benefits for all of the co-founders.

But in fact, her complaint states, execution of the Conversion document was part of a conspiracy to reduce or remove altogether her ownership interest, and to squeeze her out of her management role in the fund that she’d co-founded:

” … The purported Conversion [from LLC to limited partnership] would extinguish her LLC interest, deprive her of her participation in management, and subject her to a [limited partnership] structure that was fundamentally different than the one agreed to by all of the Kainos co-founders when starting the firm.”

And Sarah Bradley alleges that she was paid zero for giving up the rights that her co-founders sought to remove from her.

…  

Even a casual reading of the complaint poses the question: Did Sarah Bradley ask a lawyer to advise her about her interests before signing this Conversion document?

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Charles Dickens’ A Tale of Two Cities famously begins:

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness ….”

On one hand, the legal profession’s hourly billing-based business model rules the day in most law firms. And company law departments that resist this are so rare they make headlines.

Business people care about results.

That was the biggest lesson I learned upon crossing to the client side of the lawyer / client table.

After spending a decade as a practicing attorney.

Kind of a “duh” factor for my friends who’d lived and died by the P&L all their careers.

But for a lawyer whose career had been devoted to the analytical preoccupations and time-honored how-to methodologies that occupy 99.9% of a lawyer’s education and daily focus — it was a revelation.

Until I’d shouldered executive responsibilities, I was tone-deaf to what business “results” actually were.

Because he began his career in software engineering, Jason Barnwell, Microsoft’s Assistant General Counsel – Legal Business, Operations and Strategy — appears to have launched his professional life with a focus on “results” akin to that of a general manager.

So — as a software engineer — it was only natural that he offered to write computer script that would enable one individual to complete all of a document creation-and-collation task to which his law firm had assigned six team members.

Just as naturally Barnwell’s law firm employers — practicing under the legal profession’s hourly billing business model — found a way to stretch out their document creation-and-collation task to six people. Presumably charging for the time of all six people — performing manually what Barnwell’s computer scripting would have automated.

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