In the past six months, accounting firms have begun to make their presence felt in the legal markets of Hong Kong and Singapore with a flurry of office openings and poaching of talent. And while the general feeling is that they might take away some legal work from traditional law firms, not all lawyers are nervous.
A decade ago, they were but a speck on the horizon, faraway bogeyman causing lawyers to feel a bit uneasy. Years ago, they were making inroads into Asia’s smaller markets, testing the waters, so to speak. And as of summer 2018, accounting firms are officially here, competing toe-to-toe with traditional firms in the region’s biggest markets for a share of work. The looming threat that kept some law firms awake at night is real; now how will lawyers respond?
Accounting’s Big Four, namely Deloitte, KPMG, PwC and EY now possess the expertise to compete alongside well-established traditional legal practices and the resources to leave less adaptable outfits in the dust. With access to technology and mighty funds at their disposal to innovate, these professional service firms are equipped with an enviable range of tools and the power to reshape the future of key legal markets such as Hong Kong and Singapore.
And while their ambitions have never been in doubt, it is the speed and profile of their recent hires in Asia’s two main hubs that have really shaken up the market. Last year, PwC launched a new firm in Hong Kong, Tiang & Co. Since then, it has lured over King & Wood Mallesons partner Martyn Huckerby, Mayer Brown JSM’s corporate practice head Martin Robertson, Jones Day partner Michelle Taylor and O’Melveny & Myers partner Gigi Woo. In Singapore, Rachel Eng, deputy chair and a capital markets stalwart at WongPartnership, departed to set up a local law practice for PwC.
EY has not been far behind. In July, it added Singapore’s Atlas Asia Law Corporation, established by former Dentons Rodyk & Davidson senior partner Evelyn Ang, to its network. In Hong Kong, where EY operates as LC Lawyers (Lin & Associates), the professional services firm snapped up six lawyers from Troutman Sanders’ recently closed Asia offices, including Rossana Chu, who joined as co-managing partner. Finally, Deloitte became the latest Big Four professional services firms to declare its ambitions in Singapore’s legal space after launching a foreign law practice, Deloitte Legal International.
Dmitry Tetiouchev, EY Asia-Pacific Law Leader says that the Big Four’s expansion is “very much driven by client demands.” And as traditional firms expand their service offerings to combat the Big Four’s push into the legal market, Tetiouchev predicts “this will all lead to increased competition, which is good for the clients.”
A key attraction for clients opting to use a professional service firm like EY, Tetiouchev adds, is access to a global community of experts. “Smaller independent firms will not enjoy such an advantage,” he says. So, it is not only about providing add-on services; it is the way we are able to seamlessly deliver advice on our client’s projects beyond legal aspects that truly differentiates us.”
Rashed Idrees, managing director of Deloitte Legal International in Singapore, also views the connection to a global network and well-rounded service offerings as key for serving today’s clients.
“Deloitte Legal complements Deloitte’s multidisciplinary service capabilities (audit & assurance, tax & legal, consulting, financial advisory, and risk advisory); and together with our strong consulting advisory base; these are key service offerings that differentiate us from our competitors,” he says.
“In today’s increasingly borderless economies, multidisciplinary services seem to be well appreciated by clients that are looking for cost efficiencies, which in turn may make the regional legal market, as a whole, more competitive,” Idrees adds.
One obvious advantage is the Big Four’s mighty investment in technology. Deloitte launched its global multidisciplinary offering Legal Management Consulting (LMC) in January this year, while EY has made a global investment of $1 billion in tech solutions across the business, and recently acquired managed services firm EY Riverview Law.
Idrees says the legal world is transforming as demand for technology-enabled solutions grows. “We like to think that Deloitte has been at the forefront of this change advising our clients on the challenges and opportunities offered by what is seen as the fourth industrial revolution,” he says, explaining that the technology-enables legal solutions the team offers to clients allows them to be more efficient and offer the business intelligence “we understand our clients are looking for.”
Tetiouchev agrees: “Technology is an area that professional services firms need to constantly keep an eye on. Previous ways of working are no longer sustainable. Clients are looking for solutions that reduce their risk, are easier to administer, efficient and cost-effective. The teams that deliver multidisciplinary solutions enabled by technology will be the winners in the long run.”
ADAPTATION IS KEY
Much of the predicament that lawyers today find themselves in might just be their own fault. Stefanie Yuen Thio, joint managing partner of Singapore boutique TSMP Law Corporation, reflects that past poor behaviour from select firms has been responsible for exacerbating challenges the industry now faces.
“Lawyers have, for too long, had a rice bowl that was iron-lined (if not ironclad). International law firms milking their large corporate clients with astronomical hourly rates gave us all a bad name,” she says.
“Law firms will have to re-think their business models and the question they will have to ask is this: What's my real value-add to the client? Clients are much more sophisticated these days and for the more routine transactions, they will no longer pay for the ‘best’ when ‘good enough’ can get the job done,” she says, predicting that there will be a price war between firms that “pride themselves on providing cheap and fast service,” notes Yuen Thio. “Large firms will have to shed some headcount as accounting firms move in on their more commoditised work offerings.”
She says, after all, expansion from the Big Four isn’t the only force shaping the changing landscape of the legal market: “In the long run, it is technology and disruption (e.g. from gig economy lawyers) that is the real threat to the traditional law firm model. That's a bigger existential challenge.”
“I don't believe the accounting firms want to be a competitor for top end legal work,” Yuen Thio says. “Their legal bolt-ons are probably aimed at defending their client base, and not ‘leaking’ legal work that is ancillary to accounting work to law firms…I don't see them being a serious competitor against a seasoned senior counsel or a battle-hardened corporate negotiator.”
EMULATE THE BIG FOUR
Taking a measured view on the changing legal climate, industry consultant John Grimley says that while law firms may have underestimated the threat posed by alternative legal service providers, there are still ways traditional law firms can challenge the big players. Independent law firms “would be wise to hyper-specialise as one means to compete against the Big Four, however, this is not the only method by which they might effectively compete,” he says.
“The prime distinguishing factor in the success of the Big Four versus traditional law firms is the use of client-facing business development teams to identify, pursue and capture new work. Traditional law firms do not do this (except in rare circumstances). This is the most important area where traditional law firms can seek to emulate the Big Four in order to compete more effectively,” adds Grimley, who publishes Asia Law Portal.
Another consultant, Tony Williams, believes there is still opportunity for law firms as the Big Four’s focus at present appears to be on products and solutions in conjunction with other parts of their business; “legal may only be part but a significant part of their offering e.g. risk management solutions and global employee mobility to name but two.”
But the principal of Jomati Consultants also warns the cumulative effect of competition could erode firms’ profitability, over the long term: “Firms need to be aware of and monitor these developments and to be able to respond in a targeted and cost-effective manner to demonstrate the value that they bring to their clients. New entrants can bring a fresh approach which is appealing when compared to the status quo especially if it includes a wider package of services and expertise compared to the incumbents and is price competitive.”
Sourced from Asian Legal Business - written by Elizabeth Beattie