Accountants on the brink of taking law into their hands

If rumours are to be believed, the UK legal market is set for one of the biggest shake-ups in its history. Coopers & Lybrand, the story goes, is talking to Eversheds about a close tie-up.

Eversheds already has a relationship with Coopers and refers much corporate legal work to the firm. A tie-up would firm up the relationship, and make referrals exclusive.

Eversheds, with its regional offices all over the country, is a good fit for a national accountancy firm, although one minus point for Coopers may be the fact that Eversheds has still to get all its offices working as a single firm.

Yet even if the deal never comes off, the fact that it is being talked about is indicative of the frantic desire of the Big Six to get into legal work.

For some time, Coopers has been eager to take a slice of the UK legal market, which is the largest in Europe, and far more lucrative than its run-of-the-mill audit work. Rival Big Six firm Arthur Andersen is ahead with Garrett & Co, its five reginal offices and 100 lawyers, and Coopers partners were given an extra incentive to create a standalone law firm when Price Waterhouse set up Arnheim & Co this February.

There are obstacles to overcome, however. Coopers' senior partners are restrained by Law Society rules that prohibit accountants profit-sharing with lawyers, and the rules of New York's Securities and Exchange Commission, which do not allow the same organisation to audit and do the legal work for New York-listed firms. One source said: “The SEC rules are a major stumbling block for accountants doing legal work, and it is a major factor preventing Coopers from moving. There's a rumour that the SEC chair called in all the heads of the accountancy firms to give them a warning.”

Chris Arnheim, senior partner at Arnheim & Co, said he had come across the problem but he added: “We think that if we are independent from Price Waterhouse, as we have to be for Law Society purposes, then we probably are for SEC purposes.”

Coopers has staff problems too. Its legal tax team, which sources say was to have been the core of a standalone firm, has suffered heavy losses, dropping from 14 lawyers to four in the space of six months. Coopers is not renewing its one-year contract with the head of the unit, former Theodore Goddard partner Robin Preston, who was supposed to be looking at Coopers' strategy for setting up a law firm. That project has obviously been mothballed.

Xavier du Sarreau, managing partner of Arthur Andersen's French law firm Archibald Andersen, commented: “They have to do something. There is no point going on developing practices in Europe and not in the UK; the UK is the largest market. The difficulties in the UK are no different to the difficulties elsewhere.”

Aside from Eversheds, three other Big Six firms are still without UK law firms.

Ernst & Young, which said earlier this year that it would set up a separate law practice, also put plans on hold this summer. “We're still looking at the question,” said a spokeswoman. “We're consulting widely within the firm. It just takes rather a long time.”

Ernst & Young is already ahead in the European legal market with practices in Switzerland, Spain, the Netherlands and Germany, and a fledgling practice in France. E&Y's head of international legal strategy is a Frenchman based in Paris, Jean Charles Raufast. With the example of France on his doorstep, he will want to see his UK partners make a move into legal services.

KPMG is also yet to make a move in the UK legal market. Constant rumour surrounds the association between City firm Stephenson Harwood and

KPMG's French associate law firm Fidal, the largest law firm in France. Could KPMG be looking for a direct tie-up with Stephensons?

It is by no means the only contender. French sources indicate that KPMG could move into UK legal services without consulting Fidal, which is quite independent of its accountancy parent. So KPMG could merge with a different firm, one with a regional presence, more akin to Fidal's structure. But it could also decide to start a law firm from scratch. KPMG's partners are probably still weighing the options.

Only Deloitte & Touche says it is not keen to set up a law firm. William Barnes, its head of professional practice, said his firm was “much less likely” to follow Andersens and PW into establishing law firms because so many clients were lawyers picked up when PW took over Spicer & Pegler, which specialised in auditing law firms.

There is no doubt this is a factor in Deloittes' thinking. As our audit survey shows (see page 20), Deloittes audits more law firms than any other accountant, around a quarter of firms who responded to our survey, while Arthur Andersen, which is busy running a top 50 law firm, audits only one firm of the 75 who responded.

But one senior lawyer in an accountancy-tied firm said of Deloittes' position: “I think the loss of referral work is an excuse. Accountancy firms are already competing with law firms for work, and everyone knows it.

“It's the way of the future: all the Big Six will get into legal work; they just haven't found the right people yet.”

Where are they now?

Arthur Andersen: Andersens has been the most aggressive of the accountants in the UK and worldwide at moving into legal work. It has taken the Dutch Bar to court and complained to the EC over its rules on multidisciplinary practices. While its from-scratch English law firm, Garretts, has become the fastest-growing firm in the country, in Spain it is still completing a takeover of prestigious Madrid firm Garrigues. Already the top firm in Spain, the merger will make it, in Spanish terms, a monster. The move is seen by top UK law firms as the first serious step into legal practice by accountancy firms.