At the International Bar Association conference in New Delhi, Chris Arnheim discussed the threat posed by accountancy firms. Here, The Lawyer prints edited extracts from his speech. Chris Arnheim is a founding partner of Arnheim & Co.
As I wandered round the International Bar Association conference I heard a great deal of concern about the entry of the Big Six into the legal market. These firms are not the mafia; they do not threaten to undermine the rule of law in democratic societies. Although some of the debate about multidisciplinary partnerships seems to be being conducted on that sort of level, the Big Six do need to be taken seriously.
As part of the Price Waterhouse legal network, we believe we are following the right strategy, but may not necessarily represent the approach of the other Big Six firms. There is a lot of confusion about our market focus. We are not aiming at the middle market, despite the efforts of a number of leading law firms to position us there. We aim to provide legal and regulatory advice to multinationals on international transactions and projects.
There are two aspects to this: working on a cross-border basis with affiliated lawyers in other jurisdictions, and working on an integrated basis with other professionals. We are not about providing legal advice to Price Waterhouse, nor to consumers or smaller businesses.
We believe that clients are increasingly looking to their professional advisers to assemble rounded teams of consultants to handle all aspects of their projects and take responsibility for the input of the entire team.
So we see our target marketplace as the global legal market. If you add up the turnover of the law firms in the world's financial centres doing this sort of work you might estimate the market size to be of the order of $30bn to $40bn. But the market is terribly fragmented even the largest New York or London law firms have less than a 2 per cent share of the total. It is ripe for consolidation.
But why accountants? This is another popular prejudice. The Big Six are not really accountancy firms at all. Much of their turnover comes from business consulting advising on strategic management issues, IT systems, corporate finance, tax, risk management, and business advisory work.
Law is a component of the complete solutions clients seek in each of these areas. So it is wrong to think of the Big Six as branching out into a new product or service area they are simply adding a component to their existing service to make it more complete.
People have said that lawyers and accountants are chalk and cheese and will not mix successfully. I agree that there are enormous differences between a business consulting function and an audit function. In particular, the relationship with the client is different, the gearing is different, support needs are different and the market rates of remuneration are different.
Those differences already exist within the Big Six, and building a legal capacity alongside their other business consulting activities raises few significant new problems.
So, the million dollar question is: how widespread is client demand for buying professional services from integrated teams? Although we are still at an early stage in assessing this, some things are already becoming clear.
First, clients are keen to buy integrated solutions where a separate selection of components is difficult or uneconomic. For example, on many cross-border deals clients have for some time been keen to appoint lead counsel and to let them instruct and manage local counsel.
Integrated solutions are also attractive where it is essential that the different specialist input is compatible and adopts a common methodology. In a number of cases, clients have been enthusiastic about buying integrated services where they have had bad experiences with professional advisers competing among themselves for the lion's share of a project.
Clients really want the world from their professional advisers. They want a professional services team with which they can have a strong relationship, that has knowledge of its industry and a strong reputation, and which has sufficient global reach to handle the transaction requirements.
They expect the team to handle their needs from initial concept through to completion and integration, to manage the transactions effectively to minimise costs and client management time, and to deal with all aspects in a consistent and co-ordinated manner. Legal input is clearly part of that package.
Areas where this approach is already effective include cross-border mergers and acquisitions, electronic commerce, advice on infrastructure projects and utility regulation, human resources consulting and advice on preparation for EMU. It is valid in numerous other situations.
Before we can make an impact in the market we need to overcome a number of hurdles: law firms' existing relationships with their clients; the huge task of building the legal capability to deliver these solutions; and the regulatory barriers imposed by local Bars and law societies throughout the world.
Each of these hurdles will be overcome by most, if not all, of the Big Six in a surprisingly short time, and in doing so they will consolidate and fundamentally change the way the world legal market operates.
Our view of the future is of global multi-service teams with industry focus, providing complete solutions to clients' project needs. They may work for investment banks or global law firms or the Big Six.
I don't have a crystal ball, but somebody is going to be very successful in consolidating this marketplace, and as lawyers we all need to think through the consequences.