Ernst & Young (EY) has big ambitions to double its Asian legal capacity within the next 12 months.
The big four accountancy firm blazed a new trail into Asia’s legal market in February when it admitted seven-partner Shanghai firm Chen & Co into its global network (20 February 2014). While rivals Deloitte and PricewaterhouseCoopers (PwC) also have plans to tap into the same market (18 March 2014), the Chen & Co tie-up gave EY a head start.
China is an important market on its own, but EY’s ambition does not stop there. The accountancy giant has plans to expand its legal services across Asia. At the helm of the regional push is Melbourne-based partner Howard Adams, who heads EY’s tax controversy practice and its law business in Asia Pacific.
“With all the developments and expansion currently undergoing in Asia, we are confident that our size will double by March next year,” Adams says confidently.
According to Adams, Singapore, Hong Kong, Korea, Vietnam, Indonesia and Taiwan are among a list of jurisdictions in which EY is interested in offering legal services, and launches in Singapore, Vietnam and Indonesia are imminent.
The Lawyer first reported on EY’s planned legal services launch in Singapore in December 2013 when its Singapore branch hired former Herbert Smith Freehills partner John Dick (10 December 2013). The plan is that Dick will set up a Singapore law firm that will then become part of the EY global network.
Adams adds that EY is applying for a foreign law practice licence in Singapore and is also exploring different options to offer clients combined foreign and Singaporean legal advice, possibly by establishing a formal law alliance or joint law venture with a local firm.
In Vietnam, EY has recently obtained a foreign law licence, through which it can hire foreign and local lawyers and offer legal services, and in Indonesia, Adams is talking to a number of Jakarta-based lawyers for a possible launch. In addition, EY has a close affiliation with Indian firm PDS Legal with litigation partner Tarun Gulati listed as the country legal head.
The new Asian branches will join the global EY Law alliance, which consists of around 1,000 lawyers in 43 countries and is headed by global law leader Cornelius Grossmann in Germany. EY Law’s current capability in Asia Pacific is around 100 partners and lawyers across the region. Technically each Asian arm is an independent law firm which is a member of the global alliance, largely due to the complex regulatory environment in many Asian countries which prohibits profit and fee-sharing with foreign firms.
“We’ve been working on our Asia developments for 12 months now,” says Adams. “Asia has many different jurisdictions that have very different legal frameworks and different levels of development. There’s a need amongst clients for us to provide business law services, complimenting other services we provide such as tax and transactional advisory services.”
EY’s legal services push in Asia is not only driven by inbound clients from Western markets. Adams explains that the growing investment activity between countries in Asia – for example, Japanese and Chinese capital going into the ASEAN (Association of South East Asian Nations) region – is another driving factor behind EY’s moves.
“There’s a lot of activity in the region. It would be useful to have fairly consistent niche services offering in countries across Asia,” Adams says.
However, EY is not in Asia to be everything for everyone. With many international firms already having extensive regional coverage, EY needs to find its own niche in the market.
“The only way we can differentiate ourselves is by having lawyers who can provide services which fit into what we do in the group,” says Adams. He lists mid-market M&A, general corporate, restructuring, regulatory, tax and employment law as the key areas in which EY Law wants to prevail.
Employment law services, for example, account for 25 per cent of EY’s legal offerings worldwide.
“Packaging the legal advice with our other business consolation services is quite attractive to HR managers,” Adams explains. “Major law firms probably provide slightly different services to the market from what we are going to provide. Some of the areas we focus on are not core to their businesses.”
To the global legal fraternity, accountancy firms’ ambition to take on legal services work is a familiar story. Back in the late 90s, the first wave of accounting firms’ expansion into legal created some big names such as Andersen Legal and KLegal. But the trend faded out very quickly in the post-Enron era following the 2002 collapse of Andersen, which was once a legal giant with 3,400 lawyers in 37 countries (15 April 2002).
Adams is bullish about the second push into the legal arena.
“In my view Andersen Legal was a great success. The only reason why accounting firms were unable to push on was because of the regulatory changes brought around the Sarbanes-Oxley Act,” says Adams.
“Most accounting firms considered it as too risky to offer legal services to a large extent to audit clients initially. But as time passes, people are more used to the regulatory landscape. As businesses have matured and developed and the economic climate has changed after the global financial crisis, it’s possible to go back in now.”
Apart from Asia, EY is also mulling a return to the key UK legal market. EY split up from its UK legal affiliate Tite & Lewis in the early 2000s, but it is now in the process of re-launching in the form of setting up an ABS law firm led by former Addleshaw Goddard corporate managing partner Phillip Goodstone (27 March 2014).
Adams has all the right reasons to be optimistic about the opportunities facing accountancy firms’ return to the legal services market. But as leading Asian firms come of age, and global firms’ efforts to transform themselves for the new market reality pay off, there is still a hard-fought battle ahead.