PwC has grabbed two former top tier managing partners to lead its new legal services expansion in Australia: Which law firms will be hit by the competition, and what plans do the other Big Four have?
Australasian Lawyer spoke to the former King & Wood Mallesons’ managing partner Tony O’Malley, who alongside Tim Blue – another former managing partner of the firm – was set to ramp up PwC’s Australian growth agenda, which has a targeted annual legal services revenue of $100 million plus.
But the goal is to build a multi-competency legal practice on a global scale, and O’Malley says his team will be working closely with the broader PwC network to support the development of complimentary practices in key regional markets.
“Competition in the legal services market is already fierce and all firms are under intense pressure to continually deliver better value for clients. There is plenty of room in the Australian market for us to co-exist with the big firms and in fact for us to work with each other in areas where we do not compete,” he says.
“What will differentiate PwC is our ability to develop a highly integrated offering and I expect this will maintain pressure on the large firms to innovate in respect of their own offerings - which is all good news for clients.”
Australasian Lawyer asked a group of legal professionals here what consequences such a move could have on competition, and crucially, which firms will be the most affected.
We also explore what the remaining players of the Big Four accounting firms, Deloitte, Ernst & Young and KPMG, have in store.
Andrew Barnes, the president of the Australasian Legal Practice Management Association (ALPMA), says the association - which has a membership base predominantly through the small to mid-tier market, but with many alumni and friends in the large firms - is watching “intently” as to what plays out.
The recent reintroduction of the big four accounting firms into the Australasian legal market is a significant development, he says.
“Their recruitment activities show they are not just looking to tuck in the tax controversy work to synergise with their regular client work. These actions will be played out at the top end of the market, but there may well be some cascading effect to the next and lower tiers.
“Whether this is limited to key people shuffling or it tips major client relationships on their head is to be seen, but firms will be testing their client retention strategies as we speak. If revenue targets are not being met, do they cannibalise at the top end or begin to cherry pick the best of the legal work currently being serviced by tier-2?”
Barnes adds that now more than ever the lines between what constitutes "legal" work and "non-legal" work are being blurred. He points to the UK the licencing of Alternative Business Structures, which he says is taking hold at quite a rate with some “real success” stories emerging.
“At the lower tiers many will be watching the developments at the top end and looking for a guide as to which way they ought to move,” he says. “There will be some who accept that broadening their firm's capabilities beyond a pure legal practice is a matter of when, not if, and they will already be planning their move. The challenge is to be intimately aware of your market and referral sources and get your strategies or contingencies in place sooner rather than later.”
Holding Redlich partner Amanda Davidson agrees that the new emphasis by the major accounting firms will put pressure on the corporate groups of traditional firms.
“The firms most likely to be affected are those firms whose core corporate clients are shared with the major accounting firms. This could have a significant impact on both the major firms and mid-sized firms,” she says.
It’s possible that PwC’s new multi-competency legal practice offering could pave the way for even more professional service firms to make their move into the Australian market, she says, depending on the clients’ requirements.
“There are a number of examples of smaller groups forming multi competency services organisations following the needs of clients and with the right client base there is no reason why that model should not work for larger organisations.”
Aldrin De Zilva, the national lead partner of Deloitte Lawyers, one of the Big Four professional service firms, says the team currently consists of 42 practitioners across Australia, and has 10 fully qualified legal partners.
“When compared with the other big four firms, Deloitte Lawyers is one of the largest traditional legal practices. By that I mean we do not include non-legally qualified partners in our practice,” he says. “Our tax litigation team is one of the largest in Australia in terms of size and number of cases. For example, in the past 12 months we have represented clients in more than a dozen separate cases in the AAT, Federal Court and High Court.”
He also added that Deloitte has a very strong relationship with a number of top-tier law firms and plans to continue that.
A representative from Ernst & Young told Australasian Lawyer that the professional service firm currently has approximately 20 partners and 120 lawyers. But by the end of the year, the firm wants to boost that up by close to 43%, bringing the total number of lawyers and partners to 200.
And the remaining Big Four member, KPMG, also has significant growth plans.
Jeremy Geale, the head of tax dispute management, says within the multidisciplinary legal practice the firm has 10 partners and executive directors, one special counsel and approximately 20 professional staff.
“We anticipate substantial growth with the practice is least doubling in size over the next few years,” he says.