The Re-Emergence of MDPs: What This Means for Traditional Law Firms

The Enron disaster saw most of the Big Four accounting firms retreat from the legal services market. In recent years, however, these companies have become increasingly sophisticated, transforming themselves from traditional auditing firms to multidisciplinary practices (MDPs).

With the global legal services market facing more competition, we look at the Big Four’s push into legal services and what this means for traditional Australian law firms.

March of the MDPs

The recent 2016 Australia: State of the Legal Market Report, by Melbourne Law School and Thomson Reuters Peer Monitor®, sounds an alarm for law firms throughout Australia, so if you haven’t already, it’s time to sit up and take note.

Earlier this year, PwC legal services leader Tony O’Malley announced the addition of five new senior partners, following a move to grow the firm’s legal services team over 18 months, to “help serve the market’s increasing appetite for end to end solutions.”

Last year, KPMG’s partner in charge David Morris also revealed ambitious plans to move its legal services offering well beyond tax law. He told the Australian Financial Review: “This is very much a client-driven initiative – clients are increasingly asking for a full-service advisory proposition. We’re looking to build our corporate capability. The challenge of creating a new-style offering in the marketplace was very compelling to me.”

The other two MDPs – EY and Deloitte – are not far behind. EY’s legal network comprises more than 1600 lawyers, and expects to have a legal presence in more than 80 jurisdictions by 2017. And while Deloitte’s Australian legal division is currently limited to tax litigation, it has a large legal presence in Europe and is “exploring a couple of different options” Down Under.

An improved level of servicing

MDPs are expanding their service offerings well beyond tax into areas such as corporate and commercial law, labour and employment, and litigation. They are also clear about what they can offer – a holistic and integrated service that better meets today’s challenging business environment.

According to Howard Adams, EY’s head of legal in Asia Pacific, legal services go hand in hand with the firm’s accountancy roles, with key areas of crossover in many sectors including financial services, private equity, real estate and government.

Efficiency is also part of the appeal – Alan Tsoi, Deloitte’s tax and legal leader in Asia Pacific, attested to how the firm’s clients are finding it easier to deal with one organisation that can provide legal expertise and execute their own advice.

As PwC’s website points out, what differentiates them from traditional law firms is the breadth of their business and market insight.

With the Big Four firms dominating the professional services industry on a global scale, law firms with a presence in fewer countries or with niche offerings will find it challenging to compete on the same level.

Business conditions, agility and MDPs

An issues paper on MDPs published by the Law Council of Australia back in 2000 highlighted what is starting to play out today: “It is becoming increasingly apparent that the business structures currently adopted by the legal profession may not survive the competitive environment of the 21st century. National rules and national structures are being overtaken by international events.”

Such events are now part of our lives – the growth of digital, cloud-based working, skills diversification, the gig economy and disruptive technology. These developments have changed the way we work and have enabled a radically efficient delivery of services.

While some law firms are making attempts to alter their business models and adapt, even bringing NewLaw concepts into the traditional firm structure, many cling to billable hours and other long-standing traditions and structures. It’s arguable that the MDPs have the agility, diversity and resources to better respond to the rapidly changing business environment.

A new breed of client

The Law Council’s issues paper also hinted at a growing resentment of the mystery and tradition surrounding the legal profession: “The perceived dichotomy between business and the professions is regarded by many as being outdated, and the legal profession is recognising that ethical and commercial issues can and must be dealt with simultaneously.”

If clients were once impressed purely by the prestige and reputation of a law firm, that time is certainly passing. Today’s client is more savvy and informed, demanding transparency and a true customer-centric approach.

Without the history and culture that most traditional law firms carry, MDPs perhaps have a distinct advantage in the race to keep modern clients happy — by ensuring a solid offering bolstered by expertise in diverse fields and verticals, and the agility to respond to market demands.

While law firms continue to face a number of challenges, addressing the needs of the savvy client (as MDPs are doing) is paramount in order to ensure continued success.

Just how big a slice of the legal market MDPs will take still remains unclear. According to The Economist, legislation currently prevents MDPs from actually practising law in the USA, so their growth is restricted in the country. In the UK and Australia however, MDPs can actively promote and sell legal services to clients alongside their core products.

With the Big Four employing aggressive growth strategies (Deloitte for example, has already acquired several Australian-based firms such as GMK Partners, Moore Stephens and KD Johns), it is likely that the Australian legal market will see much change in the next few years as they find a re-emergence within the country. The question remains, can law firms keep up?

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