Charles Darwin might have been thinking about law firms when he wrote: “It is not the strongest of the species that survives, nor the most intelligent. It is the one that is the most adaptable to change”.
A recent analysis shows growth of the Big 4 accounting firms is outstripping that of their legal counterparts, the Big 6 in Australia. And as the chart of the changes in revenue of Big 4 and Big 6 shows the ‘accountants’ are enjoying the fruits of steadily diversifying their range of services, client industries and geographic footprints in a way that delivers them good upside and largely shields them from the vicissitudes of the economic cycle.
This divergence in business strategy is surprising, more especially as the needs of clients are multi-faceted, often complex and extend well beyond law firms’ traditional services. Indeed they serve the same corporate and government clients as the accountants and have just as much access to c-suites and boards, yet they are allowing others to eat their breakfast, lunch and dinner so to speak. What’s even more surprising is that examples of successful law firm diversification – judged in terms of growth, profitability and how complementary the services are – have existed for a decade or more, albeit in relatively small numbers and scale. Examples in Australia, the USA and the UK include non-lawyer services in governance, risk, compliance, policy, regulatory affairs, procurement and commercialisation.
So why aren’t law firms diversifying at the speed and to the extent their accounting cousins have pursued so successfully? What is it that causes them seemingly to shy away from adding new services delivered by professionals other than solicitors?
Here are four answers we hear when law firms’ leaders are pressed. “We are poor managers of lawyers, let alone other professionals; it’s too risky”, “Consulting is not as profitable as law; why bother?”, “There are too many conflicts of interest” and “We’d be competing with the accountants and others who refer us work”.
We would add a fifth “It’s been too easy for too long for law firms to make big profits”. Times have changed; the good old days are not coming back. And most law firms have yet to realise this.
The big end of town accountancy and engineering professions are beginning to view and describe themselves as broad-based professional services firms, not as mono-discipline practices. It’s not just the large firms; smaller firms are also starting to follow suit and one major professional society has changed its focus and name. A few years ago Consult Australia was re-engineered and expanded from its origins as the Association of Consulting Engineers of Australia.
Where do these trends in clients’ buying patterns and competitive moves by other professions leave the legal profession? Struggling to hold share of mind and market is one answer. The question remains, will law firms evolve by diversification to survive in the new normal? As Charles Darwin observed, it is the most adaptable that survive.
George Beaton and Eric Chin are members of Beaton Research + Consulting Beaton Capital, firms dedicated to professional services.