Canadian Lawyer

32 A P R I L 2 0 1 8 w w w . C A N A D I A N L a w y e r m a g . c o m driving that change. He heads a team of 2,100 lawyers. In five years, EY has expanded its legal offering to 82 jurisdictions from 23. "We have generated double-digit growth for the last five years and plan to grow even more aggressively," Grossmann says. "The potential for growth is mostly limited by our ability to get top people to join us," he says, noting that the market is "very competitive for good talent and we are competing with the best law firms for the same talent. It is a challenge, but we are getting there." It's not just tax, insolvency and immigra- tion that have formed the bedrock of the Big Four's legal offering in Canada to date. It covers bread-and-butter business law services from corporate-commercial to finance, real estate, intellectual property, employment law and M&A, supplemented where necessary with advice from other professionals in the EY service mix. "We go to market not just as lawyers but advisors," says Grossmann, adding that clients "like the idea of a one-stop shop." He says the geographic expansion "is basically done." Now, it's filling in the bench and doing what the Big Four do so well — adding technology to the legal mix, stream- lining service delivery, developing new products and services and leveraging their global brands to win business. He says the growth opportunity is equal- ly spread between mature and emerging markets. "Canada is a big market and we still have a small practice there." According to ALM Intelligence in its report "Elephants in the Room," the law firm practice areas most susceptible to a Big Four assault include: tax, finance, labour and M&A. In the area of M&A, the Big Four are slowly advancing. According to Thomson Reuters M&A data, in 2013, its legal arms advised on a total of 71 deals. By 2016, that had grown to 215, tapering back to 189 last year. But it has a long way to go. In 2017, based on deal value, Deloitte ranked 97th (53 deals worth US$20 billion), PwC Legal 115th (79 deals worth US$15.1 billion), KPMG 246th (24 deals worth US$2.6 billion) and EY 285th (21 deals worth US$1.6 billion). For comparison, top Canadian law firm Blake Cassels & Graydon LLP was 19th with 159 deals worth US$182 billion, while Fasken Martineau DuMoulin LLP was 151st with 42 deals worth US$8.6 billion. Grossmann agrees that running mega-mergers is "part of the global elite. It will take a long time to get there." The sweet spot in the meantime is mid-market deals. For Grossmann, it's about "climbing up the value chain" and landing an oppor- tunity in an organization to show what you can do. And they can do plenty. To call the Big Four accounting firms is a misnomer. They are large, sophisticated, professional servi- ces firms with multiple business lines. They have long had their toes in legal waters in areas such as tax and insolvency but are firmly fixed on expanding their global legal services offering. If you're not convinced, look at some of the recent announcements. Deloitte launched Legal Management Consulting, aimed specifically at the office of general counsel to help "improve their operating models" and "deliver faster, more effective, integrated services within the enterprise," according to the press release. It also became the last Big Four firm to apply for an alterna- tive business system licence to practise law in the U.K. KPMG, E&Y and PwC embarked down that path a few years ago. PwC announced in the fall that it would open a Washington law firm to advise clients on international legal issues outside of the U.S. So why law and what's the attraction? Money. The global accounting business, which the Big Four dominate, generates about US$500 billion annually, and annual growth between 2012 and 2017 was only 3.4 per cent, according to research firm IBISWorld. Contrast that to law. In a seminal paper studying the Big Four's growth in law, Har- vard Law School professors David B. Wil- kins and Maria J. Esteban Ferrer note that "the Big Four have always been attracted by the size and profitability of the legal market relative to the decline in their core audit business." They write in "The Implementa- tion of Law into Global Business Solutions: The Rise, Transformation, and Potential Future of the Big Four Accountancy Net- works in the Global Legal Services Market" that the growth in legal services between 2005 and 2014 was 72 per cent to US$618 billion, almost three times the value of the audit market. That period coincided with what the authors say was the Big Four's re-emer- gence into law following the Enron crisis and the demise of Arthur Andersen, which spawned a global flurry of new laws and, ironically, an increase in demand for legal services and compliance advice on which the Big Four sought to capitalize. Moreover, legal services spending is forecast to hit US$726 billion by 2019. What's most attractive, though, is the legal market's fragmentation. No single firm dominates the way the Big Four dominate accounting and auditing. Effectively, law is a mom-and-pop industry ripe for consoli- dation, and the Big Four see an opportunity. How are they doing? That's hard to say since they don't break out financial figures for legal services. It probably falls under advisory services, which is driving growth at all the Big Four firms. Thomson Reuter's Legal Executive Insti- tute estimates revenues of the Big Four's legal services units at US$900 million. Fac- tor in the legal work completed by their traditional tax and insolvency groups and the number is much higher. In a March 2015 interview, PwC Legal head Leon Flavell told Business Insider that his firm wanted to hit $1 billion in law- related revenues by 2020. The main difference between a tradi- tional law firm and the Big Four is the depth and breadth of what the Big Four can offer, Grossmann says. "We have data and access to industry insights that are incomparable to what a law firm can do." Then there is the branding. Lisa Hart Shepherd, CEO of brand intelligence firm Acritas, says that, in Europe and parts of Asia, the Big Four "come up as a law firm brand, not just an alternative to mainstream legal services." Clients are comfortable using the Big Four for other services, which means their legal arms "automatically come in with a brand presence. They are known and there is a level of trust. Something that law firms are not appreciating is how easily it will be for [the Big Four] to transition over," she warns. More importantly, general counsel are watching developments with interest. Fred Headon, assistant general counsel, labour and employment at Air Canada in Mon- treal, says the Big Four are a "force to be

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