Why Is EY Willing to Invest $1 Billion to be Innovative?
Sports Illustrated used to have a column entitled Sure Signs the Apocalypse is Upon Us which included references to often bizarre and ironic events. It was a favorite of mine since it was a satirical poke at the seriousness we take sports and a display of the humor of everyday existence.
Unfortunately (or perhaps fortunately depending on your perspective), the gradual and continual onslaught of the Big 4 accounting firms into traditional areas of legal practice and encroachment on law firm clientele seems destined to ultimately disrupt the practices of traditional law firms particularly at the mid-tier level. I have written about this before and while I and several others keep trying to suggest the Big 4 is coming, the message doesn’t seem to resonate.
Three posts in the last week perhaps reiterate this very point.
Why is an accounting firm acquiring an innovation firm unless they plan to do some serious innovating?
The first was an announcement by the Big 4 accounting firm, EY, its legal innovation subsidiary, EY RiverviewLaw, and Artificial Lawyer of a special event focused on legal operations, technology and innovation to help in house legal departments do more for less. As the organizers put it, “A light is now being shone on risks such as selecting the right software in rapidly evolving industries, along with ethical and legal issues associated with artificial intelligence being used as the primary basis for making legal decisions.” (By the way, EY RiverviewLaw was formed when EY acquired RiverviewLaw, a legal innovation firm. This fact in and of itself should give traditional law firms pause: why is an accounting firm acquiring an innovation firm unless they plan to do some serious innovating?)
The Big 4 is clearly eyeing the legal market and sees an opportunity to be the go to adviser
Why is this noteworthy? Because the Big 4 is clearly eyeing the legal market and sees an opportunity to be the go to adviser on technology and innovation, artificial intelligence and innovation to in house legal. The Big 4 no doubt has noticed that most law firms are not only not offering this kind of assistance, they actively oppose any tech and innovation that creates efficiencies that would reduce billable hours. Do we really think the accounting firms with massive resources don’t see this? That they won’t help legal departments find ways to cut legal spend with these technologies? That that won’t translate ultimately in not only reducing spend but in taking work?
That’s the difference between the Big 4 and biglaw.
There’s an old joke. A group of client officers arrive at their lawyers’ offices in a high rise only to see a huge water leak at the building’s first floor reception area blocking their way in. They phone their lawyers to say they will be delayed and their lawyers say, don’t worry about it, just come on up when its cleaned up and the way is clear.
A second group of clients arrive to see their accountants in the same building. The see the same mess and make the same call. The lead accountant for the client says don’t worry about it. We will send a group of junior accountants and staff down right now to help clean it up, so your time is not wasted waiting. We know how valuable it is.
That’s the difference between the Big 4 and biglaw.
The same thinking is being applied to tech and innovation: Big 4 is providing service to their clients in whatever way they can under the theory that this will get them more work in the end. Law firms? Let’s not get our hands dirty.
The second post from this week that made me reflect on the Big 4 threat was one by Sam Skolnik that appeared in Bloomberg’s Big Law Business Publication. This post referenced the fact that more and more innovative law firms are hiring Chief Innovation Officers (CINOs) to help drive innovation and, relatedly, the use of technology in their firms. The theory is that without such a driving force, change will be slow, ineffective and difficult.
But Skonik notes there are still prominent holdouts with many, like McDermott, Will and Emery flatly stating it has no “immediate plans to create and/or recruit for such position”. And the adoption rate remains low. Skolnik quotes David Cowen, president of The Cowen Group, a staffing and recruiting firm for the fact that, as of now, only 57 law firms have adopted the approach though its use seems to be growing; last year at this time there were only 32. This may in part be due to the efforts of people like Cowen and is sure progress.
But its important to keep this in context. As of 2000, apparently the last time the number of law firms was surveyed, the American Bar Association reported there were 47,563 law firms in the U.S. and over 1000 firms with more than 100 lawyers. Relatively speaking, there is still only a small percentage of firms with CINOs. And I would guess that the adoption rate among firms smaller than 200—the mid-tier firms—is small.
“Most incumbent law firms do not innovate for measurable results like their corporate clients; they innovate for show.”
Moreover, it’s not clear how many of the 57 firms are making true use of CINOs as opposed to using them as window dressing. As a friend of mine once put it: there are firms that want to be innovative and then there are firms that want to say they are innovative. Or as Robert Saccone, former CEO of Seyfarth Show subsidiary SeyfarthLean Consulting puts it in a recent blog post, “Most incumbent law firms do not innovate for measurable results like their corporate clients; they innovate for show.”
Accountants? EW appointed its chief innovation officer in 2015 and has pledged to invest $1 billion (yes billion) in innovation over the next 2 years. One look at the website gives you a flavor for the depth of expertise within the unit—and EY’s innovation commitment. . Can ANY law firm-CINO on board or not- say the same?
The final article of this week that caught my eye is John Kang’s post in ALM on KPMG opening a Hong Kong Law Firm and planning another in Shanghai. This follows an increasing pattern by the Big 4 of visibly encroaching on law firms in those countries where they can.
Does anyone really think these are just random acquisitions? The Big 4 has global reach: do you really think they don’t have a long-term business plan to use their global clientele and reach to make entries into the most lucrative legal market, the U.S.? (in 2017 the size of the U.S. legal market was $100.9 billion) . Why else make these acquisitions? Why else host events like that of EY and EY RiverviewLaw?
Most law firms seem blissfully unaware of the threat that sits literally on their doorsteps. The Big 4 are shrewd, relentless competitors who are implementing a global business that includes the U.S. legal market. They are in for the long haul. Law firms? Their plan seems to be just keep doing what we’re doing.