‘Big Four Fear’ Cycle Ramps Up for Law Firms as KPMG Moves to US

Welcome back to the Big Law Business column. I’m Roy Strom. Today we look at previous bouts of “Big Four Fear,” and ask: What’s different this time? Sign up for Business & Practice, a free morning newsletter from Bloomberg Law.

One thing is certain following news that KPMG is poised to obtain a license to operate an Arizona-based law firm: Here comes another fear cycle.

If you’ve been following the law firm innovation space for more than a few years, you are familiar with the foreboding. The Big Four are at the door. Deloitte, PwC, KPMG, and EY are huge—in terms of people and resources. They are really good at technology and “client service.” And whether they say it or not, they are coming for Big Law.

Those sentiments have been expressed—with varying degrees of fervor—for decades.

“Big Four Fear” dates to the late 1990s, when the major accountancies plowed into legal services—an effort first frustrated by regulatory changes after early 2000s accounting scandals. Talk of the Big Four taking on large law firms resurfaced in the mid-2010s, as KPMG, Deloitte, and others built up huge numbers of lawyers internationally.

That was all long before Arizona in 2021 introduced a regulatory change allowing non-lawyers to own and operate law firms in the state.

And so, previous fear cycles played out before any of the Big Four had the ability to practice law in the largest legal market around. That now looks poised to change.

To date, there are few signs the trepidation was justified. But maybe it was just early.

The Arizona change has already allowed private equity firms to enter the personal injury space and has opened doors for litigation funders to directly invest in firms. Down the line, it’s conceivable even that major law firms could use the avenue to obtain outside investment.

For those concerned about the Big Four, the $38 billion question (to cite KPMG’s revenue last year) now is: Will this time be different?

“US lawyers are threatened by the possibility of competition with accountancy firms offering legal services,” said Jayne Reardon, a partner at FisherBroyles who previously served as executive director of the Illinois Supreme Court Commission on Professionalism. “Lawyers are pretty good at trying to take care of their monopoly. And I think this is a bit of a threat.”

KPMG Law US, the Arizona-based law firm that still needs final approval from the Arizona Supreme Court, will provide post-transactional legal services that the company has said will “complement” the services of traditional law firms.

Whatever services it sells, the firm will face some practical geographic limits since other states do not share Arizona’s relaxed rules around non-lawyers owning law firms.

David Rizzo, the designated compliance lawyer for KPMG Law US, told an Arizona Supreme Court committee that the firm would use staffing agencies and co-counseling relationships with other law firms to service clients in other jurisdictions, my colleague Justin Henry reported.

Changes in Arizona could spur other states to consider a similar regulatory shift. It won’t happen without a fight. California state legislators in 2022 passed a law stopping its bar from relaxing rules around non-lawyer ownership.

Observers expect KPMG could be successful at cross-selling legal services to clients who already receive consulting or accounting services. But expanding into the high-priced practices that power Big Law firms, like major corporate transactions or bet-the-company litigation, will likely be a long, hard slog.

That has been the experience in the UK, said Corinne Staves, a partner at London-based firm CM Murray, which specializes in partnership law. The Big Four offer services that plenty of law firms want to sell, but they aren’t stealing major pieces of work.

“They have thousands of lawyers,” Staves said of the Big Four legal arms. “But they are not threatening or diminishing UK law firms significantly.”

Bob Couture, a senior research fellow at Harvard Law School’s Center on the Legal Profession, in 2021 surveyed law firm leaders on their understanding of the Big Four’s legal services offerings. Most leaders didn’t have a solid understanding of the accountancies’ legal services in other countries, Couture said. The development in Arizona will likely focus attention on the issue, he said.

Law firms will have to assess their positioning with clients and survey whether the Big Four are threatening to impede on their work, he said.

“Some may think this will happen very quickly. Others will say it could take 10 to 15 years,” Couture said. “I don’t know that anybody can say for sure what that timeframe is.”

In other words, this may not be the last fear cycle.

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That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.