Page 147 - Leaders in Legal Business - PDF - Final 2018
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“head office.” No one location is the source of all wisdom, whatever those based there may
think. Indeed, it is by welcoming and harnessing diverse views and experiences that a firm is
able to give the best service to its increasingly multinational and multicultural clients.
The Future
We are only partway through the process of developing truly global firms and the
segmentation of the global market by types of work, target clients, service offering, price, and
profitability.
It is likely that over the next five years the number of $1 billion firms will increase by
organic growth and merger to 40 or perhaps 50 firms. In the medium term, U.S.- and U.K.-based
firms will dominate this end of the market, but we may see more Australian, Continental
European, Canadian, ASEAN, and Chinese firms taking a leading role in the creation of larger
and more geographically diverse firms. After the initial phase of development, it is likely that we
will see mergers within the top 50 firms that will create truly global firms and an increasing
segmentation of the international legal market into firms of different types, e.g., capital markets
“bet the farm” firms, high-value firms, upper-mid-tier firms, wide coverage firms, mid-tier firms,
and process organizations (the precise categories have yet to emerge, and currently the
classification of specific firms and their position in the market is in a state of flux). A firm’s
branding and what it stands for will become increasingly relevant as this process develops. It is
not inconceivable that by 2020 or shortly thereafter we will see a $5 billion law firm.
For those who think this is impossible, it is important to appreciate that a $5 billion law
firm will have a market share of less than 1 percent of the global legal market at that time. It also
needs to be appreciated that new entrants of the sort allowed in Australia and the U.K. and being
considered in other countries are likely to make the Global 100 list. Indeed, PWC, KPMG, and
EY all have alternative business structure licenses in the U.K., so they can offer legal services
there. They have made no secret of their wish to expand their legal services offerings, especially
when bundled with their other services so that they can provide “business solutions.” It should be
remembered that in 2001 Andersen Legal was the ninth-largest law firm in the world by revenue,
but it crashed in 2002 when Arthur Andersen collapsed in the wake of the Enron scandal. The
Big Four may make mistakes, but they are impressive organizations with client relationships and
investment capabilities that most law firms can only dream of. To put them in context, the
revenue of the three largest Big Four accounting firms, in aggregate, exceeds the aggregate
revenues of the Global 100 law firms.
This analysis assumes a “business as usual” approach. The impact of pricing pressure,
new working methods, and AI (artificial intelligence) on law firms could be massive if law firm
clients consistently demand change (and despite what law firms may think, general counsel have
generally been pretty benign buyers). This could fundamentally transform the market, especially
at the mid- and lower tiers of the segmentation. This inevitably will produce winners and losers,
and some may be both at different times (consider the fortunes of Apple, Blackberry, and Nokia
over the last 20 years).
Absent some cataclysmic event, globalization is likely to continue. Firms will need to
map their own course in order to stay relevant to their clients and to carve out a clear position in
their chosen market. The market will be dynamic. The Global 100 firms will have revenues more
than $100 billion, possibly moving toward $200 billion. The global top 50 will probably be
stronger and more diverse than the next 50. Some will shun the global approach; others may
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think. Indeed, it is by welcoming and harnessing diverse views and experiences that a firm is
able to give the best service to its increasingly multinational and multicultural clients.
The Future
We are only partway through the process of developing truly global firms and the
segmentation of the global market by types of work, target clients, service offering, price, and
profitability.
It is likely that over the next five years the number of $1 billion firms will increase by
organic growth and merger to 40 or perhaps 50 firms. In the medium term, U.S.- and U.K.-based
firms will dominate this end of the market, but we may see more Australian, Continental
European, Canadian, ASEAN, and Chinese firms taking a leading role in the creation of larger
and more geographically diverse firms. After the initial phase of development, it is likely that we
will see mergers within the top 50 firms that will create truly global firms and an increasing
segmentation of the international legal market into firms of different types, e.g., capital markets
“bet the farm” firms, high-value firms, upper-mid-tier firms, wide coverage firms, mid-tier firms,
and process organizations (the precise categories have yet to emerge, and currently the
classification of specific firms and their position in the market is in a state of flux). A firm’s
branding and what it stands for will become increasingly relevant as this process develops. It is
not inconceivable that by 2020 or shortly thereafter we will see a $5 billion law firm.
For those who think this is impossible, it is important to appreciate that a $5 billion law
firm will have a market share of less than 1 percent of the global legal market at that time. It also
needs to be appreciated that new entrants of the sort allowed in Australia and the U.K. and being
considered in other countries are likely to make the Global 100 list. Indeed, PWC, KPMG, and
EY all have alternative business structure licenses in the U.K., so they can offer legal services
there. They have made no secret of their wish to expand their legal services offerings, especially
when bundled with their other services so that they can provide “business solutions.” It should be
remembered that in 2001 Andersen Legal was the ninth-largest law firm in the world by revenue,
but it crashed in 2002 when Arthur Andersen collapsed in the wake of the Enron scandal. The
Big Four may make mistakes, but they are impressive organizations with client relationships and
investment capabilities that most law firms can only dream of. To put them in context, the
revenue of the three largest Big Four accounting firms, in aggregate, exceeds the aggregate
revenues of the Global 100 law firms.
This analysis assumes a “business as usual” approach. The impact of pricing pressure,
new working methods, and AI (artificial intelligence) on law firms could be massive if law firm
clients consistently demand change (and despite what law firms may think, general counsel have
generally been pretty benign buyers). This could fundamentally transform the market, especially
at the mid- and lower tiers of the segmentation. This inevitably will produce winners and losers,
and some may be both at different times (consider the fortunes of Apple, Blackberry, and Nokia
over the last 20 years).
Absent some cataclysmic event, globalization is likely to continue. Firms will need to
map their own course in order to stay relevant to their clients and to carve out a clear position in
their chosen market. The market will be dynamic. The Global 100 firms will have revenues more
than $100 billion, possibly moving toward $200 billion. The global top 50 will probably be
stronger and more diverse than the next 50. Some will shun the global approach; others may
133
