Page 165 - 2019 - Leaders in Legal Business (n)
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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 develop a more
regional role, e.g., ASEAN. New entrants will join the rankings. Never has there been a more
interesting yet more demanding time to lead a Global 100 law firm.
150
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 develop a more
regional role, e.g., ASEAN. New entrants will join the rankings. Never has there been a more
interesting yet more demanding time to lead a Global 100 law firm.
150
