“We are monitoring these developments. At this point in time, though, we just don’t believe it’s practical to enter the practice of law.”
— Steve Kimble, CEO of Deloitte Tax in the U.S., said in an interview with Bloomberg Law about the possibility of Deloitte stomping around Big Law’s turf in the States.
What developments is Kimble alluding to? Last May, the Arizona Supreme Court approved the first three entities to be licensed as alternative business structures, which now allows businesses owned by non-lawyers to deliver legal services under new licensing rules the court approved last August. Similar ownership rule changes have also been made in Utah and California, which could open the door for Big 4 firms to practice law in those states, something Deloitte, PwC, EY, and KPMG haven’t been able to do because of the Sarbanes-Oxley Act.
SOX prevents audit firms from providing certain non-audit services to their clients. BUT …
Big Four officials and legal consultants say changing state bar rules is the key to broadening legal practices in the U.S., not a repeal or revision of Sarbanes-Oxley.
If a Big Four firm wanted to open a U.S. law practice after a state bar legal service ownership rule had been softened, they could do so—they’d only need to heed Sarbanes-Oxley by making sure that legal service clients were not also clients of the company’s audit division, said Jim Jones, a senior fellow with Georgetown Law’s Center on Ethics and the Legal Profession.
“I always assumed that that’s what they intended,” said Jones.
Another option might be to open a new law office as a separate entity, legally distinct from the main Big Four accountancy, he said.
Given the overlap between accounting and law services, it makes sense for the Big 4 to get in on the legal services action. We’ve always called the Big 4 “the Walmart of professional services firms,” but you can’t find a law practice at any of them in the U.S. The closest you would find is Deloitte’s new U.S. Legal Business Services practice, which works with in-house legal offices to streamline functions that track client contracts, invoices, eDiscovery, and other core functions, according to Bloomberg Law. EY’s legal managed services unit also focuses on helping large and medium-sized in-house legal departments streamline and automate their legal services, and John Knox, global head of that unit, told Bloomberg Law last year that the U.S. will be key to its plans, given that it’s the largest legal market in the world by a healthy margin.
Some experts believe that Big Law should be worried about the Big 4’s slow march into U.S. legal markets. A 2017 report from ALM Intelligence states, “Within 10 years, the Big Four could easily become the largest players in the legal industry.” That same report found that nearly two-thirds of law firm leaders were “concerned” or “very concerned” about “alternative legal service providers and accounting firms,” and 69% of these leaders consider accounting firms to be “a major threat.”
On the other hand, a recent study done by Robert Couture, a senior research fellow at the Harvard Law School Center on the Legal Profession and a former executive director of Richmond, VA-based law firm McGuireWoods, found that the majority of the top 100 global law firms “are taking no action as a result of Big Four competition. Either these firms have fully evaluated the threat and concluded that they are not competitive due to the type of work they perform, or they have not seriously conducted a firmwide evaluation of the threats.”
But even with these recent state regulatory changes, it doesn’t seem like the Big 4 firms are in any rush to start practicing law. Arizona legal ethics specialist Lynda Shely told Law.com last month:
“The Big Four accounting firms have figured out how they can provide consulting services and they don’t need to have a law firm,” she said. “They are already functioning by providing multiple services to clients.”
And Kimble told Bloomberg Law:
[P]racticing law in the U.S. could create conflicts with other parts of Deloitte’s business, which includes tax and audit services.
“We serve clients that operate and need assistance in all states, in all countries,” Kimble said. “We just don’t view it as practical.”
But it begs the question: If not now, when?
Deloitte Not Ready to Practice Law in U.S., Tax Unit Chief Says [Bloomberg Law]