Law Firm Responses to the Big Four

Volume 7 • Issue 3 • March/April 2021
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Developing an Ecosystem of Service Providers

A conversation with Tracey Yurko

David B. Wilkins, faculty director of the Center on the Legal Profession, recently sat down with Tracey Yurko, chief legal officer and corporate secretary of Bridgewater Associates, to discuss the client’s perspective on how law firms, the Big Four, and other providers fit into the legal ecosystem.

David Wilkins: As the chief legal officer of Bridgewater Associates, how do the Big Four intersect with your work in the legal department? In what ways are or aren’t you using them, and why?

Tracey Yurko: Prior to the last couple of years, my experience with the Big Four was primarily around auditing services, both in my prior life doing securities-type work and then at Bridgewater, working with the Big Four in an auditor capacity and on various consulting projects. More recently, that exposure expanded when, with my team, I began an exploration of how we could use alternative legal service providers. Our law firm partners have been such a critical part of our success and we deeply value their partnership so it’s important to understand that this decision was driven by a combination of four factors.

First, the environment in which we work and the culture of Bridgewater. We are highly focused on innovation and excellence, striving to make things better and never being satisfied that something is “good enough.”

Prior to the last couple of years, my experience with the Big Four was primarily around auditing services.

Second, the importance of technology and our belief that it will become more and more important in the legal realm. Bridgewater isn’t a law firm and rightfully, our tech is not optimized for the legal and regulatory function. The question was how could we source legal tech, in partnership with our internal technology team, that would best enable our lawyers and regulatory professionals.

Third, our commitment to talent development. At Bridgewater, we focus on how to get to the highest and best use for our employees—so that we get the most out of them and they’re getting the most out of their jobs. This pushed us to think about ways to look at the work that legal was doing and assess how much of it could be tech enabled and how much of it could be serviced by an alternative legal service provider. Our internal lawyers and regulatory professionals could then be freed up to spend more time focusing on becoming strategic thought partners to the business and advising on the most complex matters.

The final leg was about bending the cost curve. How could we best do things efficiently and cost-effectively?

When we started this exploration, it all felt very nascent and it was hard to find the right partner. However, as we were undertaking the journey, PricewaterhouseCoopers (PwC) began to prioritize growing in this space. And over the past couple of years, we have built a partnership. It’s new and we’ve been carefully figuring out the ways we can work with them. They have been thoughtful and patient in this process—it has been truly a partnership and exciting to pursue something innovative together.

In order to determine which work was ripe for technology enablement and ALSP services, we needed a taxonomy of the work and therefore classified it into levels. At the very highest level is this strategic thought partnership we talked about. As you make your way down from complex to more routine matters, we identified the repeatable things that could be technology enabled and what could be serviced by an alternative legal service provider.

Over the last 18 months or so, we’ve been actively working with PwC to tech enable some of our functions and build processes (or “machines” as we call them at Bridgewater) to leverage PwC talent for some of the work that doesn’t constitute legal advice. We started with a few pilots and some smaller projects. We decided to bite them off and see how it goes. Then, we moved to this phase where we looked at how we could build it up. We are now getting to a place where all the work is starting to pay off. My senior lawyers, for instance, are seeing their time freed up so that they’re able to spend more time partnering and problem solving with the business—highest and best use.

As you make your way down from complex to more routine matters, we identified the repeatable things that could be technology enabled and what could be serviced by an alternative legal service provider.

Wilkins: I am not at all surprised that you have been at the cutting edge of this, nor that PwC has been a willing partner. I wonder if I could turn the tables a little and ask if you are seeing anything analogous from your law firms? They are all certainly aware that PwC and the others are much more active in the United States, often performing legal tech consulting and the like. Have the law firms responded?

Yurko: I know our law firm partners are thinking about how the landscape is evolving. I am seeing evolution in a few places. First, some of the firms we use that have a global presence have used technology to help us track regulatory shifts. Given our global presence, we really do need firms that have that kind of ability.

Another thing that we have seen is that some firms—not all—have had a willingness to partner with PwC and us on projects. For example, for one of the pilots we ran, we priced the project two ways: (1) for a law firm to do the whole project and (2) to have a law firm partner with us and PwC. We were able to cut the cost by more than 50% by doing a collaboration. We had the law firm providing the high-level strategic thinking and legal expertise to get a template for the work, which we then translated across multiple different fund structures, with support from PwC. This was a great result for us and I wonder whether more law firms ought to consider an openness to having that kind of collaboration.

Wilkins: But is there a danger? In Bob’s research (see “The Global 100 Responds to the Big Four”), firms that have high revenue per lawyer and not that many jurisdictions—which could describe a lot of top New York firms—typically don’t view the Big Four as any kind of threat because of the kind of work that they do. But what’s always struck me, and this is something you have touched on here, is even the highest of the high-end work has lots of different pieces to it. Moreover, as PwC and more innovative law firms get in the door, they might just as easily try to move up the value chain. Are you seeing any of that?

Yurko: To some degree, but I think the big hurdle for the Big Four, at least in the United States, is the inability to practice law. For us, it’s certainly been a very fine needle to thread to make sure that we’re distinguishing between what is and what isn’t giving legal advice. The inability to practice law—and the complexities of determining where that line is—is going to be a real roadblock for the Big Four to move all the way up the value chain. That being said, there are a lot of areas where the Big Four are going to have an advantage. In this sense, partnerships between law firms (who can provide the legal advice) and the Big Four or other ALSPs could be equally important to both sides.

I have seen firms be willing to partner with a technology of our choosing and to have their own established options.

Going back to your point, we do need thought partners for the complex thinking and advice that law firms offer and I want to underscore how critical our law firm partners have been and continue to be to our success. We have deep and valuable partnerships with our law firms and I am grateful for their expertise on a daily basis. We also have an obligation and a desire to work smart and spend money wisely. If there is a way for us to get a good work product in a really efficient way that also costs less—that’s something we have to consider and try to pursue.

Wilkins: Are you seeing any other kinds of partnerships? Are law firms willing to partner with technology companies or flexible staffing companies or other types of providers in a way that benefits clients like you?

Yurko: In addition to some willingness to collaborate with us and PwC, one of the earliest ways that firms have dipped their toe in those waters is around e-discovery. I have seen firms be willing to partner with a technology of our choosing and to have their own established options. I’ve also seen some of the law firms that we use open offices in less expensive areas of the country so that they can provide certain types of service at a lower rate.

Wilkins: Do you think law firms would be good at trying to move into these “law-adjacent” related spaces? That’s always one of the key questions: Are they suited to move into, say, consulting practices around cybersecurity or data risk or a lot of the things that you have to focus on in your work?

Yurko: I could go both ways on it. In my experience working at a law firm and using law firms as my outside counsel, those lawyers are some of the smartest and hardest-working people I’ve ever met and worked with. So, in certain ways, anything they put their minds to they could be successful at. Law firms also have deep experience and reputations for giving great strategic and technical legal advice, which the Big Four and other ALSPs don’t yet have. And law firms have, at least for now, the edge on the ability to recruit the top legal talent.

If there is a way for us to get a good work product in a really efficient way that also costs less—that’s something we have to consider and try to pursue.

That being said, I do think there’s a built-in limitation that law firms have. Even a big law firm of 500 or more lawyers is not a huge company. If they’re trying to build this all internally, will they really be able to scale? And how can they catch up? The Big Four are already suited to this type of business—Ernst & Young acquired Pangea3 last year, for example. The speed and scale at which the Big Four can operate is just different than even the largest law firms.

Wilkins: You put your finger on some parallel challenges of these two kinds of organizations. Right now the Big Four are not able to practice law in the United States, and that limits part of what you can use them for. By similar logic, at least in the United States, big law firms cannot have outside investment, and therefore they have to finance everything, roughly speaking, through the personal contributions of the partners. I wonder how you think about this state of play. Do you think that if PwC could actually give legal advice, they would have the advantage because they have the scale and the size? Or, on the other hand, if a big New York firm could take outside investment, they might then have the capital to really invest in tech and other ventures? That’s where the world may be moving on both fronts.

Yurko: On balance, I have to give the advantage to the Big Four if (and for now that is an if) regulations change and allow them to practice law. When I think about the goals of our legal and regulatory department and the kind of partner that we want to be our internal business clients, one thing that’s been really critical for us is for our providers, including PwC, to understand the business. I do think the Big Four could have an advantage in the sense that they can pull on multiple things that they already have. They can deliver a more integrated type of service. For them, they just need to add the legal piece. So, I think that is going to be an advantage versus law firms that have this very critical, but more narrow connection to companies. How do they build out and get credibility in other broader areas without strategic partnerships or acquisitions? And, then, how do they fund them?

Even a big law firm of 500 or more lawyers is not a huge company.

The Big Four, I should say, have independence issues. If they are your auditor, then there are limitations on what non-audit services they can provide to you. They’re probably already coming up against this in many cases and they’re going to have to think about how that connects with this model of integrated services. These two things cannot always live happily together. Because of this, perhaps in time and with further reform of the audit services market, we may see the Big Four spinning some services off as separate businesses.

Wilkins: One of the things that you have already mentioned is that there is now a whole range of providers. There is a whole ecosystem of different kinds of service providers, from the big international law firms to regional firms to tech companies to staffing companies to e-discovery outfits. At some level, the role of the general counsel (GC) is to quarterback all of this. The GC is the person who tries to figure out how to segment work, who to segment it to, and then how to put these pieces together. And one challenge to this role is figuring out what are the right metrics to evaluate, not just the cost, which is maybe the easiest thing to see, but ultimately the quality of the providers. I wonder how you think about that as a GC.

Yurko: Bridgewater values evidenced-based decision-making, so we try to pull subjectivity out to the extent possible. And, by the way, we have not cracked the nut yet in my department of how you do this when it comes to the practice of law. It’s something we’ve thought a lot about, and we’ve experimented with some different things. We do track some metrics on advice and risk, and we’ve been able to lean on some of the tools that we use as a company.

First, we are very focused on tracking bad outcomes at Bridgewater and saying, “If something didn’t go right, take a look at it, take a look at the record, and ask: ‘What didn’t go right here?’ ‘What was the cause and what can we learn from that?’” We also have a system for rating things where we have a shared vocabulary. You might have seen our founder Ray Dalio’s TED Talk on this. The idea is that we have a rating system and it’s a constant feedback loop. We use that feedback to, over time, create a picture. This is part of how we bring in evidence-based thinking.

I would love to see a place where there are partnerships between these worlds.

And second, going back to what we were talking about earlier, the taxonomy work enables us to track how much we are paying for the most complex strategic work and how much we are paying for the lower complexity work. We’re willing to pay that top dollar for the high complexity work, but the taxonomy lets us get the best bang for our buck on the lower complexity work.

Wilkins: The big challenge for traditional law firms is that we have traditionally only had input-based measures of quality, which is to say, mostly, the quality is because of the people who did it, and we look very little at outcomes. As you say, GCs ought to be doing morbidity and mortality rounds every time something screws up—five years later, the deal blows up or the litigation is lost and you go back to try to figure out what happened, not to blame the people but to learn in a continuous feedback loop. But that sort of post-mortem is so rarely done. I’m curious, however, about a point you just made: The law firms must know you’re doing this sort of internal rating. Do they ask you to be a part of that process?

Yurko: I’m not sure if any have asked, but our firms have been willing to participate in working through outcomes and seeing how we can improve in the future. It’s very different for them, but they also understand it’s critical to our learning and for the most part they’ve been great partners in these efforts.

Wilkins: Well, and that’s probably because the next generation of GCs is going to be a lot more like Tracey Yurko than the typical GC! I’d love for you to talk a bit about how you would like to see this ecosystem develop. As an incredibly thoughtful and sophisticated purchaser of legal services, how would you like to see the ecosystem of law firms, the Big Four, the other providers, and your own legal department, mature?

Yurko: I would love to see a place where there are partnerships between these worlds. I want our ecosystem to be considered as a partner to the business. I think the role of the general counsel and the role of the legal department, including our work with outside providers, is evolving. It’s not just about saying these are the things you can’t do, but rather to be a thought partner and help to figure out how to share the strategic mindset and help the business achieve their goals (while also protecting the company from legal risk).

To your point, there are all these different offerings out there and there is a question of how much of that we want on our in-house team and how much and which parts we want on our outside team. I’d like those things to be not super-differentiated. If you’re our outside partner, you’re part of our team. Having outside partners that really understand you as a company—and, for us, partners that understand our culture because it is unique and a critical part of who we are and how we work—is key.

What works in the short term might not look like what works in 10 years.

We will need to find the right balance. You can’t have too many partners because then no one’s really going to know you well enough to understand you. But you also can’t have so few that you are overly reliant on any one. And so, we sort of toyed with this, and we came up with the concept of the virtual law firm. What are the pieces that we would pull from a Big Four partner? From a technology partner? From our best law firm counsel? What expertise do we need and from whom?

Moreover, what works in the short term might not look like what works in 10 years. But it’s time for change. There’s a willingness for partnerships, and it’s a model that brings options now to clients.

Wilkins: I’ll just end by saying this: It’s somebody like you in the position you’re in—who is both thoughtful and open and who values what the strengths of different kinds of providers could be—who represents the future. Thank you so much.

 


Tracey Yurko is chief legal officer and corporate secretary of Bridgewater Associates, LP.

David B. Wilkins is the Lester Kissel Professor of Law at Harvard Law School, vice dean for Global Initiatives on the Legal Profession, and faculty director of the Center on the Legal Profession.

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Law Firm Responses to the Big Four Volume 7 • Issue 3 • March/April 2021

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