In “The Global 100 Responds to the Big Four,” Robert Couture analyzes the strategic responses of Global 100 law firms to growing competition from the Big Four (for more on the recent growth and increasing sophistication of the Big Four’s legal service lines, see our previous issue, “Reemergence of the Big Four in Law”). Based on a series of in-depth interviews with Global 100 leaders, Couture’s research identifies three possible strategies these large law firms are pursuing in response to the Big Four: do nothing, partner with the Big Four, or emulate the Big Four (we explore some of the implications of this last strategy in “Reaching Outside the Legal Market”).
We explore how elite law firms based in the emerging economies are responding to the Big Four.
It is worth stressing, however, that the focus and sample of Couture’s research—the Global 100—is but one particular subset of the wider legal services ecosystem (for more on the Global 100, see this issue’s “In Brief”). Not only does the Global 100 comprise, by definition, only the 100 largest law firms in the world by revenue but, because of that headlining metric, it also contains firms headquartered from only a handful of countries—ALM’s 2020 Global 100 includes Australia, Canada, China, Korea, the United Kingdom, and the United States. (It is worth noting that many of these firms have offices around the world—a point that Couture develops in his lead article.)
In this article, we aim to explore how another subset of firms is responding to the Big Four—elite law firms based in the emerging economies. Indeed, as the Center on the Legal Profession’s Globalization, Lawyers, and Emerging Economies Project has chronicled, places like India, Brazil, South Africa, Kenya, and elsewhere increasingly have well-developed corporate legal sectors made up of highly sophisticated corporate law firms that serve both international and domestic clients. How do these firms view the Big Four’s legal ambition and how are they responding? To help gain purchase on this question, we spoke to two leading partners across two different jurisdictions. First, we spoke to Paras Shah, managing partner of Bowmans Kenya. Second, we interviewed Bharat Anand, a senior partner at Khaitan & Co, one of India’s top corporate firms. Both Shah and Anand offer not just individual accounts of how their firms are thinking about the Big Four but also vivid case studies that help shed light on how the Big Four are impacting the legal services markets in these two respective regions of the world.
A Law Firm View of the Big Four from Kenya and Africa
Paras Shah has practiced in Kenya for nearly two decades, the last seven years of which he has spent at Bowmans as a partner in the firm’s Nairobi office, where he has recently been named managing partner. (Bowmans, headquartered in Johannesburg, South Africa, has sought to establish itself as a go-to corporate law firm throughout sub-Saharan Africa, with physical offices in six African countries and significant experience in at least 20 more.) As he explains, the Big Four have been entrenched in the region for a long time, and they have steadily built out their advisory capacities in the time that Shah has been practicing. As Shah outlines, the Big Four established a reputation for tax work in places like South Africa. “Historically, tax work was only done by accountants,” Shah says. “Up until about five to seven years ago, when we started doing tax work in a proper way, even we would just give all our tax work to them.” Then, as the country’s economy began to grow, the Big Four expanded into compliance. And, over the course of recent decades as scandals have broken out, demand for sophisticated forensics work increased, and the Big Four’s technological investments and talent were there to meet demand. More recently, the Big Four have attempted to tap into the legal space, including transactional work.
“We’re a lot more agile and nimble [than the Big Four],” says Paras Shah, managing partner of Bowmans Kenya.
What has the impact of all this been on law firms? First, Shah notes, as law firms have grown bigger and more sophisticated and as on-the-ground circumstances (for example, around scandals) have changed, law firms themselves have benefited. Indeed, he notes, firms have begun to take on work—and talent—in areas traditionally dominated by the Big Four that, in many other jurisdictions is already carried out by law firms. Perhaps the prime example of this has been around tax. “It used to be that law graduates who wanted to work in tax would look for a career in the Big Four, and lawyers would often practice tax law out of the Big Four,” says Shah, “but in the last five to seven years, it’s reversed.” He continues:
In South Africa, a lot of ex-KPMG tax partners moved to Bowmans. We went from a small boutique tax team to a much larger team overnight. And now it is happening here in Kenya too. I would say the share of tax structuring work is probably now 25-30 percent in law firms, up from zero five years ago, and it’s growing very fast. And I foresee in four or five years, we’ll be doing more than the Big Four in that tax structuring work.
A part of this recent migration of tax lawyers out of the Big Four and into law firms is that they find the law firm space more agile. As Shah puts it, “I suspect the reason why is we don’t have the bureaucracy of the Big Four. We’re a lot more agile and nimble.”
Shah emphasizes there is no stigma for bringing on all this “nonlawyer” talent, at least not in a larger firm like Bowmans. “The attitude of big corporate firms like ourselves is we are looking at skills in our fee-earners—even from non-lawyers,” he says. Shah points to his forensics team, most of whom are not lawyers but nevertheless maintain partner status. “If anything, pure tax guys are probably seen as a little bit more sophisticated, but there is certainly no stigma against them.”
Around the time that law firms began to expand their tax presence, Shah explains, the Big Four began to lose their grip on forensics work as well. “The problem for the Big Four in areas like forensics was they could not offer their clients attorney-client privilege,” he says. “So in South Africa, when the government started asking for forensic reports, law firms started taking that work too. We invested in our forensics teams about seven years ago. Now it’s a big part of our practice in terms of volume, and I think some of the other big firms have gone the same way.”
“The attitude of big corporate firms like ourselves is we are looking at skills in our fee-earners—even from non-lawyers,” Shah says.
Shah also notes that the Big Four have been less successful in getting into transactional work because so much of the market in Africa hinges on comparatively few top lawyers who clients trust. “They really have not succeeded in getting into transactional type work,” he says. “They might be able to fill in bodies as they do with audit work and assurance work and consulting work. But they just haven’t got the big hitters in legal terms.”
Because clients—and in particular, general counsel—are gaining power within their organizations (for more, see “The Inside Counsel Revolution”), and law firms are also benefiting. “We have seen a humongous appetite from clients to actually give the work to law firms and not to accounting firms,” Shah notes. “Sometimes it’s a pure conflict issue. But other times it’s for confidentiality. And the laws are becoming more and more complicated.”
None of this is to suggest that the Big Four are ceding ground to law firms in Africa across the board. “When it comes to corporate governance work, to be frank, they still have a big market share,” Shah says. This, he emphasizes, is no exaggeration, as he estimates the Big Four’s market share in corporate governance work to exceed 80 percent of the top 50 companies in the region. “This is something we’d like to penetrate, but they can offer a gloss and a machine behind it.”
Looking Ahead: Strategies for Increasing Competition?
The question of whether, and to what extent, a law firm like Bowmans views the Big Four as competition is complicated. “We would never say that they’re not competitors because they are,” says Shah. Nevertheless, the competition between law firms like Bowmans and the Big Four is not as direct as it could otherwise be—at least not currently. On the one hand, depending on the context and the extent to which they are both operating in the same space, they may be competing for different parts of the legal services value chain—the difference between “bet the company work” and “run the company work.” On the other hand, the facts on the ground can change rapidly because firms like those in the Big Four can move quickly when they see an opportunity. “The Big Four can invest like that while we, lawyers, tend not to be as courageous when it comes to investing,” Shah admits. “The type of investments they can throw in our market or in a smaller market, we would have to think on it a lot. That risk is always there and so, yes, we keep a watchful eye on them.”
At the same time, the Big Four may not be the most proximate threat to an African firm like Bowmans. Often, conflicts will bar the Big Four from providing legal services to the types of clients served by a firm like Bowmans. This, Shah notes, is a large part of what is keeping the Big Four at arm’s length. “Where they audit, they just can’t do this work,” he says. Even setting conflicts aside, however, Shah suggests that the types of markets his and other peer firms are competing in may be too small to merit the Big Four expending the resources needed to get in. “I think they will probably say, ‘Hold on, let’s fix other areas first before we go big into law,’” says Shah. “So we see them as competitors, but do we see them as a serious threat? Immediately, no. But, we’ve got our eye open for them. The bigger threat for us is international firms in our markets, which is much bigger and we’re much more alive to that than the Big Four, right now.”
“The type of investments they can throw in our market or in a smaller market…we keep a watchful eye on them,” says Shah.
As for competing in the Big Four’s home turf by emulating some of their service offerings—such as creating a consulting arm within Bowmans, as some global law firms have done—Shah denies any such plans. “Absolutely not,” he says. “Our strategy is very clear to do top-end legal work for top end clients. And it’s working pretty well for us in our jurisdictions in Africa. Now, if they encroach on our strategy, we’ll have to do something. But we’re not seeing that.”
What does the future of the Big Four in Africa look like? Only time will tell. As Shah says, right now, large and regional law firms have bigger fish to fry in the legal services market. And yet, perhaps it is just a matter of time and circumstance. In the end, firms like Bowmans will simply have to keep a watchful eye open. Shah concludes:
Look, five years from now, there will be big African law firms—like ourselves, like ENS, and some of the others across Africa in key jurisdictions—doing a lot of the legal-type work that the Big Four are doing. I think the Big Four will probably appear in certain key jurisdictions—possibly in South Africa, possibly in Kenya, possibly Mauritius, maybe Nigeria—but they will not have the ability to go into small markets where we need to be sometimes. It just doesn’t make sense. For example, Uganda, Tanzania, they both make sense for us. I can see the Big Four coming in at a different layer, but not in five years. I think it will still take longer because a lot of our regulations are way backward and it just won’t make sense for them. The other big problem they’ll have is actually to attract from a very limited pool of legal talent is very difficult for them. Money alone is not enough.
A Law Firm View of the Big Four from India
Bharat Anand came to Khaitan & Co, one of India’s largest and most prestigious law firms, in 2009 after several years practicing in Freshfields Bruckhaus Deringer’s London office. Today, as a partner, Anand focuses his practice on a range of corporate and commercial matters such as mergers and acquisitions. While in many ways law firms led the way in developing the concept of professional services in the United States, he explains, in India it was all linked to Arthur Andersen—once one of the “Big Five” accounting firms before closing down in 2002. “Back in the late 90s, when India was about to kick off liberalization, Arthur Andersen was at the right place at the right time and laid the blueprint for professional services delivery in India,” Anand says. “So, in some ways, the ‘Big Six’ law firms in India are following the big accounting firms in terms of structure, management, professionalization, and compensation.” Moreover, the Big Four in India—as in parts of Africa—have long been taking the lion’s share of business across a whole cross section of areas including tax, internal investigations, compliance, and ESG work—work that law firms may be clawing back (see below).
“Whether it is tax structuring, internal investigations, compliance, or ESG work, Indian law firms have to realize that these are services that the Big Four are providing that we should be providing,” says Bharat Anand, a senior partner at Khaitan & Co.
When it comes to the practice of law, Anand is careful to note that the Big Four have long nurtured affiliations with individual legal practitioners and small law firms with complementary legal practices. “If the Big Four was involved in personal tax planning for high-net-worth individuals, setting up their trusts, gifting shares to different children, preparing partnership deeds with family members, they would go to a handful of well-regarded legal practitioners for that type of work,” he explains. “And in some ways they’ve played it very smartly by keeping it all aligned to areas that complement them.” Despite these linkages—not to mention their wider global ambitions to get into law in other places around the world—Anand adds that there was ultimately pushback from the bar to the Big Four. (It is worth noting that the bar in India has also played a large role in the formal prohibition against non-Indian law firms practicing in the country.) Following complaints filed by the Society of Indian Law Firms (SILF) that the Big Four were engaged in the practice of law, in May 2019 the Bar Council of Delhi directed the Big Four firms against doing so. “It was the Society of Indian Law Firms, that has led the formal pushback,” Anand says. He continues:
Essentially SILF has said, “We’re not going to let the Big Four thrive in our backyard!” Obviously, the Big Four have gone down the denial route and said that they’re not practicing law. But the message has been sent pretty clearly that the Bar will not let the corporatization of legal services take place.
At the same time, just as international law firms continue to serve the Indian legal market in creative ways (see “Foreign Firms Prepare for Landing?”), the Big Four continue to have a hold on key areas of law-related and law-adjacent services, with law firms catching up. “Whether it is tax structuring, internal investigations work, compliance, or ESG work, Indian law firms actually have to realize that these are all services that the Big Four are providing that actually we should be providing,” Anand says. “Then, once a firm decides to pursue these kinds of practices, the question really becomes, ‘Where do you find the talent?’” He continues:
Funnily enough, there has been a pretty balanced cross-pollination of talent. Senior talent has probably come to us from the Big Four. One reason for that is that the Big Four themselves are losing their compensation structures, which were lockstep or graduated lockstep and are becoming more eat-what-you-kill systems. Big Four partners often say, “I have some great clients, but I’m lost in the structure that I am in.” So I think what’s happening is that law firms have been the net gainer of senior talent. Of course, we’ve lost a few juniors along the way in the tax field and in other fields.
Anand adds that much of the hiring from the Big Four has centered on nonlawyers. “It’s not been lawyer hiring, interestingly enough, because you’re hiring people who led practices and who could be compensated as a partner but were not necessarily regulated as lawyers,” he says.
Looking Ahead: Strategies for When the Pie Shrinks
Despite the regulatory challenges, Anand cautions against viewing the relative insulation of Indian law firms from the Big Four in law as an impenetrable firewall. Indeed, he notes that the Big Four have the scale and processes needed to chase down the full value proposition of clients—regulatory challenges notwithstanding—that, at least up to now, law firms cannot match. “My conversations typically with my clients are what term sheet are we signing and what’s our timetable,” he says. “The Big Four’s conversations with the clients are what’s happening with the company and the sector? Where will the company be five years from now? The starting position of their conversation is just very different.”
“Because the pie is still growing and the pie is deep, it’s giving people opportunities. At some point, when that growth tapers, there will be real friction,” says Anand.
On the other hand, Anand hesitates to characterize law firms’ relationship with the Big Four as one of outright competition because the fragmented nature of the Indian legal market and the often-personal connections between law firms and businesses provide firms with certain durable advantages vis-à-vis the Big Four. Moreover, opportunities exist for collaboration. “We’ve just closed a deal in which we worked with a Big Four firm on a listed joint venture,” he says. “They did the valuations and dealt with the banks in terms of the debt restructuring and we handled the legal side of the equation. It worked well.” (For more on possible partnerships between law firms and the Big Four, see “Developing an Ecosystem of Service Providers.”) Thus, Anand is clear that he doesn’t view the relationship with the Big Four along strictly adversarial lines. “I would say there is competition to the extent that there is a finite transaction budget on the table and, at some point, along some metric, we are competing for that same budget,” he says. “But it’s not competition in the classic sense of our competitive relationship with other law firms.”
So, what does all this portend for the future of the Big Four in and around the Indian legal services market? “If I were to extrapolate 10 years from now, when a client, say a FinTech startup, wants to get tax planning or an ESOP plan done, does it first think Big Four or a law firm?” Anand begins. “If Indian law firms can provide those services and think with long-term strategies, we might be that client’s first call. Now, do I think that Indian firms have conceptualized that yet, so that we move from the low-value, low-client engagement box to the high-value high-client engagement box over a period of time? I think the answer is no—there’s a lot of work to be done in this area.”
And yet, for now, Anand says, given the high levels of growth all around, there is plenty of pie for everyone. “It is not really competition in the classic sense—at least, not yet—because everybody’s growing at 25 percent a year,” he says. “Because the pie is still growing and the pie is deep, it’s giving people opportunities. I still think the friction hasn’t really started, but there will be a growth taper in India. At some point, when that growth tapers, there will be real friction.”
An uncertain future
Through Shah and Anand, we see two case studies concerning how law firms in different parts of the world are thinking about their relationship with the Big Four. Both firms—Bowmans and Khaitan—are pursuing more-regional strategies in contexts where the Big Four are not so much an invading force as a continuing presence, with deep histories operating in those markets. At the same time, both Shah and Anand report strategic expansions of their service offerings to “reclaim” aspects of the Big Four’s foothold in Africa and India, respectively, that elsewhere might be considered the traditional territory of law firms (such as aspects of tax work). When it comes to the Big Four’s increasing expansion into the legal services market, perhaps—like some of the Global 100 firms referenced in Robert Couture’s analysis in this issue’s lead story—neither Shah nor Anand consider the threat posed by the Big Four to their firms to be particularly acute—yet. As they both say, time will tell where these developments will take them in the medium and long term.