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The Law Firm Disrupted

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Roy Strom

Jan 11, 2018

Hello, and welcome to another edition of The Law Firm Disrupted. I’m Law.com reporter Roy Strom, and this weekly email briefing attempts to make sense of the biggest challenges and opportunities facing law firms today. Let me know what you think at rstrom@alm.com.

PwC Will Take Your Clients’ Call Now

For anyone paying attention to the Big Four’s move into legal services, the past week was a busy one.

Deloitte announced Wednesday that it would be the last of the Big Four to effectively launch a law firm in the U.K. with an alternative business services license. On the same day, a Georgetown/Thomson Reuters report laid out the case that alternative legal service providers are likely to benefit from law firms’ unwillingness and inability to respond to client demands for efficiency.

All of which is likely enough to further fray the nerves of managing partners. Last year, 69 percent of law firm leaders surveyed by ALM Legal Intelligence said they considered the Big Four a “major threat” to their firm’s market share.

But for those leaders who are more interested in how the Big Four will attack the legal market, some news out of PwC UK’s legal team may be more instructive.

On Monday, PwC UK formally launched a flat-fee employment law service that gives clients unlimited access to a human resources legal hotline and a technology portal that features template contracts, policies and procedures, letters, scripts and how-to guides.

The product is priced based on the number of employees a company has in the U.K., starting at £250 ($338.36) per month for clients of up to 100 employees.

The product launched informally last summer with a handful of clients, some of whom PwC provided the service for free as a testing ground. Some clients are already paying “a few thousand pounds a month,” said PwC UK’s Ed Stacey, a partner at the accounting giant who in October was appointed its head of legal services in the U.K.

While flat-fee HR hotlines are nothing new in the U.K., Stacey said the new offering by PwC is likely just the beginning.

The hotline could be an opening gambit for PwC to offer its HR outsourcing solution to new clients, Stacey said. And he is looking into offering similar services for pension and immigration support. He also plans to expand the UK HR hotline to some of the 79 other countries in which PwC has a presence, a move that would see it take aim at U.S. multinational clients.

“If you’re a U.S. organization that has employees across 20 countries and you’ve got the U.S. covered, we would then offer this across the other 19 territories,” Stacey said. “Your U.S. HR team could call us up in the U.K. and we would deal with all of the other territories. That’s not up and running yet, but that’s the angle we’re moving into.”

He added: “One of our differentiators competing with other law firms is we have lawyers in more countries than any other law firm. So we need to maximize the use of that.”

The flat-fee employment service also offers an insight into how PwC plots its strategy for new products in the legal market.

“They are doing it in very strategic ways,” said James Jones, a senior fellow at the Center for the Study of the Legal Profession at the Georgetown University Law Center. “It reflects careful planning, careful price modeling. And I think [the Big Four] are forces to be reckoned with. There is absolutely no question.”

Stacey said the HR hotline is broadly a response to a change last year in the U.K. eliminating filing fees for employment claims in what are known as “tribunals.” That led to a 64 percent increase in filings two months following that change.

After speaking with clients who use HR help-lines, PwC sought to improve on those offerings in at least two ways, Stacey said. First, all of the calls are answered by lawyers, so more complex matters can be handled more quickly. Second, the help-line is backed with the client portal featuring documents that PwC can edit with clients in real-time.

A willingness to invest in technology is one advantage that Stacey said PwC has over law firms it competes against. Size plays a large role in that. While there are 450 PwC lawyers in the U.K. (about 30 of whom focus on employment law), there are more than 600 HR consultants. Those consultants also use the “HR Hub,” which spreads out the cost of the investment.

“You’re getting economies of scale that even the largest firms worldwide won’t have,” Stacey said.

PwC also encourages developing entrepreneurial products, such as a “holiday leave cover” program that Stacey markets. Clients can hire a PwC lawyer for two weeks at a time to cover an in-house lawyer’s responsibilities during vacation time.

“We try to just do things a little bit differently,” Stacey said. “It’s that thinking: What does the client want? What does the client appreciate?”

 

Roy’s Reading Corner

On Litigation Funding: Law.com’s Ben Hancock reports on litigation funder Burford Capital pouring $1.3 billion into new cases last year, which is more than triple the amount the company invested the year prior. While this year’s figures were greatly boosted by the acquisition of Gerchen Keller Capital, Burford has showed impressive growth in investments for a number of years.

Hancock reports that Burford committed $378 million in new investments in 2016, up 83 percent compared to 2015. Much of the growth, said Burford CEO Christopher Bogart, is due to law firm adoption of litigation finance. A Burford survey claims that just 7 percent of firm respondents used financing in 2013, compared with 36 percent in 2017.

On ‘Consensual Neglect’: The above-referenced report released Wednesday by Georgetown and Thomson Reuters said that law firms are exhibiting signs of “consensual neglect” when it comes to the changing legal services market.

From the report: “‘Consensual neglect’ seems a particularly apt description of the strategic posture of many (if not most) law firms in today’s rapidly changing market for legal services. Ignoring strong indicators that their old approaches—to managing legal work processes, pricing, leverage, staffing, project management, technology and client relationships—are no longer working, they choose to double down on their current strategies rather than risking the change that would be required to respond effectively to evolving market conditions.”

More on that: Two law firm business thinkers, Ken Grady and Ron Friedmann, each wrote their own reactions to the annual report.

From Grady: “I do agree that law firms are becoming irrelevant. The fragility of the business model is on full display and it doesn’t take much to tap one from spiraling the black hole to falling in. If the story were as simple as one business model falling away and a new one replacing it, then lawyers would adjust and be safe.”

Friedmann questions whether the growth in ALSPs that the report suggests is actually happening. He notes a survey question dating to 2013 from Altman Weil, asking CLOs how much of their money is spent on alternative providers. The figure has never reached greater than 7.1 percent—which occurred in 2014—and last year the number was 5.2 percent.

“Many reports and commentators [say] ALSP is growing absolutely and taking share from law firms,” Friedmann writes. “Yet, the only time series data I have seen that asks about actual spending (not intent to spend) is what I graph below. So we have a mystery disconnect.”

 

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Please share your thoughts on how the law firm market is changing: rstrom@alm.com.

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