Big 4 a reason
In 2011, the Big 4 "accountancy" firms reported revenues of $29.2 billion (PWC), $28.8 billion (Deloitte), $22.9 billion (E&Y), $22.7 billion (KPMG). The world's largest law firm reported revenues of $2.1 billion (Baker & McKenzie).
OK, you got me. That law firm number dates from 2010. Perhaps 2011 was a barnstorming year and they added a zero after 12 Stakhanovite months of wild billing. But probably not. In fact, based on published numbers, you'd need to add the revenues of the world's top 15 law firms before you get one Big 4 firm.
The largest law firms are very respectable sized businesses, but the Big 4 are so massive they make the law firms look like boutiques. I'm not suggesting revenue is everything, but it's a perfectly reasonable measure of how much the rest of the world wants you around.
The Big 4 don't just sell audit or accountancy advice, they sell all kinds of professional services. That statement also describes one of their weaknesses. They have a tendency to appear at the elbow of the people on the opposite side of the table. Law firms are still focused enough to have narrower loyalties. But, apart from that, what's the Big 4's secret? Here are a few brief thoughts on their approach to client care, entirely based on unscientific personal experience.
First, the Big 4 are thoughtful about what's really important to their clients. Take for example advice on areas like tax or remuneration. In most law firms, these areas of practice are mostly regarded by the mainstream corporate lawyers as esoteric areas staffed by technical propeller-heads. But at the Big 4, they understand that both are key areas of discussion in any boardroom. They lead with strong practices in these areas and they're prepared to push the partners who understand them into the boardroom as the face of their businesses. In terms of building relationships, it works.
Second, there's little oppositional debate between "in-house" and "out-house" accountants. I don't see CFOs and the partners at the Big 4 firms involved in sterile debates about whether "business" is polluting the purity of accountancy or whether they should have direct access to the staff outside Finance. Lawyers take note. The race isn't with another part of your own profession. If we all combine to work out how to serve our clients, our profession will thrive. In-housers are just as culpable. Recently, I was challenged on whether I really involved my external legal advisers in the development of my department's strategy. I confess I'm nothing like systematic enough and that's going to change.
Third, the Big 4 think very carefully about how to engage with and develop their current and future clients. Everyone publishes briefing papers and many of them are very good. I have a Big Law corporate briefing and a Big 4 quarterly briefing on the table in front of me. Both are excellent. Law firms do very good training for their clients. But the Big 4 take this quite a lot further. One of them runs a "CFO Programme", designed for those in senior positions in Finance, who are either recently promoted into the CFO role or may soon be. The aim of the programme is to help budding CFOs prepare for and cope with the sheer complexity of their roles. That's a pretty clever way of building loyalty amongst a grateful client base. If there's a law firm with a systematic development programme for prospective General Counsel, I'm yet to hear of it.
Fourth, there's something important about the psychology of how they interact with you. In the past month, two partners from different Big 4 firms have come to see me. They opened the discussions by saying "Help me to understand you" and then they were nice enough to sit, patiently, listening. The General Counsel isn't their most important client inside a company. So, the fact they showed up at all is revealing. How many lawyers go to see the CFO to find out what's important to him/her?
Those words "help me" are the key. They change the nature of the transaction. It's no longer you telling me what I ought to know. I've come to the meeting expecting to listen to someone trumpet their expertise and tell me why I ought to give them more work. Instead, they've made themselves vulnerable and asked for my help. Any human being will respond to that in a different way. Along similar lines, I saw a Big 4 pitch which laid out what the firm could do for us, but only on the condition that we achieved certain things for ourselves. That's also very human. The message is that we need each other. Neither of us can do this alone.
I recently saw a statement from a Big 4 partner which said simply "I'm really proud of my association with [your company]". That's a very simple and a very powerful thing to say. If you're a lawyer, ask yourself honestly whether you feel the same way about your own clients. If you do, would you tell them?
Maybe that's the real key to the success of the Big 4. They seem to believe their client isn't just another "dull company" (a comment made on this blog) that they wouldn't deign to work in. That makes them an awful lot easier to work with.
OK, you got me. That law firm number dates from 2010. Perhaps 2011 was a barnstorming year and they added a zero after 12 Stakhanovite months of wild billing. But probably not. In fact, based on published numbers, you'd need to add the revenues of the world's top 15 law firms before you get one Big 4 firm.
The largest law firms are very respectable sized businesses, but the Big 4 are so massive they make the law firms look like boutiques. I'm not suggesting revenue is everything, but it's a perfectly reasonable measure of how much the rest of the world wants you around.
The Big 4 don't just sell audit or accountancy advice, they sell all kinds of professional services. That statement also describes one of their weaknesses. They have a tendency to appear at the elbow of the people on the opposite side of the table. Law firms are still focused enough to have narrower loyalties. But, apart from that, what's the Big 4's secret? Here are a few brief thoughts on their approach to client care, entirely based on unscientific personal experience.
First, the Big 4 are thoughtful about what's really important to their clients. Take for example advice on areas like tax or remuneration. In most law firms, these areas of practice are mostly regarded by the mainstream corporate lawyers as esoteric areas staffed by technical propeller-heads. But at the Big 4, they understand that both are key areas of discussion in any boardroom. They lead with strong practices in these areas and they're prepared to push the partners who understand them into the boardroom as the face of their businesses. In terms of building relationships, it works.
Second, there's little oppositional debate between "in-house" and "out-house" accountants. I don't see CFOs and the partners at the Big 4 firms involved in sterile debates about whether "business" is polluting the purity of accountancy or whether they should have direct access to the staff outside Finance. Lawyers take note. The race isn't with another part of your own profession. If we all combine to work out how to serve our clients, our profession will thrive. In-housers are just as culpable. Recently, I was challenged on whether I really involved my external legal advisers in the development of my department's strategy. I confess I'm nothing like systematic enough and that's going to change.
Third, the Big 4 think very carefully about how to engage with and develop their current and future clients. Everyone publishes briefing papers and many of them are very good. I have a Big Law corporate briefing and a Big 4 quarterly briefing on the table in front of me. Both are excellent. Law firms do very good training for their clients. But the Big 4 take this quite a lot further. One of them runs a "CFO Programme", designed for those in senior positions in Finance, who are either recently promoted into the CFO role or may soon be. The aim of the programme is to help budding CFOs prepare for and cope with the sheer complexity of their roles. That's a pretty clever way of building loyalty amongst a grateful client base. If there's a law firm with a systematic development programme for prospective General Counsel, I'm yet to hear of it.
Fourth, there's something important about the psychology of how they interact with you. In the past month, two partners from different Big 4 firms have come to see me. They opened the discussions by saying "Help me to understand you" and then they were nice enough to sit, patiently, listening. The General Counsel isn't their most important client inside a company. So, the fact they showed up at all is revealing. How many lawyers go to see the CFO to find out what's important to him/her?
Those words "help me" are the key. They change the nature of the transaction. It's no longer you telling me what I ought to know. I've come to the meeting expecting to listen to someone trumpet their expertise and tell me why I ought to give them more work. Instead, they've made themselves vulnerable and asked for my help. Any human being will respond to that in a different way. Along similar lines, I saw a Big 4 pitch which laid out what the firm could do for us, but only on the condition that we achieved certain things for ourselves. That's also very human. The message is that we need each other. Neither of us can do this alone.
I recently saw a statement from a Big 4 partner which said simply "I'm really proud of my association with [your company]". That's a very simple and a very powerful thing to say. If you're a lawyer, ask yourself honestly whether you feel the same way about your own clients. If you do, would you tell them?
Maybe that's the real key to the success of the Big 4. They seem to believe their client isn't just another "dull company" (a comment made on this blog) that they wouldn't deign to work in. That makes them an awful lot easier to work with.
Tom
ReplyDeleteThank you for the post.
I get it.
I have been banging on about Tom Peters' message: Soft is Hard; Hard is Soft for longer than I care to remember. To me this underlies what you posit.
Your post raises two fundamental points:
1) The ability for the Big 4 to see themselves inside the company - or at least as a value added extension of the company;
2) The Big 4 have seen the opportunity to leverage their intellectual capital in ways that their very narrow-minded lawyers have not.
The trouble is that there is no real driver for change - not yet anyway.
All partners have to take responsibility for this paradigm shift. I still recall my time in the recruitment business in the 1980s. I made it my mission to serve my clients. When I came into law that message was lost amongst a sea of self-serving egos who thought the business was there to serve them, period. Now, I have no problem with making a healthy profit but not at the expense of putting the client first.
Interesting times for sure.
Lawyers who carry on with their fixed mindset have little or no chance of growing or growing their businesses.
Regards
Julian
Great article Tom. While there's a lot of talk at the moment about mid-market law firm mergers, it will be interesting to see what happens at the top of the tree.
ReplyDeleteAnother angle is the international nature of these businesses, and I suspect that the Big 4 are much closer to being truly global businesses than the large law firms, both in terms of reach and also culture.
A distinction in the approach might in part be down to how essential and integral the services of finance professionals are to businesses compared to legal services. From start up in a growing business the first non-operational hire in a business is much more likely to be an accountant than a lawyer. Even large businesses manage with small legal teams a fraction of the size of their finance teams.
ReplyDeleteThe smallest business start up will need to get their heads around a lot of what accountants do because they will need to do it themselves from very early on in their operations. A good accountant will be on hand to guide through that period. At that same stage, a small business might instruct a solicitor to put together a shareholder agreement, but this will be a discrete job.
As a trainee ACA even in a large firm, early work will involve understanding the financial issues faced by relatively small businesses. The equivalent work is almost never seen by large firm solicitors so they don't really understand it - company formations and the like are often seen as paralegal work in big firms and the small local commercial firm lawyers (the best of whom do still have the "my general man of business" role and approach) rarely make it into bigger firms. Solicitors in large firms don't start out as generalists and move into a specialist field - each trainee seat has them working as a specialist (Gouldens was about the only city firm to take a more generalist approach). Compare the very broad and limited types of specialisms at trainee level in accountancy practices - tax or audit.
So, in general terms, large law firms are staffed by people whose careers have been based around doing large bespoke unusual transactions, litigation and advice rather than the daily work underpinning clients' needs.
Accountants go for making the everyday work well and then being trusted to do the hard stuff with technical specialists who were trained to understand the day to day needs of their clients. Big Firm Lawyers have to go the other way, their business is based on doing the unusual excellently and it takes a big effort to appreciate what is needed for the more mundane stuff or even to be interested enough in it to ask about it intelligently.
Great post! I think botzarelli's point that trainee ACA's early work exposes them to, arguably, a more diverse range of work than their equivalent trainee solicitors, is an excellent one which highlights what I perceive to be a real weakness in the current model of legal training.
ReplyDeleteI'm a current LPC student and as far as I am aware, the course only addresses client care on a very basic level. We have been encouraged to critically analyse our client's problems in order to fully understand their objectives but the consideration of such matters has been fleeting. By fleeting I mean that it has been covered in less than 5 minutes and the importance of building enduring long term relationships with clients has not been covered at all. Client relationship building skills are therefore left in the hands of the law firm an individual trains with who will, undoubtedly, have their own style and approach to client care. It could be for this reason that lawyers are often perceived to be aloof and self-serving. Many will have had their client relationship building skills carefully crafted by those who are keen to ensure that they maintain a firm-specific identity.
I wonder if this is also the case for trainee accountants. Does the ACA qualification take a more thorough approach to client care skills than the LPC or does the accountancy training model where study is completed in parallel with work naturally result in a more thoughtful approach as trainees are putting skills into practice as they learn them?
Training models aside, I think your post is spot on in suggesting that law firms could take some tips from the Big 4. In such a competitive and volatile market, they'd be stupid not to.
Great article but ignores the reason OFT inquiry launched October this year. Big 4 take 99% of fees of Footsie top 100 and OFT have complained that entry to the market is constrained and potantially unfair leading to lack of service for the client. Even the legal services industry is percieved to be more accessible to clients seeking competition than this.
ReplyDeleteAn excellent post. We blogged about the difference between lawyers and accountants in marketing terms on our own blog. Lawyers need to understand that clients are not going to adapt to them, it's the other way round, and this applies to small business and smaller law firms also. You also rightly point out the holistic approach of accountants who are miles ahead of most law firms, and this again applies to smaller accountant practices just as much as the big 4.
ReplyDeleteThis is a really interesting post, with some equally interesting comments.
ReplyDeleteBefore I reached botzarelli's comment, I was already thinking along similar lines, that many junior accountants (and especially those starting out in audit at the Big 4) spend a lot of time at clients' offices, working alongside their counterparts in-house. Apart from client secondments, this rarely happens in the legal world. And from my experience, there is no better way to transform your understanding of the client relationship.
I also suspect that, due to the recurring and obligatory nature of the audit process, the Big 4 naturally build up stronger, longer term relationships with their clients. This, in turn, has prompted (and assisted) them to become much more adept at cross-selling to clients off the back of their audit work.
I'm not sure that there is an equivalent platform for law firms to build from. But perhaps the ever increasing move towards smaller legal panels with start to allow it.
Interestingly, in the last year, my firm has really been pushing to try and invest more effectively in its existing relationships with key clients, by getting better at cross-selling across practice groups and internationally. It has also rolled out a number of training events for in-house lawyers focussed specifically on non-legal skills (run by external trainers). I wouldn't be surprised if a lot of this has been inspired by the Big 4.
Having worked and qualified in both accountancy and law, I would point to Alice's observation about the difference in the training models employed.
ReplyDeleteIn neither case is client care a distinct skill that can be formally taught. And, quite frankly, anyone looking to make a career in professional services and who cannot work it out for themselves should really be looking elsewhere.
The accountancy model naturally gives the trainee a environment in which to observe and learn from the outset. There is both contact with real clients and with established practitioners of proven success.
In contrast, the legal model gives the asiprant a classroom, pretend clients and, mostly but not always, failed ex-practitioners from which to learn.
Whilst the emphasis of the article is, in my view, undoubtedly correct, to compare relative size alone is misleading. Here, it needs to be borne in mind that the accountancy sector has gone through a phase of consolidation in the past 20 years which vastly outstrips anything in the legal sector. Not all of that consolidation was voluntary, and certainly not all of the outcomes have been positive.
This is a great, insightful post. CPA firms are also ahead of law firms in the adoption of technology and operating on a margin basis--at least on a project level. As far as the relative size of firms though, I think the more stringent conflict of interest rules keep law firms small.
ReplyDelete