What firms will suffer the most as PwC eyes up Kiwi legal market?

by Sophie Schroder25 Aug 2014
The new head of PricewaterhouseCooper’s (PwC) growth agenda for its Australian legal practice had no qualms in saying that the professional service network has its eye on New Zealand.
NZ Lawyer spoke to the former King & Wood Mallesons’ managing partner Tony O’Malley, who alongside Tim Blue – another former managing partner of the firm – was set to ramp up PwC’s Australian growth agenda, which has a targeted annual legal services revenue of A$100 million plus.
But the goal is to build a multi-competency legal practice on a global scale, and O’Malley says his team will be working closely with the broader PwC network to support the development of complimentary practices in key regional markets, adding: “We are sure this will include looking at NZ.”
NZ Lawyer asked a group of legal professionals here what they think the consequences such a move could have on competition in New Zealand’s legal space, and crucially, which firms will be the most affected.
We also explore whether in light of the fast-growing trend towards professional service firms like accountancies encroaching on the legal space in Australia, a PwC move into our market could kick-start the same bombardment here.
Martin Wiseman, DLA Phillips Fox partner and chairman, says it’s probable that a PwC move into the Kiwi legal space could spur off a trend towards other similar professional service firms opening up shop here.
“The direction of travel amongst international firms is to more integration and uniformity. So, if a large international professional services firm says ‘internationally we offer certain legal services to certain types of clients’ the local affiliate branded firms will likely have to follow suit.”
However, the local affiliate will be very cognisant of referral business from local large law firms, he says, adding that when he considers about how much DLA Phillips Fox works with accounting firms and how close its corporate partners are to their partners, they would have to be “wary” in New Zealand of losing that support.
“NZ is not a large market and I am sure parts of PwC and all the large accounting firms generate a lot of business from referrals from the large law firms like DLA,” says Wiseman.
But he says it can’t be denied that if PwC invested in a legal growth agenda in New Zealand, it would add a new layer of competition here – subject to the quality of their lateral hires, regulatory constraints and desire not to lose the law firm referrals.
“I think mid-market law firms who do not refer as much to, or work with, the large accounting firms but have clients that already use the large accounting firms for annual unaudited financial statements, tax returns and so on [will be most affected]… where the accounting firm has existing touch points with the client but no referral relationship with its law firm.”
Wiseman says nowadays the large international accounting firms are more accurately described as professional service firms, because they are sophisticated and efficient platforms globally for the delivery of professional services. In this way, it only makes sense that they are progressively opting to sell legal services too.
“In the modern world it seems to be increasingly the case that the people you think are your competitors in business are not, it’s someone else. So [on a] high level, I think lawyers should expect competition from international professional services firms,” he says.
Andrew Barnes, the president of the Australasian Legal Practice Management Association (ALPMA), says the association - which has a membership base predominantly through the small to mid-tier market, but with many alumni and friends in the large firms - is watching “intently” as to what plays out.
The recent reintroduction of the big four accounting firms into the Australasian legal market is a significant development, he says.
“Their recruitment activities show they are not just looking to tuck in the tax controversy work to synergise with their regular client work.  These actions will be played out at the top end of the market, but there may well be some cascading effect to the next and lower tiers.  
“Whether this is limited to key people shuffling or it tips major client relationships on their head is to be seen, but firms will be testing their client retention strategies as we speak.  If revenue targets are not being met, do they cannibalise at the top end or begin to cherry pick the best of the legal work currently being serviced by tier-2?”
Barnes adds that now more than ever the lines between what constitutes "legal" work and "non-legal" work are being blurred. He points to the UK the licencing of Alternative Business Structures, which he says is taking hold at quite a rate with some “real success” stories emerging.
“At the lower tiers many will be watching the developments at the top end and looking for a guide as to which way they ought to move,” he says.  “There will be some who accept that broadening their firm's capabilities beyond a pure legal practice is a matter of when, not if, and they will already be planning their move.  The challenge is to be intimately aware of your market and referral sources and get your strategies or contingencies in place sooner rather than later.”

Mark Weenink, the managing partner of major Kiwi firm Minter Ellison Rudd Watts told NZ Lawyer that the PwC development is certainly “interesting”, but it’s not one he will be concentrating on too heavily.
“We remain very focused on simply delivering excellence to our clients. Competitors come and go. We don’t focus too much on them,” he says. “We think we can continue to grow by keeping our focus on clients and their needs.”