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God bless the SEC. If not for a new rule that requires companies to disclose how much they pay their auditors, the consulting sidelines of accounting’s Big Five firms would still be a mystery to the Big 200 (otherwise known as law firms). Now law firms that want to get into the consulting business know what they’re up against. Lawyers, meet the kings of cross-selling. New proxy statements filed with the Securities and Exchange Commission give a glimpse of how big the consulting pie is. The good news: It’s worth fighting over, should the multidisciplinary-practice puzzle ever get sorted out. The bad news: The big accounting firms have a monumental head start on law firms, judging only by the sums they’re raking in from their audit clients. According to an analysis published April 10 in The Wall Street Journal, 307 Standard & Poor’s 500 companies last year paid their audit firms, on average, nearly three times as much in fees for services other than auditing than for auditing itself. Take, for example, the relationship between PricewaterhouseCoopers and E.I. du Pont de Nemours and Company. Last year, the Wilmington, Del.-based chemical maker paid its auditor $7 million for audit services, and an additional $30 million for other consulting. Generally, whether “other” means “things lawyers do” — or could do if they wanted to expand their business — is a significant unknown, since the SEC does not require companies to break down costs beyond three categories: auditing, information technology, and other. But DuPont’s March 21 proxy statement offers this nugget: PwC “provided various nonaudit services, including benefit plan administration services, tax services, and other business advisory services.” Chevron Corporation’s report tells a similar story. Along with the $5 million it paid PwC for its audit, Chevron spent more than $28 million with PwC for other consulting work, including income tax consulting, employee benefits, management consulting, and assistance with the Securities Act of 1933 filings. Not too shabby, and arguably something that might be right up a lawyer’s alley. But don’t worry. The DuPont proxy statement goes on to say: “When appropriate, the company seeks competitive bids for nonaudit services.” Law firms are still in the game — and could be even tougher competitors, if they grew beyond strictly legal services. Tax work, employee benefits, M&A due diligence, management consulting, SEC registration statements, litigation support, compliance — these are all potentially fruitful areas for law firms, and areas in which consulting firms increasingly compete, both in the U.S. and internationally. Although companies have cut back on technology spending, “other areas are picking up, like bankruptcy workouts,” says Joseph Petito, a principal in PwC’s public policy group in Washington, D.C. As that competition heats up, “it’s inevitable that law firms lose revenue that audit firms get,” says Stephen Gillers, a professor of legal ethics at New York University School of Law. Consulting firms do “more and more work that we [lawyers] used to do, particularly in tax,” adds Sherwin Simmons, a partner at Miami’s Steel Hector & Davis and the former head of the now defunct MDP commission of the American Bar Association. No matter how many states let lawyers and nonlawyers share fees, as in much of Europe, or try to maintain strict separation, there is an extensive middle ground in the U.S. already. Law firms such as Boston’s Mintz, Levin, Cohn, Ferris, Glovsky and Popeo and Richmond, Va.’s McGuireWoods have significant side businesses in consulting. There are many other examples nationwide, including the well-worn intersection of law, lobbying, and public affairs in D.C. For those firms that don’t dabble in ancillary businesses — which is to say, most law firms — it’s tempting to see a law firm’s strength as a narrow niche that it can safely hold on to. One of the Big Five, says Keith Wetmore, chairman of San Francisco’s Morrison & Foerster, might have “a better client list than any law firm on earth,” with tremendous ties to the CFO. But a law firm’s connection to the general counsel is more important if all it cares about is getting legal work, Wetmore says. Others agree. “The accounting firms have found that they can only make so much money from accounting,” says Charles Buffon, a partner at Covington & Burling who heads the D.C. Bar’s MDP committee. “It does not follow that law firms would say, ‘We can make more money doing other things.’ There seems to be an awful lot of law to do.” But Wetmore and Buffon assume two things that may change. First, that GCs and not CFOs will continue to make law firm hiring decisions. And second, that the Big Five won’t aggressively snatch up a lot of that work in the U.S. once they’re free to do so. Those law firms, meanwhile, that are focused overseas have a hard time ignoring the threat posed by the likes of Andersen Legal, with $528 million in legal revenue in 2000 (up 17 percent in a year). PwC’s Landwell network of law firms is estimated to have roughly comparable revenue. Landwell aspires to reach the billion-dollar club within four years, according to Petito. Of course, for the most part, lawyers say, Andersen Legal and Landwell aren’t doing the top-tier work of top-tier law firms — yet. But it’s that kind of scale that makes for a “battle of the titans,” as Gillers puts it. Law firms that know they’re in that battle will find little to comfort them when they enter any big client’s name in the SEC’s Edgar system and look at its form Def 14A for the first quarter of 2001. Give it a try. It pays to know your enemy — or future merger partner. Related Chart: The MDP Bandwagon

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