Tying up the work

As general counsel for a global conglomerate you have a strict panel of law firms. One day you happen to discover that the finance director has brought in a law firm linked to an accountancy practice to advise on a deal. Not only were you unaware of the transaction, the fees for the work have come out of your budget. Is your nose put out of joint?
Although this may not ring any bells yet read on – the signs are that it soon will. The steady march of the accountants is upon us.
Column inches have been dedicated to the Big Five’s global battle with the regulators and professional bodies.
It has been a bumpy ride, but law firms tied to accountancy practices are beginning to make inroads into the UK market.
Last November, the Law Society voted in favour of multi-disciplinary partnerships (MDPs) in principle. It is studying the issues in more depth.
Four of the Big Five have tied law firms in the UK .

But as the debate about MDPs continues, what has often been lost is the view of the client.
At the end of the day, the success or failure of MDPs will not stand or fall with the regulators and the professional bodies, but with the users of the legal services.
The advantages of using a tied law firm have been well rehearsed. In a global market the key attraction is the idea of a one-stop shop – a multi-disciplinary team drawn from the accountancy and legal arms to advise on all aspects of the transaction. Not only does it provide a seamless service, but it also saves on costs.
And it seems the Big Five are winning the argument. Tied firms report a significant workload: “Work is falling off the trees” was the typical response of one partner at a tied firm. “They would say that wouldn’t they?” is the cynics’ typical response.
But last September, a survey of UK and US clients revealed that more than half of the respondents would be prepared to use an MDP. The percentage for US financial institutions stood at a massive 75%.
What was not clear from the survey was whether the respondents were drawn from in-house counsel, finance directors or managing directors.
The main point of contact for the tied firm will generally be the finance director or the managing director.
James Hodgson, the marketing partner at KPMG tied firm KLegal, admits that much of the work for the firm comes through the accountancy arm.
“We do not deliberately pitch to finance directors. But we do get a lot of work through KPMG. One of the advantages of the tied firm is that we can give legal input on a strategic level working alongside KPMG. We do therefore find ourselves working with the financial directors and managing directors.”
Hodgson says if the client has an in-house lawyer they are soon brought on board and so far it has worked well.
But Chris Arnheim, lead partner of PricewaterhouseCoopers’ (PwC’s) tied firm Landwell, admits there have been times when in-house counsel have been sensitive.
“We have experienced this,” he says. “But what it tends to play out is the internal politics of the client. General counsel prefer to be the point of contact for external firms and we have found very quickly that it is important to make friends with the head of legal. It is a question of good client relations.”
In-house lawyers can be a conservative bunch. Their legal background makes them particularly sensitive to conflicts and the differing professional obligations of accountants and law firms in the international market.
The Law Society’s Commerce & Industry (C&I) group says it is generally supportive of MDPs, subject to these concerns.
The American Corporate Counsel Association (Acca), which also has a European chapter, has also given MDPs a “cautious nod”.
One head of legal at a Ftse 100 company, who does not want to be named, says the objectivity of legal advice being obtained is crucial, particularly on complex transactions.
“On a high-value transaction with complex tax issues you have to be careful to ensure that you have an independent legal perspective. Where legal advisers are connected to accountancy practices, there could be a perception that they will not question the advice to the same extent.”
In response to this, the accountants say valuable time, cost and energy is wasted as financial and legal advisers battle it out for the bigger share of the work.
Arnheim says: “The reason you instruct MDPs is precisely because it avoids conflict between the two teams. If the client wants to pay for a second opinion then they will not use us. Clients who come to us are happy to go to just one team.”
But the tied firms will have to persuade in-house counsel that they have the best talent on board if they are to win the work.
General counsel are highly protective of their role as the purchasers of legal services.
“I am no more competent to choose accountants than finance directors are competent to choose lawyers,” says Richard Wiseman general counsel at Shell UK.
He adds: “We instruct law firms on the basis of them being able to provide a legal service. In the unlikely event of us instructing a law firm that is associated with an accountancy practice, it would be because we rate them, not because they are associated to the practice. The suspicion is that the best practitioners will be in the law firms.”
Co-operative Insurance head of legal Barry Lewis, who has helped formulate the C&I group’s policy on MDPs, says: “I have not come across accountancy practices, but I must admit that I would be very careful about instructing a tied firm simply because the group uses the accountancy practice. I am very much in favour of horses for courses.”
Tied firms have been addressing this issue. The last year has seen
a spate of high-profile lateral hires: with the partners comes the work.
Arnheim says: “I do not subscribe to the fact that PwC and Landwell can be all things to all people. We are not trying to compete with the City and the US firms in areas of their main strength, but there are areas where we have the competitive advantage.”
Arnheim says these include lower-end M&A work, cross-border human resource projects, e-business and IT. He maintains that in all these areas the firm can provide a multi-disciplinary, low cost, global service.
As long as tied law firms target small- to mid-sized companies, which tend not to have in-house counsel, they should make inroads. But the larger financial institutions and Ftse 100 clients will require more careful handling.
And if tied firms are to make inroads into this market and win the MDP debate, there is little doubt that they will have to woo the in-house legal fraternity.