Counter culture

Law firms tied to the big five accountants have expansive plans for the future and their parents are ready to back their ambitions, reports Anne Mizzi

'We're not exactly Freshfields, and I think everyone knows that,' acknowledges a candid lawyer at a law firm tied to a big accountant.This may be one reason that UK lawyers have remained cool in comparison with their continental counterparts in the face of the auditors' invasion of the legal services market in recent years.With their huge global resources, the accountants' arrival is not widely regarded as a welcome move by lawyers.

But despite their success in penetrating the market - all but one of the Big Five now has a UK presence - most lawyers at independent firms do not appear to see them as a threat.The common reaction of partners is that 'they're not on our radar' or 'we don't see them on transactions'.

But with the Law Society about to consult on removing the ban on fee-sharing, this could change.The fact is, accountancy-tied law firms still have a lot of work to do before they can present themselves as a serious alternative in key global markets such as mergers and acquisitions (M&A), and finance.KPMG firm KLegal's UK managing partner Nick Holt estimates it will take his firm two to three years to build the necessary critical mass and track record, but says the main battle with traditional law firms is for lawyers, rather than clients.He adds: 'We are not going to be Clifford Chance or Linklaters.

We work alongside KPMG and offer a multi-disciplinary approach.

Clifford Chance cannot do that.'While all four law firms have devised business models that tie in with their parents' business, focusing on areas such as general corporate and tax advice, some differences are now showing.Perhaps the most ambitious strategy is that of Tite & Lewis, Ernst & Young's UK law firm.

Chairman Christopher Tite says his firm has a 'bifocused' market approach, and describes it as a City and international practice advising on English and US corporate and structured finance law, which offers integrated services alongside its accountant affiliate.

He adds: 'We major in Anglo-US offerings.'This is a relatively new development for the young firm.

It is building its transatlantic credentials following the restructuring of its Washington DC practice, and in anticipation of its opening in New York this autumn.

To get around strict US Bar rules, Washington tax practice McKee Nelson Ernst & Young cut its financial ties with the accountancy practice, and will open in New York as McKee Nelson with new lawyers joining from US firm Sidley & Austin.Mr Tite says the New York move is a coup: 'It's a huge step forward to realising our strategy to play at the high end of the corporate finance marketplace, in addition to the structured finance and securitisation work we currently do.'But the others are playing the US with apparent hesitation.

KPMG's KLegal is one of them.

Mr Holt says firms are still working out whether a move is viable, if the law firm is prevented from advising clients audited by the accountancy firm, given the importance of cross-selling within a multi-disciplinary practice (MDP).For the accountants, the UK - and even US markets - is just one piece in a global jigsaw.

All five have their sights set on providing a one-stop cross-discipline and cross-border shop.

With 2,000 lawyers in more than 50 countries, KLegal has set up an international board and European anchor practice to harness the potential lawyer power and oversee integration.In contrast to Ernst & Young's focus on building a specialist corporate finance practice, KLegal, Arthur Andersen's international network Andersen Legal and Pricewaterhouse-Coopers' Landwell are attempting to build a solid reputation for general corporate work in areas that are naturally allied with the work of their tax consultancies.They have created global brands across their many international offices, offering a range of services from corporate and M&A to e-business, employment and property advice.

They all offer clients 'integrated business solutions' in collaboration with their accountancy firms.

And the accountants certainly have impressive client lists to tap into.Landwell's business development director, former Ashurst Morris Crisp partner Stephen Mostyn-Williams, explains: 'We are in the business of making money, so we want to do things that make money, like private cross-border M&A work.

We want to do more of it, but we have to be realistic about it.'He describes Landwell's London office as a 'start-up' (see box), and Mr Mostyn-Williams is candid in saying: 'I don't think we have had any significant market impact to date.' But he warns that the potential is enormous.

'Anyone who gives it serious thought over a ten-year time horizon should be frightened,' he says.KLegal is in a similar position.

Mr Holt estimates that last year's turnover of 4.5 million will more than treble this year.

He adds: 'We are still raising our profile.

Within KPMG, KLegal are the new kids on the block and we have to build a reputation as a credible alternative to other law firms.'Mr Holt has been there before - as managing partner of US firm Weil Gotshal & Manges' London start-up.Both Landwell and Andersen Legal hope to mount a challenge to the major league law firms, but privately their senior lawyers acknowledge they are held back.Neither firm has the critical mass in London to lead on major transactions for the top blue-chip companies.

And although they can more easily engineer introductions with potential clients through their auditing links, it will take time to build a portfolio and reputation that will pose a challenge to existing lawyer-client relationships in the City.The obstacles are primarily market-related, and national restrictions on fee-sharing between professions - that is, MDPs - have done little to stop the mushrooming of accountancy-tied legal practices.

Local Bars have failed to end the Big Five's big idea of offering their clients legal advice as part of their portfolio of services.In the UK, the Law Society has taken a broadly pro-MDP stance, while the Bar Council is opposed.

The recent Office of Fair Trading (OFT) report shows the government is also in favour of lifting remaining anti-competitive restrictions on multi-disciplinary practice.

And despite the anti-MDP arguments centred on conflicts of interest, manoeuvres like that of Ernst & Young in the US indicate that resistance is futile.

The accountants have got around MDP bans by building captive law firms to run alongside their professional service arms.Arthur Andersen is currently fighting the Dutch Bar in the European Court of Justice over restrictions, and the Vienna Bar has come under fire for preventing a merger between a local firm and a German MDP.

These challenges are only likely to open the market further, as shown by the Paris appeal court's recent decision to allow Landwell to represent PwC-audited clients, despite protestations by the Paris Bar.

It is the potential to sell legal services as a package to clients of the parent firm that signals the biggest change from traditional legal practice.

Mr Holt says: 'What I think marks us out from the rest is that we are unashamedly integrationist.

But you can't be evangelical.

The MDP works for some clients at some times.

Some clients can think: "I don't want all my professional services in one basket."'KLegal has a mixed professional management team, which includes lawyers, accountants and other professionals, and has an equal balance of clients brought in by lateral joiners and KPMG-related clients.

Mr Mostyn-Williams suggests that a majority of Landwell's work is PwC-related, although he complains: 'We would like to do more of it, but like any law firm we are resource-constrained.'In contrast, Mr Tite says that the majority of Tite & Lewis's work is derived from the individual lawyers' existing practice.

Mr Tite explains this is not because of any worry about conflicts, but that the law firm simply does not have the manpower to take on work without having an adverse impact on existing clients.

'We are growing the Ernst & Young workflow carefully.

We won't take on work unless we believe we can do it well,' he says.And Mr Mostyn-Williams says that Landwell is also taking advantage of its accountancy links by offering cross-border project management services.

Landwell and PwC launched an immigration MDP last month, following KLegal and KPMG's launch of an intellectual property MDP in February.Mr Mostyn-Williams argues that 'we do not fit into any conventional boxes', but despite these protestations of individuality, all these law firms have an association with a Big Five audit practice that they will try to exploit.They are all keen to break down the barriers to multi-disciplinary practice, and to offer clients a global seamless service and different legal product.They reject the stuffy image of traditional legal service provision, in favour of a more business-like attitude - one that they have borrowed from their bean-counting colleagues.Anne Mizzi is a freelance journalist

KPMGLaw firm: KLegal UK partners: 18UK lawyers: 100Global partners: 370Global lawyers: 2,000Turnover: US$350 million (250 million)Offices in 50 countries.KPMG set up KLegal in 1999 with 12 lawyers from PwC's associated UK law firm, then called Arnheim Tite & Lewis.

It has hired a number of well-known names, including BT's group general council Alan Whitfield, who joined this month.

Ernst & YoungLaw firm: Ernst & Young LawUK law firm: Tite & LewisUK partners: 10UK lawyers: 60Global partners: 300Global lawyers: 1,850Turnover: US$300 million (214 million)Former PwC partners Christopher Tite and Mark Lewis founded Ernst & Young's UK law firm in May 2000.

It will become the first accountancy-tied network to establish a base in New York this autumn, under the name McKee Nelson.

Mr Tite says the firm is not looking for a UK merger to boost numbers.

Deloitte Touche TohmatsuDeloitte Touche Tohmatsu announced plans to set up an international legal practice in December 1998, and has offices in key markets such as Germany and France, but is still searching for a UK law firm.

The auditor's substantial UK law firm client base may have resisted a move into the mature UK legal market so far, but a recent announcement in the national press indicates Deloittes is keen to make a move.

The firm has a total of 857 lawyers worldwide in 19 countries, of whom around 700 are based in Europe, and the network does not work closely together, therefore no group turnover figure is available.

PricewaterhouseCoopersLaw firm: Landwell UK partners: 15UK lawyers: 61Global partners: 350 Global lawyers: 2,600 Turnover: $588 million (420 million)Offices in 34 countriesThe 1998 merger of accountancy firms Coopers & Lybrand and Price Waterhouse brought together Price Waterhouse's Arnheim & Co and Coopers & Lybrand's Tite & Lewis, both set up the previous year, to create Arnheim Tite & Lewis.

The firm was renamed Landwell in February last year, after the loss of two name partners, Christopher Tite and Mark Lewis, to Ernst & Young, and the departure of a further group of six partners to set up a practice for KPMG.

Business development head Stephen Mostyn-Williams says the firm has not ruled out a potential UK merger, but is also in the market for lateral appointments as it grows organically.

Arthur AndersenLaw firm: Andersen LegalUK law firms Garretts, and Dundas & Wilson in ScotlandUK partners: 52UK lawyers: 225Global partners: 490Global lawyers: 3,600Turnover (1999/2000): US$528 million (377m)Offices in 37 countriesArthur Andersen's associated law firm operates under the global brand Andersen Legal, with local firms in each jurisdiction.

Arthur Andersen became the first of the Big Five to enter the UK legal market when it established Garretts in 1993.

Glasgow-based Dorman Jeffrey joined in 1996, and the following year Dundas & Wilson took over in Scotland as Garretts swallowed Dundas's English firm Cooper Snedden.

In 1998, a proposed merger between Andersens' Garretts and Dundas & Wilson, and London banking firm Wilde Sapte collapsed.

Wilde Sapte went on to merge with Denton Hall the following year.

Accountancy-tied law firms still have a lot of work to do before they can present themselves as a serious alternative

The accountants certainly have impressive client lists to tap into

The Law Society has taken a broadly pro-MDP stance, while the Bar Council is opposed