Much has been written about the imminent threat that the Big Four accounting firms pose to major U.S. law firms, particularly after PricewaterhouseCoopers launched its ILC Legal law firm designed to assist U.S. clients on international issues.
Most of the attention has been focused on the Big Four’s advantages over law firms in terms of sheer size, better marketing operations, and a corporate structure that allows more decisive implementation of global strategies.
But there is a talent equation that’s largely been overlooked. For years, the Big Four have successfully competed with law firms for tax expertise. Now that the Big Four have their eyes on legal-focused work outside of tax, that competition will naturally intensify.
There is one major reason that the Big Four have eaten the law firms’ lunch when it comes to competing for talent: an ability to craft very attractive compensation packages without regard for “portable business” and without having such packages reviewed by every partner in the firm. That’s because the Big Four are veritable marketing machines that assess in a very strategic way a new partner’s value to the organization.
In most law firms, tax partners (with the exception of tax controversy lawyers and some other specialized practitioners) do not carry a “book of business,” but are beholden to the corporate practice of the firm. Yes, tax partners need to be able to prove their ability to handle important complex matters for clients, but that’s a far cry from originating business.
As a result, when law firms lose practitioners either to retirement or to one of the Big Four, they are finding it difficult to backfill these positions, because the partnership is wary of offering competitive compensation packages to top-flight tax partners with little or no portable business. And this is particularly true when compensation is subject to a vote of all equity partners, who are likely to compare that partner’s value and compensation to their own.
This puts the spotlight even more on the issue of succession planning. A myopic view of a partner’s contribution based on book of business is likely to result in the loss of an entire practice at the firm, thereby hurting all partners. Interestingly, succession planning has been a staple of the Big Four’s talent strategies for years, as those firms have implemented rather strict retirement policies, along with attractive retirement packages.
With the big accounting firms (as well as other alternative legal organizations) readying plans to compete for high-end legal work, law firms need to address succession planning sooner rather than later.
TMG’s Take is a regular e-mail advisory produced by The McCormick Group. The company’s Legal, Government Affairs, and Law Firm Management groups combine the expertise of more than 15 Consultants to help law firms fulfill all of their lawyer and administrative recruiting needs. TMG’s Take covers topics across the spectrum of law firm management, including associate and partner compensation, growth strategies, marketing and business development, operations and facilities management, finance and accounting, professional development, and technology. Please direct all inquiries to Steve Nelson, Managing Principal at (703) 841-1700 or firstname.lastname@example.org.