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EY’s leadership recently green lighted a major restructuring, ending months of heated speculation. The plan has two key prongs: (1) EY’s audit and advisory businesses will split; and (2) the advisory business will replace its partnership model with a publicly traded corporate structure.
The restructuring presents a unique opportunity for EY Law to expand the scope and meaning of “legal services,” reinvent how they are delivered, broaden the range of legal careers for licensed attorneys and allied legal professionals, and extract greater value from the legal function by aligning and integrating it with business. EY has the potential to change the legal delivery paradigm by providing multidisciplinary, vertically-integrated business, technology, and legal solutions. This will benefit its customers as well as the broader business community. It will also offer new career options for licensed attorneys, allied professionals, and paraprofessionals.
Cornelius Grossmann, EY Global Law Leader, shared: “The transition away from the partnership model and the removal of audit independence restrictions are fundamental to our vision to create the world’s leading enterprise legal services provider.” The opportunity to achieve this bold vision is real, but so too are a host of challenges. This article will examine both.
EY’s Structural Transition Unlocks Several Opportunities
The two-pronged structural transition will unlock several opportunities for EY Law and the advisory business of which it is a part. Separation from the audit business will remove independence restrictions that have prevented it from performing legal work for audit clients. This expands EY law’s market by about 20%, its share of Global 2000 audits. A substantially expanded market will justify greater investment to scale existing services more quickly and to develop new offerings useful to customers. Independence from audit restrictions will also reduce the substantial administrative burden on EY and, sometimes, its clients.
The spin-off will also allow EY Law to develop relationships with audit clients. This will open up partnering arrangements that produce new products and services helpful to customers. For example, EY Law can soon engage with several leading technology companies it audits. The list includes Google
Synergy between the legal and tech spheres at this elite global level is a natural market progression. It will help to eliminate anachronistic barriers separating the two industries. Their linkage will benefit customers and expand the parameters of existing legal careers fostering engagement in cross-industry collaboration. It will accelerate law’s transition from a lawyer-centric vertical to multidisciplinary horizontal function. This will inure to the benefit of business, the workforce, and society.
Law, technology, and business have become the three key components of legal delivery. Fusion has thus far been largely ad hoc, lacking scale, integration, and a common goal. EY Law is positioned to meld these three delivery components at scale. Partnerships with other industries will accelerate EY Law’s internal integration with other advisory business service lines— IT, data analytics, risk management, process and project management, to cite a few. It will also present customers with a holistic, multidisciplinary, integrated data-backed, process-driven solution to complex business challenges. Whether this is categorized “legal services” or something different, it is a giant step forward for customers.
EY Law’s ability to integrate with the wider advisory business—and vice versa—is central to achieving its vision. The same integration applies to customers and the workforce. The connective tissue binding them is shared purpose. A customer-centric, multidisciplinary, collaborative, team-oriented delivery capability would set a new standard for the legal industry. It would elevate the legal function’s impact on business by extracting its latent potential to proactively identify, mitigate, and extinguish risk as well as to collaborate in value creation.
EY Law’s structural reboot provides an opportunity to create a flatter, more nimble, customer-centric, data-backed, capitalized, collaborative, integrated, and merit-based organization than the partnership model it will replace. It will have access to institutional capital to fund long-term investments in technology, process improvement, new services, collaborative ventures, acquisition (including law firms where regulatory permitted), and talent.
This contrasts with the partnership model where decision-making is slow and often driven by how close a partner is to retirement. Resistance to long-term investment, likewise, is linked to the absence of a residual economic interest in the business. This promotes stasis, a short-term horizon, and discourages creativity and innovation.
EY Law’s corporate structure will enable it to reward a broader segment of the workforce with equity-based compensation, something it plans to do. This will promote loyalty, retention, and collaboration. Other residual benefits of equity include: teamwork, a stake in the long-term success of the enterprise, the potential for wealth accumulation, and a clearer sense of purpose. Wider ownership interest will also help eliminate law’s hierarchical culture of partners and associates, lawyers and “non-lawyers,” and fee earners and staff. That will foster teamwork, elevate morale, and serve as a beacon for talent seeking a different “legal” environment.
EY Law’s structural transformation is built on a solid foundation. It has the provenance of a top global brand (the advisory business will operate under a new name but retain ties to the audit function); deep C-Suite relationships; access to capital; multidisciplinary expertise that cuts across areas that intersect with law; and enlightened leadership that oversees 4,500 attorneys across 90 countries.
Transformation offers opportunity but comes with challenges. Here are some key ones that EY Law can expect to encounter.
Change Management Is EY’s Law’s Biggest Challenge
The greatest challenge confronting EY Law is, paradoxically, a prized asset: its workforce. Morphing from a partnership model to a corporate one necessitates a change of mindset, culture, metrics, organizational structure, and economic model. It requires a shift from input to output; individuals to team; and legal opinions to business solutions. Sharing institutional knowledge, data, and other institutional knowledge/intellectual capital with colleagues must be the norm, not the exception. Likewise, sharing must occur across the legal function, as well as with allied service lines, strategic partners, and clients. Legal providers, especially lawyers, are not accustomed to this.
How might EY Law leadership encourage its workforce to embrace these and other changes? Laying out the opportunity is a good place to start. So too is providing context- the “why”— of change. Change is neither “change for change’s sake” nor punitive. Rather, it is an ongoing response to meet the shifting demands of its customers, business, society, and the environment. Law can no longer be misaligned with the macroeconomic forces reshaping our world.
Most in the workforce do not realize they have already bridged the digital divide as consumers. They buy online; embrace technology; rely on data to make rapid, informed buying decisions; and value accessibility, transparency, choice, and customer service. They favor providers that make the buying process easier, faster, and more pleasurable.
If legal professionals have navigated the digital divide as customers, why not as providers? They should consider their role from the customer/end-user perspective-how can they improve their individual and team performance to produce better outcomes and experience for customers?
It is not enough that leadership and/or a fraction of the workforce commits to a new mindset. Organizational success requires broad adoption and a team orientation. That means interdependence, collaboration, sharing, and relentless customer focus. The emphasis is on ongoing improvement, not precedent; diversity, not homogeneity; output not input; and the team, not the individual. These are not the cultural touchstones of most legal organizations, but they most become so.
Market Challenges
EY’s ability to navigate internal change management challenges is foundational to its success tackling external ones. Here is a representative list of market challenges it will confront.
1. Can EY Law convince GC’s to embrace vertical integration and move away from longstanding buying decisions?
2. Can its C-Suite/Board ties be leveraged to advocate for a fresh look at the professional services procurement process?
3. Can EY Law leverage structural transformation and successful change management to create and deliver a fit-for-purpose legal function?
4. Can it convince customers and the workforce that it offers a safe, viable, scalable alternative to the incumbent binary process of outsourcing to law firms (and law companies) or insourcing to corporate legal teams?
5. How effectively can EY Law integrate with other business advisory services, especially those that intersect with law. A partial list includes: management, regulatory, technology, compliance, tax, and data analytics?
6. Will it acquire or collaborate with a top-tier global law firm to enhance its “legal” brand/credentials?
7. Will EY Law, presently a relatively small contributor to advisory’s revenues, secure the commitment of the advisory business leadership to maintain necessary investment and promote internal collaboration and cross- selling?
8. Will EY overcome the lingering perception of many legal buyers that the Big Four remain, at their core, accounting firms, not legal providers?
9. Will it be able to communicate to the legal industry—notably to GC’s—that it possesses “legal chops” to take on a broader, increasingly complex set of legal work?
Conclusion
The significance of EY’s vision “to create the world’s leading enterprise legal services provider” extends beyond economic success. Odds are it will expand its market share and revenues. What matters most is whether EY Law can reinvent the way legal services are delivered for the benefit of customers and expand legal industry career paths. If its workforce can adapt, it’s got a good shot.
Source: https://www.forbes.com/sites/markcohen1/2022/10/04/will-ey-law-change-the-legal-delivery-paradigm/