The walls between professional services are coming down

Breaking down the walls ... Accountancy firms have diversified and other professional services firms will follow them. Illustration: Andrew Dyson

Professions started and grew in silos. Now these silos are breaking down fast. This is a good, inevitable and risky phenomenon.

Each profession – law, medicine, accountancy, consulting engineering and so on – has its origins in a specific knowledge base and an ethical foundation of serving the public good. As science, technology and the internet spur the specialisation and growth of knowledge, the so-called neo-professions proliferate. More knowledge and more professions mean more ways of serving the interests of individuals, business, society and the environment. That’s good.

It’s also inevitable. Nothing can stop the generation of information, its dissemination and the burgeoning of knowledge. The rate of growth is exponential, doubling every few years. Innovative ways of harnessing information are now the “new economy” – or as futurist Gerd Leonhard would have it, “data is the new oil”.

Several aspects of this are risky. While ready access to information is empowering, it’s also dangerous in inexperienced or the wrong hands. Professions are not immune from these risks, hence the need for strong professional bodies and clever regulation.

For clients these trends are good news. Clients’ needs have never existed in tight compartments; they have always been multi-facetted and often complex. In the main, as I argued last week, the needs that professional practitioners are best placed to satisfy relate to advice that is based on relevant information, skilled interpretation and independence. Increasingly this requires a multi-disciplinary approach. Professional services firms are responding by diversifying. This week The Economist magazine reported that within a few years, consulting income will exceed auditing income in the Big 4. These behemoths are no longer accounting firms; they can only be described as professional services firms.

It’s entirely possible the Big 4 and their emulators will diversify even further in their quest for growth and portfolio benefits – perhaps into aspects of consulting engineering or investment banking. Why not? Many large consulting engineering and environmental services firms regard the Big 4 and the likes of McKinsey as competitors for large portions of their “upstream” work. In the 1990s, the Big 6 actively built legal practices, particularly in Europe and, the aftermath of Sarbanes Oxley notwithstanding, there are signs of a return to this strategy by several of the Big 4.

Law is last of the large professions to diversify. The conventional reasons given for this include conflicts of interest, jurisdictional restrictions and, from managing partners, the poor management track record of law firms, “we are poor business managers”, they say. In my opinion, the last reason is not valid; at least they are no worse than the leaders of firms in any other profession. It seems to me to be more a function of the relative ease – until now – with which most corporate and commercial law firms have made eye-watering profits and a certain purity of thinking that have limited diversification.

There signs this is changing. And I predict the next decade will see many more firms enter areas adjacent to law, including risk management, corporate governance, wealth management, innovation and policy advice. A few pioneers are down the track with Minter Ellison, Johnson Winter & Slattery and McCullough Robertson among them.

Provided they remember they are professionals, firms that diversify will reap the benefits for their clients and themselves. Next week, I will discuss reasons for a firm not to diversify.

George Beaton is executive chairman of Beaton Research & Consulting and a partner in Beaton Capital, firms dedicated to professional services.

MORE PROFESSIONAL SERVICES NEWS:

• Is this the end of the professional services partnership?
• Professional services firms need a new model
• Australia’s top law firms revealed

• Tweet