27
Thu, Apr
82 New Articles

The New Reality: Senior Partners Discuss the Turkish Legal Market in Challenging Times

The New Reality: Senior Partners Discuss the Turkish Legal Market in Challenging Times

Interviews
Typography

On July 15, 2016, the streets of Istanbul and Ankara erupted in violence during a surprise – and ultimately unsuccessful – coup d’etat attempt against the Turkish government and Turkish President Recep Tayyip Erdogan. By the time the coup had been put down, over 300 people had been killed and more than 2,100 were injured. 

In the weeks and months that followed the coup, over 40,000 people were arrested – including at least 10,000 soldiers and 2,745 judges. 

On July 20, 2016, President Erdogan declared a state of emergency in the country, an act subsequently approved by the Turkish parliament. On October 3 he announced that the initial three-month state of emergency would be extended by another three months, to officially begin on October 19.

On October 7, 2016, as the concluding event of the 2016 General Counsel Summit in Istanbul, Partners from a number of the law firms sponsoring the event took the stage to share their thoughts about the significance of the coup attempt – and the current situation in Turkey in general – for their clients, practices, and businesses as part of a unique panel conversation. 

The Players:

  • Vefa Resat Moral: Managing Partner, Moral Hukuk Burosu
  • Eren Kursun, Partner, Esin Attorney Partnership
  • Kerem Turunc, Partner, Turunc
  • Jonathan Marks, Partner, Slaughter & May
  • Okan Demirkan, Partner, Kolcuoglu Demirkan Kocakli
CEELM:

Simple Question: What’s happening? 

Moral: Many Turkish companies, and even law firms, in relation with the businessmen who were arrested after the coup attempt, are in shock. Their fingers are on a trigger, and they don’t know what to do. This is the current business and legal market. Still, although there is a lot of uncertainty, normalization has started somehow, and even though the state of emergency has been extended for an additional 90 days, we are still optimistic. In addition, the government, by implementing essential sanctions and by calling for business leaders to be sustainable on the financial market, has, in my opinion, managed the current economic situation very well.

Kursun: On Monday after the coup attempt I got a call from a private equity client looking at a new deal, and you know how PE guys are when they’re looking at a new deal: they’re like a boy looking at a new pair of Air Jordan shoes – they’re excited. He said, “Eren, I’m going to ask you a personal question, not a legal one: There’s this deal, and I really want to go forward, to sponsor it, but I feel it would be inappropriate.” I said to him, “You know what, that’s exactly the way I’m feeling.” Because I had a couple of follow-up calls for a couple of pitches, and I just didn’t feel like it. I thought it would be really awkward to call someone for business – all I would call someone for is to say, “Are you okay? Is everyone okay?” So that was the environment, it was a shock, and for a little while nobody cared about business. We cared about more fundamental things. But there comes a point when you realize life goes on, and everyone realizes that point.

I don’t know if my colleagues would agree, but things got slower between the two elections last year. And now, even after the coup, they are not slower than they were last year, at least from what we’ve seen. So, from my perspective, this is simply an emerging market with ups and downs. We were expecting much worse, knock on wood.

Another point – I was having lunch with an investment banker last week, and he said, “we were holding 13 projects to see what would happen. But now we feel better and we will be going forward with all of them.” So it’s coming back. About the investment grades. [Following the coup attempt, Moody’s Investors Service cut the country’s sovereign rating to junk – ed.] I was an Associate at White and Case when Turkey got the investment grade. We hadn’t had it before then for 20 years – it’s only been the past few years that we had investment grades. And as an Associate I was very afraid, because the workload was going to increase a lot. Of course, that attitude has changed since I became a Partner.

So I was very afraid about the effect of the junk rating, but in fact things didn’t change much. There wasn’t an incredible increase then, and I don’t think there’s going to be an incredible decrease now, because people coming for FDI, they are not coming for the investment grades, except for a few. They look at the young population. They look at whether it’s a stable situation, but they don’t say, “oh, well, Moody’s is not big on this country.” For them, a young population and consumption is much more important than the investment grade.

And the last point I’d like to stress is, Turkey has been a very hot market. I was in Dubai a few years ago, talking to a PE guy, and I said, “I’ve never seen you doing a deal in Turkey, why is that?” He said, “there’s so much competition that we don’t think we can get a deal.” So sellers in Turkey have been spoiled. And one of the reasons for that is because most of them are family businesses, and all of them think their business is Apple or Google, which is not the case. These are times when people become more realistic with their expectations. Having said all of this, I have no idea how it will be in the next few months. We’ll see.

Turunc: My memory isn’t as sharp as either Eren’s or Resat’s, so I don’t remember who called me on the Monday morning after the coup, but I do know that I could go to the corner store and buy bread. And I say that because I think most countries wouldn’t have been able to cope with it the way this country did. And I think we sometimes underestimate how resilient this economy and Turks generally are, and I don’t think we’d be able to hold this conference here in most countries, had they gone through a similar experience, and I think the crackdown would have been the straw that broke the camel’s back, if you will. And that didn’t happen; the camel’s still standing. So I think we shouldn’t underestimate that this is a real, functioning economy, with, as Eren said, a lot of young people who are willing to consume and become an integral part of Western society. Deals are going on. I think at the end of the year, when we look at statistics, maybe we’ll see fewer deals than last year or the year before, but I don’t think that would be unthinkable even if none of this had happened. There are ups and downs, and that’s bound to happen in any emerging market.   

CEELM:

Jonathan, coming from London, you have an unusual foreign perspective on the situation here.

Marks: It’s been really interesting. We were a little bit worried, ahead of coming to the GC Summit, whether the whole thing was going to work, and we’ve felt very welcome. There’s a degree of concern outside of Turkey about certain developments this year including reports of large numbers of judges being dismissed, that sort of thing. All that could have a slowing effect on confidence, potentially on investment. Equally, my perspective is that this point that has already been made about Turkey’s young and dynamic economy is correct and that you can’t hold people back. Time will heal, if things don’t get worse, and then there’s some stability. That dynamism and that growing economy should help. And, from a UK perspective, we’re going to be looking as a country to make friends with other countries as Brexit comes about – Turkey is not looking like it is going to be joining the EU anytime soon, and we essentially will be in the same boat, so I think that, from a British-Turkey perspective, there’s an optimistic angle as well. 

CEELM:

Several of you said it could get worse, and I wonder if that means just by the natural course of things or whether there’s a fragility that if something else big happens it could cause a more major problem. 

Demirkan: Yes, it could get worse indeed, but there’s no reason to be pessimistic. It doesn’t help to be pessimistic. We Turks are not the best in any particular sector. We’re not the best construction people, we’re not the best engineers in the world or the best sportsmen or the best scientists, but we are known for having good comebacks. We have that spirit. We’ve had that spirit for centuries. And as our founder Ataturk said, well, there is no such thing as a hopeless situation, there are only hopeless people. And we in our blood, in our DNA, we don’t have pessimism too much, we’re just used to managing crises. I think we’re just good at it. It’s the one thing we’re good at. 

CEELM:

You’re experienced at it.

Demirkan: Yes, we’re experienced at managing crises. It could get worse. If it does, we’ll just have to get over it. Two very short stories about the 15th and 18th of July. Both are probably reasons to be optimistic. One is, on the 15th of July, on the Friday, I was in Germany for a pitch for an energy project, and I thought I got the job that day. “They said, we’ll just make a few revisions in your proposal and come back to you on Monday.” Before lunchtime on Monday – after the coup – I received a call saying that the project was cancelled. So yes, I didn’t have a smile on my face at the time, but then, a couple of days ago – this week, actually – they called and said that the same project is going to start next week. So in three months’ time, things are picking back up.

Question from the Room: As law firms, do you think you have an institutional role to help the country survive a crisis like that in any way?

Kursun: I think we are in a unique position to do that, because we work with a lot of investors. When you are outsiders, before you react to something, you will observe the reactions of people who are actually in the situation first. If they are panicking, you will panic; if they are calm, you’ll stay calm. So I think we are all ambassadors in that sense, and I’ll tell you one thing we are doing: The minute the state of emergency was declared, we set up a hotline where our clients can call 24/7 if they have any questions, and we’ve been sending emails every time there’s a new emergency decree. We inform our clients on that – and friends of the firm, not only clients.

But let me also tell you what I’ve seen from some others. It was a news release from another law firm, and it was forwarded to me by a client, and it was right after the state of emergency. The content was the following: “A state of emergency has been declared.” They copied the entire constitution. Their message said that now there may be a ban to go outside, business may be stopped, etc. But in the form of reassurance they said, “But these rights will prevail, and the rights are: right not to be tortured, right to life,” and things like that. And the last paragraph said, “If you have force majeure and materially adverse provisions in your contract, please consider exercising them.” Now … I mean, this is selling panic, this is benefiting from it. That’s one thing that lawyers are very tempted to do, but we should not do. We should not be over-optimistic, of course – I mean nobody’s fooling anyone – but as I said, our reactions and our attitude, our signals for the rest of [the] people … I think we have a unique role to play there.

CEELM:

Are the traditional Turkish firms able to compete in the modern marketplace?

Turunc: When I was a baby Associate in New York I used to instruct local counsel in Turkey as well as in other jurisdictions, and the shortlist of Turkish firms that we had then looked very different from the shortlist of Turkish firms that my colleagues back in New York would be using right now. Very different, although of course some of the individuals are still the same. And I think the Turkish legal market is going through growing pains. I think a lot of us have seen this – in markets like Romania, Poland to a certain extent, Italy for sure – and there are two aspects to development of the legal market here as far as I can see. One is, if you rely on anything other than your lawyering skills and your business development skills for work, then you’re bound to fail at some point. It doesn’t matter which party is in power. It doesn’t matter. That’s number one. Number two is, I think Turkish law firms need to seriously start thinking about institutionalizing their practices. And I think, Eren, you guys have obviously done this more successfully because you have the benefit of being part of an international network. But unless lawyers stop looking at their businesses as their practices and start looking at them as real Anglo-American-type partnerships, they’re bound to fail. And I think very few, if any, Turkish law firms have done that successfully. At the end of the day, it doesn’t matter whose name is on the door, as far as I’m concerned. If it’s a true partnership, it’s going to survive. If you think it’s your shop and it’s going to be your shop forever and you run the show, you’re not going to survive. 

CEELM:

Why is that? 

Turunc: Turkey’s now a market where in-house counsel have the same demands and the same needs as those in the West. That wasn’t the case 20 years ago. And in order to be able to service those needs properly you need multiple partners with deep teams with experience who can provide the kind of seamless experience that these in-house counsel need and deserve. That, or you need to be a specialist. But you can no longer be a three-person shop that claims to provide full service in this market. That’s just not the name of the game anymore.

CEELM:

So you think it’s just a more sophisticated market than before. 

Turunc: It’s a more sophisticated market. On the flip side I think some international firms are going to find it more difficult to operate here as well. If you’re relying on either finance work only or if you’re only relying on the growth of the market, then you’re not going to survive either. You have to look at the long play here.

Moral: I agree, our profession has been transforming. Our firms today, with the internal corporate governance, institutionalism, is a different character from when we were young Associates. Of course, I do not believe that my firm or other firms in Turkey will have a hundred partners with a thousand associates. But the Turkish legal market has made that transformation very well, in my opinion, because of the country’s emerging market position. Despite this positive development, legal legislation lags far behind, unfortunately. Firms, like ours, recruiting 30, 40, 50 people, and well-qualified people, face bureaucratic and legislative obstacles where systems are not supporting the transformed industry. Also, at the end, there’s still the reality of corruption, unfortunately. From our GC colleagues, or from board members, I hear a lot of corruption stories unfortunately. In order to have a clean, well-respected market, we, as the industry leaders, should all contribute to improve and sustain several aspects of the legal market.

Demirkan: Fifteen years ago, Eren and I were trainees working on deals on opposite sides of the table. At the time, I had just moved to Turkey from the UK, and I was unique because I actually was fluent in English. I was one of the handful of trainees that had that talent. Nowadays we receive 80 to 100 CVs every week, and their English level is not worse than mine. So the market has definitely changed.

One thing that really attracted my attention when Resat was speaking was, before our generation we had Partners and Managing Partners who were born Partners. They were never Associates. They never worked in the kitchen. Now, all of the Turkish lawyers you see on the panel have worked for many years in the kitchen, so we know what the Associates’ problems are, we can understand them, and we know what the other firms’ problems are. I don’t think that before our generation Partners came together to talk about their problems, or that they had ever even mentioned gentlemen’s agreements. I think we’ve come a long way, and I think this shows. As you said, if you think about the Turkish legal market as a car, leaving aside the traffic and the problems that may be caused by the traffic, I think we’ve shifted gears in the past five or six years.

Kursun: I think there’s going to be a consolidation in the legal market in the future. Those of us who do the right things will grow, and those of us who don’t will disappear. And that goes for internationals as well, because when you talk about an international law firm, one important thing is their costs are high. And when you go for big discounts to get market share, that’s not sustainable. So they are going to be supported by headquarters for some time, but at some point headquarters will say, enough is enough. I think it’s going to get worse before it gets better in terms of pricing. But at some point when the consolidation happens I think it’s going to be a better market, a healthier market. As I say that, I couldn’t agree more with what Kerem and my fellow panel members said. Okan put it very nicely, they were born Partners. All of the firms who disappeared from the map, their bosses thought they were immortal. When we get more corporate, when we get more modest, when … in Turkey we say, “when we rely on nothing but the strength of our wrists,” then it will be a better environment.

CEELM:

We have, in the three years of CEE Legal Matters, reported on only one firm merger here, when Davutoglu merged with Bener. Do you expect to see more of that happening, do you expect to start seeing some firms coming together in that way?

Kursun: I don’t know whether it will be in the form of mergers or people disappearing or people going away, but there’s one fact. We are not charity businesses. We must make profits. We must make profits to invest, to get a better workforce, to do better marketing. There’s no other way. None of us are charities. So if you postpone making money, you won’t survive. That’s a fact of life, couldn’t be simpler. So this will happen, because when you look at pricing, you know how it is done, but the thing is, when you decrease the prices, you have to get more and more work to survive. When you do that, the quality drops, and then you have to decrease the prices even further because your quality’s even worse, and then at some point you’re done. It takes time. Cheap prices are sticky. Some of the law firms will go through that, because once you start, you can’t stop that. I don’t know what you call it, merger, disappearance, failures, whatever, but it will happen.

Marks: Maybe just a few additional thoughts from me, reflective of our experience in London, and however many years working with firms in other CEE countries. The emphasis on quality is absolutely crucial, as is the emphasis on integrity. I think that it’s the road to ruin once you go down any other route. We had an experience in another jurisdiction a few years ago, when someone suggested that we think about getting involved in something inappropriate as part of a pitch and we’ve not done anything with them since.

The point about succession – it’s not a secret, you don’t, at Slaughter and May, pay anything for the goodwill when you go in and you don’t get anything back for the goodwill when you go. I think that having more institutionalized relationships is a good idea. We share client relationships. For example, we try very carefully not to concentrate client relationships with a single partner because actually clients don’t generally like it. They might be happy to have a focal point, but they don’t want to feel that they’re stuck with X regardless, whether or not they’re the right person to deal with a particular individual or job.

What we’ve seen in the rest of the CEE that has really encouraged us is that independent firms have thrived, and equally the more committed of the international firms have also done okay. That’s what we’ve always said for our model: we can carry on as an independent firm, and if other people want to go the one-stop route, and it works for them, that’s fantastic too. If you look at various of the jurisdictions, we’ve seen Linklaters invest heavily in a number of jurisdictions, and then spin off Kinstellar, and we’ve also seen Freshfields do much the same, and in fact a succession of firms have done that across a number of CEE jurisdictions. If someone’s just got a name on the door and a few Partners and Associates with very high costs, particularly if the partners have got substantial equity in the firm, and you hit a few years of hard times, or even just less good times, are they going to stick it out? That in some ways is encouraging for people who are really committed to Turkey. I think that only the international firms that are really committed will stick it out and that in the end that will also benefit the most successful independent firms.

This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Our Latest Issue