The Serbian Market
There was some disagreement about the state of the Serbian economy, perhaps based on the report by Tijana Kojovic, Managing Partner of BDK Advokati, that, in Serbia, “it is risky to make economic projections” since the market is not always fully transparent and, as a result, it is not always easy to see trends developing.
Nonetheless, she said: “It is my impression that we are in a very modest growth stage.” Sandra Simic, Head of Legal and Compliance Officer at Henkel Srbija, disagreed, noting that “the figures I am seeing indicate that the market is stagnating.” Kojovic pointed out that such a distinction “is not necessarily representative of the legal landscape and the amount of work for law firms,” noting that, at the moment, her firm is looking at NPLs as potential sources of work, plus “a rise in restructuring and insolvency work, as well as an increased amount of regulatory mandates, in particular around data protection issues.” On this latter subject, Kojovic pointed out that whereas many such assignments came initially from international companies, her firm has lately observed an increase of mandates from local companies as well. “I also believe that state aid control will improve here. Looking in other jurisdictions, especially those in the EU, I expect a lot more assignments in this area coming up. I also expect more private enforcement of competition law infringement through private claims for damages– a very hot area elsewhere.”
Bogdan Gecic, Managing Partner of Gecic Law, agreed with this projection and reported a rise of state aid cases since 2013. “I think there is a broader context here: the fact that negotiations have opened with the EU has changed the game,” he said, adding: “We are experiencing some extraordinary times for the legal market with the addition of the European Commission as a new stakeholder in the game. In that sense, I feel that having a quasi-independent and neutral party has, so far, brought about positive changes.” With Chapters 23 and 24 of the accession process due to open very soon, Gecic said, “this will mean further harmonization in terms of legislation and additional interest on the EU Commission’s part in high profile state aid cases, something we have already witnessed.” Gecic said that state aid is going to become a particularly interesting subject to follow in light of Serbia’s current approach, which is geared towards attracting greenfield and brownfield investments via subsidies, and he pointed to the new investment act from last summer, “announced under the broader message of subsidizing foreign investors.” The effect on the Serbian economy of such investments, Gecic noted, can be significant, as the country’s economy, compared to Slovakia’s, for example, is “rather tiny.” As a result, he explained: “We only need three or four big transactions to change the landscape drastically. For example, there is an EBRD study that shows that, when the Zelezara Smederevo deal closes, the EBRD anticipates it will lead to a 3.8% total increase in Serbia’s GDP in 2017.”
Yet it’s not just state aid but rather regulatory work in general that firms report being on the lookout for. Luka Lopicic, Partner at Moravcevic, Vojnovic and Partners in cooperation with Schoenherr, explained. “Serbia is implementing EU laws but, in some instances, they have not been implemented fully, so clients require our guidance how to navigate through this complex set of rules. This blend of EU harmonized and Serbian specific regulations creates a considerable amount of work, in particular in capital markets and financial services.”
Staying on the subject, Natasa Zavisin, Partner at Zavisin Semiz i Partneri (ZSP), suggested that the amount of work arising from the government’s commitment to encouraging development was also related to some of the obstacles in the country to its implementation. “What we find to have the strongest impact is the lack of infrastructure. Even in some instances where the pieces of legislation are very progressive or well-aligned with EU standards we lack the infrastructure to implement it fully – people, training, supporting institutions.” She added: “We even find it difficult at times to communicate with the relevant authorities. It might be a bit of an old heritage element but there seems to be a lack of understanding in terms of what the general reforming trends are. The speed of updates is also, at times, a challenge, whereby you are faced with something new, many times yet untested. Lastly, there’s a bit of an odd trend to be directed to ministries to solve very basic questions that we need an answer to.”
When asked to weigh in from an in-house perspective as to the communication channels in place with regulators, Simic reported that it is not yet fully open and referred to the issue of building permits as a recurring challenge for Henkel. She explained that “if you need to open communication with the ministry, it is many times not an easy task.” On the other hand, in terms of the regulations themselves, she explained that although her company is sometimes able to see drafts of some pieces of legislation, others are “simply being published in the official gazette and due to come into force in a couple of days.” This, she argued, can be quite a burden.
Branislav Zivkovic, Managing Partner at Zivkovic | Samardzic, explained that while frequent changes in the law provide more work for law firms, “it also brings a high level of uncertainty for the clients. If there are significant regulatory changes too often, it is then difficult, as a business, to know what you can count on.”
Kojovic also mentioned that she is seeing an increased interest in alternative financing arrangements, through various queries on regulatory framework for bond issuance and various alternative lending arrangements: “This may be a signal that we may soon see a shift away from the traditional financing via banks. For example, the EBRD is now looking to issue RSD bonds and on-lend the proceeds for various projects in Serbia.”
The conversation then shifted to the Serbian judicial system and its impact on business. Zivkovic expressed a tempered hope, saying, “my personal opinion is that nothing will be changed overnight,” and adding: “We hope things will improve not only in terms of regulatory stability but also in terms of the judges intended to implement those regulations.” Zivkovic also described a failure of continuing education for judges: “there are usually a lot of problems with their [the judges’] motivation to improve themselves and keep apprised of what’s going on in terms of trends. It does happen at times that the new regulations are maybe not adequate for Serbia – sometimes they simply try to achieve more and faster than the system can accept it.” Finally, Zivkovic expressed frustration “with the fact that those who should implement reforms tend to rely on interpretations from the ministries or the government, which translates into situations where a deal that should be relatively simple cannot be closed without asking for the opinion of some high level ministry representative.” This, he explained, “means that too much ends up depending on or affected by a governmental opinion in cases where there is no formal power in place.”
When asked if the lag in terms of the judicial reform is caused by corruption or by the same infrastructure phenomenon that Zavisin had referred to earlier, Zivkovic said: “I wouldn’t say it’s corruption. It is present, probably, but at least our office hasn’t had any direct contact with this. In essence I believe it’s the inability of judges to understand what the reform is about. Another thing that comes into play at times is this trend for bureaucrats to generally err towards not making mistakes rather than making a call that’s progressive.” Gecic concurred, reporting that “confidence” was one of three elements that slow the implementation of reform in the judicial system. He explained: “Our judiciary simply does not perceive itself as an equal power in the state.” The other two elements were “human capacity,” as the country “simply lacks the capacity both in the administrative and judiciary branches,” and “meritocracy – since it is difficult to perceive the precise criteria which should be applied when it comes to meritocracy and how the judicial system promotes people within its own ranks”
Zavisin also identified a problem specific to the recent history of the region. “I recall the market in the mid-90s when we faced a collapse of the judicial system,” he said. “The main outcome of that collapse was the most senior members of the judiciary ended up leaving, as a result, a huge black hole, with their younger peers never fully being educated as a result. What I mean by this is that I feel experienced judges are required to share their knowledge and best practices [among one another] rather than relying on them to be self-taught. As that generation has grown older without a real chance to develop, I feel that the drive for improvement is currently greatly diminished. I’d like to be wrong, but because of that I don’t think we’ll be in a position to see any real improvements in the next ten years, unless something drastically changes and massive pushes towards trainings and reforms are implemented within the system.”
Zivkovic concluded the conversation about the judiciary on a hopeful note: “I am still optimistic about this process and think it’s only a matter of time, rather than ‘if.’ In the meantime, though, it is a bit frustrating not being able to tell the clients what they can realistically expect the final outcome of a case to be.”
Law Firm Strategy
When the subject switched to trends in building and managing law firms in Serbia, Kojovic explained that: “We’ve been trying since day one to set up and run this business according to the model of Magic Circle firms, in terms of practice and sector focus, excellence in service and client care.” She added: “apart from being a business role model, global law firms are our important clients because multinational clients channel work through them.” Rastko Petakovic, Partner at Karanovic & Nikolic, noted that the level of exchange with internationals has increased significantly in recent years. He referred to the secondments his firm has set up abroad as one of several ways it engages in knowledge exchanges with the larger international firms.
Lopicic, at Moravcevic, Vojnovic and Partners in cooperation with Schoenherr, reported that one of his office’s unique selling points was its ability to stay flexible. “I mean that we can adapt relatively fast to new trends and new clients,” he commented, and referred back to Gecic’s earlier analysis on the size of the Serbian economy: “If one, two, or three big deals have such a big impact on the economy of the country, you can also imagine how two or three large deals look like on the bottom line of a firm. As a result, it is important for us to not shift too much from one client to another or from one industry to another too fast – rather to build up our dedicated services towards existing ones.”
Zavisin explained that ZSP had intentionally chosen to stay small and did not plan to grown too much: “We experienced the larger team life and simply found that boutique work is more attractive for us. We get the flexibility to really tailor our services. We get to be really close to the clients, get to know their specific philosophies and business needs. We’re simply very comfortable with [that] kind of space.”
Simic, as a client for legal services, was enthusiastic about the variety of options he could choose from. “What is offered in the market definitely meets our needs at the moment,” he said. “Yes, big corporate law firms are generally the ones preferred by my superiors because they work in Europe and are familiar with these bigger systems. We also generally like firms that are able to cover multiple jurisdictions. Nevertheless, for certain matters, I prefer not using firms from our preferred suppliers list but resort to using a lawyer in whom I have faith and trust.”
And Gecic believed that there is still plenty of room for the market to grow. He explained that his firm, Gecic Law, ran a competitive assessment of the market two years ago. The results showed that it is “completely unsaturated,” as they could identify only around 350 lawyers practicing corporate law out of the 8,500 or so lawyers in Serbia. “In our opinion that is one of the biggest opportunities,” Gecic commented. “The market is changing rapidly, clients have become more sophisticated, the demands are a lot more complex, and commodity work is becoming increasingly difficult to bill to clients. In the past, corporate law seemed high-tech. Now it is radically different, with clients expecting a hands-on and business-oriented approach, not just a technical nay-sayer’s approach.” And despite Kojovic’s report that, “unfortunately, [the nay-sawyer approach] is still the main approach in terms of formal education for lawyers in Serbia,” Gecic claimed that the complexity of clients’ expectations was increasingly matched by the complexity of law firm structures, with “questions about tiered partnerships, lockstep, or other approaches being just some of the questions now on the table that we weren’t discussing 15 years ago.”
Furthering Gecic’s claim that firms are increasingly sophisticated, Kojovic pointed to firms – like his own – that are starting to organize on sectors rather than solely by practices: “We started going beyond the traditional full service practice approach and started building sectors within the firm. Naturally, when we do M&A, commercial work, or litigation we are sector agnostic and cover all sectors. However, there are industries that require a specific multidisciplinary approach, a grasp of specific regulations, and the understanding of underlying business drivers. We have thus created several industry-focused teams and going beyond knowing the law towards understanding the sector specifics is something that we have been investing in.”
Petakovic said that his firm is following a similar strategy, adding: “Practically, we’ve started asking clients to [let us] enter their production facilities to give us a real feel. You might work on a telco deal but you then go and see the actual cable business and get a glimpse of what the business is like in real, concrete terms. This is really the future for firms, because the clients are expecting this kind of awareness.” He summed it up by adding: “The demand has shifted from mere English and [jokingly] having a laptop to sophisticated advice that requires a firm to be aware of matters such as what it means for a company, for example, to have too much stock.”
The conversation then moved to the variety of approaches that firms take towards servicing clients on a regional basis.
As the Partner representing one of the first Serbian firms to expand outside the country, Petakovic explained that Karanovic & Nikolic’s departure from the SEE Legal association of firms had helped the firm “see the region as exactly that – a region bigger as a whole than the sum of its parts.” And the firm’s bet had paid off, Petakovic reported, as the firm’s newest office – in Slovenia – had surpassed initial plans threefold. “We are soon going to be joined by the 12th member of the team [in Slovenia] and are now in a position where we have to renegotiate our lease – a clear sign that it is possible to expand these days.” He also linked K&N’s regional outlook to Gecic’s comments about the unsaturated nature of the market: “There is definitely a lack of saturation in the market and this is true in other countries as well, even looking outside our comfort zone with other countries like Albania, Bulgaria, [and] Romania – all definitely worth considering. Up until now, because of the commonalities in the countries covered, expansion has been a natural step. Going forward though, it will take more time and more consideration to tackle new markets.”
For the other participants, it seemed more natural to focus on their comfort zones than to plan to expand beyond them. Kojovic commented: “We have offices in places that are natural extensions for us – Bosnia and Montenegro – and we are confident in those jurisdictions. At this point in time, we find in SEE Legal a great platform for the rest of the region as it provides the best of both worlds in the sense that it is not really one firm but it is much more than a network, and its advantage over a single-firm approach is that it provides to clients a coordinated service by top firms in the SEE region.” She added: “If you are asking if we as a firm think it makes sense for us to expand anywhere outside the former Yugoslavia space, I would say no. The clients tend to look at the former Yugoslavia space as one market but rarely beyond that. The other reason for which it’d make sense to go beyond former Yugoslavia is if there were a lot of investments towards those other countries – a similar rationale for which Schoenherr entered Serbia out of Austria – but I am not yet seeing a lot of outbound Serbian investments taking place, especially outside of the former Yugoslavia space.” Lopicic agreed with this analysis, explaining: “Broadly speaking, our firm’s philosophy is to act as a one-stop-shop across the region…. Expanding to Bosnia and Montenegro made sense since legal frameworks are similar, there are no language barriers, and the legal services industry was not really matured. Croatia or Slovenia are considerably different in these regards, and most importantly, these markets are very mature, so it would be difficult to penetrate them now.”
But a firm doesn’t need to open an office to expand its work within the region, the lawyers at the Round Table agreed. The first and most common alternative to office opening is that of networks, which, as Zivkovic explained, can be less stressful: “Some of us chose to open their own firms in other markets, which I can only imagine, from a managerial point of view, can become rather challenging. For us, the suitable approach is to build up a network and ties with well established firms, a model that for us, at the moment, works very well.” And Gecic noted that, depending greatly on the practice, even a network may not be strictly necessary. “You can do a lot from Belgrade in terms of corporate work, for example, and you don’t really need to have an on-the-ground-presence – at least that is my impression on regulatory work in Bosnia or Montenegro. Naturally, when it comes to litigation you do need local expertise, and that’s when it comes down to business considerations in my view.” He added: “Expanding beyond ex-Yugoslavia is a different story, and I am very interested as to how this will go down for Karanovic & Nikolic. It is definitely a pilot, and I wish them good luck with it. If this proves to be possible, it’ll likely give courage to others to take similar steps.”
Beyond The Classics
A couple of other developing trends in the market were discussed, including the development of corporate law firms into new areas. Lopicic noted that litigation, for instance, is becoming increasingly important for corporate lawyers and firms. “Most corporate law firms used to have very small litigation teams, if at all, in the past. With regulations becoming more and more complex and with an increasing number of disputes, traditional litigators are having a hard time following the latest developments and responding to client demands. As a result, our firms, often specialized in practice groups, are increasingly more efficient and better positioned to represent clients in such complex disputes. This was a boost in building litigation practices in corporate law firms in Serbia.”
The other trend involves moving into forms of consultancy beyond legal. “Multi-disciplinary practices are definitely something that is coming up,” Gecic said, explaining that although there are definitely still some regulatory and bar challenges in place in Serbia, this is a trend that has been happening in the UK for the last 20-30 years, has taken life in CEE, and is slowly emerging in Serbia as well. He added: “the big accounting firms have been trying to re-establish their legal practices, or already have, and the question now is not if this will take place, but what it will look like.” Petakovic agreed and said that his firm in fact has been building up a tax practice, among others, for that very reason: “We have been building the same thing. We saw the Big Four and thought, ‘We need the same input,’ and have made sure that we have not just accounting specialists, but also tech and financial advisors. It is not a core business for sure – nor am I sure if it should be.” Zavisin suggested that “when it comes to sophisticated deals you always will need the Big Four,” but Petakovic wasn’t so sure. “It depends on whether there is an international dimension only really – if that’s the case, your offering would be in a place to cater to that anyway. ”
And Petakovic was not the only one to report developing complementary practices. Zivkovic noted that his colleagues at Zivkovic | Samardzic also “have observed this trend and have built up Z&S Tax as a response to a demand that came from the clients’ side.” Gecic mentioned that his firm has an EU consultancy arm working as well, but he emphasized that, like all the others, it is not yet a core component of the business, and that his firm has “been doing this on a case-by-case basis.” One thing is sure, said Zivkovic, irrespective of the direction and extent of focus dedicated to these new consultancy areas: “A one-stop-shop approach is no longer just about legal advice.”
Regardless of the approach, the consensus at the table was that there is plenty of room to grow and experiment in the market. Drawing from her firm’s decision to focus on building a small team, Zavisin commented: “Our choice proved to be right so far. I believe there is a future not just for us but also competitors who will create these additional service offerings. We are focused on business advice; we know the trends; we know it is not a pure legalistic approach that clients care for but a business approach and are comfortable with our model. We don’t feel threatened by big firms reaching out into new spheres. There are, and always will be, so many clients that are looking for our type of advisory service. Of course, we have a specific feel, require a specific management approach, and this is risky in its own right, since if you are running a small team you need to run it with a lot of personal attention, rather than throwing other bodies at an issue. The essence is to also like what you are doing, not just survive it based on what everyone else is doing.”
Kojovic agreed, adding: “Indeed, it is truly important to like what you are doing. So many trends and fancy words fly everywhere, but you simply need to decide what you want to be doing and to live your approach. There is definitely enough room for all of us and for different approaches. What I think is important in the modern business of law is not to forget that, at the end of the day, we are lawyers. We are certainly not those ‘traditional’ lawyers with a plate on the door saying ‘I receive clients between noon to five.’ We are in a sort of partnership with our clients. We are business people, but we must not forget that the clients want us because of our specific expertise that adds value to their business, and we need to keep certain distance (in a good way).”
Regardless of the direction, the market’s progress was undisputed. Simic concluded the discussion: “I am generally just satisfied that the market had developed. Not so long ago, we had a lady supporting us in Bosnia that did not have a scanner and during the summer her office was closed. I’m happy that the standard is ages away from this, to the point where I don’t have to look out for such things.”
At this point the Round Table drew to a close. We’d like to thank BDK Advokati for hosting the engaging and informative event, and we look forward to reconvening next year.
Round Table Attendees:
- Host: Tijana Kojovic; Managing Partner (BDK Advokati)
- Bogdan Gecic; Managing Partner (Gecic Law)
- Branislav Zivkovic; Managing Partner (Zivkovic |Samardzic)
- Luka Lopicic; Partner (Moravcevic,Vojnovic and Partners in cooperation with Schoenherr)
- Natasa Zavisin; Partner (Zavisin Semiz i Partneri (ZSP))
- Rastko Petakovic; Partner (Karanovic & Nikolic)
- Sandra Simic; Head of Legal Department and Compliance Officer (Henkel Srbija)
This Article was originally published in Issue 2.2. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.