On July 18, 2017, an elite selection of Baltic legal experts from both the private practice and in-house worlds gathered at Cobalt’s Riga office for an in-depth discussion about the Baltic legal markets.
Round Table Participants:
- Dace Silava-Tomsone, Managing Partner, Cobalt Latvia (Host)
- Eva Berlaus, Managing Partner, Sorainen Latvia
- Aivis Dzenis, Senior Partner, Skrastins & Dzenis
- Ivars Grunte, Managing Partner, TGS Baltic Latvia
- Karl Paadam, Managing Partner, PWC Legal Central and
- Eastern Europe
- Girts Ruda, General Counsel, RB Rail AS
- Raimonds Slaidins, Ellex Klavins
- Ilze Slakota, General Counsel, UralChem
CEELM: First: how’s business? I know that 2016 was really good all over the Baltics, as it was across CEE. But we’ve heard from some in other markets that the first half of this year was surprisingly slow in M&A transactions, and things only kicked into high gear recently. Is that happening here too?
Ellex: I think that’s a pretty fair description. The year started out a bit slower, and I think towards the end of spring and the beginning of summer there has been a lot more activity. I work with the M&A group at our firm – the transactions group in our office – and we’ve got a number of things that are going on potentially, but not moving as fast as we thought they would. Some things are stalled, some things are happening, so it’s hard to know exactly how much of that will flesh out and become actual transactions. But it does seem that there is more activity in the spring and the beginning of summer this year.
CEELM: And it was slower than you expected at the beginning of the year?
Ellex: I don’t know if it was slower than expected, but it was slower than it was last year.
CEELM: Why do you think it’s picking up now?
Ellex: I don’t know, that’s a good question. I guess it could be a variety of different things: The whole economic situation in Europe; a more positive feeling with regards to the latest elections. These types of things, perhaps. And the Baltics are economically doing pretty well. So I think those could be some of the reasons.
Cobalt: Of course, it can differ from office to office, but in general, the feeling in our firm is that this year is at least as good as 2016, so we have not felt a slow start. I think it has been pretty much even throughout the year. And we do not see anything different approaching.
Sorainen: For us, the beginning of the year was surprisingly good actually. The first quarter was really good. Then, maybe the second quarter was a bit slower; after the beginning of the year, it seemed like it slowed down. But now the pipeline is good, and it seems like a pretty active summer. At least as good as 2016.
CEELM: Karl, what about you? You’re here from Estonia, but you presumably know about the whole Baltic region.
PWC: I work mainly with our technology and financial services clients, so from that perspective it’s been really good. Regulation on financial services is getting tougher and tougher across EU and that’s generating a lot of work for us. There’s a new data protection law which everyone’s working on, so this has created a very good stable base – actually, 2017 has been absolutely spectacular for us.
Skrastins & Dzenis: I would say for us it’s business as usual. We are involved in litigation heavily, and this happens all the time – it just keeps going. So it’s business as usual.
Rail Baltic: Usually July is the time when everybody looks at the Estonian market, because that’s the time when the financial figures should come out for Estonian law firms. Karl, have you seen the data already? And compared to last year, the year before, has the Estonian market been growing for larger law firms?
PWC: It’s been growing for everybody, actually, by about 10-20%, so it looks really good. I think all the top firms grew, and generally speaking, yes, it seems to be on a climb.
CEELM: Everybody we’ve talked to says that the GDPR has been just wonderful for law firm business in Europe. Are you all doing a lot of that work as well, helping the firms prepare for the new regulation?
PWC: Everybody who’s consumer-facing or has a consumer-facing unit or development in or even outside the EU has to prepare for this, so our law firms, for example, even outside the EU are working on it.
Cobalt: I can confirm that data protection is very topical at the moment, and there are a lot of inquiries from clients, and I think what is interesting is that we see a lot of cross-border assignments in data protection with companies asking us to help them on a pan-Baltic scale at least, if not beyond. So our IP group is still putting a lot of effort into assembling tenders for those assignments, and hopefully getting their fair share of them.
Sorainen: Five years ago you couldn’t imagine that data protection could be such a meaningful practice, but now it’s definitely going in that direction.
CEELM: Is real estate doing well?
Cobalt: Real estate is picking up because of new EU funds available, and there is a lot of work on large development projects.
CEELM: Residential or commercial?
Cobalt: Commercial, and public projects – there’s a lot of other things also going on, construction-wise. There’s a lot going on.
Ellex: I think there is a lot going on in Latvia in real estate, and I know Lithuania’s been going crazy with real estate the last year or so as well. It’s been really hot, as far as I understand. Latvia’s been picking up also. I imagine Estonia is the same.
PWC: Yes, pretty much, Lithuania especially, real estate’s been really crazy, but M&A as well, things have been pretty hot.
Sorainen: You can really see that real estate is picking up compared to two or three years ago, and that the objects are getting larger. It means that there is a positive sentiment in the market as far as the upcoming five to seven years go.
Cobalt: From my perspective we see more investors in real estate; what’s lacking, at least for Latvia, is a good local developer base to create the assets for sale. That is something which is missing here.
PWC: What we hear from real estate clients in Estonia is that the Estonian market seems to have been bought up, pretty much, and everyone’s in place, so if they’re not in the process of exiting from their assets, then they’re looking more towards Latvia or Lithuania – bigger countries – and, especially in Lithuania, they’re looking into “B” cities, so to speak. I think this is kind of a new trend.
CEELM: The B cities meaning not Vilnius.
PWC: Yes. And they’re looking outside the Baltics as well. Poland has been quite interesting for Baltic investors for a long time, but there’s a hell of a lot of competition around these things.
CEELM: Any other sectors that are worth noting, that you’ve seen really booming?
Sorainen: Finance. There’s always something going on.
PWC: But especially financial services regulatory.
Sorainen: Yes. Both M&A and financial services regulatory. We have been dealing with a lot of local banks experiencing a lot of pressure because of regulatory issues. This creates a lot of work.
CEELM: How sophisticated are these markets in terms of clients? Are they just pushing for lower fees, or are you finding clients comfortable paying the fees you require?
Ellex: I think most of the clients we get are fee-sensitive, and we have a lot of discussions about fees. There are a few strategics who are ready to pays somewhat beyond the stated fees that we have, but there’s a lot of discussion about fees with most any transaction, or any deal we’re involved in.
Cobalt: The same. Of course there are always those assignments which are extremely important for certain clients, and on those you have less fee pressure compared to, say, the general situation, so basically the firm is lucky if it gets a sizable assignment which is essential for the client. Other than that I think we are all constantly in talks about fees.
CEELM: There’s of course not one market where lawyers don’t complain that clients don’t want to pay the fees, but I wonder, are you particularly frustrated in the Baltics, or is this just the inevitable wish that fee pressure was less?
Ellex: We’re frustrated. I don’t know how to compare it to other regions, I guess, but we’re frustrated.
Sorainen: I would say that what I look for is balance. You have local clients who are always more cost-sensitive, the farther you go, and of course everybody also has foreign investor clients who are cost-sensitive, but there’s more chance that if there’s a greater relationship, that this will at one point mean you won’t have to discuss so much what the price is. What I say to my partners is, if they are getting frustrated it means we are going for the wrong direction.
CEELM: Are you finding less pressure than you did two or three years ago, or four or five years ago, or is it just the same phenomenon always?
Sorainen: I think it’s more or less the same.
Cobalt: I must say that it’s less than it was three years ago.
Ellex: Yes, during the crisis, of course, that was a whole different ball game. So I guess it has eased off a little bit.
Sorainen: We managed to forget it so fast
Ellex: But still, I think that all the pressure about fees, and fee discussions, and estimates, and caps, and all the rest of it came in very strongly at that time and hasn’t really left. It’s a continual discussion. I’m pretty much ready with any client coming in the door, that we’re going to have this discussion. I can’t say I’m extremely frustrated by it, but it is a part of everyday life.
CEELM: What about from the client side? Ilze, what are your thoughts on the fees that you are facing? Are you getting pressure from your bosses to keep them lower?
Uralchem: Yes, a lot, actually. Of course, we are always want to keep them lower. But also, we are a Russia-based business, so the company expects it to be very cheap in Riga compared to Moscow.
Ellex: Because Moscow fees are so high.
Uralchem: Yes, and compared to Moscow, everything is very cheap here: coffee and lawyers. (laughs). That’s what I keep on pushing against. I’ve been with Uralchem for eight years, and I feel constant pressure, but it’s getting a little bit better, because they’re starting to understand that they are not being fooled. But usually the projects which appear are very last-moment ones, so we are always short on time, and in Russia, the deadline is always yesterday, so we don’t have much time to negotiate fees, and we try to be very efficient and fast. And if you need to receive the same quality, for example, with Riga’s best law firms, it’s also very expensive.
CEELM: But I would think that the fact that fees in Moscow are much higher than in the Baltics would mean that your bosses would be delighted at the fees they’re being asked to pay.
Uralchem: You are very right, but actually, what is interesting about Moscow people is that they’re always cautious and suspicious, and they think that they’re being fooled all the time, because – well. I’m not getting deeper into this. (laughter). So they expect that all fees which are being proposed by Riga, for example, are by default higher for them because they’re from Moscow. So they always want to cut 30-40%, which is not an easy task for me to complete sometimes. Still, I need to remind them often that quality is the most important thing, and we’d better stick to that.
CEELM: So you’re fighting with both sides, you fight with the firm to lower fees, and with your company to raise their expectations.
Uralchem: Oh I am, yes. It’s not easy, actually; it’s quite challenging.
CEELM: Girts, what do you think about the sophistication of the legal services you’re receiving?
Rail Baltic: I have sat in several chairs recently, meaning that I have been in private practice, and am now moving towards the client side – and at the same time I’m also just finished my MBA studies, so I can see things from the financial perspective – and when law firms complain that they’re being asked to cut fees too much, my observation is, first of all, do we all have regular and understandable data, both from the cost side and income side? What is the basic rate we need to sell? And I believe there are still firms in the market who are struggling every month to identify where their business is coming from. And the second issue is probably to monitor the market and to follow and analyze for yourselves where do you want to be: do you want to be a very expensive firm, a cheap firm, do you want to be in the middle, do you want to work with this or that client?
And then I think that what we are still lacking – which is actually less to do with the rates – is to train maybe not partner-level but next-level people to talk with clients to get out information about what is necessary for the clients and then, on the basis of that, to be ready to propose the fees.
Now, having now been with the Rail Baltic project for half a year, I can tell you as an example that our shareholders and our owners are basically looking at fees in comparison with the public sector, so whenever you come with anything above, I don’t know, 50 euros per hour, that’s extremely expensive. So that’s the starting point.
Because of the public procurement law requirements, we are, I believe, among the first clients who are organizing a proper legal panel in Latvia, and in the Baltic states, and we are looking not only for fees, we are looking – first of all we need team and experience, at each seniority level, because ours is such a unique project that we really need the brightest minds to be on our side. The second one is that we are looking for a blended rate, simply because it’s easier for us to manage. I know law firms could have ten different rate levels, but for me to check all the ten levels is simply too difficult. And then the third thing that we are actually asking in our panel is, can you suggest any innovation where you will become more efficient, and we can at the same time become more efficient? So we believe that if there is actual cooperation between both parties we can move forward – and I believe there are some projects where we for sure are still profitable for firms, even with lower rates, and with some projects, maybe not.
There’s no longer one unified legal service in the market. There are complex issues and complex matters, and there are standard issues and standard matters. And standard matters, usually, we are moving in-house, as there is no point for us to go and ask for something outside. And then the complex ones are the ones we are looking for help with, and immediately apply for 24/7 access.
Uralchem: That’s what we actually do, the same. But in terms of fees, we are still better.
CEELM: Switching subjects, is the increased commoditization of the law an issue for you guys yet, or not so much?
Rail Baltic: I think the market has shown, at least on general corporate matters, that something you would ten years ago charge a client quite a nice sum of money for, today you can do in-house within an hour, because the state has provided all the tools, and it’s not that difficult anymore for well-established companies. I think this standard situation comes from all the digital advancement. And this is again an issue for every law firm: knowledge management. How do you put things together and try to package them and be more efficient in order to provide cheaper fees for the client?
Cobalt: There is probably not so much pressure from outside as there is, I would say, a certain transformation of the thinking within the firms. Ten or more years ago there were certain areas which transactional lawyers or banking lawyers looked at from above, you know, like employment or IP, and which seemed like small practices which do not generate equal profit to some other areas, but nowadays I think we have begun to recognize that sometimes you can sell work in thse small areas even more profitably than big M&A.
CEELM: Yes, or due diligence.
Cobalt: Yes, which has become a commodity, and that’s where you feel this terrible price pressure.
Rail Baltic: I think that it’s a bit lighter picture, but the term I used to see is unbundling of services, that basically nowadays you can split both court cases and transactions into smaller pieces, and then the clients can do them themselves, or law firms would also say this part is something that can be done cheaper and faster maybe by some outsourced person, and this is where our unique experience comes in, this is what we will sell. This is happening, and in our experience what it actually means is that there might be some cases where we invite and we need support from two independent law firms, where they are required to cooperate between themselves, because of the time pressure on the issues we ask them to support us on, and so what happens is that actually you sometimes now need to look at the market and to the people around the table not as only as competitors, but also as the ones who helping the client.
So services are becoming different; you unbundle them and then you need to actually cooperate with different lawyers on different transactions.
Uralchem: If I can add, just on the subject, there is one area which we really need to get services in, and until now we haven’t gotten them in the Baltics, and this is marine law, shipping. We cannot get these services here, or at least I haven’t heard about them, because it’s mostly international, English law.
CEELM: You mean the firms don’t have the expertise you need here?
Uralchem: Well, I haven’t experienced it here, at least. Maybe they do have it, but I haven’t heard about it. Usually everyone has commercial law, banking, M&A, and so on, but shipping and marine law is essential for us, and we ship huge amounts of product, and related issues usually are very specific, very difficult, and very niche and unique. And there are actually huge amounts of money in marine law, because English lawyers are very very expensive – like the most expensive ones I ever worked with, with their P&I costs. Of course they need their P&I cover to support us, and to have the weight in the market to protect us – but there are very often issues which have to be solved here, because we ship from here, and because we are located here, and we deal with them here. Of course the firms here communicate with British lawyers themselves, but it’s very expensive, so I see here maybe an opportunity. There’s no competition there. The British firms compete among themselves, but they’re all expensive, so it doesn’t matter to me, you know. This one is expensive or that one is expensive – whatever.
CEELM: If there’s one defining characteristic of the Baltic law firm markets in recent years, it would be the significant reshuffling of the markets, and the formation (and reformation) of the pan-Baltic alliances, along with the various levels of integration that firms either have or claim to have. Ivars, TGS Baltic has been involved with many of those changes. Is that process over, or is it still happening?
TGS Baltic: This process is happening all the time. Sometimes it’s just because a firm in one market is dissolving, so the firms they were partnering with in the other two Baltic markets have to seek a new partner. Actually, I think in the Baltic markets only Sorainen is fully integrated. The rest are not.
PWC: We’re also fully integrated, across CEE.
TGS Baltic: Okay. But the rest of the firms are mostly very closely cooperating, and so the issue is whether, maybe, one firm is becoming unstable, dissolving, so you have to find a new partner. The other situation is that maybe two partners are finding that their partner in the third market is maybe not so good, and then they’re trying to change. It all the time comes from Estonia. But the outcome of these reshufflings has been very good.
These are the two main points, and then the third point is that the competition is really really very tough here. So, okay we can speak of the top three, four, five firms, or whatever, but the competition is very hard.
CEELM: What do you mean when you say the competition is really hard? For deals, you mean?
TGS Baltic: Absolutely. Because the market is very small. I’m speaking about Latvia. The market is small, and we have a good top maybe five, six, seven firms who are ready to grab everything in this market, so it’s very tough. Therefore, as Girts said, the good clients need the brightest minds, but the brightest minds are not cheap.
Ellex: I think the reshuffling has settled down a bit now, although there’s still something going on in Estonia, isn’t there? It seems like there’s still some activity there. I think about five to seven years ago is when the Baltic markets were really stable, not much was going on, and then for various reasons there was all this activity, and I think now again it seems to be settling down.
CEELM: You think it’s stabilizing a little bit?
Ellex: I think. You never know.
TGS Baltic: You never know. The one thing of course is the small mergers of, say, one firm with another big and full-service firm, with maybe a not-so-good real estate department, which in turn maybe tries to acquire some smaller firm. This is a question, because the smaller firms are also sometimes very good, in their niche, very profitable, and they are not always wanting to join somebody.
CEELM: At the top, things seem to have stabilized a little bit, and there’s also this trend toward pan-Baltic alliances. A lot of the individual firms are tying up. Derling appeared in the last year or two, for instance, and the Leadell Pilv alliance. Aivis, you guys are still independent, but you work in cooperation with a firm in Lithuania, right?
Skrastins & Dzenis: Yes, for ten years we have had an alliance with a Lithuanian firm, Motieka & Audzevicius. And then just recently we changed our Estonian partner and started cooperating with the Tark law firm, which was the former Estonian member of Tark, Grunte, Sutkiene.
TGS Baltic: They’re nice guys. They are a little bit small, but if they grow ...
Skrastins & Dzenis: For us this is the perfect size, because we have exactly the same number of people they have. Just at the beginning of the year we decided to finish cooperating with our previous Estonian partner and to start with this new one.
CEELM: Is there a sense that you guys are going to form a brand?
Skrastins & Dzenis: No. This is not an issue. We are just cooperating on business matters, and filling client needs, but no joint venture, at least for now.
PWC: There are three things that I see, personally. If you look at ten years ago, the alliances that were made in the Baltics were very closely tied to Scandinavia, because that’s where the business comes from, so on one hand the lawyers discovered that maybe it didn’t make sense to have your own law firm in Sweden and Finland if you want to work with all the law firms in Finland and Sweden, so that’s what most of us do, right? So I think that’s one of the reasons why maybe Glimstedt, for instance, doesn’t work so well as a Scandinavian or Sweden-based firm in the Baltics. As you know, we acquired most of the Estonian team this year from Glimstedt, and they’re fantastic lawyers and they were the founders of that firm in Estonia and we’re really happy to be working with them.
The second thing is a generational shift, so you see law firms like Fort, Primus, coming into the picture, and they’re lawyers from a new generation who have a chance to make it in the Baltic market, which is important, so we tend to work a little bit differently, maybe.
And the third thing, which I represent, obviously, is the multidisciplinary approach. International and multidisciplinary. We see clients working more and more cross-border, and at PWC we can serve them across 90 countries in the world. That’s a big advantage. And in the Baltics there is still not a lot of international law firm activity here on the market, so it’s been really good for us.
Rail Baltic: The one thing is that for larger clients – we still believe that the market, the largest firms in the market are too small. If you come with an urgent matter, and are of big size, I think law firms are still struggling. So there is not enough diversity. And there are several reasons. The first one is that lawyers are a conservative profession, and more than 40% are still individual practitioners in any of the Baltic countries.
PWC: That’s more Latvia more than anything else. But that’s my personal opinion.
Rail Baltic: Okay. Whether it is 40% or 50%, I feel, doesn’t make a difference; half of the market is working alone.
The other reason is that … the biggest Latvian law firm is, what, half of Lithuanian size? So there is something in the mindset a little bit about the local market as well.
And then finally when it comes to clients, maybe sometimes there is a specific niche experience and knowledge that you would look for, but generally for the big projects and big clients, we really are looking for a firm who can easily service us in three or four or five practice areas, at a very good level in each of them. So that means that we are actually looking for the largest law firms in the market.
CEELM: So you need size.
Rail Baltic: Both size, and the experience that comes with it. And that is where the larger firms come into play. If you read about other markets, you see that two or three or four large law firms are growing enormously, and then somewhere in between, in the middle, they are starting to struggle. So that might be how things work out in our market as well, because at the end of the day for the client the question is, “How are you different? Where is the differentiation?” So that’s a question that is important for us, for the clients.
Sorainen: The other basis is that the larger projects coming from larger clients and cross-border … yes, we are the only integrated firm in the Baltics, but we are still investing a lot of time to improve that even further, to collaborate even more. It works well now insofar as cross-border, and now, to become even better, we’re putting our efforts into improving our cross-discipline service as well.
Rail Baltic: I could give you an example. We just asked for a law firm’s advice – not anyone at this table – through their Latvian office to their Lithuanian office. And I expected that the quality of the answer and service would be the same as in Latvia as in Lithuania, otherwise what’s the point? I would just go and ask somebody else there to support us. And what we really got was actually very poor service, and the advice we needed, for whatever reason, arrived one week later, and when we started to make calls and following up to ask what’s happening, et cetera, we were told that the person working on it had just left the company. So when you say that you have a pan-Baltic operation it means not only that you have one logo and you have three addresses on your business card, but actually that you provide the same seamless service in each of the countries, and this is where probably firms have still a way to go in improving. That’s my experience, just recently.
CEELM: Why are so few firms here genuinely integrated? Is there a legal reason, is there a regulatory reason, or is it simply people protecting their profits?
Cobalt: I think there are some regulatory reasons, but mainly it’s the fact that Sorainen is probably the only firm which has grown organically, as opposed to the other firms, which basically grew to a certain level as independent legal firms on the market before combining with firms from other markets. In such cases it can be more difficult to become integrated.
Sorainen: Yes, for us was has always been the same model. There has never been a need to go to another very well-established local firm, and then to start integrating. If you do it greenfield as Sorainen has been doing, it is just much easier.
Rail Baltic: You can also see it in the global firms, some of which have a common pool, and some who organized under Swiss or whatever law, so basically cooperating. The same thing’s happening here.
Ellex: Honestly, yes, we explored a merger of three firms and did get into difficult issues, so then we just decided, let’s put all our emphasis on being able to work together and making that as seamless as possible, and we concluded we could do that just as well without the merger aspect, and let’s just get going on that.
CEELM: So there’s not that much pressure to change your strategy.
Rail Baltic: As long as the service is there, I think for the clients it doesn’t matter which service, with which service provider you are actually dealing with directly, whether Lithuanian, or Estonian, or Latvian.
CEELM: There are very few internationals in the Baltics – it’s mainly the Big Four and Eversheds. Why is that?
PWC: I think the first part of the answer is that it’s quite expensive to run a law firm in a small country where the fees are quite low, so if you look at the Magic Circle firms, I think it wouldn’t make sense from an economic perspective. I think that has been the rationale, but I’m not certain. Meanwhile, for us it’s been really phenomenal, because there’s a lot of technology companies moving out of Estonia and Lithuania, especially, but Latvia as well. We are really one of the few firms they talk to, so we export a lot from the Baltics, especially. But also in the inbound work obviously is dependent on our law firms across the world.
CEELM: There are also regional European firms with large presences across CEE. Have any of those firms ever suggested that you tie up with them in some capacity?
Sorainen: Well there has been actually some interest in some discussions, not so clearly defined, but I could confirm that yes, there is some interest. But I would say that it has been not too serious, because of the reasons Karl mentioned. But I think, because the Baltic markets are growing, I see – at least from my perspective, sitting in my office – that there is more interest now, during the past year, frankly from those international firms, and they are starting to notice this market much more. That interest could result in some of them entering the market, maybe not today, but in two or three years, if it continues the same way, following the economic growth. For those internationals this market might start getting interesting and we might see some more soon.
Cobalt: I think there have been some four or five international firms shopping around. It’s fair to say that these are second or third tier firms, which are not particularly interesting for locals – and I think first tier firms may never be interested in our jurisdictions, regardless of how well it goes.
Ellex: Yes, we’re protected by the size of our jurisdictions, in essence.
CEELM: Some of the Bar Associations in Central and Eastern Europe are very conservative, both about law firm marketing and about international firms wanting to open up offices there. How are the Bar Associations in Latvia and across the Baltics? What’s your take on this?
TGS Baltic: I’ve been a council member since 1993, so 24 years. We also do not allow everything.
CEELM: Are firms allowed to advertise?
TGS Baltic: Yes, sure. But we have an ethics code: firms can’t advertise that they are better than the rest. There are some such things which they have to follow, but generally …
Rail Baltic: I would guess that the Estonian bar is the most advanced in the sense that their representatives are always split, so that there are some members coming from individual practices and some from larger law firms. And the Estonian Bar, with regard to the topics you mentioned, is much more advanced than what I hear about the Latvian bar. I know Lithuania has recently moved into being a more professionally-managed body, and Latvia is as well, but I think that there is still room to improve.
TGS Baltic: There’s still room, yes, but we have a new president, who is younger than the former ones, and of course now we have to do something in the Bar to manage properly these things like the secretary-general and so on – the responsibilities of the presidency, and so on.
CEELM: Are there any significant disputes going on in the Bar, or are things pretty calm?
Sorainen: The biggest discussion, I think, and the most important, is how to modernize the bar association and what is the right form of attorney offices. This has been quite a hot topic for the past two or three years. There’s also an ongoing and related discussion about how attorney offices should be taxed.
TGS Baltic: But of course it depends on the authorities, like the Ministry of Justice, Ministry of Finance, and so on and so forth. From outside maybe we would be happy to use the Estonian model of a limited liability company, but I think that that’s not the best form for Latvia.
Sorainen: And in that discussion, how the interests of larger firms are aligned with and solo practitioners or smaller firms, that is quite an issue. But the other thing for the Latvian Bar Association is to realize that law is a business, with all the consequences of that. It needs to be modern and it needs to be up-to-date and not to live with beliefs from the 19th century.
TGS Baltic: Yes, that’s great, but the law is the law, it’s a practice, it’s not just a profession, like standing somewhere and selling something. Lawyers would be happy of course to be entrepreneurs but I think that the limits would be set in the specific law.
CEELM: What are the big issues and challenges you’re facing?
Ellex: I think the aspect that’s being talked about but hasn’t really hit our market that much right now is digitalization and what’s going on in terms of all the software and robotics and all these types of things. We’re listening to all this and hearing what’s going on with these things, and that’s certainly obviously something to watch throughout the world in the legal profession, and it’s going to hit us to some extent also.
CEELM: Are you at Ellex making any formal effort to stay on top of technological developments?
Ellex: Yes, to the extent we can, to the extent we can afford it. We’re trying to get the best technology that we can, within limits. Obviously, we can’t afford robotics at this point, but we’re letting our London colleagues and other people go through that, and I understand Scandinavian firms are experimenting with it as well. We’ll see how all that goes and how much that filters down to us. There’s just a limit as to what we can do in terms of resources, in terms of what makes sense.
Cobalt: I would say that we would be happy to see a certain growth and flexibility on the side of the clients also towards purchasing of legal services. At the moment one phenomenon which we’re observing are client demands for exclusivity, which are very problematic on these small markets. I think that this is a hot topic here and I think that clients really cannot hope to have the best advisers if they try to keep them all to themselves. To have very highly specialized lawyers who are allowed to work only with one client – that’s not going to happen. If a lawyer is precluded from serving a number of clients, there is simply too little work to gain deep expertise and survive financially. And I think that’s something that clients have probably not realized yet.
Sorainen: Which is probably acceptable in a larger market.
Cobalt: Clients are attempting to demand various exclusivity arrangements, and that would be one piece of advice to clients: don’t do it!
Uralchem: Why do they do it?
Cobalt: Well, if you are, say, a confectionary producer, you don’t want to see that your regulatory work is done by somebody who does this work for another company running the same type of business. But then where do lawyers gain their experience and how do they become specialized? I think that goes to your question about shipping law earlier, too: if it’s a small market there is simply no place to develop your expertise.
Rail Baltic: I guess the issue is that in terms of audit and accountancy, there is no such big conflict of interest, whereas on the legal side, conflict of interest considerations and all these exclusivity requirements come immediately, so that actually they are struggling between flexibility and non-flexibility, no? For other businesses – for the accountancy business, for instance – conflict of interest is mot such a huge thing. You provide your service to one client and then you provide your service to another client, and there is no problem. But when it comes to lawyers you immediately need to check whatever you have done for the last ten or twenty years against this or that person and then everybody else.
PWC: I really can’t comment on the audit business, but sure, I guess that goes for all lawyers, I mean it is a small market issue with exclusivity. However, we have seen that, especially in regulatory, in banking and finance, it’s not really an issue at all. So even if sometimes you have clients who are competing quite fiercely against each other, they would still choose to work with us because they know that we have a lot of experience in this market. So we are able to kind of silo ourselves and position ourselves, being open about our relationships.
Cobalt: The banking industry is probably one of the few which has outgrown this issue. We faced a real difficulty with the banking industry back in 2008, when everybody tried to create a panel consisting of all top firms, saying, “you will work exclusively for us and you will never work against us, because it’s a commercial conflict.” And at the end of the day firms were forced to say, “no, that’s not going to happen. For 10,000 euros per year you cannot get our promise to work exclusively with you and never against you.” And the banking industry’s over it now, but I can, right now, name at least five or six industries which are extremely “jealous”, and unwilling to see their counsel working on the side of their competitors – but in those small jurisdictions it’s not good for the businesses themselves, ironically.
TGS Baltic: Speaking of banks: technologies are growing, in my experience, from the 90s up to now, and this is a big big big issue. I have heard that in England, some banks, if they are selecting law firms in a tender, require that the law firm allow the bank to look at its billing system. So if the law firm wins a tender, the bank has access to its billing system, and they look at how many hours they have spent, to see if it is accurately reflected it its bills. They would like to supervise everything.
And this is new technology, and if you don’t accept it, okay, there are many other law firms who would like to participate. And the result, of course, is that they are cutting costs, because they saw that, okay, this lawyer, he spent ten hours yesterday, but for this small matter. I don’t like this trend of supervision.
Rail Baltic: And then one thing that I’m seeing as still missing that lawyers and law firms can improve is probably that we are very good in legal skills, but we are still struggling a lot with all sorts of non-legal skills, starting from management, running law firms as a business, and down to students who are not used even to working in teams – you would go and assign tasks to new lawyers to work in three or four person teams, they would see it as extremely difficult. So when they join law firms, you need to actually train them to communicate, and you need to understand what marketing, sales, management, and financial management are. I think we still see lawyers as people who understand how to read law, and anything else as just an added benefit, but this is something that I think that university and law firms are still facing as a big issue.
CEELM: Are you contrasting that to giving good commercial advice? That is, this traditional dichotomy between lawyers who say, “You can do this” or “You can’t do this,” versus lawyers who say, “I will help you find a way to do this”?
Rail Baltic: Sure. I mean, if I were to ask any of my colleagues for advice, the last thing that I would expect is for someone to write two pages citing whatever law and saying, “this is what law says.” What can I do with that? So when it comes to talking with clients, what are the matters that they need help with – and the same is true even with this pricing issue.
Sorainen: I think I would add that what this market should see in the next few years is more serious sector specialization, and business sectors rather than legal practice. And this is the difference between the Baltic market and, say, the UK and other jurisdictions, because they’re much more advanced. Of course, because of the small size of these markets, we won’t have in-sector specialization in all the business areas right away, but the largest business areas are the same. Banking and a few others. And from clients, there’s a big demand that you form deep teams in a different way and that you manage knowledge in a different way than we have been doing it.
Rail Baltic: Put another way, this commercial approach is: Where do you add value for the client? I mean, apart from your brand and your experience.
Note: The editors of CEE Legal Matters would like to thank Dace Silava-Tomsone and her colleagues at Cobalt for their hospitality in offering to host the Round Table.
This Article was originally published in Issue 4.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.