On the evening of December 8, 2016, at the Hotel Bristol in Warsaw, CEE Legal Matters hosted the 2016 Expert Summit – our annual gathering of experts from across the region to discuss the state of affairs in CEE Legal Markets.
2016 Expert Summit Attendees included:
- Panagiotis Drakopoulos, Managing Partner, Drakopoulos, Greece
- Besnik Duraj, Managing Partner, Drakopoulos, Albania
- Horst Ebhardt, Partner, Wolf Theiss, Austria
- Patricia Gannon, Partner, Karanovic & Nikolic, Serbia
- Ron Given, Co-Managing Partner, Wolf Theiss, Poland
- Judith Gliniecki, General Counsel, CEE Equity Partners
- Christophe Huet, Partner, CMS, Russia
- Uros Ilic, Managing Partner, ODI Law, Slovenia
- George Roukov, Head of International Business Development, Credissimo PLC
- Mykola Stetsenko, Managing Partner, Avellum, Ukraine
- Ilko Stoyanov, Partner, Schoenherr, Bulgaria
Market-by-Market Status Report
CEELM: We thought we’d start, as always, with updates from around CEE. Ron, since we’re here in Poland, we’ll start with you. How’s business here?
Ron: Good. I think from an annual perspective, probably the deal count is down from last year, but last year was a very good year. However, deal volume, we find, is up. For us, this continues to be a very nice market. There are issues in this country. We haven’t seen a negative effect of the governmental changes on our own business, but there’s lots and lots and lots of talk about that. In contrast to many markets that Wolf Theiss is in, this is a country that continues to have genuine growth, and that’s good for the legal business.
CEELM: Christophe, how are things in Russia?
Christophe: I would be lying if I said that 2016 was a good year for Russia. But looking back at the year, whereas we all were fearing 2016 due to the financial crisis, the currency crisis, the drop in oil prices, and the sanctions imposed by the West, what we can see at the end of 2016 is that this year, while quite difficult, qualified as a transition year, and we hope for a better 2017. If I look at all the law firms in Russia, we’re all trying to survive this year, we try to stay in the market, grab all possible transactions, and hope for the best for 2017. There are some encouraging signs, and now a lot will depend on the international climate, with the new American President. We hope that it will be a good sign and that ...
CEELM: … and that sanctions will be lowered or decreased.
Christophe: Yes. Lifting them entirely will be difficult, but at least decreasing them.
Uros: I’ll be diplomatic and narrow myself only to Ljubljana and Slovenia, otherwise my colleagues from the region will not be able to add anything. We’re stable. We are all happy to see what the Melania effect is going to bring to Slovenia – so far we have seen a tremendous increase in tourism for the time being. The numbers are going up, American tourists are traveling to Slovenia to a wider extent than before. That’s being called the Melania Effect, as Melania Trump, Trump’s wife, is from Slovenia. They are coming to her hometown, where we are now having Melania Cake, Melania Tea, Melania everything. She’s threatening to start legal processes because she thinks that not just Melania Trump but also Melania as a name is protected, and now she’s claiming that these small shops selling cakes cannot sell cake with the name of Melania.
On top of that great effect, transaction-wise, privatization has stopped. Only one privatization of a company still on the famous sixteen-company list will kick off early next year, and then two large Slovenian banks are still to be privatized. Now the government is trying to determine what Brexit means because NLB, the largest Slovenian bank, was supposed to have its IPO and be listed on the London Stock Exchange, but now, because of Brexit, that is being reconsidered. The sales of NPLs that started in Slovenia are now slowly moving south and southeast, so we’re seeing the large Slovenian banks that have sort of sold their Slovenian and Croatian portfolios now in the process of starting to sell their Serbian portfolios. Lending is back, but companies, corporates, and SMEs are very afraid of having too large a leverage, so banks are still in the process of consolidation. There are just simply too many banks for the current demand on the market.
The largest project in 2017 for Slovenia – and not just for that year; it will probably be one of the largest in the decade – will be in infrastructure: the railway inland from Luka Koper. The current capacity can simply not provide enough capacity to satisfy the demand, so that should be around EUR 1 billion and will be the largest project. Because of that, the European Investment Bank opened an office in Slovenia. The Chinese are offering their own money. Some politicians think it’s better to go with the European funds, and the EIB and some countries such as Hungary and others are having a strong interest in supporting and financing that. That’s about it.
Ilko: In Bulgaria, I’m always asked to observe trends and to compare last year to years before, but the truth is that, in relative terms, the Bulgarian economy’s so small that you can’t really say that there is a specific trend to this type of transaction or to that type of transaction. This is true particularly for large-end deals that happen in Bulgaria unexpectedly, so you cannot plan for them. Large deals happen regardless of the economy – these are just good assets that find appropriate buyers. For example, 2016 saw three deals above EUR 100 million in Bulgaria. One was in the banks, another was in the food industry, and the third one was in medicine, in hospitals. If we look at the year before that, there was one large deal in the telecom industry. For me as a lawyer, if you are situated well, maybe a large deal will come to you, but frankly you cannot plan for that. What you can plan, and what has started happening in Bulgaria, is an emerging economy of start-ups and venture-capital investments. I’m keeping my fingers crossed, but if there is any trend in Bulgaria, probably that would be it. But these are smaller deals, the startup deals – they start at the size of EUR 50,000 and they may come up to EUR 10 million, if you’re lucky.
CEELM: There’s also a political crisis at the moment, right?
Ilko: There is no government, currently, so there is actually an opportunity for improvement [laughs]. Historically, when we have an interim government, they engage in more reforms than any elected government would, because an interim government is not so politically entangled, so I wouldn’t necessarily say that not having a government is a bad situation.
CEELM: Horst, how about Austria?
Horst: Austria’s doing fine, it’s in a fairly good place. It has a good economy – it’s not as flamboyant as it was maybe two or three years ago, but it’s still very good. Wolf Theiss is the largest firm in Austria, so we have a strong market position in terms of the M&A environment. The country has had a very good year, a lot of transactions, good transactions, good valuations, deals in the range of EUR 500 to 700 million, some as much as a billion. There’s been consolidation of the banks and real estate companies. There have been some quite significant PE exits, also successful startups. We have just recently helped a client who has built up a company from scratch, – twenty years – sell the company for EUR 170 million to a US PE fund. So the startup business can be very nice. Overall, the environment is very good. I think all law firms in Austria would say they had a good year. It’s going well, and it’s going well on a high level, so I think, looking from year to year, 2015 was a particularly strong year, and 2016 is equally good.
Ron: And you’re making good election choices.
Horst: Yes, for once, we don’t have to be embarrassed.
CEELM: Judith, you’ve got a regional perspective in your role with CEE Equity Partners. What’s your sense, both in Poland and around CEE?
Judith: We’re doing quite a bit of deals. I wouldn’t put such a happy spin on Poland, though. We have wind farm investments, but the new government has decided that coal is a renewable energy source. It takes a couple hundred million years to make it or so, but it is renewable, you know [laughs]. In fact, our limited partners – our main LP being China – take a very high-level view on things, but they actually did ask us, basically, what is happening in Poland this year, which is not a question we’ve had with any other country.
Nevertheless, they committed several years ago to there being a Fund 2, and so there will be a Fund 2, and so we will be looking at investments. Basically, we’re seeing a nice pipeline of deals, and so I think in general we’re looking very positively at the region. That having been said, yes, we are seeing some less-positive areas that we’d hoped would get that much better.
CEELM: Besnik, how’s Albania?
Besnik: How could it be? At the moment, Albania has a lot of issues and problems, with the political sector playing a very important role. It’s the most important factor in the economic and business growth of the country and lately we haven’t had very quiet years. We are also struggling a lot with judicial reform. It’s a very important issue for us and for foreign investors trying to invest in Albania who don’t sense the necessary stability because of all these problems. Of course, everything is generated by the political situation. Political parties cannot get along with each other; they always find small technicalities and problems, just to push the matter of judicial reform even further away. But we are confident, because the international factor is pressing a lot; the US and the EU are pushing for this. The main criterion for Albanian integration to the European Union is judicial reform. Therefore, all involved parties are geared towards this direction. We hope that 2017 will be a better year. Unfortunately, it’s an election year, which means that a lot of projects will be most probably put temporarily on hold. It usually happens like that.
Our firm actually had a satisfying year in 2016, but I’m speaking about the general impression. The legal market and law firms have felt the same. It’s not going as it should, as we want it to go.
CEELM: It sounds like a frustrating place to work.
Besnik: It is, a little bit. But I am very positive that next year will be better, because we’re approaching the deadline of going through this reform, and as soon as it goes through, EU accession negotiations will proceed. And after that, all the projects that investors have kept suspended will resume and we are expecting a lot of work out of that. Other than that, everything else is more or less stable; nothing much to report.
CEELM: Panagiotis, what about Greece?
Panagiotis: Greece is a country with capital controls - it’s been a year and a half now - so it’s difficult to discuss business. I think I said the same phrase last year, unfortunately – that there are no banks, and when there are no banks, there’s no economy; there’s no growth; there’s absolutely no liquidity.
CEELM: They haven’t made progress since last year?
Panagiotis: The general sense is that they’re at the same point exactly, or maybe worse, since a year of capital controls has put a strain on things, and even the NPLs that we discussed last year are still on hold. The problem seems to be that although last year there was at least some work on debt restructuring – which fortunately continued a little bit this year – for the past few months even this has almost come to a stop, because the management in all the banks – the systemic banks – is gradually being changed by our lenders in the European Union, so effectively no decisions are being taken, or they’re being taken very slowly, in a very painstaking manner. It hasn’t been a good year.
As regards the outlook, it is very difficult to predict. It would take something completely out of the box to happen – which could happen, because in a prolonged crisis you expect things that are not predictable to arise – to be our only way to push through the crisis.
We don’t have the issue of rule of law like Albania. And I don’t think that political stability is such a big factor in Greece, where there is always a constant talk about elections and where the crisis, the capital controls, and the MOUs with the lenders have so far already consumed four governments. And maybe there’s a couple more to go, as each government is forced to take unpopular measures. And, of course, on top of its domestic issues, Greece seems to be always in the center of unpleasant things in the EU – take for example the situation in Italy, Brexit, etc.
I believe that law firms react in completely different ways to the crisis. There are law firms that are trying to cope by downsizing or cost cutting or merging, but we chose a different path. In addition to our offices outside Greece, we have also tried to find work in areas where we wouldn’t look before, because margins have changed remarkably. We do a lot more work in international trade and customs, for example, which we didn’t do in the past because traditionally in our jurisdiction this is work done by the customs agents. But if you identify value for the clients, they will come to you. Same goes for IP, and same goes especially for counterfeits or gray imports. We tried to create the work, so we took the work to the client, and then the client instructed us. We tried to be creative and scrape the bottom of the barrel to be inventive and innovative.
And one more thing for Greece: Over the last couple of years, there have been sporadic deals by wealthy individuals, ultra-high net worth individuals, wishing to acquire prime real estate in Athens and elsewhere, for both residential and commercial purposes.
CEELM: Does that reflect their confidence that things at some point will get better?
Panagiotis: I think they are buying this real estate for themselves, on a personal, random basis. A nice house across from the Acropolis, and they are happy about it. A few that come to do these deals for obtaining residency, though, are choosing other markets, since a lot of the sellers are concerned with the capital controls and expect to receive their money outside Greece. The killer is the capital controls.
CEELM: And how are things in Romania?
Panagiotis: In Romania, there hasn’t been much difference from last year. Maybe things are a bit better. The outlook is much better though. The fundamentals are better. I’m confident that next year will be a lot more fruitful. And that is because there is a renewed interest of funds towards Romania after many years, and deals are in the pipeline. Also, contrary to other countries in the region, Romania has both rule of law and political stability, despite the fact that now again it’s an election year and things may seem to be temporarily at a standstill. But you can see cranes again in Bucharest after many years, and there are also some energy deals, some infrastructure deals being planned. In actual numbers you cannot say things are great, but it looks like they are getting there.
CEELM: Patricia, how are things in Serbia?
Patricia: Serbia’s looking stable and has been for quite a while. GDP growth of 2.7 plus, and clear political leadership, which is having an impact. Clearly the fact that it’s not an EU-member state is allowing it to attract investment from everywhere. We get way more than most other countries’ share of exotic investors from absolutely everywhere. This was not a year of big deals, but we had larger private equity deals the year before. We just had add-on; we did have the Danube Foods Group deal that we worked on for Mid-Europa, but we were very much looking at add-on acquisitions in the cable and telco deals from other countries in the region and following on from the previous year’s larger deals. We are seeing the flow-on from the NPLs in the region, as both Croatia and Serbia have definitely started. We think this is a trend. Once this starts I think there’s a couple of years, like we saw in Slovenia, a couple of years of serious work, and that’s coming. What we saw this year was the start of PPP projects. We’re working with the city of Belgrade on a very large, EUR 350 million plus, wastewater facility, using a structure that has never been used before. We’re negotiating at the moment with three different major international participants, so it did very well in terms of attracting attention, and we work for the IFC and the World Bank, and they’re looking at another similar project for water estimated at EUR 500 million. So we’re starting to see investment in infrastructure, which was badly needed, and developing PPP in a country where they’ve never done it before is not easy. Our deals have been smaller in the technology field. In the healthcare field, we’re seeing private hospitals for sale.
Overall, it’s been a great year actually, despite many other things that are not related to transactions, for us anyhow. So we’re ending the year well. Some Balkan markets have done very well and some have done less well, and I think that’s part of the game when any of us are working across borders. You have a good year and a bad year, and quite often, if you don’t have an election year, you’ll do better. If you have clear leadership, if you have a majority in the parliament, you’ll do better. If you don’t have sanctions, you’ll do better. Politics plays a huge role in all of our businesses.
Mykola: I will probably surprise everyone, but I think Ukraine is kind of a mix. It’s not doom and gloom; we are on track, but we are definitely not there yet. Someone asked me whether it’s business as usual, and I think it pretty much is. To give you a few examples, first of all, many people don’t realize it, but there is no war in Kyiv. There are troops and there are some hostilities way back in the East, but it really has not been affecting Kyiv and the rest of Ukraine that much. As the hostilities subsided, the sentiment went down and the country went back to normal, in the sense that people went back to doing their own business. Traffic is up, and I think that’s an indicator that things are improving. This year will have some minor marginal GDP growth – much better than the 15% drop of last year. Surprisingly, we do have political stability. Yes, we had a change of government in the spring, but the coalition stayed the same, with no early elections. Of course, there are always populist parties that are asking for early elections, but it’s very unlikely to happen. In fact, they have missed their window. It’s already December, it’s Christmas season, and we don’t do anything in the middle of winter. And then of course at the end of winter there’s promise of spring and warmth.
Of course there is some turbulence sometimes with people, but I think, despite the fears, business has refocused quite well. Russia was at one point the largest trading partner. It is no longer; it’s actually one of the smallest trading partners, I believe, now. If you take out gas, it’s a minuscule trading partner: there is no trade. In fact Ukraine is not technically buying gas from Russia anymore, which is a big achievement for Ukraine. In any event, it doesn’t seem that there will be any early elections, so that gives the President and the Parliament some chance to push reforms through. The Parliament is difficult, and we still need the pressure from IMF and the West to actually pass these reforms, but a lot of good things have already happened. The public procurement reform, which was a big area for corruption, has actually happened. It’s still improving. Agency after agency is adopting the electronic public system called Prozorro, [and] anything, from toilet paper to equipment, you need to buy through that system. Judicial reform has finally kicked off. It’s in process, so we need to be patient. I think we need just to wait for the critical mass of good things to happen. Due to IMF pressure, the gas and utility charges have gone up, and that has brought a lot of positivity to the energy market, and generally energy reform has been happening as well. And a lot of deregulation generally occurred in the past year.
Many of my friends think that I am slightly more optimistic than an average Ukrainian, but I believe that we are going in the right direction. We have all been waiting for major privatizations, and that unfortunately hasn’t happened. There was a big fertilizer plant for sale. They tried to sell it twice, and just a few days ago they cancelled the tender again because no bids were submitted. Okay, we’ll try next year. The same with energy sector privatizations. No PPP yet, and we really need that to kick off. There is always local M&A, but local players are actually more active because foreign players are leaving the market. There are actually a lot of NPL sales happening. In that sense, we are following the same trend as the rest of Eastern Europe. The Ukrainian national bank has cut the number of banks by half; these banks were sent to liquidation, and their assets were put into a deposit guarantee fund, which now has assets with a market value of roughly 3 to 4 billion euros. Everyone is waiting for it to start actually auctioning off these assets. In terms of industries, IT is always a big thing for Ukraine. Agriculture and food processing is a big industry, too. Agricultural output is up, so that’s also a positive sign. Unlike most counties, we also have capital controls, and we are used to them, as we have had them for 25 years. The National Bank of Ukraine is easing them bit by bit, which is a great thing, and speaking of capital controls, Ukraine finally has survived through a year of fluctuating exchange rates. This was a big thing for Ukrainians: Ukrainians really like stability in terms of exchange rates. But we are now getting used to it, and you can see that people are not looking at it so much as they used to do. Generally, I’m cautiously optimistic.
Bank Consolidation Across CEE
CEELM: Turning to the subject of bank consolidation, which has been a hot topic in Austria. Has there been a move towards consolidation in your markets? And can we expect that to have an impact on the region as a whole?
Horst: Consolidation is a dominant feature for financial institutions in Austria and Central Europe and when we talk about the big Austrian banks, like UniCredit, Raffeisen, Erste Bank, they are significant regional players, and consolidation affects them in different ways across CEE/SEE. Just to give an example, in Slovenia some small banks were recently sold by larger banking groups, and there are interested buyers. Interestingly, Apollo has bought a few and is looking for more banks to acquire. We have seen large banks pulling out of small markets that are not core to them. A recent example is Societe Generale selling its large Croatian subsidiary to OTP. In Austria itself, I think consolidation has pretty much taken place, so things seem fine. Raiffeisen is trying to sell its bank in Poland, with a lot of hiccups. Everybody has issues in Ukraine, but things have petered out a bit, so it’s not as bad as it used to be. We have also success stories such as Austria’s fourth largest bank, Bawag P.S.K., which is owned by Cerberus and Golden Tree. It is now, after many restructurings, the most profitable bank in Austria. The big failed bank, Hypo-Alpa Adria, has been sold to Advent in the region, and it’s a new banking franchise that does really well, from all we know, so there’s a lot of good developments that are currently taking place in the banking sector. There’s also going to be a big privatization soon in Serbia, Komercijalna Banka, which is going to attract a lot of interest.
Patricia: Evaluations in Austria, or all over the region?
Horst: All across Europe, I think, financial institutions’ evaluations have been going up, we’ll also be seeing banks selling subsidiaries in Romania, Bulgaria; and we see interest for those banks from big banking institutions in Europe. So there is interest.
Ilko: As I understand it, the real success NPL story was Romania. In contrast to other jurisdictions, in Romania there was a deliberate effort by the Central Bank to push the banks to clear up their balance sheets. There is nothing like that in Bulgaria. At a banking conference recently the regulator said the banks are well-capitalized in Bulgaria, so you don’t have the regulatory stimulus to do the NPLs because you don’t need to free the provisions which would free the funds that would facilitate lending – which is the principal reason for doing NPLs. And in Bulgaria the banks are so well capitalized that they want to keep the NPLs and work them out themselves. Ultimately, there is no pressure on large banks in Bulgaria to sell NPLs. Nevertheless, we expect some big NPL transactions to happen in 2017.
Stepping Up to the Bar (Association)
CEELM: We’ve been reporting on a conflict in the Belgrade Bar Association this year. Patricia, can you bring us up to speed?
Patricia: The short story is - obviously, as in most of your countries, you’ve got local Bar Associations and you’ve got the national Bar. Basically, the Belgrade Bar had an Assembly in September, at which they discussed the new regulatory legislation governing the profession. A key issue was the independence of the lawyer – a core, very core value to the profession – and secondly the concept of lawyers working together.
This is a fight that we and our colleagues at all of the law firms are working together on, and we will fight to the very end. I think it is key. I’m incoming co-chair of the European Forum of the International Bar Association, and they very kindly, the Bar Issues Committee, hope to send delegates down as selection observers to ensure that there is some sort of due process. Really, on a daily basis, it is rather challenging.
Horst: I was just going to say, we’ve also encountered those battles over the years, and we have involved the European Union, and always got support from them.
Patricia: We did too, we met the Head of the Delegation, who was very helpful, but honestly it’s a bit challenging because Serbia’s not a member of the European Union, so the arguments seem less weighty.
Horst: I know, but many countries in the region are either members or are in the process of applying for membership and so when you do something that really is against EU regulations, a lot of them want to be a member state at some point, and you can challenge unreasonable decisions.
Patricia: In fairness, although it’s just us at the moment, there are issues in other countries as well where it’s clearly not an open, transparent process.
Uros: Macedonia is almost there.
Patricia: Because many of our clients are global, they understand that this is a regulatory issue, and if you explain to them, normally people really do understand that this is nothing personal. But it is a battle, and I think it’s something that CEE Legal Matters should be covering, in my view, not just in the context of this particular story, but I think in the context of regulation: why do we need regulators, what are they there for, who are they protecting, and what should the common denominators be. And the standards are all over the place.
Ron: I’ve been, of course, in a number of our jurisdictions, starting with Croatia, so I’ve lived this. I agree with you, Patricia; clients understand it, but I always hate having to explain it. To me, it’s almost an embarrassment to say to somebody outside of the region, “Well, the Bar Association won’t let us put pictures on the webpage.” I think it hurts the youngest lawyers the most. But I also say, now being in Warsaw, I have to say it’s refreshing, at least with respect to my own experience with the two bar associations here, both national, they have demonstrated a very easy interaction with international lawyers.
Judith: There’s also been some attempt by the bar to up the fees for international lawyers, we were no longer invited to come to the meetings, so no representation, lots of taxation, and they realized that is not in accordance with EU rules, so they had to quickly come back - but they thought it’d be a great idea to go ahead and tax the crap out of … you know, to raise the rates on international lawyers.
CEELM: Cristophe, Russia doesn’t even have a bar association, is that right?
Christophe: No, we do not. We just have local bar associations. Regulation of the legal profession is a subject going up and down for many, many, many years in Russia. Actually, there is more and more pressure from Russian legal firms targeting foreign law firms practicing in Russia. What they are trying to say is, “You should only work for Russian law firms,” meaning that you need to establish a Russian legal entity. And they target people working within this, such as me as an expat, so it’s a subject, as I said, which comes up a lot, and we have to pass some exams, showing that first of all we understand the Russian language, and we understand Russian law. We are in a wait-and-see position, because last year the subject came up once again. For now, though, to practice law you don’t need to be a lawyer in Russia. Of course you need a legal background and a law degree, but you don’t need, like in France, admission to a bar association. In our office, we have a lot of professional legal specialists who are not advocates.
Panagiotis: And you just have to have a law degree, or...
Christophe: Yes. You need to be a lawyer and you need to be a member of the Bar Association to represent persons in criminal court, for example.
CEELM: Russia, with its reputation as a very liberal market in many ways - you don’t have any restriction on photos on the website, or ability to advertise or market, nothing like that?
Christophe: No.
Mykola: Same as Ukraine, there is no requirement that you be admitted to the Bar. In fact, we had a reform that actually just recently introduced the requirement that for cases at courts of higher instances, advocates (i.e., Bar-qualified lawyers) must be present in the court. Gradually, all representation in courts will be limited to lawyers only. To me, all of this discussion is actually very odd, because in Ukraine you can find someone who is not a lawyer by background who is still practicing law, which would be very weird in other places. Most Ukrainian lawyers have proper legal education but never sat the Bar exam, because it was just a small technicality that was never required. I sat the Bar exam in New York; I know what it is. I never sat one in Ukraine because it was just ... why would you do it? It wasn’t something that was helpful for anything. And now all of a sudden Ukrainians are trying to copy what’s in the rest of Europe, but there is no true value in that.
Patricia: You know what it does, though, a Bar exam - I have to say, studying for it is very serious, you take three-four months off, you study ten hours a day - yes, but also, it may also be a quota mechanism.
Uros: That is something I can’t agree with. I’m on the Bar corporate law committee, and I’ve been an examiner for almost ten years now, in Slovenia, and nobody tells me I should flunk this or that percentage. We are a body of the Ministry of the Judiciary but are completely an independent committee of leading lawyers, including supreme judges, public prosecutors, and private practitioners. Nobody gives us any instruction. Once a year we sit down with the representative of the Ministry of Justice and we see the stats for our work. Okay, this year we had 200 applicants and, I don’t know, 110 made it.
CEELM: But nobody says, “Only pass 60 percent,” or...
Uros: No. In the ten years that I’m sitting, we’ve never received that instruction. I would resign if I got an instruction like that.
Mykola: Can I say something provocative? I think that we as a profession are just trying simply to protect ourselves, by limiting competition in the market, by imposing that.
CEELM: But you could presumably require a certain qualification to be a criminal lawyer, for instance, couldn’t you? You wouldn’t want just anyone to be able to represent someone in a criminal case.
Mykola: Isn’t that the choice of the client? Many of our clients are now simply opening Google and finding the laws, and we all realize that our profession is not really something sacred anymore, that only we have programs like Lexis-Nexis. It’s all there on the Internet, and everyone can find it. Of course, you need to have practice and procedural rules, et cetera, but in theory, what prohibits someone smart without a legal education from understanding the procedural rules and – actually, I don’t know, someone with an engineering degree, for example – from doing it better than someone with a humanities background like us?
In the second half of the evening, conversation moved away from specific markets and focused on challenges facing the legal industry across CEE.
Room for All Law Firm Models in CEE?
CEELM: We all know the larger international firms are gradually pulling back from the region, while the regional – primarily Austrian – firms seem to be stepping in to take their place, and local firms are much stronger than they used to be as well. So where are we heading? What is the future going to look like?
Horst: I wouldn’t focus on the Austrian aspect, because, although Wolf Theiss is historically out of Vienna, we actually have more lawyers in other countries now, and I was saying this to a few people here today, that when you put away borders and look at the markets that we are in, it’s a single market of 180 million people – more than half the size of the US – and that’s a big country, in a way, and that to just focus on this and do it well and specialize, expand over the years, there’s going to be natural growth for legal services. I think there’s room for everybody.
CEELM: Is there room for the internationals and the fees they charge?
Horst: Depends on which internationals. I think if you look at firms that are very much oriented towards having very high profits per partner, on a UK scale or a US scale, probably they can’t do it. But if firms are able to have different profitability levels in different countries, they will. It’s pretty much the model. And firms like White & Case are expected to pull out more and more, because they want to become Skadden, Arps now, and firms like Dentons profit from that because they can pull the franchise. So it’s going to be different developments. But we don’t have to worry about it. There are going to be different models, and for our firm the model is to be a regional firm in that single country as we define it.
CEELM: The single country. CEE.
Horst: Yes, you could say that. While you could call it 13 countries, you could say it’s one country, and you are one firm in one country, it’s just different neighborhoods in a way, and you can cater for that, and for the global legal market, you can offer benefits. But it doesn’t mean there won’t be other firms doing different things. There’s always going to be a need for everything.
Patricia: Yes. There are different segments of the market. We’re not all firms doing the same things, so I think when you talk about the international firms maybe withdrawing, it might be a certain tier of them, and for profitability reasons, or deal volume, but I think there’s always room in the market for other people coming up as well. Whether it’s White & Case moving out and Wolf Theiss moving up, and Karanovic & Nikolic moving up as well, I think there’s room for everybody. I really do. If there’s growth, we’ll all be fine. It’s only when we see political instability and declining markets, even short-term.
Mykola: I totally agree that there’s room for everyone. I see many Ukrainian firms that are aspiring to grow outside of the Ukrainian market, there’s Integrites in Ukraine that expanded into Russia and Central Asia, there’s Astapov Lawyers - now they’re called Eterna - also expanding abroad. Some firms actually set up very small offices in Germany and Austria. I think it’s more like representative offices, like outposts, rather than actually practicing, but nonetheless, they have these aspirations as well. This trend apparently is common across the region, but it doesn’t mean that everyone should follow that.
CEELM: Uros, you’re in a former Yugoslavian market, as is Karanovic & Nikolic. Can you see, someday, your firm expanding outside the former Yugoslavia?
Uros: That’s a question that I asked myself at the very beginning of our expansion in 2008. I’m still trying to find an answer. I believe there are some border areas, like, historically, the part of Italy that borders Slovenia, for example; Austria, the same thing. But to be as bold as Wolf Theiss, for example, to see all these different - it’s 13 for them, but for CEELM 24 jurisdictions – as a single country where we could operate? I don’t think so. Not in my lifetime. I hope other people will come after me and bring the idea forward, hopefully with more ambitious plans than I have. But for the time being, I think that even in the six jurisdictions of the former Yugoslavia there are a lot of challenges ahead of us. It’s very easy to open an office somewhere, but it gets much harder over time to keep the talent there, to keep the services, to expand locally. That’s the hardest part of it. Just opening offices in Milan might be nice for a year. You get a nice interview with CEE Legal Matters: “Oh, you guys - ODI now opened an office in Milan, very nice.” But in a year’s time, when the bills are coming in, and when you don’t have the 30-40 lawyers that specialize there ...
I think there are realistic limits to small local and regional firms that are usually budget-limited more than mental-limited. But we need to accept the reality that it is a different thing to expand from Vienna, from London, than it is to expand from the ex-Yugoslavian cities. That’s the reality.
CEELM: Panagiotis, your firm, which was already in Greece, Romania, and Albania, recently opened an office in Cyprus. Do you have aspirations to expand into other new markets as well?
Panagiotis: I believe that it’s very difficult to do what Wolf Theiss has done. You will notice that all of those regional firms have one thing in common. They are in the region, but they are not from the region. So that means that they maintain a pipeline of global clients they follow to smaller jurisdictions, without feeling the need to actually penetrate the respective local market. My experience says that if you don’t convince the local market, if you don’t have local players as clients, you should not qualify as a regional firm. You have to attract local talent to secure penetration in the local market; you have to convince them to join you, and money – even if it’s there, it’s not always a sufficient motivation. So these are the kinds of difficulties that a regional firm coming from the region has to address in order to bring a larger footprint and a deeper reach in the region. What I think could be sustainable for regional firms coming from the region, would be, perhaps, a model with mergers - in other words, joining forces. So, if you are in two-three countries, you join forces with another firm and try to develop a common platform to attract clients. And that is because, in my opinion, the practice of just setting up shops everywhere is not economically viable unless you have the background and the regional contracts to support this.
CEELM: Mykola, your firm, Avellum, is only in Ukraine. Down the road, will the need for growth require you to find a partner in other markets? Is that something you think is inevitable? Either to merge or to join an alliance of some kind?
Mykola: The answer is no. First of all, Ukraine is a big market itself, and the firms in Ukraine are quite busy. Of course, we had bad times in 2014, when pretty much everything stopped, and we weren’t sure what direction we were going in.
To give you my background, I spent ten years at Baker & McKenzie, so I’ve seen what an international law firm is, and I went from a paralegal to a partner there. It’s great to be part of a big network; there are many advantages there, but there are some disadvantages as well. At Avellum, we really enjoy being independent and having multiple relationships and actually having the luxury of choice. For some clients, in this respect, we work with one firm. For others, we work with others. We are flexible. We don’t have a best-friend’s relationship with anyone. So no, I don’t think in the long run we need an alliance. Not in the foreseeable future.
CEELM: Judith, from a client’s perspective, does it matter whether a firm has a regional presence or not? If you use Wolf Theiss in one jurisdiction, would you necessarily use Wolf Theiss in a different one?
Judith: First off, I don’t believe in best friends. If someone tells me they have a best friend, I say, “That’s lovely, but my job is to contract with lawyers, I don’t need to hire other lawyers to supervise my lawyers.” Still, I always send an RFP to at least two firms, not always internationals, not always regionals, sometimes to locals if there is a firm that we have worked with successfully, I will certainly look at them and say, “Okay, so who do you have in the region?” And there’s been a couple of regional firms or international firms that we have gone back to. Part of it is, if there is a person that I have worked with well, and I know that they get it … and it’s unfortunately shocking how there’s not a huge number of lawyers that actually get it, particularly when it comes to PE, we’re really difficult clients.
Having said that, particularly as you go into the smaller markets, there is the concern that some of the regionals or internationals are not the strongest players in the smaller market because they tend to do the corporate outsourcing work. And so I also listen to my deal guys who have their ears on the market, and sometimes they say, “Maybe we don’t send it to this one. Actually this local firm has a much better reputation, and by the way I’ve met this person before; I know this person’s a good guy.”
So, as I say, best friends no, and real alliances can make a lot of sense and it is something that I’ll work with, but there are times that a good local firm, particularly if either I’ve met somebody, or one of my guys knows somebody, we will definitely look at them.
Horst: Maybe I can add to that. Being a regional law firm, we are completely aware of that, and to position yourself as a regional law firm, you have to be good in every market. You know that sophisticated clients won’t retain you just because you have many offices. They will always look at your credentials, what have you done, what’s your record. Just having the name is not enough. You have to really be successful in every market. Being committed to being good in every market is key.
Panagiotis: Judith, can I ask you something? If you work successfully with a firm, and you have a deal in another country, would you go to them and ask, “Do you have someone there?”
Judith: Yes.
Panagiotis: And if the client said, “No, we are not there, but these are our best friends,” would you care for that? Or it’s a member of the alliance? Would that be different?
Judith: I don’t think that “This is our best friend firm” is as valuable. Okay, I’ll maybe keep it in mind, but it wouldn’t be as strong of a recommendation as being part of the same firm. It basically comes down to, when you get to the inevitable moment that the lawyer is complaining because I’ve been such a horrible client to them, whether the fact that their own firm might benefit from their sacrifice down the road is significant. For instance, I had to have a few discussions today with a firm I’m working with. And the lawyer did not tell me early enough, in accordance with our billing guidelines, that he thought we were going out of scope, so I had to have an unfortunate discussion. For me, the best friend – the law firm that I know and have worked with – doesn’t ultimately have the leverage to say to that best friend, “You’ve got to eat this one.” And it’s in the interest of the relationship.
The Foggy Future: How Technology Will Change Commercial Law Firms
CEELM: Changing subjects, we’re hearing from a number of law firms that they’re very concerned about the effects of developing technology and artificial intelligence on the legal industry. Indeed, some of them sound quite grim about it. What’s your take on this? Are law firms going to change significantly in the next five or ten years as a result of these forces that are pressing on them now? Ilko, is this an issue in Bulgaria at all?
Ilko: It’s an issue that people discuss, especially people who have gone to London, to big law firms, and they’re saying, “Ilko, they’re using so much IT that IT’s drafting the contracts, and IT will ultimately drive lawyers out of the profession.” I don’t think it’s such a threat. Look at it this way: IT assists with standardization. And we all have access to standardized contracts, we don’t write anything from scratch. But the fact that a template contract is available in a pretty nice form does not exclude the need for a lawyer to negotiate that contract. So for negotiations, I don’t believe that lawyers will be replaced by IT, and this is where lawyers have always been most valuable.
Christophe: I quite disagree with you. The danger is not for us in this room. For me, the danger is for the younger generation, because these standard agreements, when I started my career, I was tasked with checking all the standard basic agreements, and then bit by bit they started being a little bit more complicated, and that’s how I learned. I went through this process to become what I am today. But now, we are internally developing such an IT system, and from what I have heard, standard contracts developed by IT systems are pretty good. So my fear is for the young generation, how will they become expert? If they need these two, three, four years in drafting basic contracts and learning, and getting familiar with basic contracting, how will they learn the basics without that time? For us at a senior level, it’s okay. But how can they learn?
Horst: If they just skip that phase, yes.
Christophe: If they can’t start their career by learning basic things, because those basic things will be done by a machine? How can you become a professional?
Patricia: It will be a different education.
Ilko: It will be different, but it’s not going to be like machines will replace lawyers. It’s just that young lawyers will be trained using machines. But lawyers will still be needed to make judgment calls or relate an agreement to a complex factual situation.
Patricia: Two weeks ago, I organized the first start-up lawyer conference in London, and we had 185 lawyers present. One of the most interesting things for me was listening to one of the founders of Spotify basically tell a roomful of very sophisticated lawyers, from serious law firms all over Europe, “80% of what I’m looking for I can find on Google. But there’s a 20%, and I need you guys to be able to grow up and to be able to give me that 20%, which is usually more about judgment than actual legal knowledge. It’s commercial knowledge, application law agreements, or whatever, but I’m always going to need you. And the problem is, you’re not living up to that 20%, because you don’t have the skills that can serve me.” So I think we are under pressure. I think artificial intelligence is coming, there’s no doubt about it. And I fully agree that the training of lawyers is going to be key, because you learn under pressure in the middle of the night drafting a document. You learn in that way. We need to change the way we educate lawyers and create artificial systems of education in the same way as we have artificial intelligence drafting documents. You won’t have that 20% judgment unless you’ve gone through it. There’s no way in hell otherwise.
Horst: Then you will have to read court decisions, understand where the reasoning comes from for applying a law in a particular way. You can’t give this to a machine, you need to know it yourself to be able, after a year, after five-ten years, to provide legal advice in a commercial context.
Patricia: A machine can go through all of the data, and it can give you a response as to where there was continuity in the data, but you’re still going to have to analyze it. The ability to analyze it and put it into the current context in front of you is going to be...
CEELM: But the concern is not that law firms will go away. The question is, can you sustain your current models? If you have to lose 80% of your lawyers so that you can keep the 20% that are doing the high-level work, that’s a pretty significant change. Who does the low-level work?
Horst: I would contest the whole notion of the 20% layer. I think it applies to certain legal work, maybe a certain way of doing documents, maybe agency agreements or other standard agreements, I agree with that, but a lot of the work that is more complex or relates to a region like ours, we don’t have that automatically available. It’s going to be lawyers’ work.
Mykola: Emotionally, I tend to agree with what you’re saying. I hope that we’re all right. But I keep recalling - there’s an institution called “Singularity University” and they had a presentation in Ukraine that I attended. And they went through all the areas where the technology is changing. Some of the things they said, we either don’t know or we are forgetting about. What we think is that artificial intelligence will bring to us is speed of reading documents, standard documents, etc. But what is coming our way is, just as an example, two technologies. One technology allows the iPhone, whatever, the camera to read emotions and to tell, basically, whether you are lying or not. This will completely change litigation. There won’t be any litigation. In terms of, at least, not commercial but criminal litigation. The second technology – less relevant to us as lawyers, but still we need to understand the profoundness of change – is Blockchain. We all heard about bitcoin, and it’s based on Blockchain. The principle of Blockchain can be applied with real estate transactions, for example, and notaries will be gone, basically. We use notaries to confirm the genuineness of the transaction. If you use Blockchain for that, it’s confirmed by the whole community, which is, whatever, 7 billion people on the planet, right? And the auditors will be gone as well, because they confirm the truthfulness of certain actions of the company. If there is any independent verification that is done online, basically every second, the whole profession is gone. So, we need to be very careful in our own delusions. Again, emotionally, I totally agree with you. I really hope that we stay, and we adapt somehow. But maybe we are lying to ourselves.
CEELM: Has any firm here taken any steps to address this, either implementing new technology or dealing with HR policies in preparation for this?
Ilko: We have implemented email, for instance [laughs]. We should not speak about technology as something looming in the future. Technology has already been there for the past twenty years, and if we consider how technology has changed the legal profession in the past twenty years, it has just sped up transactions and made them more complex. But it has not expelled the lawyers. How many emails did you send last year? Twenty years ago, this was not possible. However, I believe that once the technology starts to outpace the human speed with which we are able to think and operate, we will necessarily slow it down.
Judith: Just two comments. First, this whole discussion on technology puts me in mind of the discussion on the death of the billable hour. Unfortunately, lawyers are clinging on to the billable hour, which, being on the client side now, drives me absolutely batty, because I don’t care how many hours. I have no control over how many hours it took you to do what I thought was a simple matter; for me it’s about the value of the matter. For example, on training young lawyers, I never want to see a work in progress on due diligence reports (this is one of my pet peeves), because frankly, I think that’s where lawyers are setting all their young ‘uns to try to get some hours in, throw them on the due diligence. And so I always agree to a fixed fee, I don’t care how many people, how much time it took, we agreed on a scope, you do it, don’t show me, because it will just make me angry, frankly.
Horst: But didn’t you start doing due diligence?
Judith: I did my share of due diligence. I’ve done plenty of it, from the old days of sitting in a room to now being on the computer. Going back to the 20% comment, even with the idea of a due diligence, I have very seasoned professionals that turn several shades of angry when they get a 120-page report. That’s not what they need. Too many issues are incorrectly labeled as “red” flags. And so, for us, to do that 20% right, the lawyer should really be thinking about, “What is it that’s truly critical to this business?” and try to have an understanding, and there are very few lawyers that do that.
The other thing that’s been going on for a while, in a transaction, there’s no young ones on the transaction, or if they are, I don’t want to pay for the person who’s doing the learning, so it’s typically a partner, or at least a junior partner – hopefully someone a little bit more senior, and maybe an associate who’s doing some of the closing details. And so it gets back to the question of how that new generation … it’s not going to affect us, but how is that new generation going to get trained? Because that 20% is not about book-learning, it’s about being in the room, having to make that gut call a couple of times, and having that databank in the back of your head of, “Oh, when I said that that time, it didn’t go off so well. So maybe I’ll want to moderate and spin it a little differently, because I saw how the other guy spun that a little differently, and it seemed to be so much more effective.” So you do that a couple of times.
Christophe: Ilko, you said that we won’t be able to cope with the speed, but with the development of the Internet, look how we have changed the way we write for clients. When I started my career, we would write at most ten pages, but now – Judith, it is exactly what you said: “And then according to the law number blah blah blah blah.” Clients, they don’t want this. Before we used to receive ten faxes, now we receive 50 emails per day and we’re still able to cope, because the way we are answering these has changed, and these questions have changed as well.
Panagiotis: There’s something else I would like to add. I don’t think anyone, even for the younger lawyers, becomes a lawyer to be among the 80%. We all hope to be lawyers in the 20%. And the real lawyers are among the 20%. This is the value of a lawyer. The question is whether you need to go through the 80% or not. A personal example: my mother was a notary. As a student, I used to help her in the notary office. There were no computers, only typewriters, and you had carbon papers and you had to type out the entire contract from the very beginning – “In Athens today ...,” until the end, no matter how many pages that could be. So obviously, after I had done this a few times, I knew the standard content of every contract by heart. I can tell you, however, that now I don’t remember anything in terms of wording as such. I don’t know if it’s somewhere in the depth of my brain or not, but I don’t remember anything. But I do remember the basics of contracts. So I do my 20%. I don’t know if it’s because of the 80% being somewhere in the background, or not. What I’m trying to say is that things are changing, but the end result is the same. It’s like information: If I tell you a million things about something, you just end up with virtually nothing. In very few subjects, very few people would know the real thing.
CEELM: Some firms we’ve spoken to say, “this is significant –this is going to change the way law firms are.” Does anyone here agree with that, or do you all think this is one more change in a long history of changes, and the industry will just adapt and deal with it?
Panagiotis: My point was that the end result, the net product will be the same, the 20%.
CEELM: But will your law firm be smaller?
Panagiotis: What is the problem with that?
Patricia: We need to adapt, all of us need to adapt.
Panagiotis: Law firms are already smaller. We don’t have ten secretaries anymore, typing away. We type our own stuff. Already they are smaller. Things are changing.
Mykola: I am one of those who think that it will fundamentally change the industry. We just underestimate the power of artificial intelligence. And the judgment calls that we think we’re doing are just based on our experience. Our experience is just a set of data, unfortunately, which can be easily processed by AI.
Horst: But when you negotiate an agreement, you may have the first draft, that a very sophisticated program produces for you, but then you have to sit down, you have to bridge commercial positions that might be quite adverse.
Mykola: You’re making an interesting assumption, that you need to do the negotiations. But think about derivative contracts on the market. They are standard.
Ilko: But they are the exception. For me, the whole banking regime is an exception.
Mykola: So, fine, I agree. But what I see quite often is that clients ask us, “What is standard on the market?” I know that major international law firms produce reports on the trends in the M&A market, including liability caps, de minimus, limitation periods, etc. Is it safe to assume that our clients will never agree on a standard M&A document?
Horst: But does that mean when somebody tells you “it’s market” you’re going to accept it? You’re always going to argue about it, and every client and every situation is different. I think that the automation that you fear will come to some extent, but it’s not going to eliminate our jobs.
Mykola: Ukrainian clients usually take the position, “If you want to negotiate to, let’s say 50, you always need to start with 100.” Because they assume that the other party will start with 0, and will approach the middle, right? This is very common in Ukraine, so if that trend continues, and that culture doesn’t change, we are safe in Ukraine. They will need someone to guide them, and persuade them, etc. and do this as a theater, basically. Because we all know what the standard deal is. And it’s pretty much, the standard will be not one dot, but will be plus/minus 5%. The question is for the clients, actually. Do they need this? Will they be brave and say, “I don’t want to negotiate with you and do that dance. This is standard. These are the documents confirming this. Do we want to spend money on the lawyers, actually?”
Patricia: One of our outcomes in London last week was the idea of a standard term sheet for venture capitalists and for start-ups. Looking at creating standard term sheets that we’d all agree on at a European level to be able to compete with the Americans in a more competitive way at the early stage to start with. That’s what they want and need.
Mykola: That makes sense, especially for start-ups, because they have no money for legal fees.
Horst: It must be easy and fast and it must be like the standard. That I agree, but on the big picture, doing a complicated transaction, you can say: “Would you like to use the standard SPA?”
Judith: We actually are working on a transaction with the same seller, and we start from our last agreed route. And I have to say that getting rid of all the back-end bullshit - excuse my language - has made it so that we were able to concentrate immediately on the commercial issues. And when it comes to the commercial issues, because I’ve got a very strong team, we don’t need the lawyers a lot for it. And so the other side’s lawyer did a very interesting thing: instead of sending back the marked version, he sent back the classic issues list. So we didn’t have to do all the, “Okay, let’s talk about what notices are going to be,” because we’d already agreed on all that. And when we got the issues list there was only one thing – a country-specific matter – which, of course, we needed to refer to the lawyers: “could these countries’ lawyers speak with the seller’s country’s lawyers to figure out what the issue is, do we have an issue here, come up with a solution.” But the commercial stuff, we tend to take care of.
Panagiotis: And you have to do the due diligence reports, despite the fact that there are no real red flags.
Judith: We always do legal due diligence reports, because we’re not going to fly completely blind, and because we do need to show that we have done the appropriate processes, and we don’t have lawyers in every country. What’s going to save CEE is every country has its own set of laws, and so you do need to look and have local lawyers confirm that there isn’t something odd, because even though an M&A transaction tends to be an M&A, it’s that last 5% that might differ in the transactional doc, the SPA. Yes, so we always do have that, but it’s not as special as a lot of the lawyers think it is, and if it was a shorter and more focused, it probably would be a more useful product for us.
Patricia: Would you pay the same amount of money for a short and more focused as a long and extensive one?
Judith: We pay a lot of money anyway, but the answer is yes. Yes, because I always do fixed fees, I don’t care how long the thing is. And that’s why I say, don’t spend your time typing this thing. I even got a report recently – now granted, this particular business was super-simple, asset-based business, so you didn’t have all the employee messiness in it or whatever – I think it was a ten-page report, basically, done in memo form, it probably was ten pages because you had to have the standard two pages on the front of it saying “this report can only be used for such and such purposes,” but it was what we needed. We didn’t need anything more. This works.
Mykola: I was listening to what Judith just said, and what does that really mean? Instead of negotiating over 20 issues, now we just negotiate over three. At first, we all think, “Jesus, we’re losing work.” But that’s not true. What Judith is doing, she’s now making more transactions because she has more time. So instead of negotiating 20 points and issues on one transaction, we’re going to do 10 transactions, negotiating only on 3 points on each.
Uros: That’s my philosophy. Judith will have to spend time with something else. If we finished our transaction way faster because of the IT help and all that, well, she will have to do something else. And we’ll be doing something else. We’ll be doing transactions. For me, a bigger problem in the future might be the consolidation of the market. Once you don’t have so many players anymore, that’s the time when the volume of the transactions is going to be low. If you have a consolidated market, okay, you will always have start-ups. But three players, locally? What kind of an M&A are we doing? Competition authorities say, “No, the first and the third cannot merge, we don’t allow that.”
Mykola: I can respond to that as an M&A lawyer. About ten years ago, I was talking to an M&A banker from CITI, and I said it looks like sooner or later, someone will buy everything, and there will be one or two leaders, and then the antitrust authorities will not allow any more consolidation. And then we will not have any more work. And he told me, “History proves you wrong,” and he gave me the example of Coca-Cola. Let’s say in the 60’s, the Coca-Cola management saw that, “Well, you know what we are doing, we’re just mixing the drink itself, but there are bottlers in California, in Texas, in Florida, who actually fill in actual bottles and sell them to the wholesaler or to the supermarket, etc. We should just buy these bottlers and do it ourselves.” So they bought them. A decade or two later, new management came in and said, “We are good at preparing the drink, and we need to focus on the global competition and the quality of our product. But we are not really good at the market in bottling, and the negotiations with the supermarket chains. We should focus on what we do. So let’s sell it.” And it goes in rounds and rounds and rounds all the time. And I’ve seen it already in Ukraine. Somebody buys all the stuff and creates conglomerates of real estate and telecom and banking, and then, “we’re not really good at telecom, so ....” And the legal community is really grateful for this.
Uros: No, I agree, but I thought, the telecommunications industry is going to get consolidated to have three players, the automotive market is going to get consolidated. You will have Google, Apple, and perhaps Tesla, if they can make it …
Ilko: But then the argument is, you see, if, for example, Google buys everything, then there will be another Google, with a new idea which will revolutionize the industry, and the current Google will be outdated. I guess the telegraph companies were the Googles of the 19th century. Where are they now? Philosophically, I believe the world is far more complex than we can think of. Because artificial intelligence is created by us, it’s limited to the boundaries of our minds. These boundaries will always expand, and this expansion creates work for us as we adapt to it. So, I’m optimistic.
Ron: I’m sort of thinking that, as someone who started practicing law when cutting and pasting was really cutting and pasting, I often tell young lawyers that I interview now - and I interview a lot of them - that I think they’ll see more changes in the next ten years than I’ve seen in the last 40. I’m kind of envious of that. Because I think we’ll make it. Are we going to be able to ride on our laurels? Of course not. Are we going to have to face and manage our business in ways that Judith wants us to manage it? Of course we’re going to have to do that. But I think there’ll be new businesses; there’ll be things for us to do. No one’s going to give it to us.
Patricia: And the key is that we empower the younger people working for us to be creative. Because I think part of the problem with structures in law firms is that firms are run by partners and managers who really inhibit the ability for the younger people to develop. And we need to allow them to develop, because they’re going to be living in that world. We’re likely not going to be as affected as them.
Ron: I think in the future they maybe end up better lawyers than we are, because they will really have to work for it.
CEELM: George, we haven’t heard from you yet. What’s your perspective on all this?
George: More from the client’s side. And of course everything that you mention about changing your sector could happen, actually. I was thinking the whole time about what you are saying. It’s interesting, actually. And I was thinking, most probably, there is a lot of space to disrupt your sector. So this is my personal opinion.
Uros: Uber is coming.
George: Uber is coming in this sector as well.
How Different is the New Generation Really?
CEELM: Let’s expand from Patricia’s comment about needing to engage and stimulate young lawyers. What do you think of the younger generation, the new lawyers coming into your firms - is there any difference at all?
Ron: This is timely for me. I was interviewing a young lady yesterday who, at the end of our interview, mentioned to me that she was a new mother and that she had certain priorities and so forth, and she said, “is this a problem with you?” And I had to sit back a little bit, thinking, “Boy, this is completely different than what I would have done in my first interview.” The honest answer that I gave her was that I wish I would have thought more like her when I was her age. And that I thought that without work-life balance she would not turn out to be the sort of lawyer that I wanted. Because essentially what I want is somebody who can engage with the community and engage with people and do business development and so forth, which I don’t think you can really do if your entire life is sort of being the scrivener in the office. Most lawyers that I talk to, older lawyers that I talk to, have a sort of negative reaction about younger lawyers. I have to say it is more pronounced in Warsaw than in any of the other markets that I’ve been in. It’s the typical sort of, you know, “I was here in the 90s, the 2000s, I did everything, I worked all the time, blah blah, these new kids, they don’t want to do anything.” My own reaction is, our young lawyers – clearly they have different priorities. I think we can work with it; we’re going to have to work with it.
CEELM: Well, but are you going to hire someone that says, “This is what I want, and I’m not going to break my back for this”?
Ron: She wasn’t saying she wasn’t going to break her back for it. Her message was that, “Work is part of what I do, but I also have another part of what I do.” Actually, she was really saying, “I’m not going to be here seven days a week, just work and do nothing else.” And I like that, actually.
Patricia: Yes. Because you know where you stand.
Ron: Because the whole conversation I was having with her was, “What I don’t want is someone who’s just going to come into an office every day waiting for me to come around and give her work.” So I think there’s a lot of potential, and I think, clearly it’s different, but in a good way. Really, when I started practicing law, all I wanted was money, and I worked all the time, and I went through one marriage, I’m successfully in another, but lots of other things that could have been avoided if I had been thinking more ahead; so I think in some ways they are smarter, and I think this generation will be great.
Patricia: And, remember, we’re still serving our clients, who are also going to be more like that. So I think that if you’re sitting at your desk all the time and you’re not interacting in the community, you’re not relevant, really. I mean, you become inhibited as a lawyer, it actually becomes really quite dangerous for a law firm, only having that kind of lawyer working in it.
Ron: I was talking with this same young lady about what it’s like being a young mother, and I told her that in the Croatia office Wolf Theiss actually technically has three offices; one in Zagreb, and two others on the Adriatic Sea that resulted from young ladies that had babies and needed family support, which was only available to them on the coast. I was trying to give this prospect an example of what our culture is, and I said to those young mothers in Croatia, “Well, give me a business plan, that you can open offices in these places,” and that’s what we did. So that was a case where I think we were saying, “Okay, young people, you want to have a life, so give me a plan on how you can combine it with business.”
CEELM: So the firms need to be flexible as well.
Patricia: Everybody needs to be flexible.
Ron: And we make money!
Judith: Except for the client. The client doesn’t have to be flexible. Having said that, my associate is a young mother, and we’ve been working together for years, so I know she works hard, but there are times she has to be out of the office. But I manage that. But when I’m working with a law firm, I don’t care how you manage the situation. I think it’s great if you’re flexible with your associates. But I don’t care - if I’m looking for a response, and I don’t get a response for 24 hours from somebody that I’m working with, why are you even bothering working with me?
Ron: But this is what every client should want, and we now have to manage it. I have gone through times in my legal career that, for clients like Judith, every time I wanted to increase my billing rates, I’d do it and you’d pay. You ask me a question one day, I’m going to answer it two days later, you’d take it, but you don’t do that anymore. So the simple answer is, I have to make my young lawyers happy at the same time as I have to make Judith happy.
Patricia: We’ve been speaking about women, young mothers, flexibility, and that’s one story. But I think a whole other story is the millennial generation and the desire for work-life balance. And the fact that loyalty is no longer what it was. Managing that is even more challenging.
Horst: I disagree. I think the lawyers that start in our offices, they’re pretty much the same as many years ago. They’re all very dedicated. Of course they don’t accept bad treatment, but that’s fine. They want a deal that works, that can be many different things. It’s not like you have to always convince people, I think it has to be fair and not all are the same, but by and large people are very dedicated and ambitious. I hear the discussion a lot about the millennials, but in reality the people who come to Wolf Theiss, they’re ambitious, they want to work with a good firm, they want to have a certain freedom, they don’t want to be mistreated, they want to go home if there’s nothing to do; of course that’s what you want. You train them well, so the balance must be found, but then they’re very loyal and very dedicated.
Mykola: I think it’s a stereotype, that the new generation is different. I keep remembering what my grandmother told me – that in her childhood in the early twentieth century it was prohibited for a young girl to walk out into her courtyard when a boy was going down the street. It was not conventional. Then, the culture changed. We need to understand that because of the overflow of information and the way the new generation actually learns and gets this information and uses it much better than we do, actually, we need to adapt to this and stop saying that they are different. When we were young and starting our careers, we also had also our requirements.
CEELM: So circumstances are different.
Mykola: Yes, different from what our bosses used to have. Nowadays there is more free travel around the world; there is definitely access to information that is sometimes scary. And in fact, at our firm we had a situation recently with one of our lawyers, a bright mid-level associate, when his wife got a contract with the ERBD in London, he chose to move with her, and we had to choose between letting him go or keeping him on board but in a different setting, and we decided to experiment. We set up, and the technology allows it, so as if he’s working in the office, we always can reach him by phone. We don’t dial internationally; we actually dial an internal number. It’s not that different actually. We need to make sure that he is busy, but he is actually more proactive, because he wants to have the job. He wants to get paid, so he has to remind us that he’s available. So we need to be more open to change.
Panagiotis: I think again the end result is the same. Like the previous discussion. Everything seems to change but remains fundamentally the same in the end.
Looking Forward into 2017
CEELM: Since we started tonight’s discussion by asking what has happened in your jurisdictions over the last year, we’d like to finish by asking what scares you in your jurisdictions, and what you’re most excited about for 2017, to get a feel for what next year has in store for us.
Mykola: I am slightly scared, but I’m also equally excited about the technology and the change that it’s bringing. I am also scared about Russia. But it’s really fun to be in a place where everything’s changing so quickly. We’re changing corporate law right now. I’m speaking with the regulators and various ministries on a daily basis about how we can improve this and that. We are shaping history. All these challenges, what excites me also is all these challenges about the new generation and how we can adapt our business. It’s fun. It’s a challenge, but why not?
Patricia: Scared is too strong a word, I’m not scared, but I am concerned about the role of our regulators and what they want to achieve. But I’m very excited about the dynamism in the region, and just continuing to grow and expand.
Panagiotis: Particularly for Greece, I’m scared about the continuing stagnation in the market, in the economy. I think it’s better when things go down because ultimately they will go up. But this slow death, this crawling motion, barely surviving, I think this is the worst for the market. So I’m scared about this being prolonged too long. I think it’s already been too long. And it’s eating away whatever is left from the healthy elements of the economy. And what I’m optimistic about is the same as Patricia, which is the growth in the region overall. We have seeded a lot of new efforts to reinvent ourselves and work – as we were not part of the ones that stayed still and weathered this out – and thanks to those efforts I am hopeful that 2017 will be a much more fruitful year in terms of business.
Besnik: I already explained our main problem. The problem is that corruption in the judicial system has changed the entire mentality, how the system works and starting from lawyers, prosecutors, judges, politicians, everybody seems to want to keep that system. Everybody’s doing fine. Many lawyers are not doing any actual legal work – they are just the middlemen between the client and the judge. The ones that cannot do that and the respectful law firms and lawyers, they are struggling a lot, because even if they do the best job they can, they could not get results, and will end up explaining to clients that, “Listen, we have done a very good job. You don’t care, I know, but it’s not our fault; this is how it works. Come and stay for a month here, let me try to show you how things work. Because I don’t know how to explain it otherwise.” And we don’t know where or when the rabbit hole will end in this case. And we want it to end quickly so we can start a new era of growth.
CEELM: And what do you hope?
Besnik: We really hope that judicial reform is completed and all laws that need to be passed are enacted as soon as possible. Reform will hopefully come with an entire reevaluation of the system and the judges themselves. The US and EU are pressing for the reform, even more than Albania. Let’s hope that this matter will end soon.
Judith: Well, populist politics creating market uncertainty is certainly something that worries us. On the bright side, I do hope that lawyers will stop being terrorized by their accounting departments and actually allow themselves to step into the shoes of a client and have good discussions up front, and think of the delivery of legal services as more of a value-added proposition.
Horst: I’m not scared about the business of the law. I’m more scared about politics and populists and what Trump might do to the global economy. But for our law firm, for the region, I’m positive, and I think despite all the issues it will get better.
Ilko: What worries me in this, let’s say, moderately thriving economy in Bulgaria, is whether we will be able to find enough interesting work for the law firm. Because we have smart people, and these smart people get bored if we give them work that pays their salary but is not interesting enough, and they lose morale, and that’s currently my big challenge. On the other hand, I’m thrilled by the fact that there is new business like start-up companies that, even if they are not the best-paying customers, at least they’re introducing change and modernity and new ideas, and people love them, and that creates enthusiasm.
George: I’m not afraid at all. I’m looking forward to the next few years. Our company is actually expanding across Europe. The most troubling issue in our business is also politics, and as we’re entering the Polish market now, we hope that the new government will not make any significant changes in the legislation or climate here, because they have done some in the last year or so, and ... it’s enough; I think it’s enough. But I’m absolutely optimistic for the financial sector, especially.
Uros: I’m coming from the West Balkans, so I too do not have the luxury to be afraid in my life, but I’m worried about two things. The first is Euroskepticism in the northern part of Europe. In all of the Balkans, the idea of becoming a member of the European Union was a light star that kept a lot of negativism out of the table. If the region – especially candidate countries – stops seeing that star out there anymore, that might change a lot of things. The second issue that I’m worried about is immigration. I’m afraid that in 2017 we are going to face tremendous challenges, and that the very nice idea about all those jurisdictions performing as one country is going to be very far from that. On the optimistic side, I look forward to learning from the young new talent in our firm, and from the new clients in 2017, as I’ve learned in all the years so far.
Christophe: What I’m concerned about – not scared but concerned – is the anti-Russian feeling which has surged over the last few months and year, and which makes life for Russian citizens, and for people living in Russia, a bit more difficult. Sometimes it’s justified, but most of the time it is unjustified, so that’s of concern and unpleasant. On the other hand, I’m excited by the fact that I’m living in Russia. Russia went through market crises over the last 20 years, in ‘89, in ‘93, ‘98, 2009, and now this one, and Russia and Russian citizens have always been able to get back on track, and I’m just excited by the prospect of my modest firm being part of this, and hopefully 2017 could be the year where we get back on track.
Ron: Even though I’m an Anglo-Saxon, I guess I have some concerns, and they’d probably be like Judith’s. You can’t be in Poland without having some concern about the direction things are going. But I think things will be okay. I have to say, I wouldn’t characterize it as necessarily a worry, but a challenge for me is, we have great growth plans here. Putting together an orchestra of legal players who can make clients like Judith happy, and deliver what they need to deliver today, while looking forward to coming to work every day, like working with the people that they’re working with, feel that they’re moving forward and improving themselves ... it’s a daunting task. I believe we can do it, but it’ll be a challenge.
Note: CEE Legal Matters contributor Kathleen McAuliffe participated in the preparation of this transcript.
