Date of publication: 6 February 2017
Source: Yurydychna Praktyka
In December 2016 Ilyashev & Partners Law Firm opened its office in Tallinn extending its practices to the EU countries. Estonia has become the third country where the firm stepped its foot in addition to its presence in Ukraine and the Russian Federation. Mikhail Ilyashev, Managing Partner at Ilyashev & Partners Law Firm, shares his opinion with Yurydychna Praktyka on the motives of opening the new office, its positioning, and interaction with international law firms.
– Why, of all the EU countries, did you decide in favor of Estonia?
– Now Ukraine is on the road to integration to the European Union; this is why it was important to us to find a European jurisdiction lawyers of which are familiar with EU law. We analyzed many jurisdictions, both from the point of convenience of doing business, tax climate, structuring of work with our international clients, as well as from the point of cultural and social factors. Our choice preference towards Estonia has been determined on the basis of a number of reasons. Firstly, in the process of communication with our clients we realized that some of them are going to structure their business thought this country. Cyprus has been loosing its appeal recently: the banking procedures have become more demanding, requirements towards the documents and disclosure of information have become stricter; even the Cypriots themselves were not ready to introduction of such complex procedures. Hence, many people started looking for an alternative to Cyprus, i.e. a jurisdiction in the European Union where it would be possible to open its representative office, a trade company or an entity to be responsible for administration of business. Many people are leaning towards Estonia wishing to take advantage of its friendly taxation system (profit tax is paid at the moment of distribution of dividends and not at the moment of calculation of profits for an accounting period) and relative simplicity of business processes (including registration and administration of companies – Estonia is often referred to as “digital country”). And if we analyze the history of the development of global law firms we may conclude that, as a rule, they follow their client. It is rarely the case when law firms enter a new market ahead of the clients – it is too risky.
Among the important factors was also the shared language as soon as we share shared history and the Russian language, which is quite actively used in the business communication in Ukraine, is similarly used in Estonia very often. And, as soon as the level of the English language proficiency is considerably lower among Ukrainian clients they find it much more convenient to communicate with lawyers who speak the same language when they discuss matters of the EU law. If we talk about our firm the shared language will allow to painlessly integrate the new office into our corporate structure since 100% of our employees in Ukrainian and Russian offices fluently speak the Russian language.
– Are you going to employ local Estonian lawyers to work in your office in Tallinn?
– All the lawyers will be local. We never practice sending so-called supervising “paratroopers”. Legal business is built on trust and the lawyers will have to work on a local level. Though we share shared history, the present is totally different. In the course of past years our countries have developed different mentalities, the state authorities communicate using the state official languages. This is why we rely onto local lawyers.
– Will you not rely onto the potential local clients while stepping your foot onto the new market?
– Why not? We have opened a representative office not to service sales from Ukraine and Russia. You may have a look at our office in Moscow. It mainly works for the Russian market and many of its clients are the representatives of the Russian business. Of course, it has ties with Ukraine, but in general it is quite autonomous. We expect that the Estonian office will fully serve the internal market, and the projects transferred form other our offices will become a certain “addition” to the local legal practice.
– How does it agree with your previous statement that lawyers follow their clients?
– It’s like having an “anchor” customer in a supermarket. When you have one you understand that there will be visitors. When you have a client who entered the market you understand the foundation on which your new office will be based. It is hard to build legal business from scratch. Let’s say you open an office in Central Africa and… what then? No connections with Ukraine, no shared history, and the mentality is totally different.
Existing basis allows to get started. Further development of business depends on the local lawyers. What counts is the international contacts. We have a large number of ties with global law firms which do not have have offices neither in Kyiv, nor in Moscow or in Tallinn, – we expect that they will be willing to work with us.
Whatever anybody says, Ukrainian market of legal services is highly developed, the leading law firms are very advanced – we feel it at the Russian market and will undoubtedly feel in Estonia. We have come a much longer path, including in the development of the legal media – you may find similar precedents in London, perhaps. Moscow has nothing to talk about.
– Everybody says that Ukrainian legal market is special…
– There is a good reason why there are almost no international players here and is not because there is no money here. Foreign law firms have just lost competition and every appearance of a global law firm at the Ukrainian market raises a question, i.e. how soon it is going to leave the market (in two or in five years).
– What kind of services will you new office in Tallinn focus on?
– Of course, at the initial stage it will not be able to ensure provision of full range of services. The list of our practices will necessarily include corporate law, settlement of disputes, international trade, EU law, and international arbitration.
– How will the new office be integrated into the firm’s structure in the context of management, funding, employment etc.?
– We use our internal corporate network, internal system of document circulation. We have common Crm: client-base. All out offices are integrated into the single structure, all the processes are centralized, the records are maintained both generally in the firm, as well as in individual offices. It concerns not only our foreign offices, but also our offices in Kharkiv and Dnipro.
– Do you range yourself as an international law firm?
– Yes, we do now already. We acquired an international status when we opened our office in Moscow; and when we did it in Tallinn we confirmed this status.
– Are you planning further expansion?
– Currently there are no such plans. We have quite a big firm for the Ukrainian market, but on a global scale we are not so big. Thanks to this we may enjoy a competitive edge of being mobile. Certain law firms are trying to thoughtlessly imitate English or American law firms, we are not like these law firms (with thousands of lawyers all over the world) at all.
And it is awkwardness of such law firms that does not allow them to effectively compete at the local markets; Ukrainian market, for example.
We manage to resolve all the matters in a swift and effective manner. So, we are not making any promises: if we see a business opportunity we will undoubtedly jump into it. We possess a well-established experience and, for example, establishment of the office in Tallinn was carried out much smoother than in Moscow.
Clearly we are not planning anything which will be geographically located very far. Secondly, we do not open our representative offices oriented exclusively at the sale of legal services. We always establish a local law firm.
– Why does multioffice structure of law firm is not widely practiced at our market, not mentioning the entrance of foreign markets by Ukrainian law firms?
– I may only speculate on the motives which my colleagues have. Having an office in another Ukrainian city is not critically important for the development of legal business. A large number of law firms operate from one office situated, as a rule, in Kyiv. Establishment of a new office is a very time-consuming process which requires investments and there is no guarantee that such office will prove efficient. Increase of the quantity of employees working at the head office may prove to be more efficient.
However, there are quite successful examples when Ukrainian law firms open their offices in the Russian Federation, Kazakhstan, Poland etc. For example, our office in Moscow this year was mentioned by international rating lists, for a long period of time we have been well recognized at Ukrainian legal market but, as far as I am aware, we are considered to be one of those few whose accomplishments were recognized in a foreign jurisdiction. And this is a positive signal for me as well.
– What mode of cooperation with local markets do you follow? Whom do you rate as your main competitors in the Russian Federation and Estonia?
– It is early to speak about the Estonian market. Very few know about us and rate us as their competitors there. When we were opening our office in Estonia people were surprised by the fact that a Ukrainian company seated in Kyiv enters their local market. Estonian legal market is quite narrow. There are almost no international law firms. Several companies are working on the basis of franchise agreements, represented are Baltic and Scandinavian brand names. The Big4 firms are also present: they are very active at the Estonian market of legal services. We have not noticed Russian law firms in Estonia yet. This market is quite special, one needs to find its competitive edge and offer it to the client. I hope that we will bring a certain fresh perspective to the Estonian market.
The situation in Russia is quite different. Let me give you an illustrative example. There was a round table in Moscow devoted to development of the legal market. A number of international and local law firms took part in it. And the participants started having doubts where to put our office. Their understanding was that ILFs (international law firms) are represented by British or American law firms, and a Ukrainian firm looks strange in this group. For a long period of time the RuLFs (Russian law firms) have been represented by Russian players, to whom we cannot also be related. Opinions of the parties regarding certain matters differed considerably. As a result the first part of the event the executive of our firm was seated at one side of the table, and the second part he spent at the opposite side. So, I may say that at the Russian market we represent sort of a third party.
– Who are your competitors at the Russian market?
– These are mainly local law firms. ILFs in Russia focus on huge international corporations. The Russian legal market is organized in a somewhat different manner. Big legal firms do not look into every opportunity for the new business. It is we, Ukrainians, are very mobile, flexible and client-oriented. Any big Ukrainian law firm will gladly jump into even a small project, will organize a preliminary meeting at a high level. The situation with foreign law firms is totally different: lawyers are waiting when client turn to them themselves. And no one will bend over backwards because of a casual legal request, even from a well-known company.
– Is your international presence important for your local clients in Ukraine?
– Of course. Big Ukrainian companies regularly encounter the legal problems of international nature. What is different about it is that these matters are not always related to the jurisdictions where we hold our office. For example, we never provide consultations regarding the matters of the English law – it is a matter of principle. Even with consideration of our considerable experience in the sphere of execution of shareholders’ agreements we will not do it, but will suggest seeking legal advice of an English law firm. You can not win all the money in the world, but your services must be synonymous with quality. You need to differentiate between knowledge and skills. Knowledge must be fundamental. Monotonous repetition of skills in a high-level jurisprudence is unacceptable. No client will tolerate this. This is why in the jurisdictions of our presence we necessarily engage assistance of local lawyers. In the cities where we have our own offices we try to work ourselves if the question is within our competence, but we keep our options open regarding the use of the services of subcontractors on narrow-focus requests. Even in Kyiv we may share a small part of the project with our colleagues.
An absolutely different matter is a conflict of interests. When you open a new office you may lose something because of a global conflict of interests. For example, you cannot take up a new client because another office of yours has been already working with its contract partner. Such situations also occur.
– Do you reserve the exclusive right to act as the coordinator of international projects?
– Not at all. In global projects the lead manager is the one who is closer to the client. But if the project is in a different jurisdiction it is the best specialist in the particular field of law who will bear responsibility and lead the project. At the same time, it is the specific side of our mentality that Ukrainian, as well as Russian clients, as a rule, are willing to talk to one lawyer regardless of his competence in particular matters. The same practice applies to the international projects. And it is not so easy to escape the risk of being misinterpreted. The clients are resisting and, all the same, are willing to know your opinion.
– You mentioned the practice of engaging local specialists as subcontractors. Are there examples when you were engaged as advisors on Ukrainian law? Who may initiate such requests?
– Among our clients we have international law firms, sometimes even those who have their representative offices in Kyiv. It happens when a local office has no specialist in particular sphere of law: a partner at a London law firm does not care if the work will be done by lawyers of the Ukrainian representative office of his firm or of another company, it is important to obtain the result and save relations with the client. The level of integration between the partners of international law firms is not so tight.
If we discuss local Russian law firms we may state that they have used our services quite often. Although I presume that with the growth of our office in Moscow a part of out clients will be lost. It must always be taken into consideration. Availability of a steady flow of clients’ requests from a particular country may become a motivating factor for opening an office there. It holds water, in particular, for international law firms, which take time with entering the Ukrainian market.
– Do you consider a possibility of joining an international law form and working under a global brand name?
– When I ask myself this question I always say “no”. There have been no direct proposals, there were rather some kind of hints. There is a number of reasons for this, but the main reason – I do not understand what they can give us. The incomes of partners of the top local and international law firms are approximately the same now. And this problem is similar in the whole world. The second reason is that my law firm for me is more than just business. I have never worked anywhere and, this is why it would be quite painful for me to cede a part of my independence.