Valuable Remarks

Source: Yurydychna Praktyka

Yurydychna Praktyka spoke to Mikhail Ilyashev, Managing Partner of Ilyashev & Partners Law Firm, on some aspects of hiring external advisers and creating effective legal service in banking sector.

– What criteria shall the effective legal service of the bank meet?
– Efficient work of the bank’s legal service is secured by the personality of its head, the combination of a qualified lawyer and a good manager, successful in creating a cost-effective team of specialists in certain areas. The service can be deemed effective if it provides legal support to the bank and, if necessary, engages external legal advisers. In my opinion, neither the heads of legal services not willing to cooperate with external lawyers, nor the heads outsourcing many legal issues can be effective managers.

– When do banks resort to external legal support? Does the head of the legal service always enjoy priority when hiring external legal advisers?
– Many processes within the bank are effectively run by their own legal department. Delegation of routine tasks to an external law firm makes no sense. It means loss of time and money. However, almost every bank implements particularly large projects, or sometimes deals with the highly specialized issues (for which the bank has no specialists). Then it is advisable to turn to a law firm. External lawyers are also engaged for providing legal advice in large litigations inter alia with tax authorities. Engagement of a law firm also means exercising control and detection of mistakes, which might have been made by the legal service, e.g. when drafting a model loan agreement. Some banks engage our company when hiring key lawyers: they ask to hold an interview with the applicant, assess his/her qualification. In addition, we are sometimes engaged in appraisal of the employees of the bank’s legal department. Then we inspect the whole department.

Designation of external legal advisers is mainly the responsibility of the head of the bank’s legal service. Certainly, some owners do not consult their lawyers when choosing external legal advisers. On the contrary, they consider an external law firm as a counterbalance to own legal department. There is also a reverse trend – the head treats other lawyers as competitors and tends to concentrate all legal support within the internal service. This, in my opinion, is a wrong decision, because it affects the quality of work, and the chief goes for broke – he is responsible for all mistakes. The shareholders must understand it, because responsibility of a law firm is quite pecuniary, while responsibility of the department head is more of a disciplinary nature.

– Some banks practice delegation of routine debt collection cases to external lawyers or debt recovery companies – is it an optimization of the legal service or an objective necessity?
– I would not call it optimization. This step is rather conditioned by the need to study a huge amount of documents. Banks had not been focused on debt repayment. Currently, a bank not just suffers losses due to bad loans, it needs to invest much to have the debt repaid. External lawyers, who have extended litigation experience, can work more efficiently using own best practices and know-how. The bank’s shareholders are usually not willing to entrust collection of large amounts with the internal legal department.

– What do clients pay attention to when choosing an external legal adviser?
– Firstly, experience of the law firm in a particular area is important. When hiring a reputable law firm, the head of the bank’s legal department to some extend buys the insurance policy – if any problems arise, he can explain his choice to the management. When hiring some unknown law firm, the head bears risk: he can certainly get a quality service at a lower cost, but if problems arise, nobody will remember the money saved…

– How common are tenders as a method of hiring external legal advisors?
– In our country 90% of tenders are formal. The decision making process is structured so that the winner is known in advance. If we talk about the legal business, it is very personalized: you cannot make a good decision without communicating to the law firm partner, who will be in charge of the project. Cost of legal services has never been a good selection criterion. Experience and reputation of the firm, as well as its team, are much more important. Surely price, if reasonable, is less important. Thus, tenders have not proven efficient.

Cooperation with certain legal advisers in the long run is more profitable. Moreover, if the firm won the tender by offering dumping prices, in the next project it will certainly try to repair losses. It is also dangerous both for the law firm: if it fails, it will have to quit activities, and the bank: it will have to find a new advisor and arrange work with it, which cannot, but affect efficiency.

– What role do recommendations and the famous “word of mouth” play in this case?
– This is perhaps the main factor influencing the decision-making. Recommendation of a reputable colleague in the relevant field is particularly important at the first contact. Personal relationships are very important in our country. The large businessman, even knowing what law firm he wants to engage, will almost never do it directly – he will make inquiries, seek advice… It is a symbolic, mental factor and a wrong belief that the client, who comes to the law firm from “the street”, cannot expect the same level of service as the one, who was recommended. It is not so.

If we speak about foreign banks, they, in addition to recommendations (as a rule, of international law firms), pay much attention to the portfolio of the law firm and its position in the domestic and international rankings.