Date: Thu, 25 Sep 2008
From: "Paul Backer" <pauljbacker@gmail.com>
Subject: Part 7: Choosing overseas legal counsel, Part II, Types of Lawyers and Law Firms.
[Earlier parts can be found here: www.cdi.org/russia/johnson/jrl-2008-survival-guide.php]
Survival Guide to Russia Business, Law,
Regulation and Compliance
Part 7: Choosing overseas legal counsel, Part II, Types of Lawyers and Law
Firms.
By Paul Backer pauljbacker@gmail.com
DISCLAIMER: This article is uncompensated. It is NOT legal advice. Everything herein is personal opinion. It does not represent anyone else’s opinion. It does not address any current or past client or employer matter.
WHY A “SURVIVAL GUIDE”? Chasing dreams starts overseas business. Keeping it operating and in your possession until a voluntary exit relies on your attorney and the 7Ps. Proper prior planning prevents piss poor performance. Have a clear strategy, an eye on your exit, choose the right lawyer to implement. Avoidable failure is a great teacher: the pain, insomnia and regret aid learning. The Survival Guide best practices (assess, tools and implement) boost prospects of positive replicable results.
SYNOPSIS: Whether you divide onsite legal tasks into Establish, Maintain and Exit (see Part 6) or not, someone must be hired to perform them onsite. Many entrepreneurs venturing abroad are surprised that they can’t find or hire a local attorney able to implement their objectives or wind up paying top dollar for ineffective counsel. This can largely be avoided by understanding exactly what types of tasks you need performed, and what drives the attorneys onsite in Russia/CIS, the different types of counsel available, their abilities and limitations. Broadly, there are four basic types: General Counsel, Major, Local and Boutique law firms. Every legal business model contains inherent capacities and incapacities. The challenges in Russia/CIS prove the truism that a Jack of All Trades is a master of none. Which type can help you at a suitable price point?
“Have you recently been represented by the Law Firm of [major firm name redacted by Author]? Were you expecting that your case would have the representation of a Senior Partner, but you found that your representation was handled by a less experienced junior member of the firm? Do you believe this was detrimental to the outcome of your case? We want to hear from you! Call (800) 759-8611. Paid for by General Steel.” Advertisement printed in a U.S. newspaper.
“Never knock another guy’s racket”. Anonymous
Tackling the structural framework of a work environment where one spent fifteen years and where everyone knows everyone is complicated. It leads to wooden writing like “structural framework of a work environment”. It is easy to (unintentionally) hurt someone’s feelings or worse, their business. It is emphatically not my intention to do so. That is why I don’t use real law firm names in this Article. But firs, about what makes lawyers tick.
Lawyers genuinely like and enjoy, but don’t really “look up to” other lawyers. We are not surgeons, mathematicians or scientists with a tradition of gazing adoringly at superannuated colleagues. Once a reasonable professional level is achieved, we are too competitive. It doesn’t help that the business is that of beating other lawyers. Many stay in the profession largely for the winning and losing.
Attorneys do regulatory and compliance work. For corporate and finance folks like me, it’s our bread and butter. Due diligence, M&A, IPO, Eurobonds, finance, licenses and stamps, stamps, stamps. Turning out project finance, transaction, M&A and other documentation exactly the same way every time is a source of professional pride. In fifteen years, not one document turned down by a regulator in any of the two dozen national jurisdictions with completed projects. Once a lawyer earns a leadership position, his core task is ensuring that his team, the younger lawyers train to tackle corporate and finance projects exactly the same correct way every time. There is a certain joy in a perfect widget turned out every time. As the Godfather said, “this is the business that we have chosen.”
Clients need stamps and registrations, we get them. I respect work competently done, but some of it is simply beyond me. I can not imagine being a full time residential real estate attorney in NYC with title, signature, stamp, stamp, signature, sigh. Sort of a modern day above ground burial.
We don’t sit around a table and tell war stories about stamps and signatures. War stories are about wars. It’s a long running argument, but I always believed that the “make someone do something” aspect of law relies much more on pain than on clever arguments and sweeping hand gestures. And there is fascinating legal work to be done internationally.
If you are good with the signatures, due diligence and stamps, you eventually get to do the fun stuff. The life and death work for your clients’ projects. It’s a reason why law professionals (except for the law tourists on their two-three year rotating exile from London/NYC/Paris) come to Russia/CIS and “go career”. There is more fun stuff here.
The hand to hand stuff, finding and hitting a nerve cluster. Using your better experience, connections, organizing skills, local knowledge and understanding of the system to prove to the other guy that God does not exist or at least doesn’t hear him.
Enabling a client with 15% equity ownership to dislocate the 85% owner is fun. Choosing an arbitral site imposing an additional $500,000 to $1,000,000 in costs for a probable opponent is professionally rewarding. Getting from concept to a closed purchase of your firs oil field is keen. A major law firm Partner in Warsaw asked about a decade ago, “did you know that choosing to arbitrate in [redacted] imposed an additional million dollars of costs on my client?” No, I didn’t. Shocking. Simply… shocking. Shame his client stood down, I am sure, he would have found a way to spend his million. It’s what makes law unique it’s not just a paper chase and a process, sometimes it is genuine winning and losing.
Time and readers’ patience permitting, I would like to one day do a piece on the hand to hand combat aspects of law, on the “pain of law”. Suffice to say, at this point, key factors in hiring any lawyer are his batting average and whether he loves the game or is a cog in a machine draining him and your budget. A reader described it as being a “happy warrior”, and well… I think that it’s important. A guy who makes shoes should really like to make shoes. It helps.
If you expect that you will have conflict, hire a lawyer who excels at conflict, if your problems are in Tomsk, get one who can reach out to Tomsk. If you can’t understand what drives your lawyer and what he can actually do for you, and most importantly, his track record, you are halfway to hiring the wrong one, losing your time, your money and maybe your project. Add to the mix hourly billing that may go as high as $1,000 per hour for a Major firm partner, and you are on your way to a dysfunctional relationship.
A word on the ‘famous’ lawyers, as seen on TV. Ever wonder why they are on TV? My persistent impression is that I see the TV famous attorneys as their client heads off somewhere in handcuffs or loses a business. Usually they are holding the “world is watching, the whole world is watching!” press conferences. I guess winning quietly or keeping clients out of court won’t make one famous. As an exercise, visualize how much must go catastrophically wrong for a corporate lawyer’s client to get mainstream media interest. Law is a craft. It’s highly detailed repetitive work done with your hands, like making shoes. Squeaky shoes are rarely good or comfortable.
Second, here I plagiarize Anthony Bourdain (read Kitchen Confidential, it’s both literature and relevant to our topic), a famous person’s name on a restaurant virtually guarantees that he is not doing the cooking. Not critical if the staff was properly trained. Competently trained and managed staff can miracles perform. But, it’s a recipe for disaster if you aren’t actually getting the lawyer that you think you hired, and are instead funding someone’s education and high staff turnover rates. Always ask if you are looking to hire the fancy building and office space or are looking for a project result. Nothing wrong with either, just be clear about your needs.
Finally, if you don’t know how to use magic words and names, don’t. Little could match the spectacle of a foreign investor in a dispute (the other side) blurting out to a judge that “my lawyer is the personal representative of [insert magic name here].” Public decency and decorum are important, no one laughed outright, the guy was losing money on his TV lawyer and his business. Self inflicted insult to self inflicted injury. The quick question would be, if the [magic name] cared, how did you wind up in this courtroom? I would be much more afraid of the guy who hired… umm…, better not tell. Let’s say that a local lawyer with developed administrative resource capacity is valuable, but only in the sphere where he has capacity. As Sean Connery advised in the Untouchables, don’t bring a knife to a gun fight.
Lawyers don’t listen much to other lawyers, we advocate our clients’ views, often independently of their merit. If a client wishes, we spend hours negotiating NDA and non-compete clauses, even if no court on the planet enforces them. You want UNCITRAL as your arbitral rule? A good lawyer will try to discourage you, but if you insist… It’s a service industry, being of service to clients is every bit as important (more?) to client retention than actual batting average or legal ability. Gauging ability is complex as most attorneys start their careers pretty near zero.
A very experienced colleague practicing in NYC said, “What do lawyers really know on leaving law school? We come out knowing very little other than Palsgraff and a couple of other cases.” A reason why very few persons who get law degrees remain in the profession ten or even five years later is that cleverness (a key requirement to enter and succeed in law school) and being useful to a client who may not profoundly care how bright you are, are very different skillsets. How can someone who initially knows nothing about your or any other business help you make and keep your money? Many can’t, and really aren’t meant to. There are four basic types of counsel.
Type 1. General Counsel. The CEO’s and owner’s best friend. Your corporate lawyer managing your company’s ongoing legal and regulatory activities worldwide. He is usually based in your HQ outside of Russia/CIS. Contrary to a fallacy embraced by many CEO and law intellectuals, the General Counsel does not know by heart every contract and invoice that his company enters into. Many years ago, as General Counsel, I probably genuinely shocked the owner of a company active in over a dozen international jurisdictions with over three hundred employees worldwide when I advised him that I didn’t know by heart the employment contract of a midlevel manager in Romania. I did 30 minutes after the meeting and had local counsel working on the matter that day.
Some seem convinced that their in-house counsel is a resident sadist whose chief joy is “creating legal problems”. As in, “we worked in Trashcanistan for years, then we hire X as CLO and all of a sudden we have all these legal problems.” You always had the problems, and X did his job by identifying the legal risks to put in place frameworks to address them. If X is effective, he spends a lot of his time identifying and managing local counsel to solve and prevent local legal and regulatory problems at a commensurate price point. It doesn’t mean that every issue raised by X must be addressed by top management, you run the company, you decide what risks must be tackled, your CLO is staff. That doesn’t mean that his bandwidth should be squandered.
If you pay your counsel several hundred thousand dollars a year and he spends large chunks of his time traveling to Trashcanistan, staying in hotels, and working in a foreign language, in a legal system that he at best has a glancing acquaintance with to address an issue involving a local staffer making thirty thousand a year, that’s not a great resource allocation. You tell X to go to Trashcanistan for three weeks, he will go, but it’s not his core task.
So, what are the in house lawyer’s (the legal director, general counsel, CLO, whatever you call him) core tasks? The general counsel core tasks are 1. implement your objectives, 2. protect your business, 3. free up your time for you to run your business, 4. train and build the best legal department, 5. monitor ongoing legal tasks and 6. make you money. If your general counsel’s office is a cost and not a revenue center as to foreign projects, you may have hired the wrong corporate counsel or profoundly misallocate his bandwidth. And your CLO does more than help you recover expenses and revenue.
He is often the only person in your company solely devoted to implementing your will into tangible projects and initiatives. He is typically project oriented and recognizes that his career trajectory does not include displacing you. He is the one ranking executive at your company whose only goal is to get you back every penny of the taxes owed to your company in far away lands, to get you the best deal possible every time. Most likely, your local General Director doesn’t care that much, he doesn’t want to start trouble in his backyard. Your General Counsel cares. Sometimes, he cares too much and tries to do everything himself in unfamiliar locales.
Some face challenges outside of their abilities and experience. A source of unintentional humor are the CEO who are crushed that their coveted hire who spent a decades swimming sharklike through professional (major law firm) or government politics who turns out to have never actually earned a penny for anyone in his life. He may have been a diplomat or a lobbyist, but he was never a transactional attorney, how could he start now? Give the guy a break, he never did a day of corporate work in his life, he managed relationships. He can get you a lunch with a Deputy Prime Minister or get you included in a Presidential fact finding trip to Absurdistan. He can truly be a powerful asset in his home jurisdiction. It’s a skillset, it’s just, not an international commercial skillset. Perhaps, the most valuable skillset that a real General Counsel bring to the table, is the (forgive the inelegant language) transactional bullshit detector.
A General Counsel sees lots of transactions in lots of settings. I have no idea, how a guy who did fifteen years of corporate transactional work can look at a legal agreement numbering dozens of pages in two languages and tell you that there is “something fishy”. But, we can. Without plunging into minutiae, if we accept that an Aleutian can sense where ice is thin just by looking at it, or an experienced MD can sense something wrong just by looking at a patient, then why not lawyers and contracts? Law is a craft, the more you work with your hands, the more your hands learn.
I once had the privilege of watching a calligrapher in Vietnam painting hieroglyphs. Asked how much? He said, five hundred dollars. I was very surprised. Five hundred dollars is a lot of money in Vietnam, and well… he painted the whole thing in about seven minutes. I asked why so much? He thought about it and said, “You are not paying for the seven minutes to paint this, you are paying for the thirty years it took me to be able to do it in seven minutes.”
As a CEO, your General Counsel is your best friend and ally. He is invaluable to choosing and curating (my favorite Russian word, for a kind of an aerobic form of monitoring) the right representation in Russia and CIS, he just shouldn’t be the one to do your all of your hands-on legal work here.
Who should? One of the other three kinds of lawyers.
Type 2. The Major law firm with a Russia/CIS office. Ever wonder why Major law firms don’t wind up running the world? Much of it is due to their built in limitations. Primary ones are that 1. no single Russia/CIS client is truly important to a major firm unless it’s a worldwide relationship, 2. the guy you meet when you hire the firm is not likely to be the one to do the work, 3. in light of retention issues, young lawyers always have to be trained, 4. very often foreign attorneys just don’t speak the local language, 5. they don’t make their money by fighting, but through servicing worldwide relationships. With very few exceptions, the key major law firm attorney in a Russia/CIS jurisdiction is not planning to stay at the firm or in the jurisdiction.
It is easy and fun to beat up on the Majors. Five hundred legal professionals trained to do the work of five, etc., etc. Anyone who ever saw an email within a major law firm with twelve recipients on two or three continents, each one billing between $450 and 1000 an hour to read and respond to it, knows the unique gamut of emotions that can be experienced by a Major law firm client. Minimum billing units (.2 or .3 of an hour) per every phone call regardless of duration have reduced grown millionaires to rage.
There are structural issues involved with Major firms as far as work onsite in Russia/CIS. Their managerial, intellectual and revenue centers of gravity are decidedly not here. Some are structured in such a way that a Russia/CIS Partner is not a global, but a local Partner, in other words not really a Partner. The centers are in NYC, London, Paris, not in Moscow, Kyiv or Almaty. This shapes matter reporting, management and resolution. It is one of the reasons why many corporate matters originating in Russia/CIS can involve more legal professionals than a rugby scrum. A related issue is that many Major firm expat professional legal staff don’t speak the local language, don’t know or read the local law and may be doing a 2-3 year rotation on their way to greener pastures. One of the biggest issues is the Major firm’s need to train junior staff. Very rarely the Partner you think you are hiring during your initial meeting is doing the actual work.
In some country, somewhere there must be a modest monument to legal memos written through unflagging effort of hundreds of billable hours of first and second year Associates. Don’t begrudge them, they are young, may not speak the local language or alternatively never attended law school in a Western sense, never worked in a business, and they have to learn and it might as well be on your dime. My favorite story is about a client who asked a Major firm about his right to run telecom cable in an urban area to be told that the Constitution of the country provides for fair competition.
Then what’s good about major law firms? Quite a lot. A Bentley may not be the right car or a better car for you, but it’s always a Bentley. The majors pay top dollar and genuinely hire the best and the brightest. I may have been near the top of my class in Georgetown for about five minutes. Some major law firms are staffed by hundreds of lawyers who were ALL the top 5% of everything. Most colleagues whom I have encountered in my profession who have genuinely, lastingly impressed me are Major firm Partners. There is a guy in Moscow (and London) and one in D.C. who (hand on heart) I can honestly say are the best lawyers that I have known.
Imagine the intellectual and professional power of someone who has spent decades in a specific area of concentration. To a certain extent, major law firms can help drive your global business. Many lawyers can write a Eurobond whether for twenty million dollars or three to four billion. A major law firm can write a billion dollar Eurobond and help their client place it. Not trivially, it is a much more enjoyable experience being a major law firm client than a client of the firm of Heckle and Jeckle.
It is nice to tell your golf buddies that you are a Major firm client. An argument can be made that it is much more project effective to invest in key persons than in six foot crystal conference tables, but that doesn’t make it any less enjoyable to sit at a table that costs over ten thousand dollars. Be honest, it’s a pleasure to be represented by a Major law firm.
Then there is what major law firms are unsurpassed at, “death by paper”. Imagine litigating against a firm generating fifty interrogatory questions a week. Every week. Cippolone may have been the first tobacco case won against a Major firm. But, the plaintiff’s law firm ruined itself financially in the process. Properly funded and most importantly, managed, a major law firm can be unstoppable in major litigation particularly on their home turf. Just make sure that the game is worth the candle, as it’s a very expensive candle. This is where the right General Counsel shines and can earn you a multiple of his salary.
Where would I use them? A project over $150 million. An international litigation project where winning is more important than the financial cost of winning. On their home turf, where they are deadly serious about their competitive position and are willing to take off the white gloves. If you need to meet a local Governor, you do not need a Major. If you need to meet two to three Prime Ministers and get them to agree on something like an oil pipeline, there is no substitute. Finally, the Majors are inevitable.
The idea that any client can hire any lawyer is a fallacy. Based on fifteen years of experience only top management and or owners can choose to hire an onsite firm that is not a Major. If you are a mid-level executive you don’t really have a choice. If you hire a Major, pay top dollar and things don’t pan out, you are safe. You hired a Major, paid top dollar, you did everything that could be done. If you hire Heckle and Jeckle or worse, Hecklov and Jecklovsky, and things don’t work out, you may be job hunting.
Nine times out of ten, if a project fails and your superior has to explain, it will sound like this: “Well, I have faith in Jim’s judgment. I did advise him that worldwide we use a Major. Jim went another way, but it’s not really fair to blame him…” Meat in the water. Chum. Try explaining to your Executive Vice President what possessed you to hire a non-Major to save 30-50%. Major law firms always document and show their work, they generate work product. Beautiful work product, arguably not directly contributing to project implementation, but… beautiful. The others, at best it’s a mix, mostly they focus on a project result rather than showing the work.
It’s a balance, as one of my colleagues asks, do you want a life partner who looks every moment like s/he (let’s be careful here) stepped out of a spa or one who can cook and help you raise your kids? And the point is often moot, for overseas projects, only top executive leadership, usually owners can choose Not to retain a Major firm. It’s not good or bad, fair or unfair, it’s life.
Type 3. Local law firm. The past few years saw the emergence of local law firms with 20 or more lawyers in Russia and CIS. The immediate issues with local firms are ethics, showing the work and the level of training of junior attorneys. I am not by any means accusing a class of attorneys of being unethical or poorly trained. And it’s certainly never dull working with a purely local entity. When it functions, it’s spectacular, when it doesn’t, well… I guess, also spectacular.
Properly managed, local law firms are indispensable, they are the legal shock troops of Russia/CIS willing to go and do things to prevail undreamt by any of the Majors. Almost all of the hands-on heavy lifting is ultimately done by locally trained attorneys whether they are in a Major, a Local or a Boutique law firm.
Over the past fifteen years, I worked with local law firms in Kazakhstan, Ukraine, Russia, over two dozen countries. As to the firms that I continue to work with, work product and batting average are uniformly excellent, the leadership profoundly personally ethical (with me) and are some of my closest friends in the region. Why else would I work with them? It is only thanks to this support and relationships that I have not lost a litigation matter in Russia/CIS in 15 years.
It is worth repeating the axiomatic truth that the majority of legal work (particularly compliance, administrative resource implementation, etc.) is done by Russian nationals in Russia, Ukrainian nationals in Ukraine, Absurdistanis in Absurdistan, etc. regardless of employer. If you ever find yourself represented on a local court or an administrative matter by anyone other than a local national you are in real, serious trouble. You can have anyone you want managing the matter behind the scenes, the guy in the court room must be a local. The key issue is who supervises and manages this work.
The issue of organized rather than personal ethics. Russia and CIS don’t have Bar Admission as in the U.S. or some European Union nations. An attorney admitted to practice in the U.S. is subject to Bar Admission and regulation of his professional activities. This is not a joke or a courtesy. There is nothing warm or fuzzy about U.S. legal ethics. You fail in your professional obligations to a client, you can lose your ticket. Four years of college and three years of law school gone. End of the world. Would you like French fries with your order? FCPA is a letter combination unknown to Local Russia/CIS firms.
That is not the case in Russia/CIS. In fifteen years in the region, I am not aware of any local law firm or lawyer meaningfully sanctioned for professional misconduct by a responsible local agency.
A related issue is that junior local lawyers are not educated as attorneys in the sense that this word is used in the U.S. and EU. In Russia/CIS a law degree is a college degree. Professional work may begin in the sophomore year. A student failing an exam generally has the ability to try again, several times. There is no Bar Admission requirement unless you are a litigator. If you are a litigator you must belong to a Collegium, some Collegiums are formed by small firms, arguably sole practitioners. There is no tradition of “showing your work”. It’s not so much a reluctance to show work as a lack of cultural expectation to produce anything other than the client’s result. Sometimes not knowing the details is a good thing, sometimes not. Generally, clients are not best situated to decide when they need the details or don’t.
An additional issue is that purely local firms generally enjoy close ties to the local establishment or a specific branch (prosecutors, police, natural resources ministry, municipal authorities, etc.) of the local establishment. This tends to lead to very narrow specialization where such a firm can truly move mountains. Axiomatically, the interests of any individual client, particularly a foreign client often take a distinct back seat to maintaining the relationships that the local firm sees as indispensable.
Boutique law firms may offer the possibility of getting the best result through blending the capacities of locally based Major and Local law firms.
Next Part, Surviving the Current (Latest, Newest) Crisis, then Boutique law firms and law firm economics.
As always, questions and suggestions to pauljbacker@gmail.com.