Ten years ago, Lidings became the first Russian law firm to focus exclusively on representing the interests of foreign businesses in Russia. It’s a bold decision that has borne much fruit. By their own example, Managing Partner Sergey Aksenov and Lidings Partner Andrey Zelenin have shown that a young, home-grown legal business can offer top-quality services to foreign companies at a reasonable price. The firm’s founders sat down to tell us why industrial specialization is better than division by areas of law, and why it’s so important to pay particular attention to the development of client areas. We also discussed the latest crop of legally-themed reality shows: “Attorney’s Monopoly: Build Your Own Concept of Market Regulation” and client matter nicknamed as “Liquidation by Billing.” Along the way, we learned some surprising details about the family ties that bind one of our heroes to Russia’s theatrical and legal elite.
Please tell us the story of the firm’s founding and the subsequent stages of its development. What led up to its creation? Have the original reference points stayed the same ten years later?
Sergey Aksenov: In 2006, virtually no players on the domestic legal-services market were actively cultivating industrial practice areas. This is what allowed us to become the first law firm in Russia-oriented primarily on industrial specialization. The second key to our success was concentrating on advising foreign business. This was prompted by the higher consumer value foreign companies operating in Russia tend to place on legal services. Focusing on foreign business, we began using all of the classic techniques for fostering client relations: cold-calling, meetings, systematically keeping clients briefed on impactful legislative changes, and participating in industry events.
As a result, we ended up getting acquainted with representatives of real businesses – both those already active in the country and those planning to enter the Russian market.Mostly, these representatives were the heads of legal departments, branch office chiefs or regional managers. The process of their move from one company to another gave us additional advantages in terms of expanding our client portfolio. As a result, in the span of just three-to-four years, we managed to form a client pool to serve as the foundation for building our future business.
Today, we advise roughly 450 companies from more than 45 different countries around the world, and we continue to acquire new clients every day. Notably over 90% of these clients are foreign companies. More than 50% of our earnings are generated in foreign currency thanks to payments remitted from abroad, resulting in an interesting financial situation: given the current exchange-rate differential, we’ve been able to substantially build up our ruble -denominated financial assets, which in turn has allowed us to index our employees’ salaries and maintain our in-house benefit packages and education programs at an impressively-high level.
We’re now facing an even more ambitious task – the firm’s upscaling. We not only see market opportunities to get it done, but have the necessary resources at our disposal towards that end as well. We’ve already taken a number of steps in this direction. Firstly, we’ve expanded our “Moscow City” office which, in the event of a major merger or the acquisition of a new team, will allow us to accommodate up to 30-35 additional employees. Secondly, we’ve earmarked special funds for investment initiatives.
And thirdly, we’ve developed and implemented an effective and transparent partnership model.
Andrey Zelenin: This may all sound a bit naïve: a bunch of lawyers got together, decided that they wanted to work with foreigners, and started writing about it on their website. In fact, we’ve done a great amount of work, and that’s what has allowed us to seize a leading position on the Russian market.
From the outset, we created an internal system of communication similar to the working model of a foreign law office. At our office, we tried to communicate in English only, and looked for employees with experience working at foreign firms familiar with the culture of interacting with foreign clients.
The willingness of our clients to pay was matched nicely by our preparedness to render services at the level to which they had become accustomed at home.
If we recall the distinguishing feature of the domestic market at that time we will see that entering the Russian market, mid-sized businesses were downright afraid to retain a Russian law firm. At least they didn’t know whom to approach. Even in the best-case scenario, ratings only cited three-to-four domestic firms, and it was impossible to sort out their services because their websites were only published in Russian.
In the end, they wound up retaining the local offices of foreign firms and paying exorbitant amounts for basic services. That’s precisely why our strategy centered on becoming a Russian law firm that could be a viable alternative to the major foreign players.
On the website of a Russian law firm, the “Services” section was typically broken down into categories such as civil law, criminal law, some other kind of law… Everyone tends to emphasize the branches of law in which they specialize.
It’s a completely different situation with foreign firms. Some advisors, for example, represent respondents in product liability cases – and that’s it. In other words, the entire practice is built and rests on a single basic case. Of course, that approach doesn’t work in Russia: the market is smaller and it is more difficult to divide it into such precise segments.
It was clear to us that we should move in the direction of segmentation and specialization not so much in terms of legal issues, as much as in terms of specific client areas. We approach the client and explain that we’re not just good at dispute resolution – we know the intricacies of his business and how best to manage them.
We don’t tell the foreign client about how we would go about handling an abstract task, but about how well we understand his concerns about doing business in Russia. With respect to each of these concerns we offer a number of possible solutions, from which he chooses the one he finds the most acceptable.
Lidings’ industrial specialization in the pharmaceutical sector is widely known – not just on the Russian market, but on the foreign market as well. How did you come to the decision to concentrate on this particular area – spontaneously or by weighing the pros and cons?
Sergey Aksenov: It was our business plan from the outset. We did global research in various industrial sectors, and concluded that pharmaceuticals had formed a sufficient client pool and had the potential for further growth and development. It was this area that became the primary vector of our investments.
I must stress that pharma is just one of our many industrial specializations – it’s our tremendous success in this area that has led to its elevated prominence in our practice.
For a firm with a ten-year history, Lidings has a pretty unusual name. In the early-2000s, the legal business primarily chose names on the basis of the firm’s founding fathers, adding “& Partners” at the end. What does your firm’s name mean – or symbolize?
Andrey Zelenin: We understood that a “family” name would be a losing strategy for us that would simply lump us in with all of the other local firms whose names are unpronounceable to foreigners (although our names weren’t really that much of a mouthful to begin with).
The company’s name had to sound good, be easily understandable to foreigners, and contain the special meaning we wanted to convey. Lidings – resembling “leading” – has an obvious harmony and consonance, I think. On the other hand, it’s a word that the Russian client has no problem reading as well.
Incidentally, a funny thing once happened. Sergey was on a Scandinavian cruise and sent me an SMS: “Sailing past Lidings.” As it turns out, Lidingö is a Swedish city. That has nothing to do with the firm’s name, but from time to time, we still get internship applicants expressing their interest in working for a “Scandinavian” firm. We always say: “Don’t let us keep you waiting then!”
Embarking on the second decade of your corporate journey, it’s time to tally past results and discuss plans for the immediate future. How do you see the firm’s development moving forward? How has this vision been impacted by the crisis and the sanctions?
Sergey Aksenov: As I already mentioned, the main thing that we’ve managed to accomplish over the past ten years is to form a quality client pool of stable companies with whom we can continue working in the future.
What’s more, we were also able to build an amazingly-effective and transparent partnership model. It’s a model that lets us effortlessly take on new partners, mentoring them from the inside, and calculate the appropriate bonuses and fees. Everything is eminently clear to everyone. No one has to prove that he or she has done more and therefore deserves to be promoted to a higher position.
One of our key achievements has been our tremendous success in creating industrial specializations. We’ve done everything possible to earn a solid market reputation, and our clients would attest that we’ve managed to do that.
Above and beyond pharmaceuticals, Lidings has other practice areas that we’re in the process of strengthening and refining. These include the banking and financial sector. In order to cultivate these new areas, we’ve retained a specialist from Norton Rose Fulbright – Dmitry Gravin. He’s working on some very interesting projects. For example, we’ve already implemented a number of multijurisdictional syndicated-lending deals featuring the application of Russian, English, French and Chinese law, and shepherded a unique transaction involving the issuance of bank bonds underwritten under irrevocable offer by the parent company. For obvious reason this certainly isn’t our primary thrust nowadays, but we are confident that the situation will stabilize.
Turning to financial institutions, it’s important not to obsess about the banks, but to recall insurance and other financial organizations. The debt insurance market is experiencing robust growth, and work is underway on leasing in the aviation industry.
Our litigation and bankruptcy practice is also expanding. We’re banking on growth in this area. Most of our new employees arrive on positions in dispute resolution practice. We have a number of key clients in this area who represent a significant percentage of the firm’s revenue.
We’re planning to strengthen and bolster our team with new specialists. We’re going to be geared primarily towards human resources – towards the people who come to join us. It is their experience that will guide us in terms of where to be moving.
Andrey Zelenin: The main achievement that we’ve succeeded in gaining – and something that’s turned out to be vital not only to us but to industry as a whole – is something that we’ve managed to prove through our own example: a young Russian law firm is more than capable of servicing foreign companies. We’ve demonstrated how industrial specialization works from the standpoint of jurisprudence and firm management. Obviously, this experience has come in handy: some of our colleagues have already started following our lead.
Lidings also boasts a number of innovations – new bits of legal and marketing ingenuity – that so far have no market comparables. Once we’re in a position to implement them, they will aid in the growth of the company and the market as a whole.
Over the next decade, I believe the most promising areas will prove to be IT- and media projects, the high-tech field. It will be exhilarating to work at the intersection of jurisprudence and technology. In this area, business is outpacing development of the regulatory framework, and we’re trying our best to tailor our legal form to fit the actual emerging substance.
We have some fields and practice areas that we intend to build on and vitalize. We’ve created the right partnership system, so now we need the right infrastructure to gather individual specialists, teams and businesses and use Lidings as the springboard for organizing a more solid structure. It’s a time of new discoveries, and what’s required is simply investing in them by attracting new specialists, expanding our practice areas, identifying new opportunities, consolidating and creating new alliances. In stable times it’s difficult to shake up the market – against the backdrop of today’s turmoil, it’s much easier to get deals done.
Lidings employs a so-called “open partnership” system. Please tell us what it’s all about.
Sergey Aksenov: Our system isn’t anything radically-new. We took it from the classic model of Western legal business and adapted it to Russian realities. Our basic partnership model consists of the usual elements, but there are also additional options, such as percentages for project generation and execution. In broad strokes, our partnership formula is the classic lockstep, in which there’s a graduated component from zero to one hundred. Each partner is assigned a certain grade. Those who fall below a grade of 50 are offered additional incentives: 20% of the fees generated from a new client they brought in and 10% of their billable time spent on the existing firm's matters.
A newcomer who has grown from senior associate or counsel to partner joins the structure at a grade of 20. Someone arriving from outside the firm starts at a rung appropriate to the book of business he or she brings with them.
Moreover, any partner who has risen to a grade of 50 can easily say that he or she is fully satisfied and happy to stay at that rung – if they are bringing in lots of new clients, for example, they would not be willing jump to the next level and miss out on a bonus of 20%.
The firm’s core practice areas are corporate and M&A, and dispute resolution. Does Lidings employ a system of working with companies based on territorial distinction?
Andrey Zelenin: We view Russia as a single jurisdiction. We have a representative office in St. Petersburg, but it’s not a territorial division. We’re tracking more towards development in specific jurisdictions, and right now – that’s China Desk.
Lidings opened an Asia stream back in 2006. Clients from China, South Korea, Australia and Japan have always formed a large part of our portfolio. Today, the sector has activated even more, with the effect that we’re currently operating in a number of incarnations.
First and foremost, we’re building constructive partnerships with Chinese law firms. There are a number of companies with whom we’ve built fantastic relationships and are currently pursuing joint projects.
No less important is our direct work with the Chinese target audience. We travel to China several times a year, meeting not only with the representatives of Chinese law firms but also with Chinese clients – both current and prospective. Our goal on these trips is to get acquainted, talk, and learn about potentially-mutual interests.
Let’s turn to the recent failures in attempts to achieve meaningful arbitration reform. What unpleasant surprises does the reconstituted arbitration process have in store for attorneys and business following the entry into force of the Law on Arbitration?
Andrey Zelenin: The biggest surprise is the fact that the new law emerged at all. The bill had been discussed, debated and commented on for an extended period of time, ultimately garnering a negative conclusion from the Presidential Administration. Nevertheless, in November-December 2015, the document literally blazed though its second and third readings, becoming effective law – on paper, at least. Before proceeding, I don't want to touch on its hits and misses before we see it actually working. We’ve been witnesses to numerous instances in which what initially appeared useless on paper turned out to be a marvellous working instrument in real life. And the converse has also been true – we’ve seen cases where the theory seemed perfect, but ultimately fell apart and withered away in the face of real-world application.
The Law is a reality for which we’ve prepared both ourselves and our clients. The most interesting thing from a practical standpoint is the arbitrability of corporate disputes. A positive point worth mentioning is that now the retired judges will be allowed to be elected as arbitrators.
The universal mission of reform was to liberate the arbitration system from the “pocketed” method of dispute resolution. Whether or not it will work – only time will tell.
What trends have dominated in case law following the consideration by the RF Supreme Court of the case involving the award by the Gazprom arbitration tribunal of 60 mln in debt recovery from Gazprom affiliate? What are your personal views on the matter?
Andrey Zelenin: If one of the parties to a dispute is the member of an organization with its own arbitration court, does consideration of the dispute at that venue violate the principle of impartiality? The RF Supreme Court doesn’t think so, and I’m partial to that view.
We’re frequently confronted with confusion between a panel of arbitrators and arbitration institutions. One involves a body of arbitrators, the other – a structure that administers a process. A further adjustment is made by Russian realities.
All you have to do is imagine three arbitrators sitting in a Gazprom conference room, talking on a Gazprom telephone, writing with Gazprom pens on Gazprom stationary and you can easily surmise the extent of Gazprom’s influence over the outcome of the dispute.
It’s the job of lawmakers to resolve this difficult issue.
But why are we talking only about Gazprom? Let’s at least also look at the Arbitration Tribunal at the Russian Union of Industrialists and Entrepreneurs (RUIE). The organization’s membership rolls boast virtually all of the country’s big business. Should the courts really get involved in blocking it and preventing it from considering disputes?
On the whole, there are plenty of opportunities for abuse, and they won’t simply disappear instantly in the wake of the adoption of new legislation.
The concept behind regulation of the legal-services market has been castigated not just by the idle, but by advocates themselves as well. It’s mainly being supported by its in-house lawyers, who are this far being left aside by the drafters. Should everyone be forced under the same umbrella, and if so – how should this be accomplished? Does the concept contain a viable and community-supported model for market transformation?
Andrey Zelenin: We clearly don’t have enough American-style lawyer shows. The professional community, through its joint efforts, is creating these shows in real life. One of these shows involves the very concept of market regulation. We’ve seen almost all of these series. It’s impossible to say who’s the protagonist and who’s the antagonist. There’s a web of contradictions, unavoidable in a situation defined by the overarching collision of different interest groups.
The profession needs regulation. However, I am utterly convinced that today’s regulation of advocates is not what’s universally required or even in the best interests of members of the bar themselves. It has to be reviewed and adapted to the new realities of our time.
Let’s recall how the profession has evolved in Europe and the United States. It’s a process that has unfolded not over decades, but over centuries. So, no matter what, we’re going to have to start somewhere. Kicking the reform “can” endlessly down the road won’t result in anything good. The market will just become more of a wild frontier.
Should everyone be “herded” into a regulated profession? As an outside counsel, I say yes. All lawyers, including prosecutors and judges, must be armed with confirmation of their competence to practice in their given area. In my opinion, a college degree is simply not enough. There must be a system of training between graduation and real-world legal practice confirming that the person is professionally fit for service. This is a commonplace model that has proven its worth in the field of medicine. All graduating students enter a period of internship and residency, where they have the chance to apply their newfound knowledge in practice.
Could you tell us a little bit about how the sanctions have impacted the legal business? Can attorneys offer sanctions-related consulting services, and if so – would clients be interested in them? How often do you get requests for the formulation of a ready-made anti-sanctions business model that might envision, for example, a new structuring of economic relations with Russian counterparties covered by the sanctions?
Andrey Zelenin: If we’re talking about the reciprocal sanctions that Russia has imposed, I don’t think the move calls for particular specialists. Any qualified paralegal can read the document and tell the client what products can’t be imported into Russia and what companies aren’t cleared for operation within the country.
Comprehensive consulting on the American and European sanctions that have been introduced, on the other hand, can only be provided by an attorney in the respective jurisdictions.
If we’re approached for advice by a Russian company whose activities are covered by the American sanctions, the only thing we can do is to suggest a number of American or European firms who are universally recognized as sanctions experts.
A Russian law firm staffed by Russian specialists can offer consultations on how the Russian sanctions – and foreign sanctions – operate in the Russian courts: how our courts treat, for example, the refusal of a counterparty to deliver goods to a domestically-based company, or the barring of Crimean citizens from the MasterCard and Visa systems.
The press has reported that the cumulative effect of the sanctions and unstable economic situation has been to drive some 60 global corporations from Russia over the past two years. Which of your clients have you lost for those reasons?
Sergey Aksenov: Thanks to our industrial specialization, we’ve managed to avoid those sectors that have been the hardest hit by the sanctions.
Of course, we’ve also seen a number of liquidation projects. Actually, one of our very first cases involved the liquidation of the Russian division of a Swedish autoparts maker. As an attorney, it doesn’t particularly concern me why a client leaves: because of the sanctions, because of the crisis, because something went wrong or because the plan is to close for now with the intent of opening up again at some point in the future… The essence of the services we offer doesn’t change because of that.
As a businessman and citizen, on the other hand, it pains me to say that one of my clients is winding-up business in Russia. But, that’s life…
I can share one amusing anecdote with you. Our client needed to liquidate, and he paid for it at an hourly rate. In our internal system, we referred to the project as “liquidation by billing.” We joked amongst ourselves afterwards that it was our bills that had driven the client out of business.
At the height of the sanctions episode, we liquidated an oil business in Khanty-Mansiysk. Of course, it’s not particularly pleasant to lose a source of work. But then, attorneys are a special breed in that respect: we can do quite well even when everyone else is doing badly.
The sanctions and economic situation as a whole are like new leads which, even as they impose new restrictions, still clear the way for new opportunities.
Naturally, we’re looking ahead. Having learned to work and collaborate with foreign clients, we can expand our horizons. We’re building up our share of Russian business – there are plenty of interesting Russian clients we’re helping to enter the foreign markets.
You mentioned development of the Chinese desk. For most companies, Asia became a mainstream recently, while at Lidings, a Chinese organization was one of your first clients. Please tell us more about the emerging Chinese trend and corresponding practice area.
Andrey Zelenin: The key distinguishing factor in the Chinese practice area lies in the country’s unique culture of doing business. The Chinese in Russia are very ambitious, endeavouring to do everything they possibly can to achieve their aims using all means at their disposal – and not always strictly-legal means. For instance, one of our Chinese clients, whom we represented in court, demanded repeatedly that we meet separately with the judge to discuss the case over a “cup of tea.”
That said, our Chinese clients are very different and diverse. Quite a few Chinese companies have been built according to the Western model. In working with them, you get the real sense that your client is a major European holding. And then there are the traditional Eastern-type organizations. We get a visit from the representative of such a company: he doesn’t speak Russian, doesn’t speak English, is being accompanied by an interpreter – who only thinks he speaks Russian but actually doesn’t. In the end, we manage to convince them that, for the purposes of better communication, we really need a Chinese attorney who can speak “on the same level” with us. And it turns out that they didn’t want to sell but to buy after all, weren’t in debt themselves but were owed a debt after all…
Turning to our China-related matters, I can say that, despite the crisis, it’s still the same corporate business and M&A. Virtually all of the Chinese automakers entered the Russian market with a certain degree of Lidings’ participation. A great many Chinese projects involve real estate and land, there are agricultural start-ups in the Far East, and the IT sector is experiencing robust development. Chinese companies are widely represented in major Russian Government initiatives. There isn’t much litigation – only a couple of court cases involving a Chinese counterparty.
One of the key points in doing business with the Chinese is pricing. It always prompts lengthy discussions: the Chinese love discounts and are always looking to get some services for free with the promise of interesting projects in the future – but no guarantees.
Name three of the main things that set Lidings apart from the other players on the legal market.
Sergey Aksenov: Large client portfolio, well-cultivated industrial practice areas, and open partnership.
BEHIND THE SCENE
What’s your default emotional state?
Sergey Aksenov: Each and every day, I get a huge amount of positive energy and drive from just about everything: from the beginning of the new year, from new challenges, new business assignments, new people, and so on into infinity. It’s very important to constantly impart this positivity to your colleagues and the others around you – it helps them become more positive themselves.
Andrey Zelenin: Thoughtfulness – I sometimes tend to think too much.
Do you have a secret? Tell us about it.
Andrey Zelenin: It’s not a secret but not everyone might know that a prominent Russian actress of the beginning of 20th century Maria Nikolaevna Ermolova is my great-grandmother. Incidentally, her husband, Nikolai Petrovich Shubinsky, was a renowned Moscow-based attorney-at-law who studied under Plevako, so I guess I have jurisprudence in my blood.
Do you have any bad habits?
Sergey Aksenov: My constant impulse is to look at my phone. In general, all lawyers have a bad habit – a vice that not all of them recognize as harmful – and that’s multitasking. It might seem as though the ability to handle several tasks at once would be an advantage. But over time, you begin to understand that you’re incessantly breaking away for incoming email, social network updates, news feed – and all of it has an incredibly-negative impact on professional and emotional performance.
It might be a cliché, but many people can’t hold a business meeting or spend the evening with their family without getting distracted by all sorts of gadgets. That’s the real bad habit – it may not have appeared that long ago, but it’s really hard to get rid of.
Your favourite fairy-tale hero.
Andrey Zelenin: I have a favourite character, but it’s not exactly from fairy-tale. My absolute favourite is the Belgian comic-book hero Tintin.
Where do you see yourself in 20 years?
Sergey Aksenov: The legal business is a business built-to-last. Under the right management, it can thrive for a very long time and continue to generate good revenue. We’re young, so we still have many years of active work ahead of us!
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