Asters’ senior partner Armen G. Khachaturyan discusses how the Ukrainian legal services market will be affected by the economic downturn.
Asters, rebranded last year from Shevchenko, Didkovskiy and Partners, is regarded as one of the top domestic law firms. In this Kyiv Post interview, Asters’ senior partner Armen G. Khachaturyan discusses how the Ukrainian legal services market will be affected by the economic downturn. He predicts fees charged by law firms will be reduced. With a masters of law degree from Yale, and 17 years of law practice across the globe, Khachaturyan’s experience adds clout to his prediction, and practice.
KP: The legal services business in Ukraine seems to have been developing very fast in recent years. Was last year a record year, in terms of turnover for the business?
AK: Yes, I can say 2008 was the most successful year for all law firms in Ukraine, despite the slowdown that came in the end of the year due to the world economic crisis. Ukraine experienced a long period of stagnation starting in 1991 with independence, followed by gradual, then sharp economic growth. Year after year, the number of clients, the profile of projects and the number of our lawyers grew in line with Ukraine’s economic growth. Our law firm experienced a peak in 2008, as did many of our colleagues.
KP: Could you provide some figures, and examples, explaining how Ukraine’s legal services business has boomed?
AK: In terms of revenues, 2008 was the highest year. Our client base increase increased by 15 percent, as did our cooperation with international law firms. Our revenue increased five-fold in the past six years. In 2002, for example, Asters had about 15 lawyers. Today we have 70 and about 120 employees in total. Similar trends can be seen at other top Ukrainian law firms, such as Magisters. We added a litigation group last year. Our workload has gotten heavier. We are getting more complicated, serious work, which is lucrative, such as merger and acquisition transactions, banking, and finance deals.
KP: Has the quality of legal service also improved?
AK: Yes. And it is worth taking note that in the course of this, not only did the numbers of transactions increase sharply, but their complexity.
Look for example at finance practice, which I was involved in more closely. We started a decade ago handling simple bilateral loans, where Ukrainian banks borrowed from each other. Then banks and other Ukrainian companies started to enter international debt and equity markets. Because Ukrainian law didn’t clearly regulate such financial instruments, the structure of these transactions from a legal standpoint was very complicated, and remain so.
It was a challenge, because we had to do the same work as international lawyers do, but under much more complicated conditions. Frankly speaking, not everybody can handle such challenging work.
We are proud to be included in the inner-circle of law firms in Ukraine that can handle such work, including international giants Baker & McKenzie, Chadbourne & Parke, Salans, CMS Cameron McKenna; and domestic leaders such as Magisters, Sayenko Kharenko, Vasil Kisil & Partners.
KP: Has the majority of growth been driven by foreign companies active in Ukraine, domestic business or both?
AK: The proportion between our foreign and Ukrainian clients was about 95 percent to 5 percent in the early years. And then it started to change as Ukraine’s economy rebounded. Today it may be 80 percent to 20 percent for most of the firms I mentioned above.
Law firms are getting much more business from Ukraine’s large companies. They want to tap into international markets, and attract investment through initial public offerings. They are also expanding outside Ukraine making acquisitions in Europe.
KP: What share of legal business in Ukraine is controlled by Ukrainian firms?
AK: It is difficult to establish market share because there are not so many market research studies conducted on this. My impression is that domestic law firms control about 60-70 percent of the market. Of course, this may change with time. The recent arrival of such giants like CMS Cameron McKenna and Clifford Chance is an indicator. There are strong rumors that other big firms, such as White & Case, are interested in opening a presence in Ukraine. But the crisis could have delayed these plans.
KP: With the economic downturn battering Ukraine hard, do you expect a slowdown in the legal services business, or is this one sector which could capitalize on the downturn?
AK: Many law firms expect difficult times, shrinking volumes, revenues and even personnel. But others see the crisis as an opportunity. Much depends on the mentality of the management, how quick the firm is to adjust, redirect operations to the fresh needs of clients.
Legal services will still be in demand. In this new environment, lawyers will be asked to restructure debts, to reorganize companies, to help lower the cost of doing business, to provide deeper tax advice, some employment and bankruptcy advice. There will be less work, but not proportionally less to the economic downturn facing Ukraine. Firms that specialize on a narrow spectrum of services will suffer more. It will be difficult for them to regroup. For larger firms like us, it will be easier to regroup. We will suffer less.
KP: What other changes will law firms face this year due to the crisis?
AK: Many things will depend on the ability of law firms to advertise, market their expertise and services. We plan to go directly after clients, through seminars, publications, interviews. The challenge is to get closer to the client, to get the work.
If the volume of work shrunk three-fold, there will be more competition, as the same amount of firms will be competing for less work at hand. In such a tough environment, you need to ‘invent a bicycle’ in order to stay competitive, to have the edge over your competitor.
Another big challenge for many law firms will be the issue of lowering costs, fees, laying people off. This will be the very last thing that we do. We have not fired anybody.
Of course, salaries need to be adjusted, either directly decreased or pegged to the previous exchange rate. This is especially fair fair with respect to younger lawyers, whose skills do not often deserve the salaries they receive.
KP: Do you expect law firms to reduce their fees?
AK: I do. Law firms are going to reduce fees from 10 percent, which was the regular discount we could afford in good times, and up to 50 percent, which we provided recently to some of our clients. Firms will do that because they will need to keep their lawyers occupied. And if you do a favor for a client in hard times, they will remember it.
I’ve heard some comments from the managers of competitors that rates should not be decreased. But I also know that clients are not ready to pay what they paid last year.
