Burying bad news on Bulgaria: why DLA Piper closed its office in Sofia
10 January 2011 | By Luke McLeod-Roberts
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The timing of DLA Piper’s announcement that it was intending to close its Bulgaria office, which was made on Christmas Eve, seemed like a PR case study in how to bury bad news.
The news was not as bad as it could have been for the staff involved, however. The firm’s local managing partner Anna Rizova-Clegg moved over to the Sofia office of Austrian firm Wolf Theiss along with 11 other lawyers and two support staff. Only three members of the support staff will not be joining them, and two of those will have some interim duties managing the closure at DLA Piper.
Nevertheless, it is hard to see DLA Piper’s four-year record in Bulgaria as a resounding success. Since the local bar imposed a fine on the firm in 2008 for contravening local rules, it has been battling to be able to operate under its international brand, a fight it partially won last year.
The firm has also been trying to do business against a backdrop of an 80 per cent fall in foreign investment for the local economy, endemic corruption and uncompetitive fees.“Things aren’t improving in Bulgaria and many opportunities are developing in neighbouring countries,” explains Italy-based partner Federico Sutti, who along with Germany-based Ulrich Juengst is responsible for the direction of DLA Piper’s Bulgarian practice. “Because international investments dropped, we had to question whether there was a business case.”
CMS Cameron McKenna managing partner Duncan Weston, who runs one of the few international firms with a Bulgarian presence, echoes this reflection on the local market, but ultimately came to a different conclusion for his firm.
“There’s no strategic reason for any firm to be there,” he says candidly. “For us, it’s part of our regional business though, and it’s profitable. We were in there early, having established an office to look after one particular client. This grew into a small to medium-sized office that’s self-sustainable and competitive.”
Weston’s comments about Bulgaria being part of his firm’s regional business are key to understanding the staying power of both his firm and of Wolf Theiss, in contrast with DLA Piper’s shorter sojourn in the country.
While both Camerons and Wolf Theiss play heavily on local knowledge gained from their established Central and Eastern European footprints, DLA Piper’s business model is predicated more on substantial volumes of work from major international clients, usually operating in larger and more dynamic economies. And, according to Sutti, the arguments in favour of operating in this small country, the population of which is less than that of Istanbul, where DLA Piper has just opened an office, do not stack up.
“[Bulgaria] is just one office with a few people,” he says. “We have more than 60 offices globally and we had to choose where to invest. It was difficult because I did like the people a lot, but our decision was to focus on the strategically more important countries of Austria, Poland, the Czech Republic and Romania.”
For Wolf Theiss Bulgaria office managing partner Richard Clegg, DLA Piper’s decision to pull out was the opportunity his firm had been looking for.
“When we opened [in Bulgaria] at the beginning of 2008 our plan was to have 20 lawyers,” he says. “But [with the international financial crisis] we were more cautious. By the second half of 2010 we saw a significant increase in real estate work.
“So when we found DLA Piper looking to restructure its Eastern European business it made a lot of sense. We had strong corporate, banking and finance [expertise] on the Bulgarian side, while DLA Piper had real estate and compliance clients more on the international side.”
The deal will also allow Clegg to practise in the same firm as his wife, Rizova-Clegg. That said, Clegg emphasises that it was not marital ties that clinched the deal, pointing out that “there’s a pretty strong process we had to go through” and citing the pull of his wife’s expertise in the nuclear sector.
Rizova-Clegg herself claims that once DLA Piper’s board told her about its decision to close its office she had “three main options” of alternative homes. Her decision to opt for Wolf Theiss was motivated by wanting to be at a firm that is committed to the local market. And DLA Piper is obviously not that firm.
“Bulgaria’s not a market where we can have a leading role and our goal is to play a leading role in all markets where we operate,” comments Sutti.