This year’s European Managing Partner of the Year, Egorov Puginsky Afanasiev & Partners’ chairman Dimitry Afanasiev, opens up about the challenges affecting Russia and Ukraine.
Over the last two decades the Russian legal market has become one of the most competitive in the world, with international firms piling in in the early 1990s following the fall of Communism and benefitting from an overwhelming tendency to use English law to structure transactions.
Against the competition, one independent firm in particular has stood out for its strategy of aiming to compete with the international players. Egorov Puginsky Afanasiev & Partners is now comfortably the largest local firm in both Russia and, thanks to its 2011 merger with Kiev-headquartered Magisters, Ukraine as well (19 July 2011). Overall it employs around 250 lawyers, including 31 partners, which makes it over twice the size of its nearest international rival Baker & McKenzie.
Last month Egorov Puginsky’s chairman Dimitry Afanasiev was named European Managing Partner of the Year at The Lawyer European Awards (13 March 2015 and video below). Afanasiev has led the firm for the last 15 years, juggling his management responsibilities with continued fee-earning – last year he won 57 new clients for the firm.
But Afanasiev admits that even for a firm so solidly entrenched in its market, the last year or so has not been plain sailing. The annexation of the Crimean peninsula by Russia and the ensuing sanctions imposed on the country by the EU have meant that many clients have eyed both Russia and Ukraine with some concern. Add to that a sharp decline in the value of the rouble at the end of 2014 and you end up with a particularly volatile picture.
However unlike many of its international rivals, Egorov Puginsky has managed to keep attracting lateral hires in the past year. It has recruited from firms such as DLA Piper and Linklaters and also picked up a capital markets team led by the managing partner of smaller rival Liniya Prava, Dmitriy Glazounov, last year (14 March 2014).
Afanasiev says there are both “rational” and “irrational” reasons for Egorov Puginsky’s recruitment success. On the rational side, the fact that international firms are finding that work has slowed makes moving to a local heavweight more attractive.
“The sanctions backfired against Western law firms because there’s not been a lot of work that came as a result of the sanctions,” he points out.
Afanasiev says that Russian clients now seem more willing to choose an indigenous firm rather than an international firm to represent them, whether in Russia or overseas. That makes Egorov Puginsky and its foreign best friends such as Bredin Prat or Hengeler Mueller a more attractive option.
“It’s actually an approach that we’ve been advocating for years. It’s been a very hard sell over the years,” he adds.
Yet Afanasiev says the draw of Egorov Puginsky is cultural as well as market-led.
“The irrational reason is that our law firm continues to inspire,” he adds. “We have an inspirational idea on which this firm was founded – to align with the interests of the countries in which we practice, a major part of which is to attract foreign investment, and make our countries better and stronger through the work that we do.”
He says he and his fellow partners have sought to keep politics out of the culture of their firm, noting: “We’re not playing the political card at all. We don’t have any political stake in this game.”
That has also been the secret to the success of the Ukraine merger. Despite the tensions between the two countries cross-selling between Russia and Ukraine increased last year. The firm operates a single remuneration system across all its offices which Afanasiev thinks is another factor in keeping it united while politicians feud.
“The guys in the Ukraine office are very much like us in the way that they’ve built their law firm and the values that they share, so fundamentally and philosophically we’re on the same page,” Afanasiev argues. “In London where democracy has been in place for hundreds of years you don’t talk about value systems. In new countries like Russia and Ukraine everything is just much sharper and the colours are so much brighter, so being in tune with each other culturally is important.”
He says like its international competitors Egorov Puginsky has seen periods of nervousness from its clients in the past year, and indeed Afanasiev himself was prepared for 2014 to be a rocky year. In the event, although transactional work dropped off, it was compensated for by increased contentious and regulatory work. Over half of the firm’s revenue is derived from litigation and regulatory work is booming as the government becomes more actively involved in issues affecting corporate clients.
A unique selling point for Egorov Puginsky is its English law practice, which is also focused on contentious work. In 2012 the firm hired Herbert Smith Freehills’ Robin Wittering as its first English-qualified partner (21 November 2012). Wittering has since advised on a range of mandates including litigation and arbitration with an English-law angle, including working alongside Macfarlanes in a judicial review case for metals giant Rusal last year (28 March 2014 and 8 October 2014).
Afanasiev thinks the trend for Russian firms to hire English-qualified lawyers will accelerate as international firms downsize in Moscow, mirroring a similar trend in other developing markets like China.
“There hasn’t been a need for English lawyers to adapt themselves to working within a local firm environment,” he says.
For Egorov Puginsky, the foray into English law has paid off and Afanasiev thinks it will continue to be beneficial – even if, as he expects, Russian law will start to become more widely used on transactions.
With the Russia-Ukraine crisis continuing Afanasiev describes his feelings about last year as mixed, with the growing amount of litigation work and the rising rouble compensating for work volumes and price drops last year.
“The glass is half full and half empty,” he admits. “Obviously we would have been better not to have the political isolation. At the micro-level there’s been a panic in the last six months that caused a lot of clients to ask their firms to drop their rates.
“I’m nervous about 2015 but there are some compensating factors for the nervousness in the market, including the good work and the good associates which are coming over to us from Western firms, the increase in litigation and regulatory work and the general optimism that the geopolitical clouds will blow over eventually.
“The Russian govenment has stated that it will increase economic freedoms and reforms domestically as a response to external pressures. Coupled with the currently low valuations in Russian equities – which are beginning to rise again – there is a promise of more opportunities which is starting to lure the investors back,” Afanasiev concludes.
Watch Afanasiev talk about winning European Managing Partner of the year: