Saudi Arabia: Keys to the kingdom

Clifford Chance’s establishment of a professional partnership with Saudi Arabian firm and long-standing association partner Al-Jadaan made headlines early last year.

The move allowed Clifford Chance to formally establish its presence in the kingdom through its own legal framework, and own 75 per cent of the business.

The stability this brings the firm should not be underestimated. It could set the standard for every future launch in Saudi Arabia.

Clifford Chance is now no longer reliant on a single Saudi lawyer to sponsor it and head up its office and bank accounts. If its relationship with one of the Saudi nationals comprising the 25 per cent Saudi stake of the business disintegrates, it is no longer without a vessel for its work in the country. Instead, it can locate another suitable Saudi candidate to take the lawyer’s place. All of a sudden, the volatility that has plagued Western firms trying to establish a bridgehead in the Kingdom of Saudi Arabia (KSA) can be managed.

The new team includes two Al-Jadaan partners, banking partner Abdulaziz Al-Abduljabbar and corporate and capital markets specialist Khalid Al-Abdulkareem. Mohammed Al-Jadaan remains managing partner of Al-Jadaan and, together with the rest of the Al-Jadaan team, will now focus on litigation, mediation, strategy and structuring-focused advice. He will continue to support Clifford Chance in an advisory capacity.

Clifford Chance Riyadh managing partner Tim Plews told The Lawyer last year that he believed the firm’s professional partnership with Al-Jadaan would set a trend.

“There’s a new generation of Saudi lawyers who will try to sell this as their model,” he commented.

The Saudi legal market can be volatile, but while Clifford Chance’s solution is clearly an evolutionary step in the legal market in the kingdom, is it a feasible model for every firm and how quickly might it take root?

Furthermore, what is the best approach to setting up in the kingdom, how are firms choosing to establish themselves now, and how might this change?

This report takes into account key trends in the Saudi market and outlines why the kingdom is such a difficult place for firms to conquer.

How to secure a licence

A Clifford Chance-like structure will not necessarily suit Saudi lawyers since they will have to sign an arrangement that allows them less freedom. Currently, firms that choose not to follow Clifford Chance’s lead (or who cannot find a local lawyer who is happy with such a structure) but still want to establish themselves in Saudi need to find an association partner.

This partner must be a Saudi national. Because the law in Saudi Arabia is such a fledgling profession, the number of Saudi-born lawyers is low. The number of Saudi-born lawyers who are also suitable candidates for international firms to partner with – in other words, who have relevant experience of cross-border work – is even lower.

Rules for setting up an association require firms to be in line with local regulations. International firms must apply to the KSA Ministry of Justice to validate their association and establish a vehicle to do business in Saudi. The process of setting up an association and securing a licence is lengthy, taking anywhere from six months to a year.

Firms must also apply to the Saudi Arabia General Investment Authority (SAGIA), as does any foreign company wishing to set up in Saudi, for a foreign investment licence. The steps are numerous and involve compliance with many government departments.

Once established, the distinction between Saudi and foreign lawyers must be explicit. Firms need to be able to show what work Saudis perform and what work international lawyers do. What’s more, all front-facing work must be supervised by the Saudi associated partner, even if an international lawyer has done the bulk of it.

When setting up an association, firms have historically scouted the Saudi market for likely candidates and established relationships in a relatively straightforward way: network, relationship-build, pair off.

However, in an effort to minimise the volatility the classic association model can throw up (more of which later), firms have begun to hire Saudis as partners and then use them to establish a base. The partnership is still an association, as regulation requires, but by hiring the lawyer as a partner, firms engineer a cultural and relational shift.

One example of a firm that has taken this leap is Ashurst, which hired Faisal Adnan Baassiri in 2012 to establish its Jeddah office. Baassiri was head of legal at a private wealth management company in Jeddah before being poached by Ashurst and had done business with the firm in the region for years.

King & Wood Mallesons SJ Berwin’s (KWMSJB) recent launch was engineered by two office co-heads, one of whom, the Saudi-qualified Majed Almarshad, was hired by the Dubai office of legacy SJ Berwin in 2011. According to Almarshad, SJ Berwin had been eyeing Riyadh for years and it was the first international office the newly merged firm chose to establish.

In 2012 Allen & Overy (A&O) launched an association with Zeyad Khoshaim, made a partner in 2010, after Linklaters effectively poached A&O’s association with Abdulaziz AlGasim Law Firm, which was up for renewal after a five-year tenure. Khoshaim was formerly employed by Abdulaziz AlGasim.

These tie-ups represent a middle ground between a Clifford Chance-style professional partnership and a classic association, and the firms to establish them are among the most recent to launch a presence in Saudi Arabia. However, the practice of setting up a classic association has not disappeared, as is evident from McGuire Woods’ launch in May 2013, signing a co-operation agreement with local outfit the Law Firm of Badr Alarishi.

It is evident from the table above that, beyond the old-timers of the 1980s and 1990s there was a significant uptick in interest in Saudi from 2006 onwards, continuing until now. This can be at least partially explained by the reign of King Abdullah, seen as a reformer, who has implemented numerous changes in policy since 2005 and has focused on foreign investment.

There is no obvious pattern that can be seen in terms of headcount or partner hires and length of time firms have been established, indicating just how unpredictable the market can be.

White & Case, Baker & McKenzie and Clifford Chance were the first firms to make a foray into the Saudi market and they remain the largest, but aside from these three, size and year of establishment do not correlate. Norton Rose Fulbright’s office has existed since 2005 but currently contains five lawyers, while Clyde & Co’s headcount is twice that number, although it was established four years later.

It is not a case of the biggest or most elite leading the crowd to Saudi. While the first Western firms to establish a presence in the region were American, from that point on, Brits took the lead until around 2010, when Latham & Watkins decided to launch in the kingdom, poaching White & Case’s sponsor Mohammed Al-Sheikh, partner Christopher Langdon and the maj-ority of the associates from White & Case’s Riyadh office.

While Latham’s wholesale poaching is among the standout relationship breakdowns in the kingdom, volatility is a huge concern more generally.

Troubled history of associations

As with any pairing, differing expectations and perspectives result in problems. An association is a naturally volatile model as the agreement relies on individuals and one common stumbling block thrown up by the pairing of a local firm with an international one is the difference in client strategy.

International firms usually come to the kingdom with a major client relationship already established. As such, they will do everything in their power to keep that client happy, and quality control and availability are paramount. For the firm’s local partner that client may be no more important than others on its roster – and may not naturally fit within its client base at all.

Corpses of former associations litter the Saudi market, with many international powerhouses running into trouble.

These disputes have come to the fore since 2012, with bickering and infighting among firms reaching a new level. Before then there were occasional instances of this, such as Latham’s takeover of White & Case’s team and DLA Piper’s rocky relationship with its partners. But as the market has become increasingly populated by Western firms, the exits and arguments have piled up.

A&O and Linklaters ran into difficulties in December 2012 when Linklaters effectively poached A&O’s association with Abdulaziz AlGasim Law Firm, which was up for renewal after a five-year tenure.

A&O responded the same month by launching a tie-up with Zeyad S Khoshaim Law Firm. Interestingly, the lead partner of its new sponsor, Khoshaim himself, joined A&O as a partner in 2010 from its ex-sponsor Abdulaziz AlGasim.

DLA Piper, although only launching a base in the kingdom in 2009, has been through the wars, chalking up three associations already. In 2006 it announced it was launching with Abdulaziz Al-Fahad, but by 2008 the relationship had broken down.

In response, DLA Piper sent in Saudi lawyer Abdulaziz Al-Bosaily, who had been a DLA partner for a year since joining from Clifford Chance, to save its practice. However, in 2009 he switched to Clyde & Co to launch its Saudi practice, where he remains, and was replaced by Eyad Reda, DLA’s current Saudi sponsor.

Other break-ups include that of Canadian firm Fasken Martineau and Herbert Smith Freehills (HSF), both of which cut their losses in KSA last year. Herbies’ split with partner firm Al-Ghazzawi Professional Association (AGP) was said to be amicable, with the firms saying their strategies had developed in different ways. HSF continues to keep “friendly ties” with AGP and is looking for other ways to maintain a presence in the market.

Fasken Martineau, however, came to blows with Osool Law, with the Canadian firm saying its clients had driven the change and the erstwhile Saudi firm saying Fasken had marketed itself outside of the arrangement.

Trowers & Hamlins, with its Middle Eastern presence still strong in Abu Dhabi, Bahrain, Dubai and Oman, closed its Jeddah office in 2011, less than a year after opening, citing low work levels. At the time it sent office head Julian Sweeting back to London, saying it would service its clients from Riyadh via its association with Feras Alshawaf Law Firm.

One year later, the firm closed that office too. UAE head Abdullah Mutawi told The Lawyer at the time that its one remaining Saudi associate had become frustrated at the firm’s failure to deploy a partner to the office and had deserted it in favour of local ally Feras Alshawaf. Trowers’ tie-up with Feras Alshawaf was dependent on it having at least one employee in the country so the alliance came to an end.

Entering a professional partnership or hiring an association lawyer as a partner are both solutions that firms have engineered in response to the volatility question. The key benefit of switching to a professional partnership system is that it gives the assurance that there is a system in place that does not rely on a particular individual.

How to work the association model

For firms that are in association models with non-partner lawyers, how to best treat the alliance so it remains fruitful is the million-riyal question. Firms need to recognise that just by signing an alliance agreement with a Saudi firm the local firm is not subsumed into its network. It is not a merger or takeover in which the bigger firm’s aims and wishes take priority. Instead, treating an association partner more like a client may be key to conquering the Saudi scene.

Firms that have succeeded in conquering the Saudi market are those that have had a lengthy presence in the kingdom and have engineered key relationships with government departments or government-owned entities such as Saudi Aramco or the Ministry of Industry.

The firms best known as possessing such relationships are the usual suspects: Saudi nationals within the legal industry commonly list A&O, Bakers, Clifford Chance and White & Case as the key Western players.

Loyalty counts for a lot in the kingdom and if a firm enters the market hoping to win big clients through networking it may be disappointed. With speculation that visa requirements will be streamlined, Western law firms’ interest in setting up in Saudi will only heighten. Newcomers will have to study others’ experiences very closely.