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Regional Law Business

Clients have become more demanding about the quality of legal services.

Regional law firms will be growing in the future by taking over some of nationwide operating and international clients from Moscow-based competitors

Positive aspects

The development of the Russian legal advisory services market was steadily linear in 2013, without noticeable bounds or drops. Although law firms' aggregate revenues outstripped inflation by several lengths, they remained a negligibly small to influence national or even regional economic indicators.

One look at the Russian market leader's revenues — 20 times less than its US counterpart's $2.5bn and slightly above the AmLaw200th's $90m —is enough to understand the size of Russia's legal services market.

The Russian situation is dramatically different from America with its stratospheric $100bn shared by the AmLaw200 firms. First, Russian market leaders are not even remotely comparable even with the second-tier US firms. Second, the gap in revenue between the leader and the hindmost Russian law firm is as great as two orders of magnitude; and third, class inequality is staggering even among the top ten Russian law firms where the revenues of any one may be several fold greater (or smaller) than those of the firm on the next line.

The share of legal advisory services industry in Russia's economy is even less than the statistical error, which stalls the so much talked-of reform of the legal services market, specifically, licensed-only legal representation. The lawmakers and regulators are not interested in such a trifle as legal business, and I find this good, because the time is not yet ripe.

Another positive aspect is that clients have become more demanding about the quality of legal services. It appears that business has tasted, tested and tried trial and consulting counsel, and become choosy and quick to change them. Three reasons underlie this positive tendency:

  • first, quite a few companies operating nationwide charged their in-house counsel with the task to select and supervise retained independent professionals, which raised the consumer culture in legal services, tightened requirements for law firms, and improved their quality indicators;
  • second, the legal business stepped into the limelight, became public and proactive in the media and generally in society, disclosed its financials, and claimed national and international ratings; and
  • third, the firms have began to collaborate and exchange competencies to provide their clients with better quality services.

Higher quality expectations generated by international and large national businesses, have also affected firms in Russia's outlying regions. This was partly due to international clients expanding their business outside Moscow and retaining less expensive and more knowledgeable local counsel. The new trend has stratified the once homogeneous regional marketplace: local top-class firms stood out and moved in to claim part of the local market previously remotely held by the Moscow-based nationwide and international firms. On the other hand, the same process has separated and marginalized a layer of bottom feeders remaining in the shade at the low end of the market, including grey if at all legal schemes, incorporating fly-by-nighters, and even money laundering.

The super-hot news was that world legal rating organizations which used not to notice anybody in Russia but Moscow-based top domestic and international firms, showed interest in regional legal service providers. Chambers & Partners began surveying Russia's regional legal services market in 2013. Being rated by C&P gives regional firms a chance to attract considerably more international clients and compete in earnest with Moscow and international firms on their home turf.

Negative aspects

The proposed amalgamation of the Supreme Court and Higher Arbitrazh Court was the worst news. True, one highest judicial body is undoubtedly better than two, which excludes schizophrenic case law. But the legal profession is very conservative by definition and takes reform like this with extreme suspicion. Lawyers fear that instead of synergy, the 'merger' will result in an absorption of the better by the worse with a negative effect for the entire judicial system and, consequently, for the entire Russian business. There are serious grounds to fear that the new unified court will leave the positive legacy of the Higher Arbitrazh Court unclaimed, that shrewd arbitrazh judges and their assistants and clerks will not adapt to the new "acid medium", and that the system of arbitrazh courts will dissolve in the general jurisdiction without passing on its technical flexibility and independence.

Russia's regional legal services business is concerned today with the same as players in other marketplaces are concerned with: prospects for the Russian economy. It is stagnating, and we fear a new round of crisis which will make clients' legal services budgets shrink.

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