The Four Generations of Ukrainian Law Firms: Shifting Competition in a Stagnant Market
Ukraine’s legal industry has been going through hard times for the past two years. In a recent market review published by Yuridicheskaya Gazeta, this was the most talked about issue. However, unlike most experts, I don’t think that the crisis is a result of the Revolution of Dignity, judicial reform, or any other extrinsic shock. The thing is, the market is in the middle of an identity crisis.
We see this identity crisis in every rebranding, split or merger, every scandal, and every legal startup. People in old law firms, they simply don’t get that expensive suits, hard stares, inane memorandums, bribes to judges and payoffs to in-house lawyers doesn’t add up to a business model anymore. But new law firms have not yet offered any alternative which is broadly acceptable to all kinds of clients.
Lawyers are by our own very nature reluctant to “rock the boat”, but here’s my views on Ukraine’s legal market in 2017. I promise not to spare any sacred cows.
Ukraine’s legal market is only worth about $200 million per annum.
In February 2017, delo.ua, a popular online business periodical, published a list of the top Ukrainian law firms and provided the following figures:
“In 2014, by various estimates, the volume of the local legal services market was ranging from $500 to $700 million (UAH 12 billion), while in 2015, the figures dropped to UAH 5 billion”.
In December, Yuridicheskaya Praktika, a popular legal periodical, published a list of the top 50 Ukrainian law firms. Only a few of them provided information on their revenue. However, doing some simple math helps to get the figures: the 100 biggest Ukrainian law firms earned UAH 4.69 billion in 2017.
Apparently, the market volume remained at the level of 2016, which is 5 bln. Now do the math in USD. Even taking into account that I’m not very good with numbers and that the figures that appear both in rankings and books may not be accurate, one thing is clear: the market is idle.
However, the most incredible ideas emerge when a market is going through hard times. And guess what, despite all the complaining and despair within the legal industry, I’ve managed to notice many great things going on. I wonder if you’ve noticed, too?
Ukraine’s Four Generations of Law Firms
In March 2017, there was a “Generation Gap” panel during the Legal Services Forum sponsored by the Ukrainian Bar Association. I think that making a distinction between generations of law firms is a brilliant idea. I’m going to borrow it and use it for my unfair ranking.
For clarity’s sake, I should note that generation means not only the year when a firm was founded but also methods and approaches used by its team. You see, there are a lot of newly-established companies that talk a lot about their young and dynamic teams, but in fact, they offer services only some prehistoric animals would make use of. On the other hand, there are numerous companies that have been in business for three decades, but they still manage to move with the times and follow trends.
These are the companies that established the local legal services market in the 1990s: Salcom, Konnov & Sozanovsky, Injurkollegia, ILF, Ryzhyi’s law firm, and other founding fathers. It’s been many years since anything happened or smelled like teen spirit in there.
Except perhaps, at the end of 2017, Kononov & Sozanovsky started to revive the company, hired a good PR person, and merged with Artex, a company owned by Sasha Molotai. I wonder how can they manage to leap forward a generation. No kidding, I want to know.
There is a reason that I did not include Vasil Kisil & Partners on the list. These guys have renewed the company a few times, made it through the second generation. I think that they will stay competitive in their third generation as well. Deloitte is another example of a company that’s keeping up to date and is making steady progress from generation to generation. In 2017, they arranged an in-house co-working space, gave the green light to working from home, and launched a dozen in-house startups. (You can read more here-Ukrainian)
First-generation companies made it through big crises and intergenerational conflicts. A lot of second-generation companies emerged as a result of such conflicts throughout the 2000s, including AstapovLawyers, Arzinger, Integrites, Lavrynovych & Partners, and others.
This generation learned from the previous generation’s experience, but as far as I can judge, they made the very same mistakes. These companies were run by a single leader or a bunch of them, while other lawyers, including partners, had to ask their boss if they could go to the bathroom. Do you think such partners are feeling much job satisfaction? Yeah, exactly.
There were some mergers, splits, rebranding, searches and seizures, high-profile scandals involving the government. That is to say, identity crises.
I did not include Sayenko Kharenko in my generation two list with full intent. They managed to become part of the cryptocurrency hype, announced rebranding at the end of 2017 and finally were shortlisted for FT Innovative Lawyers Awards. If you ask me, they’ve managed to get through their midlife crisis and will remain in the next generation’s top list.
A pic from Ukraine International Airlines in-flight magazine. Leman was just two years old at the date when this text was published.
You know, there’s something strange about Ukraine’s newly-launched law firms. Instead of demonstrating some fresh and innovative ideas and making a real difference versus the old-timers, they’re trying to mimic generation two law firms.
For example, these guys add some years to their experience by summing up their partners’ (and probably associates’) years of experience. I heard that some consulting expert has been advising to do so, but I don’t know who exactly, or what for.
For me, this is the most exciting cohort. Here we’ve got a lot of brand-new companies, so I could’ve made some subdivision, but I won’t: Redcliffe, Everlegal, Berylstone, Aequo, Brightman, Juscutum, and Pronin&Partners.
It is these guys who are biting off mouthfuls of the market that previously belonged to the founding fathers, while the latter are utterly absorbed in some infighting, closed-door deals, and scandals with crazy corruption-fighters. These new guys (at least, most of them) have been struggling to survive, so they invent things and generate ideas.
Chief Innovation Officer
Third-generation companies are, as a rule, innovative. It’s not just that they have billing systems and there’s a Skype ID indicated on their business cards. What I mean is they either produce or invest in innovative products.
Social Media Presence
There’s nothing more boring than posts published by first and second-generation companies like “Please find an article below by the managing partner of Dinosaur & Partners regarding the legal issues facing the production market under Draft Law of Ukraine №9999 “On Amendments to article 99 of the Law of Ukraine….; followed by a pic of the entire magazine spread that actually contains the article. No wonder these guys never get many likes. I believe that such posts get no more than 1k readers.
Unlike their forefathers, third-generation law firms have mastered Web 2.0 and have been using social media to their best advantage. For example, the newly-launched Berylstone (hardfork from Bilotsky, Pukalo & Partners) got over 2600 likes on their Facebook page in just a few weeks. So, they did better that Aequo with 2547 likes and managed to beat Sayenko Kharenko with 2349 likes. It’s not about how they ended up getting so many likes so quickly. The thing is, they understand how important SMM is.
What will these guys look like? We’ll see. But wait, I’ve got a couple of theories.
Theory №1: instead of law firms, there will be platforms, like Upwork or freelancer.com. In Russia, the best-known is pravoved.ru (you can read about it right here). In Ukraine, we’ve got a number of those as well. For example, DarwinLawyers.
Theory №2: Fourth-generation companies are going to be like Bot&Partners. Last year, they released a number of upgrades for their bot . Now it can draw up NDAs, agreements with software developers, and helps crypto-anarchists to get ready for searches and seizures.
Legal tech is a stepping stone. By using it, a law firm can jump straight to the next generation. I’ve been into this whole thing for a while now. There’s much hype, many great people and ideas, little money and definitely plenty of space for new players. In 2017, some projects with decent monetization and strategies were launched in Ukraine.
Thus is the best legal tech project on the market with the beat design, features, marketing and monetization strategies. It was launched by Andrey Horsev and Aleksey Ivankin in 2016. In 2017, there was a real breakthrough in the number of users. In 2016, they had a little over 4k users. For now, the number of users has reached 94k. 90k is quite an increase, right?
Yura Zaremba, an ex-Avellum associate, runs this project together with his brother. I first saw it a million years ago during pitching at the Legal Startup Crash Test. Back then, Yura was an associate at Avellum, but I was hoping that he would leave it for legaltech. AxDraft does some obvious things, i.e. it works to make drafting of standard documents automatic. Lawyers like to talk about automation of routine tasks. Those who are extra-smart promise to do a Word-template sometimes. It was Yura who did it, though: https://youtu.be/fCCe2gvA6dI
This is one of the first Ukrainian legal tech projects. It was carried out by Natasha Vladimirova (who is, imagine yourself, a patent lawyer), Valentin Pivovarov (who is a cool guy) together with Juscutum law firm. They say that this bot is registering trademarks. Honestly, I never used it, but I heard all shades of opinion about it. Recently, they launched trademark registration in the US and got their bot to ProductHunt, the US startup platform. On top of that, it took 12 hours for them to win 6% of Ukraine’s trademark registration market.
Sud na Doloni.
Translated from Ukrainian, it literally means “a court on the palm of your hand” or, in other words, within arm’s reach. This is a great tool that helps to search, study, and visualize court decisions. In 2017, its founders won a contest organized by Aequo and
#StartBusinessChallenge — launched by BRDO in September 2017. A Business Cases service at the PRO Platform for Effective Regulation (https://regulation.gov.ua/startup) — as they call themselves. Now it consists of 25 free online interactive manuals to help SMEs navigate the maze of governmental procedures to simplify starting and operating a business in Ukraine. Right now, BRDO is scaling the #StartBusinessChallenge to the regions, with local pilots already available for Vinnytsia, Mykolaiv and Chernivtsi.
Here in Ukraine, we don’t have Silicon Valley or BigLaw with billions in turnover. However, we have IT startups and a bunch of small law firms which together equals some 250–300 people who are really into legaltech.
Kyiv Legal Hackers (Valentin Pivovarov, Denis Ivanov, Dima Foremnyi & Co)
Legal Startup Crash Test (Dima Foremnyi)
HiiL Innovative Justice (once again, Dima Foremnyi)
European Legal Tech Association (and, FYI, it’s me who represents these guys here in Ukraine).
By the way, I would name Dmytro Dima Foremnyi the person of the year in legal tech, but unfortunately I’m not authorized to hand out awards.
Law firms have been joining the ecosystem as well. In 2017, Aequo made a significant effort: they sponsored a contest for legaltech startups and awarded the winner (Sud na Doloni) EUR 20,000. In addition, here’s a list of those who managed to get in on the act as well: Vasyl Kisil & Partners, Marchenko Danevych, Juscutum, Sayenko Kharenko, Avellum, and finally, Axon Partners. Sadly, there’s no such thing as local investors or business angels with a focus on made-in-Ukraine legal tech startups, and we don’t have any industry-specific incubators/accelerators here.
Agile, holacracy, and so on and so forth
Until last year, I thought that Axon Partners was the one and only Ukrainian law firm to accept a scrum philosophy. It turns out, our colleagues from Sokolovsky & Partners and Aleksandrov & Partners have been practicing scrum as well. But wait, there’s more: in 2017, I found out that at Pravoe Delo, a company based in Dnipro city, they were doing the holacracy thing, too.
Disgrace of the Year
It seems that tender procedures have always been a place for scheming and dubious deals, so I’ve never participated in any of them. This was the most epic fuckup of the year. It was not some small-time crook, but the managing partner with a global company Kinstellar who admitted that he deliberately indicated fees lower than the actual fees. Later he swore (lawyer’s honor, I guess) that he would not sign any contract based on such terms and conditions. As a result, the winning bidder (Vasyl Kisil & Partners) refused to close the contract. So, Kinstellar replaced them. Naturally, the question is, what about the promise not to make that contract? Well, it’s very simple: Mr. Schrodinger just deleted his post from social media.
The market has actually been changing for the better. How can I tell? Just to name a few, there is this Amazing Lawyer-Man, an online comic paper about lawyers, from which we learned about AstapovLawyers fuckup, the curious case of Lavrynovych & Partners and legal ethics, and other stories about corrupt lawyers.
The same thing happened in the IT market a couple of years ago. Some guys (actually, no one still knows who they are) created a real stir with ebanoe.it (literary means ‘fucking IT’) where they published some market insights and revealed the ugly truth about IT outsourcing. It was very popular among readers, but got only a few likes on Facebook. A couple of years later, even big law firms started to buy advertising space on this website.
I’m sure as hell that Lawyer-Man has a big future as well. We need another year to polish our skills for exposing cases of bad ethics in the legal industry. Plus, a little bit of self-irony won’t do any harm.
Who runs the Ukrainian Bar Association
A couple of years ago, I came across a Facebook post by Andriy Stelmashchuk (Vasil Kisil & Partners). He published a screenshot of a message from someone asking to take care of a certain business, or rather, make a deal with a court and get the client out of paying some UAH 4.5 million fine for tax evasion. The lawyer refused to engage in this dodgy business.
In 2017, Andriy Stelmashchuk was elected president of the Ukrainian Bar Association. Obviously, this is another step towards a “cleaner” legal services market.
The loser list
In November 2017, Yuridicheskaya Gazeta, a trusted newspaper for lawyers, ranked Ukrainian law firms based on their HR policies. The most exciting was the part where law students indicated a number of companies they did not want to work at:
Turns out, they made their choices based on what they’d heard from their friends and former employees of some companies. Another reason why they didn’t want to engage with certain law firms was their managers’ bad reputations. In addition, students said that they would not want to work at law firms that participate in dubious political projects and companies that neglect professional ethics. Sadly, Yuridicheskaya Gazeta did not provide any actual loser list, but I remembered the loser list published by Delo.ua in 2016, so all I had to do is connect the dots.
This screenshot provides the list of the less attractive employers of 2016 among Ukrainian law firms, including Ilyashev & Partners, Lavrynovych & Partners, Eterna Law, and Integrites.
Business ethics as a competitive advantage
Any market is a tough place with little room for concerns like ethics. That’s quite true, but lawyers in Ukraine have been so corrupted that even colleagues from Russia take their hats off to our guys. People from business know what companies they should hire to get certain kinds of services. So, being honest and ethical may become a core differentiating asset.
There are law firms that used their zero tolerance towards unethical behavior and corruption as their brand identity, such as Vasyl Kisil & Partners and MarchenkoDanevych. On International Anti-Corruption Day, MarchenkoDanevych released a declaration against corruption and in support of professional ethics.
Workshops, conferences, and the like
It’s the IT people who organize supercool events. I took part in a number of meetups held in London, San Francisco, Moscow, Berlin, Zurich, and Paris. And guess what! The most interesting and useful meetup for lawyers was Minsk Legal Forum organized by Stepanovsky Papakul & Partners. I don’t know how they do it. It seems like there’s nothing extraordinary about this event. And yet, extraordinary it is.
My second-best pick is Kyiv Legaltech Hackathon, where lawyers had 48 hours to do prepare projects and then presented them. It was really exciting. And no one wore suits.
The Hype of the Year
Sure enough, it’s Ed Sheeran, Despacito, and spinners. All this stuff has nothing to do with Ukraine’s legal industry, though.
The year 2017 was marked by some weird words like blockchain, hardfork, and tokenization.
In September, Ilyashev & Partners announced that they accept bitcoins.
In November, the legal services promotion forum released a promo video featuring representatives from top law firms, such as ICF LegalВ, Konnov & Sozanovsky, and SayenkoKharenko. They confessed that they would happily accept bitcoin payments and told about their first-ever bitcoin experience.
In early December 2017, PwC announced that they had started to accept bitcoins.
Conclusions. Or rather, forecasts
I wanted to spice up this text with conclusions. Then, I couldn’t resist the temptation and ended up making forecasts. So, here we go.
For generation one:
Companies that have been trying to stay afloat will choose young managing partners (like Vasil Kisil and partners in 2015).
Those who kept younger partners away from the management process will split up, dissolve, and so on. Partners will leave such companies and establish new ones that will compete with 2–3-year-old third-generation law firms. Companies that do not compete, may merge. However, it won’t really help, unless they allow millennial partners to manage their companies.
Partners will be looking at legal tech, which is going to be hyped up. There will be a lot of marketing with some trendy words and a few investments in legal startups.
Some ugly truth: dishonest law firms won’t turn into honest companies on their own. However, their competitors, and perhaps, law enforcement agencies, are going to help them.
For generation two:
Third-generation law firms will be struggling to get a piece of the pie from second-generation companies. The latter will fault them for dumping, while the younger generation will fault the old-timers for bribery and corruption. Both will have a point.
Actually, business ethics, ‘No’ to cash-in-hand, and publicly available income statements are slowly but steadily moving towards becoming a competitive advantage. In 2017, people from Saveliev, Batanov & Partners, a law firm based in Russia, did not hesitate to show their P&L during the Minsk Legal Forum.
There will be even more mergers in this cohort. When it comes to second-generation law firms, what we have here is more companies with non-competing practice areas and more flexible partners ready to share, compared to second-generation law firms.
Mergers will be fueled by new companies established as a result of splits in second-generation law firms.
New legal concepts will appear. Bot&Partners introduced the concept of a product company on the local market, while Sayenko Kharenko introduced the concept of a new law firm. The odds are, legal out-staffing and outsourcing, among other things, will become popular.
Foreign firms are not going to enter our market. Remember, the size of our legal services market is only USD 200 million, which is just a year’s revenue for Osborne Clarke, which ranks 27th among UK-based law firms. However, chances are, foreign legal startups may hit the Ukrainian market, such as WonderLegal. These guys got to the Russian market. That’s when dumping will begin.
It’s quite unlikely that companies’ legal departments will try to start winning external business. But there is a precedent from Russia: in 2017, the legal departments of Sberbank and Megaphone (a mobile network operator) themselves entered the legal services market.
We will definitely see unfair rankings, bot-farms, and similar stuff that emerged with Web 2.0.
For generation three:
Legal platforms, contract builders, bots, and notaries using blockchain technology. They’ve been testing all this weird stuff in 2017, and will continue doing so next year.
Second and third generation law firms are going to invest and take over the fourth-generation companies.
Also read part 2 of this article:
Feedback, threats, and greetings from smart people
About the Author
Dima Gadomsky is a TEDx speaker, Lecturer in Kyiv-Mohyla Academy, Head of legal committee of Lviv IT Cluster, co-head of IT committee of Ukrainian Bar Association.
Ranked in the TOP 5 of Best Lawyers in IT according to the annual study Ukrainian Law Firms 2014, 2015, 2016 and TOP 100 Lawyers in Ukraine according to all-Ukrainian study the Choice of the Clients 2014/2015.
Named as an excellent, forward-thinking lawyer in Intellectual Property by Legal 500 2016. but above all Cinema fan and jazz listener, he eats after 6 p.m. and plays football.