Romania's legal market: Change is blowing in the wind

The cloudy days of the economic crisis took the toll on the legal profession with a cut in fees, number of lawyers and business plans. Business law is moving to an era of corporate rules and tight financial indicators to ensure growth in a challenging profession that needs constant adaptation to client’s needs.

The crisis led to a reorganization of the legal firms along lines that will be hard to beat. Entire teams have shifted from one practice area to other responding to client’s demand for a different type of legal services while fees plunged at sometimes price dumping levels.

Florian Nitu, managing partner at Popovici Nitu & Asociatii believes “the main challenge is the commoditization of legal service, a global phenomenon that affects Romania as well, with immediate consequence in fee structuring and profitability of law firms. Certain players behave as if such phenomenon would not exist and are likely to have difficulties to survive with their model, other try to resist by compressing their own fees and hence advancing a wired self-defeating dumping strategy. The near future will show that both approaches are wrong and that commercial firms must learn efficiency in everything they do.”

The slowdown in client’s base and work load has put lot of pressure on fees. The phenomenon seems to continue also this year but signs of stabilization are ever more present. “Competition on the legal market has remained fierce in 2014 and I do not think that things will change this year or in the near future,” considers Stefan Damian, Deputy Managing Partner of Tuca Zbarcea & Asociatii. “Unfortunately, investors’ diminished appetite for developing their local businesses or for entering our market has also impacted lawyers’ business. There are fewer and fewer projects, and there is a growing pressure on fees. As a matter of fact, I strongly believe that lawyers are not competing on competences as they are on fees, so winning a beauty contest is, most of the times, about how cheap your legal services can be,” he adds.

“We see that the legal market is both active and complicated,” says Sebastian Gutiu, Managing Partner Schoenherr. While in terms of macroeconomics the crisis seems to have passed, in the legal market there has been a shift in paradigm, in the sense that clients are now much more careful with their costs and risks. “Added complications are an opportunity to display a wider set of skills and expertise,” considers Sebastian Gutiu. “This is one of those opportunities where we feel the benefit of having a supra-structure (in our case in Vienna) of professionals that support us, e.g. with pricing. They are quite advanced in developing tools that allow us to test alternative pricing methods.”

The same opinion is shared by Martha Popa, partner at Voicu & Filipescu: “the noteworthy phenomenon that the last 5-6 years of economic recession have witnessed is a change in the clients’ legal spending. In most cases, this transposes in internalizing of legal work and an increased pressure on fees when outsourcing, together with an increased discipline as regards associated costs in general.”

As competition increases, coupled with the general economic situation during the crisis years, there is considerable pressure on fees, noted Victor Constantinescu, partner at Biris Goran. “Several firms on the market have already taken to a “race to the bottom” mentality as to who can offer the lowest fees. I think that serious business law firms in Romania will have to reconsider their law firm business model over the years to determine what areas they can offer value-added services that clients appreciate and are willing to pay reasonable dollar for.”

While most mid-size and large law firms have structured themselves to offer a broad range of services, to keep as much as possible of the work internally, a growing number of lawyers are setting up boutique for law practices. Mostly spin-offs from the larger firms, groups of lawyers are setting up shop to get more personal with the service they offer. “We are strictly positioned under the label of our business cards: tax, litigation, consultancy,” says Luisiana Dobrinescu of Dobrinescu Dobrev. She adds: “we would like to be excessively good in our filed of law: fiscal law. We are training ourselves at the highest level possible and we intend to keep our close approach with our clients. We adore the civil law and excel in the fiscal domain.“

These new firms are choosing to focus the work of the entire firm on one area of the law than try to maintain the general practice culture of big law firms.

The growing trend toward specialized “boutique” firms that focus on one specific area of the law, such as white collar crime and corruption, intellectual property, tax and litigation allow firms to establish themselves as the “niche legal experts”.

This puts pressure on the larger firms, by offering a cheaper alternative, more flexibility and not a lower quality work: “Another phenomenon manifested in the last few years is the increased pressure from spin-offs and boutique law firms. With the market becoming more mature and sophisticated over the last period, new law firms resulting from spin-offs from top tier law firms are trying to enter the market claiming similar levels of expertise yet for lower fees,” adds Martha Popa, partner at Voicu & Filipescu.

Pressure on prices and competition for offering legal services is not only coming from inside the profession, says Popa. “A significant competition comes from non-lawyer providers of services, such as business consulting firms. With the rise of such non-traditional providers of legal consultancy, the rules on the practice of law need to evolve. Outdated restrictions on the law profession also drive clients to unregulated services such as business consulting and accounting firms, having lower operating costs and less ethical restraints.”

Competition also comes from the high number of law firms as well as of individual practitioners compared to other markets, argues Alina Popescu, partner at Maravela & Asociatii: “For example, Romania is ranked seventh in the European Union in terms of total number of bar members and has roughly same number of registered lawyers and same size (if not bigger) law firms as Poland, whose total population is double than that of Romania. With a GDP per capita and overall amount of investments much lower than in other EU states, no wonder then that competition on Romanian legal market is fierce. Nonetheless, the relatively low (as compared to overall count) number of lawyers practicing business law at international standards helps balancing somewhat the status quo.”

“The role and position of a lawyer has changed significantly and societal changes, the economic downturn and other factors have forced the attorney to view the practice of law less as a profession and more as a business,” says Sorin Mitel of Mitel & Asociatii. “The legal profession faces unprecedented economic pressures. It faces competitive pressures from accountants, realtors, financial advisors, title agents, and others - while the internet is making it easier for them to compete. Attorneys also are exposed to new competitive challenges from within the profession. In a buyer’s market, the client determines what services are needed and at what cost. To survive, lawyers and firms are looking for competitive advantages.”

Others share the view: “To me, the most important challenge is winning new clients and projects on the back of a market still fairly arid from this point of view and within a very competitive legal market where the highest pressure is not on competence and skills but on fees. The second challenge is adapting business law to current trends, from outsourcing the routine, standardised legal work to hiring and retaining talent and rainmakers - a completely new generation with somehow different needs and a different mentality than the lawyers from 5 years ago and, in any case, an entirely different generation from 10 years ago,” says Stefan Damian, Deputy Managing Partner of Tuca Zbarcea & Asociatii.

Adaptation is key also for the international firms active in Romania. “We still maintain the full service concept with focus on quality. We are experiencing a pressure on prices and we try to explain why a service costs more. Clients do not like inefficient work,” says Prof. Joerg Menzer of Noerr.

“Romania continues to be a challenging legal market,” says Bryan Jardine of Wolf Theiss. “We see competition from both strong international firms (whether directly present on this market or not) and a number of very capable local law firms which are actively advising investors in this market. Such competition tends to increase client expectations and impose greater pressure on fees.”

Albeit there are some movements, the legal market remains stable and no major changes are expected, believes Cosmin Vasile, Managing Partner at Zamfirescu, Racoti & Partners. “Everyone is concentrating in keeping the existing portfolio of clients with as many services as possible offered inside the firm. This is why many firms developed a litigation or tax practice in the latest years. This was also our case, we have developed a practice in criminal law as this service was requested by some of our clients.”

The recent election of a new board of the Bucharest Bar Association is expected to bring a fresh approach to how the legal profession is functioning in the present with a clearer understanding of the needs a lawyer has in today’s market.

“The new Board and the Dean of the Bucharest Bar are expected to play a different role than the predecessors. They should act as advocates of this profession, in all its forms, and as spokespersons, voicing professionals’ interests in the society and addressing timely and properly their legitimate concerns,” says Florian Nitu, managing partner at Popovici Nitu & Asociatii.

“We expect a greater openness and understanding of business law, greater transparency in decision making and better consultation as to shape the Bar Association to the present-day realities and not to those of the 90s. Last but not least, I think the Bar Association should promote, protect and defend the interests of lawyers more actively, as well as defend and strengthen the rights they enjoy or should enjoy in front of the civil society or the political and administrative environment,” says Stefan Damian, Deputy Managing Partner of Tuca Zbarcea & Asociatii.

“The main difficulty for the board of the Bar Association is to make a difference between commercial lawyers and the more traditional ones, the two being completely different as activity models. The challenge of the legislative model is that they need to impose the same regulations to both categories,” says Cosmin Vasile of Zamfirescu Racoti & Partners.

 

A pragmatic approach is given also by Luisiana Dobrinescu: “The Bar and the Union are dramatically in need of corporate evolution as their foundation is still ruled by a law from 1995. The position of the Dean (any Dean of the 41 Bar Associations) is not as much as stake as a leader, as the presidency of the Union of Bars. In fact, the Union of Bar Associations should once again revert to a Union of Lawyers, in order to better represent the profession as a whole, and not the institution of the Bars. At the highest level the profession itself should be given more of a chance to model the institutions and not the other way around. A true debate to the purpose of such reform has either consistently been discouraged or simply failed to appear. The newly elected board of the Bucharest Bar may well set things straight.”  

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