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The Future of Saudi Arabian Legal Associations

Blog Size-42THE FUTURE OF SAUDI ARABIAN LEGAL ASSOCIATIONS

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2019 was one of the more interesting years I’ve recruited in the KSA legal market.  As we all know, there have been major changes to structures, office openings, international partnerships, new legislation and somewhat of a cultural movement stressing support for agendas very much detached from the paradigm of what one may associate with Saudi Arabia.  

I wanted to look into reasons beyond the obvious to understand as to why it was such an eventful year for law firms in Saudi, and also where the legal sector was headed, 5, 10…15 years from now, so I lined up conversations with a number of influential connections ranging from Partners at International and Local firms through to some of the behind the scenes Administrative Personnel.  Please leave your details if you would be open to contributing to any of my further materials.

The subject opened several peripheral topics which in brevity will be covered and expanded on in further material (Alert me), with a focus on the primary question – is there an obvious structure for law firms to succeed in KSA?

Contributors will know who  you are and Ill take this opportunity again to thank you for the time… despite being quipped (or at least hope was the case) “I had a client who always thanked me for my invaluable advice, to which I always responded that my advice is $xxxx an hour and therefore precisely valued”.  I hope to have understood and encapsulated our conversations.  

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Professional Companies Law

I’ll make the assumption that anyone with time to read this will be aware of the options available to International Law Firms operating in Saudi Arabia which in any event must occur pursuant to the Professional Companies Law; previously restricting foreign ownership to not more than 75% of the company’s capital – 25% in the least case belonging to a Saudi National licensed to carry out the said profession.  By all accounts, a protectionist economy which has slowly evolved due to a combination of bespoke agreements and divergent maverick operations, culminating in the new Professional Companies Law this year.  It remains to be seen in March how the regulations covering this law will be implemented.  And what effect this ultimately will have so Ill come back to it then. 

If you would like to receive an update of the changes in March this year, please subscribe to our latest news and updates.

 

Affiliation / Alliance / Independent

Any basic analysis of the market will identify a handful of firms whose headcount have risen over the past 2-3 years.  One of which exponentially.  The obvious suggestion was that these firms had restructured with a completely different vision to that of the firms continuing to follow the approach as implemented in the late 70s and early 80s when a couple of US heavyweights who remain successful to this day entered the market.

Formal Affiliation

The more traditional affiliation model was always structured around the expertise of foreign lawyers.  In previous decades, it was perfect – providing expert legal advice pooling resources from international offices to service the legal needs of an economy benefiting more from petrodollar investment than any other country ever has…or arguably will. 

Typically, offices would consist of foreign lawyers with some bilingual Saudi lawyers to assist in client generation and communications.  These offices were very much reflective of the available talent in KSA which inevitably led to mandates being farmed out to central offices – London, NY, Dubai etc. 

Even today, several firms continue to succeed with this model albeit with a more significant Saudi headcount; whilst other Internationals have come and gone – they have either failed to adapt or fall under the a short sighted rent-a-name strategy with unfulfilled promises of investment and development.

Pre Economic Crash

Prior to 2008, anyone with the aptitude to succeed in a career in law had the far more attractive option of a role in the Public Sector or business – less in for more out. 

Following the crash, although not massively hit, Saudis labor demographic evolved.  Competition for Public sector roles was higher so investment in education soared in order to gain a competitive edge.  Ivy League LLM and JDs only ever associated with global legal hubs became the norm in Riyadh and even Jeddah – a clear shift in transfer of knowledge had begun.

Alliance Model

Post-crash, structures to law firms in Saudi saw a change very similarly to the evolution of the Eastern Europe legal scene in the 90s and 00s.  There was a shift towards looser affiliations, more independence and an influx of independent firms with positions ringfenced for Saudi nationals (as with many other industry sectors) and a process of “Saudiization”.  That being said – one of the most successful legal leadership teams currently in KSA has been formed agnostic of nationality.

Ministerial decree offered preferential treatment to Saudi owned entities.  This was nothing new – landmark deals and transactions dating back to the USB takeover of Saudi Cairo Bank and Partial Privitization of the Saudi Telecom Network had not involved external counsel but was further indication of the direction the industry was going.

The model saw more Saudi lawyers gaining significant exposure to cross border and high ticket value work.  It rebuffed dissatisfaction with the façade of firms with Riyadh “outpost offices” and in many instances was evidence that Saudi firms could fly on their own wings.  

Is a direct replacement of models a representation of progression and necessary for evolution?

In short, no.  I started this article thinking that it was…and that the market would follow a number of successful entities that have moved towards a looser affiliation, separation of profit pools etc; but I soon learnt that irrespective of the venture – association, alliance, independent, if it is not structured properly – it will fail. 

Ill cover a few but not all of the things echoed by Partners, Counsels and COOs in relation to this.  If youd like more, click here

Formal and exclusive associations bring many benefits – attraction of expatriate talent and being employed under the international firm banner, the prestige and the camaraderie that develops between employees and beyond that even regional offices.  Training together, secondments being more accessible, shared infrastructures – IT systems for example all huge pros in favour of this model.  

A non exclusive relationship (covering both independent and affiliate firms) have freedom.  Sounds obvious but there are very few firms that rank as tier 1 across every practice area so why would an international not use a partner who is the best in their field and limit dealings to one firm?  In reality, would the Saudi entity then want to be subject to the same profit pools, the same charge out billing rates, limitations on clients they can work with or require sign off from another country on whether they can fulfil a mandate.  Is the licence itself not beneficial for the international firm where the Saudi entity then has no concerns regarding overheads?

Moving (or Leaping) Forward

Although I set out with a supposition that was ultimately not fulfilled through my conversations with the true market experts, I did have a few alternate conclusions:

    1. Any venture not structured properly will fail
    2. Western lawyers and international firms will for the immediate future have a place in Saudi but must provide sufficient freedom to local talent and allow them to develop without restriction or “outposting”.
    3. Strength in numbers – large independent firms I spoke with are exploring opportunities in merging with other Saudi firms, strengthening their offering as fully integrated options for clients. The need for an international brand is no longer the only option. 
    4. Control over charge out rates will not result in a race to the bottom. The quality of talent available in KSA now will always prevent this from happening.  Should formal associations then make provision for this if they are truly to succeed?
    5. The two firm one office approach seems to create the most animosity between employees.
    6. Will legal centres – London, Paris, New York, Tokyo, Hong Kong need to use Dubai for KSA any more or will they go direct to established practices with fully qualified (of the highest level), fully bilingual lawyers in Riyadh? Will this retire the Dubai / Riyadh entities?

I appreciate there will be conflicting opinion to some of the above.  I would as ever, relish any opportunity to discuss the market further with any of you. 

If you or your team are looking for a move, a merger or a new affiliation, please do drop me a line and I will be happy to discuss opportunities and strategies with you.  

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Posted by Ricci Sethi