Russians love to say "No!"
He has three degrees. He left Washington University in St. Louis as an engineer specialising in metallurgy and gas turbine technology. Later, he graduated from the Law Faculty at New York University. He found his way into the largest law firm, dealing with patenting.
– But I wanted something more varied and interesting than fighting in court over patents, so I went to study at the London Business School where I received an MBA. Having worked at a law firm in France for a year, I decided to go into business. Our company manufactured smartcards. I was the Managing Director for Europe, Central Asia and Africa. Then I was involved in venture capital investments for an Austrian company in Vienna. We bought Eastern European internet companies, including Russian ones. It was then that I began to feel a mysterious attraction pulling me towards Russia.
About Daniel Klein
Worked at the New York legal firm Pennie & Edmonds. He got his first taste of business in Moscow in 1993 when he co-founded a startup supplying state-of-the-art medical equipment. He worked extensively in Russia after that, before moving to the Russian capital on a permanent basis.
Prior to setting up Podolsky & Klein, he co-founded Hellevig, Klein & Usov, Avenir Group, Avenir Accounting, Avenir Moscow Management, Avenir Recruitment and other companies in the Avenir family. Earlier on, he worked in cooperation with Marks & Sokolov.
Daniel Klein is a specialist in the legal issues which arise for western companies operating in Russia. He is a member of the Board of Directors of many companies doing business in Russia: Actis Software, Skate Financial News, and others. He often appears as a pundit on the TV channel Russia Today, as well as on BusinessFM and other radio stations. He has both Canadian and American citizenship.
– How did you find yourself in Moscow?
– I gave a speech at a conference in Vienna organised by the Adam Smith Institute. Then a meeting took place which radically changed my life. I became acquainted with the presidents of the companies Mir, MVideo and Sprandi, and they offered me the chance to move to Russia.
I worked as Marketing Director at Sprandi, involved with outdoor advertising, and adverts for TV. Then I introduced an Austrian firm dealing in property to the Russian market. Then I became co-founder of Hellevig, Klein & Usov. We provided not only legal but also accounting and recruitment services. I liked the business model of offering a wide range of services so, after a couple of years, in 2010, I put it into practice with my own company. The venture capital for our company Podolsky & Klein was provided by Alinga Consulting Group.
– What difficulties did you encounter in setting up your venture?
– It was the very same company, Alinga that registered our company. I should point out that putting together the full set of documents to start your own business in Moscow is not particularly straightforward. Arranging this takes quite some time. But the process is completely do-able, and there is no need to pay any kind of bribes. You can hire a legal expert who will do it all for you.
Putting together the full set of documents to start your own business in Moscow is not particularly straightforward. But the process is completely do-able, and there is no need to pay any kind of bribes.
– Was finding office premises difficult?
– Rent for office space in Moscow is double that in New York, but slightly less than it is in London. Alinga introduced us to our office. A lot of companies use specialised websites to find the right office premises. But using them to find a small office in Moscow is extremely difficult. I’ve been trying for a few years now to find an agency specialising in letting precisely that kind of smaller space, but, so far, without any success.
– How did you go about recruiting staff for your company?
– It was not straightforward, by any means. It is difficult in Russia finding staff with a sufficient understanding of the principle of personal responsibility. Russians love saying “No!” No doubt, these are echoes of the Communist culture. Its influence decreases over time, but it has not completely disappeared yet. Although, in recent years, in Russia there has grown up a new generation of keen, active, results-driven entrepreneurs. They are between 25 and 28. They feel self-assured in business and are virtually no different from Americans.
I prefer to hire people who have come to Moscow from the outer reaches. They feel almost like immigrants here in the capital, and are hardworking, persevering and motivated. They are more determined because they need the money to rent a flat.
– How many people work at your company?
– What kind of salaries do they get?
– A secretary gets 50,000 roubles (about 1,200 euros). Partners and advisers receive between 120,000 and 140,000 roubles (3,000-3,500 euros).
The things you need are experience, connections and instinct
– Tell us about the specific nature of business in Russia. What do western businessmen have to be wary of?
– High-level corruption, particularly where procurement is concerned. It is sometimes hard to avoid. In the West, both in the UK and the US, there is a sufficiently developed legal framework for fighting corruption. There is one in Russia, too, but it doesn’t function properly. Laws are poorly upheld. It is hardly worth relying on supervisory bodies. If you have recourse to the courts, you cannot guarantee that justice will prevail.
Dmitry Sokur, managing director of the PR-agency Sokur&Associates:
– In Russia, foreign consultants are usually accorded more respect and trust than Russian ones, because Western companies are perceived as champions of a certain culture of doing business, and of business etiquette, and often have greater experience and professionalism. It is easier for a foreign law firm to get into the media. But allowance for risks must be made here – in this case concerning the specifics of how the law is applied in Russia and to what extent the specialists are acquainted with it.
Therefore I advise promoting legal service by focusing specifically on the leading specialists and their qualifications, or on the person heading the company. In general, any country has its own specific features, because obviously the promotion strategies in Russia and, for example in America, will differ. For the best and quickest results, I would recommend delivering reports at major events, where comparative analysis ("how they do it" and "how we do it") is particularly successful. Another excellent tool is a programme of commentaries, for example a brief review of corporate conflicts or other informative matters about the big players in the market – that's always noticeable and effective. And such a tool as law breakfasts helps a company make itself known in the professional community.
– Russians like to joke that: “Ignorance of the law doesn’t excuse you of responsibility. Knowledge of it makes that easy”. What, as a lawyer, have you found surprising in Russia, and still do?
– In the West, before they can start to practice, young lawyers have to sit exams to obtain a licence. In Russia, the situation is not regulated. It’s paradoxical, but here you can set up a law firm without a law degree. And nobody warns the client about this.
Here is another example of when my astonishment knew no bounds. I once took part in a trial where the barrister from the other side didn’t deem it necessary to attend the hearing. That is extremely poor practice.
It’s paradoxical, but here you can set up a law firm without a law degree. And nobody warns the client about this.
I remember once we were merging two cinema chains, conducting negotiations. And both companies were keen to save money on lawyers. They simply did not want to spend money on performing due diligence. That is very typical in Russia. They sign the contract first, and then look to see if there are any issues. Now, for example, many problems come up to do with offshore companies. 5-7 years ago, contracts were being signed, and offshore companies purchased without the details being worked out, without any lawyers being involved. That is the Soviet approach again: lawyers are called in at the last minute only when “push comes to shove”, as they say.
And there is the opposite extreme. There are law firms operating in Moscow, charging $700-800 an hour for their services. In the end, the company in question receives a bill for $20,000-30,000 when, in actual fact, many legal issues are impossible to resolve by then.
– What kind of difficulties can foreign lawyers come up against in Moscow?
– Russian court proceedings have their own niceties which you have to know in minute detail. In Moscow, I occupy a definitively narrow niche; I am an expat, the only American patent attorney in Russia, and lawyer who knows western law as well. Our special adviser is a judge at the London Maritime Arbitrators Association. We help Russian companies to acquire patents, trademarks in Silicon Valley.
– Is it difficult finding clients?
– Not for us. We have a joint venture with the outsourcing company Alinga. They have around 120 affiliated clients. These companies often have some kind of legal issues which crop up, and we help to deal with them.
It’s essential to find the right people. There are people who can string you along, both here and in the West.
– Are Russian partners reliable?
– It’s the same as in the rest of the world. It’s essential to find the right people. There are people who can string you along, both here and in the West. The things you need are experience, connections, and instinct.
In Moscow, no two days are the same
– What would your company be doing differently if it was operating in the States?
– It would be simply impossible to do business in the same way. The market in America is far more saturated: there are thousands of out-of-work lawyers. In the States, it is common practice to provide services in one particular, narrow field. Whereas in Moscow, I operate across a broad spectrum of services. But there wouldn’t be any fewer problems with bureaucracy in America than in Russia.
– Would you earn more in America?
– Most probably, yes.
– What is it that keeps you in Moscow?
– Working in Moscow is interesting. No two days are the same: to put it another way, it is never boring. But, it’s working out, on the whole.
– Does business in Moscow require decisions to be taken rapidly, on the spot?
– It can be quite a pressurised environment. In Moscow, so much of everything happens at once, that it is hard to keep track of it all. I’ve been working in Moscow for a long time, I have a lot of contacts. Literally, every day some kind of proposals are made, new opportunities open up. Sometimes there isn’t the time to look at them all, analyse them.
Sergey Yelin, head of "AIP" auditing and consultation group:
– A characteristic of the Russian, and in particular the Moscow, legal services market is the absence of continuous independent monitoring by any authoritative body. There is monitoring only for the following categories: notaries public, attorneys, arbitration managers and patent agents. At the same time, Russian law makes it possible for any entity to practise on an unlimited scale without any certification or proof of appropriate qualification. No licence or other special permit is required to practise law. There are no unified qualification requirements for those engaged in activities concerning the law. Nor is there a unified code of professional ethics. It is known that up to 80% of legal services in the country are provided by independent Russian lawyers. The number of law firms is constantly growing, but due to the absence of any standards for their activities, the quality of their services varies enormously, which leads to clients having less trust in the profession as a whole. There are more than 1,000 law firms offering services of various kinds in the legal services market in Moscow at the present time. The minimum growth, according to various studies, is 20-30% per annum, which is a good figure compared with other professions. In Moscow today, up to 50% of the legal services market (about one billion dollars per annum) is taken up by foreign consultants. One of the reasons for this situation is the great image attractiveness of the transnational consultancy players, namely the Big Four. This is particularly important if the Russian client has interests abroad. Competition in the market is very high, but the quality of service is still inadequate.
It is mainly Russian citizens who work in both the Russian and the foreign companies; it is not the widespread practice to bring in specifically foreign lawyers. To open a business, first you need to register a legal entity, lease premises, acquire the necessary office equipment and consumables, and so on. This will cost from 500,000 roubles upwards. You also need to realise that for three to four months, as a rule, outgoings will exceed income. The company will in any case need a secretary, an accountant and IT support. (You may not need the secretary if the accountant is working at home or by outsourcing, taking on the functions of a secretary himself). The lowest salary you can pay a secretary is 25,000 roubles a month. As for the lawyers, the cost of their salaries depends on their qualifications. The earnings of such specialists in Moscow is from 35,000 to 70,000 roubles a month. How soon the costs are recouped depends on client loyalty. It is best to start a law business not from nothing, but when some sort of client base already exists.
– What kind of risks are there?
– You can be unsuccessful, technically speaking, anywhere. It has now become harder for the foreigner to start his own business in Moscow than before. Already companies are no longer hiring foreigners as frequently as they did. But there is a favourable tax situation in Russia. Income tax is fixed at a rate of 13%. Also, there is a system which allows foreigners to arrange a visa for three years which is not too difficult to obtain.
– Is it a prerequisite to know Russian? Or are there enough businessmen who speak good English?
– I would say that, fortunately, knowing Russian is not a prerequisite. Although, I don’t think that there is a right answer to that. Clearly, if I knew Russian, my business would be a lot more successful than it is now. I sometimes don’t go to a meeting if I know that it is going to be held in Russian. A week ago, I delivered a lecture at the science and technology innovation complex at Skolkovo, and really regretted that I was speaking in English and not in Russian.
– How long are you planning to work in Moscow?
– I am currently opening offices in Boston and New York. I am called upon to be in the US more often.
– What about the crime situation? Is Moscow a safe place?
– I feel safer in Moscow than I do in, let’s say, Paris. But, even so, London is a little more relaxed than Moscow, although that does depend on the area.
– What would you say to those foreign businesspeople who are deliberating whether or not to do business in Russia?
– I would say unequivocally: go for it! Russia is a country with huge business opportunities. And the situation will be like that for the next ten years. Of course, over the last twenty years Russian specialists have managed to acquire western business training and experience working on international markets. But in Russia, there is still a high demand for foreign business experts. It is a lot more difficult for young entrepreneurs to be successful in the West than it is in Russia. If you are ambitious and think outside the box, then get yourself over here!