Head Office Headwind – Managing a Small Overseas Branch Office

This narrative is about my personal experience of coping with faraway head offices over a period of several years.  The photograph above shows CMS Cameron McKenna’s soon to be occupied office in Almaty in February 1998.

Kazakhstan currently is being much buffeted about by external economic and political factors beyond its control – low price for crude oil, Russian economy problems and ruble devaluation, sanctions against Russia, and a weakening Chinese economy.  This is causing a lot of grief for the people of Kazakhstan.  All of which reminds me of my experience of being buffeted about by forces beyond my control while heading up a small branch law office in Almaty.

Much of my professional career as an American lawyer was spent in foreign countries in small branch offices of large American or English law firms.  Which means that I, like many people in charge of a foreign branch offices of any industry, know a lot about the perils of being in this position.

I am not talking about civil wars, protests, pestilence, killer lions coming out of the jungle or other perils that might be worrisome to some heads of foreign offices.  No, I am talking about being rocked around, as if in a small boat on the rough high seas, where the head office is doing the rocking.

Many years ago, I joined the Minneapolis law firm of Faegre & Benson.  It seemed like a very good fit.  I grew up in the Upper Midwest (South Dakota).  I had my university education in St. Paul, Minnesota, and then worked for the Minnesota State Legislative Research Committee for three years before going on to Harvard Law School.  After a year in Europe I started the active practice of law at one of the prestigious, ‘white shoe’ New York City law firms, Milbank, Treed, Hadley & McCloy.  There I had marvellous practical experience and excellent training before heading back to Europe, this time to London.

A few years after going abroad, a partner of Faegre & Benson approached me about joining his firm.  It didn’t take a lot of imagination to understand that he felt comfortable with me and could easily recommend me to the firm: Midwest native, Minnesota experience, Harvard Law education, Wall Street apprenticeship, overseas experience, stand-alone legal practice.  What’s to lose?

I joined the firm and headed up their new branch office in London.  I did have some concerns.  For one thing, their idea of an office was an expensive, showpiece right in the middle of a lot of major banks, insurance companies, the London Stock Exchange, and more than a few FTSE 100 and FTSE 250 companies. The overhead cost was well beyond what my prior practice could bear.  Of course it’s nice to work in a fancy office located in a prime real estate area.  But, practically speaking, a small office of only a very few lawyers is unlikely to bring in really big finance work, acquisitions & mergers, or other big ticket deals for the branch office or, for that matter, for the head office.

My worry was that one day, perhaps after changes occurred in the firm’s management committee, the focus would shift to our bottom line.

Nevertheless, we did reasonably well, we undertook a lot of promotion on behalf of the firm, and we made sure our activities were known to the managers.  We worked with as many of our U.S. colleagues as possible.  We put in long hours.  So far so good.

Several years later, in January 1993, I was asked by management to take charge of setting up an office in Almaty.  This had been a head office project for several months without my significant involvement, but circumstances conspired to shift my law practice focus to Kazakhstan.  Of course it took some time to make the Almaty office sing, but sing we did.  I opened our shop in the midst of a major turndown in the economy of Kazakhstan.  The old system was still collapsing and foreign investors were timid although the Big Oil companies were pitching for major contracts.

Luck was with us even at the worst of times in Kazakhstan.  For many months we were the only international law firm with an actual presence in Kazakhstan.  Monopolies are much criticized but our monopoly seemed pretty good to me.  Mobil Oil arrived and hired us for their major investments in Kazakhstan.  IFC actively used us on some very large investments.  Oil service companies flocked to us.  Soon we were working on such things as: large investments in oil projects, establishment of banks (eventually setting up five and involvement on two near misses), lotteries (scratch card and national lottery), hotel developments, and heaps of financings.

Then came the head office blunder.  On their own hook, they bolstered the London office with a couple of English solicitors who, it so happened, operated a small Moscow office.  Management was very pleased with this “twofer”.  Turns out, however, that one of the solicitors had a Russian client suspected of money laundering.  Click here for a UPI story with details of the case.

The Wall Street Journal picked up the story and ran with it like a Rottweiler, management got flak from the partners, and I soon was asked to get on an airplane to Moscow to shut down the very recently acquired Moscow office.  Why me and not someone from the head office? Well, it turned out that Scotland Yard warned the managers that it was potentially dangerous for any of them to go to Moscow.  The danger, presumably, stemming from the Russian client.  (And it wasn’t dangerous for me?)

That episode had nothing to do with me personally but I certainly felt uncomfortable when I encountered U.S. Ambassador Bill Courtney on the street one day and was quizzed about my firm’s involvement in money laundering.  Who needs this?

Little did I realize at the time that the fate of the Almaty office was also under heated discussion at the head office.

One day not long after I closed down the Moscow office I got the phone call informing me that management had decided to close down the Almaty office as well.  I was instructed to go back to London to resume my practice there.

I was flabbergasted.  We were in growth mode, producing profits, and bringing in clients that many partners in the head office would give their eye teeth to be able to say they had such clients.  When I protested, I was told that “merely making money is not enough.”  What?  Yes, we were making money but our practice was not sufficiently integrated into the head office practice.  My response to the manager who phoned me with the bad news is not printable even with today’s relaxed standards.

As i understood it, having decided that they didn’t know what they were doing in Moscow, the managers then worried that they didn’t know what they were doing in Almaty.  They didn’t ask me to come back to the USA to join in a strategic review, never asked me for my opinion even from afar, and never gave me a chance to make a pitch for the firm to keep the Almaty office.

Well, I wasn’t going to toss it all in and go back to my then virtually non-existent London practice.  Moreover, I wasn’t about to fire the local lawyers, translators, receptionist, and driver after the hell we had been through together in the course of forging a well-functioning law office with a sterling reputation.

I bargained for time and managed to bring about the merger of our office in Almaty – actually it was my own personal office at that stage – with that of CMS Cameron McKenna.  It was a good fit for almost all of our people, and the enlarged office had some good years.  More oil & gas deals, much more banking and finance work, and considerable litigation.

Then, once again, a bump occurred from external circumstances beyond our control.  The firm’s Moscow office had recently gone into much larger premises under an unbreakable 5-year lease at a very high rent level.  The ink on the lease agreement was practically still wet when the Russian ruble and the Russian economy tanked in August 1998 which practically killed the client base of foreign law firms in Moscow.

At about the same time there was a scandal affecting the Tashkent office.  An old-style Soviet-type manager seemed not to get on well with the modern-era ladies in the office, resulting in bad publicity in London’s legal press.

Somehow London management looked at the CIS business and – can you believe this? – they decided to keep the loss-making Moscow office, close the marginal Tashkent office, and – this was the astonishing bit to me – close or sell off the profitable Almaty office.  We had good clients, we were making money despite a difficult economy, and had attracted no adverse publicity, but we were jettisoned while the loss-makers in Moscow were kept.  I even made a special trip to London to present my memorandum entitled “Good News About the Almaty Office.”  Deaf ears.  Moscow was strategic, Almaty was peripheral.  Might as well have stayed in Almaty.

Within a year we merged the Almaty office into that of Denton, Wilde, Sapte (later SNR Denton and now Dentons).  That was good for me until I retired when the local offices of SNR Denton and Salans merged.

So, although I had a virtually continuous practice with lots of loyal clients during the many years I worked in Almaty, I was at the same time forced to waste time and energy, to endure a lot of angst, and to spend not just a little of my own money to ride out the storms that largely had nothing to do with me, the Almaty office, or Kazakhstan.  Ah, life in a small overseas office!

What did I learn?  At least four things:

  • If at all possible, always make a profit even if this requires some cooperation from clients or customers to smooth out billings and receipts such as by straddling tax years by accelerating or delaying billings. Avoid having a bumper year if this will sour the next year.  Excuses about losses will only get you so far.
  • Do curry favor with the powers that be back in the head office. Visit them; keep them informed.
  • Also give attention to the rank and file people in the head office. One day they may be given the levers of power.  Meanwhile, they might produce some business for you.
  • Keep on good terms with actual and potential competitors. One day they may come to your rescue.

By the way, if anyone took a look at the history of foreign law firms in Kazakhstan, they would see that my head office challenges were by no means unique.  Quite a few international law firms set up shop in Kazakhstan only to withdraw later, including Clifford Chance; Coudert Brothers; Welborn Sullivan Meck & Tooley; Steptoe & Johnson; McGuire, Woods, Battle & Boothe; Bracewell & Patterson, LLP; LeBoeuf, Lamb, Greene & MacRae (later known as Dewey & LeBoeuf); and, of course, Faegre & Benson and CMS Cameron McKenna.

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Website:  Find more stories about Kazakhstan from the 1990s and later in my book, West Meets East in Kazakhstan.  It’s available online in softcover or e-book format from AuthorHouse (the publisher), or Amazon or Barnes & Noble.

My blog posts go out on Facebook and LinkedIn.  If you’d like to see them again or check for posts you might have missed, go to my website: viewkazakhstan.com

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Consultancy:  Although I currently am trying to ensure that my book gets maximum exposure, the fact is that writing and publishing are sidelines for me.  My main focus is assisting foreign companies to engage in business in Kazakhstan (or elsewhere in Central Asia) and assisting businesses and individuals in Kazakhstan with their projects outside of Kazakhstan.

Based on my long career as a lawyer and my time spent in Kazakhstan, I take on projects in a wide range of industries, certainly in oil & gas, banking & finance, and minerals.  But such a statement insufficiently acknowledges the many spheres in which I have had experience – commercial trading, manufacturing in several areas, transport, directorships of companies listed on the London Stock Excange, shipping, and many more.

For further information, contact me at tom.johnsongx@gmail.com and at +44 1753 885955.

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