Event Report
Pyramid scheme: The Legal 500 Cairo Roundtable
Around 50 km to the east of Cairo a new city is taking shape. When completed, the New Administrative Capital will house more than six million people, making it one of the largest cities in the Middle East and North Africa and the largest planned city in human history. The ambitious plan to avoid the gridlock of Egypt’s capital comes less than 20 years after the foundation of New Cairo, a settlement 20km to the east of the old city that has already attracted some of the country’s largest businesses. It was here in New Cairo’s Dusit Thani Lakeview Hotel that The Legal 500 and Al Tamimi & Company joined to welcome some of the country’s leading general counsel from a range of leading domestic and multinational businesses, including Ghabbour Group, Egypt’s largest auto manufacturer, the National Bank of Egypt, its oldest and largest bank, Siemens, Citibank, and many more.
Representing Al Tamimi & Company were Ayman Nour, corporate structuring partner and head of the firm’s Cairo office, Mohamed Khodeir, a former head of the Egyptian General Authority for Investment (GAFI) who now serves as a corporate and commercial partner, and Mohamed Gabr and Hossam Gramon, head of corporate and commercial and head of banking with the Cairo office respectively.
Nour opened the discussion by commenting the rapid growth of on Al Tamimi’s Cairo office in the four years since it was established. With over 40 fee earners and five partners now on the books, the firm has seen a huge demand for legal services in the Egyptian market. Gramon added that the growing appetite for Egyptian bonds among international investors – prompting the country to plan a further $7bn in issuances over the coming year – suggested regional events have done little to dent confidence in the Egyptian economy. The devaluation of the Egyptian pound that followed the IMF’s demands to unpeg it from the dollar in 2016 had, he noted, made almost no impact on the business climate. Indeed, FDI has since jumped, with almost $184bn of new money entering the economy.
These introductory remarks were followed by a discussion of how Egypt’s rapid growth is shaping legal functions, the challenges GCs face in advising their businesses, and whether the country can reclaim its position as the home of business in the Arabic-speaking world.
We started with a paradox. More than six million Egyptians live and work across the Middle East and North Africa region, making the country by far the largest supplier of migrant labour to the Gulf nations. Among these expats are many of the region’s leading in-house lawyers in the GCC, including Yasser Abo Ismail of Schindler, Fouad El Mehdawy of Al Fahim, Ayman Hamdy of Emaar Properties and Dina Ammar of Danone. But while some of the largest and most sophisticated businesses across the Middle East are advised by Egyptian educated and qualified lawyers, its domestic companies are seeing a shortage of talent.
As Siemens’ general counsel for Egypt, Dr Mohamed Elmogy, commented, ‘The scarcity of good legal talent is one of the biggest issues businesses in Egypt face today. Anyone who doubts the value lawyers bring to a market has not seen the difficulties faced without them. There is a lot more time and cost incurred when you try to work through complex matters without legal support. As a large, attractive employer we are able to bring in the best, but it is clear when interacting with certain counterparties that we are often not talking the same language.’ Shady Elmogy, vice-president of legal affairs at leading Egyptian auto manufacturer Ghabbour Group added, ‘Our system of legal education does not produce a great abundance of lawyers who can just plug in to a firm or a business. While there are many good senior lawyers and partners, one often finds they have taught themselves on the job.’
The problems facing Egypt’s GCs were brought into sharp focus by one guest who noted she had conducted more than 200 interviews to identify a suitable candidate for a temporary role. ‘The problem was not that [the candidates] all lacked talent, it was that too many of them overestimated their abilities. They wanted to enter at a managerial level and take their salary in dollars. Partly this is a generational thing, particularly in Egypt where people are so desperate to achieve things and do not want to keep waiting.’
But, noted Hesham Fayez, country legal counsel at Citibank, talent is often hidden. ‘I have seen many, many talented lawyers who get overlooked because they lack foreign language skills or some other form of training outside the legal role. Does that mean they lack talent? I don’t think so. It means that was GCs we have a duty to give them the right guidance so they can accelerate their careers.’
A second barrier GCs face when it comes to building legal teams in Egypt is the general reluctance of business to employ more lawyers. While the number of lawyers working in-house has generally risen across most emerging markets over the past five years, major Egyptian companies have been scaling back. This anecdotal observation was supported by a show of hands. Among the fifteen GCs present at the discussion only two had teams containing more than ten lawyers. The remaining GCs were split between those who worked in teams of around five and those who acted as sole counsel or as part of a two-person team.
As Waleed Shoukry, general counsel of Ezz Steel noted, ‘The reluctance to scale up is backed by the cyclical nature of legal work in Egypt. I can go out and hire five M&A lawyers to help on a matter, but what will they do once the matter is completed? While it is important to have enough specialist knowledge within the team to start processing a matter efficiently, I do not see businesses in Egypt becoming comfortable with integrating every larger numbers of specialists just to handle day-to-day operations. The dependence on law firms will not be fundamentally challenged in this market.’
Reflecting on his recent time working in Dubai, Al Tamimi’s Mohamed Khodeir asked whether the model of taking lawyers on secondment, which is only just gaining favour in the GCC and remains largely unknown in Egypt, might help address the talent gaps facing in-house teams.
El Adany, legal manager at Nestle, responded that it could be a useful short-term fix but noted there would always be concerns over whether a secondee could acclimatise to the culture of an organisation quickly enough. Another added, ‘The presumption when recruiting is that a candidate who has spent time as a secondee is not a great lawyer. When a law firm gives out a secondee the perception is that, fairly or unfairly, the person is dispensable. In a market where everyone is fighting for a limited number of talented lawyers it would seem unwise to send your most talented people elsewhere and potentially lose them.’
As someone who regularly uses secondees, Samallie Kiyingi, director of legal services at the African Export-Import Bank, challenged these views, noting that although there is a difference between law firm culture and life in-house, ‘Over time people adjust and when they go back to their firms they can help their partners understand that difference more clearly. I often have a strong relationship with the firms I take secondees from and find that having lawyers there who have worked in my business strengthens that relationship and improves the service I receive.’
Having discussed the gap between in-house and private practice, it was natural to ask what the GC role was evolving into, and whether GCs themselves might be victims of a skills gap. ‘We have to be honest and say there are things we do not know how to do but which business needs us to do’, commented Siemens’ Elmogy. ‘Of course, we may lack financial or econometric skills, but I think the bigger issue is a lack of managerial talent across the top level of the profession. Being a leader is about producing through other people. As GC, your ability to manage a flow of work – whether it is produced by your own staff or by a law firm – becomes far more important than your ability to produce legal work. Al Tamimi’s Nour agreed, commenting that, ‘Technical expertise will elevate you to a position of leadership, but once you are there you need to leave behind most of the work that got you there and start learning again. Lawyers are very proud of their identity and struggle to let go of it.’
‘It is a balance’, said Kiyingi. ‘We remain legal advisers but stepping away from the granular details of legal work can actually help us get better at. I spend a lot of time training my team to be flexible and think about the broader implications of what they are doing. Ideally, you want your lawyers to be able to attend a committee meeting and make valuable contributions, even if those contributions are not strictly legal. Our training and methodology means we can ask the right questions and scrutinise decisions in a way that adds value.’
‘We are employed for a variety of reasons, only some of which are to do with giving legal advice’, added Nahla El Adany of Nestle. ‘As GCs, we spend a lot of time advising on various aspects of enterprise risk management. While this is not strictly a legal task, lawyers tend to be very attentive to risk and so are well-suited to that role.’
This, suggested Yasser Gebreel of Carbon Holdings, meant it was extremely difficult for external counsel to perform all the roles of an in-house lawyer. ‘They are paid for their time and will not be given the opportunity to sleep on a decision or interact further with senior management. The true value of a GC is that they can put the brakes on projects that may damage the long-term interests of the business.’
The big question, said another, was what to do when this approach does not work. ‘What do we do when we have tried to act as the brakes and senior management still wants to go ahead with the deal? I am sure we have all had situations where at the end of a presentation outlining why something is a bad idea the board asks only one question: “How can we make this work?”’
‘In that situation you have to be diplomatic and quantify the risks as best you can’, suggested Hesham Fayez. ‘It is always ultimately a business decision, but we can give the business a clear indication of the severity of risk a decision is likely to entail. An external opinion is not a safetynet. If you commission five different firms to give you an opinion you can get five different results. One lawyer will say, “Yes, you can do it, but there are restrictions.” Another will say, “It is a matter of incurring relatively small fines, go for it.” Ultimately, those opinions are given by people who are not accountable for the risks that arise. As GC, the fact that you are personally responsible makes a big difference to management’s belief that your assessment is accurate.’
Mahmoud Nabil Rady, GC for Middle East and Africa at Ecolab, added that the most severe risks were mitigated when companies work closely with their legal teams. ‘The sunk cost fallacy can drive a lot of bad business decisions. Once a company has spent time and money on a stalled project there is inevitably huge pressure to find a fix. I find that companies with a strong legal function – and by that I mean a legal function that is not only good in its own terms, but which is taken seriously by the business – make earlier and better-informed assessments of risk and encounter fewer projects that have been built on unstable foundations. There is definitely a trend in the Egyptian market toward involving lawyers in the consultation and planning phase. Five years ago this was not the case.’
However, one GC sounded a note of caution: ‘The clear trend among regulators is to analyse an organisation’s culture and the checks and balances that were applied. In Europe they are sending psychiatric doctors to board meetings so they can understand whether a decision was made by consensus or imposed unilaterally by a strong character. As GCs we should be very careful and make sure we are not just swept up in the culture of the place. The regulatory emphasis on maintaining independent legal and compliance functions will surely grow, and it is our job to remain apart from the decision-making process.’ Samallie Kiyingi of the African Export-Import Bank concluded: ‘It comes back to building a culture of trust. Managing risk depends on trust and you can only gain that trust if you are close to the business. Senior management needs to believe you know the best way forward. A good GC has built up his or her credibility by making consistently accurate and informed assessments of risk. That means the board is more likely to take you at your word.’