After almost two months of the full-scale Russian war in our country, the UBA conducted a survey of national legal advisers of commercial companies on the impact of military aggression on business in general, the functioning of lawyers, and personally in-house counsels, with results being published by Yurydychna Gazeta.
The survey was conducted from April 14 to April 21, 2022, and processed with the assistance of LegalTalents.Report. The analytical paper was produced by Iryna Nikitina and Tetyana Benko, researchers at LegalTalents.Report.
The report is available by the link.
1. Size matters
49% of In-house counsels reported that their companies’ business had suffered significant losses since the inception of the war: 29% had more than halved, and 20% had suspended operations. These figures correlate with the World Bank’s estimates of Ukraine’s GDP decline in 2022 by 45%.
At the same time, 14% of respondents confirmed that the business of their companies is fully operational.
The most vulnerable were small businesses (annual turnover of up to UAH 100 million) – 43% of such companies suspended operations.
At the same time, there were no such companies among those with a revenue of UAH 5+ billion, moreover, every fourth respondent from this group noted that the business was working in full.
Among those with a reduction of business by more than 50% or suspension, 25% were international companies, and 75% were national businesses.
The most vulnerable industries (TOP-3), in which business has either decreased by 50+%, or suspended its activities:
• 29% – services (real estate management, professional services, insurance, etc.);
• 13% each – FMCG and construction;
• 11% – retail trade.
It is no surprise that among those who work in full, 47% are connected with IT/telecom/media.
When it comes to relocation, 80% of businesses are either not relocated or consider relocation impossible. Only 11% of respondents said that their companies were partially or completely relocated.
Direct speech of respondents:
“Relocation is impossible for the plant».
“Relocation failed, business returns to Kyiv”.
“Opened LLC abroad to support operations”.
According to the respondents, currently, the business mostly needs tax pressure reduction (38% of respondents) and deregulation of business (35%). It is like a social contract between the state and business, such as: “Do not put pressure on us and do not limit opportunities – and our business will survive and support the state!”.
Those in-house counsels, who had been affected more painfully by the military aggression, express the following wish: “Support me, compensate for the losses – my business will be able to recover!” (23% of respondents).
Direct speech of the respondents:
“Deregulation in the context of licensing procedures, procedures that require interaction with government agencies, simplification in the field of exports.”
“Active support and change of outdated legislation, large-scale deregulation and simplification of business.”
“Tax reduction, tax deferral”.
“Reducing tax pressure, adjusting the work of the judiciary (not all courts are ready to hold meetings by video conference), assisting in recovering losses from the aggressor state, increasing the period of return of foreign exchange earnings to Ukraine (currency control).”
“Lending on concessional terms.”
In-house was quite skeptical about the role of public and professional associations in lobbying important business issues. 38% of respondents had the impression that these organizations were ineffective.
Only one in five respondents favored the European Business Association or industry associations, and one in ten favored professional legal associations, mostly the UBA.
2. It is either famine or feast
48% of legal chiefs note a significant reduction in the volume of work (by more than 50%).
One in four managers said that the workload of their departments had increased.
Managers’ responses to the workload of their departments were divided: one in two managers said that the volume had decreased significantly (50+%), and one in four said that it had increased.
Legal departments that have confirmed an increase in the volume of work belong to the following industries (TOP-5):
- IT/telecom/media – 24%;
- consumer goods (FMCG) – 24%;
- pharmacy & medicine – 18%;
- energy – 12%;
- services (real estate management, professional services, insurance, etc.) – 12%.
It is worth noting that even military aggression did not affect the priorities of the in-house counsels’ work.
In the first place – relations with the state (35% of respondents said that their top 3 priorities include regulatory issues related to war and martial law, including force majeure).
In the second case, relations with contractors (27% prioritized contractual relations, including the settlement of disputes related to breach of obligations).
Routine and current business consultations have not vanished from the TOP-3 – 16% of legal chiefs have identified them as a priority.
Next comes labor relations (11%) and business optimization and restructuring (10%).
As regards plans to optimize the work of corporate legal departments, 58% of respondents mentioned a reduction in the payroll and 30% noted a reduction in staff.
40% of in-house counsels said that optimization plans include budget cuts for external consultants.
It should be noted that even those legal departments with an increase in workload, plan to reduce the payroll (every third manager gave such an answer) and cope with their own (60% of respondents mentioned this cost optimization tool).
3. Self comes first!..
Although 42% of commercial companies are optimizing their legal departments, almost one in three respondents (29%) said that nothing has changed in their compensation so far. Only one in six in-houses (17%) lost their wages with the start of the war.
Legal departments were relocated together with companies. If the business was not relocated, lawyers had the opportunity to change location at their own will. Regarding relocation assistance, 30% of respondents said that the company helped them to do this. 15% of respondents additionally confirmed that the company pays for their housing expenses or provided one-time financial assistance.
The findings of the survey revealed two different storylines during the war: in-house lawyers with an increased volume of work and those with a decreased workload.
Plot 1 (increased workload):
- half of the respondents stated that nothing had changed in their compensation;
- the other half stated that the remuneration was either reduced to 50% or paid in advance (1-3 months);
- none of the respondents in this group has stopped receiving salary nor suffered a reduction by 50+%;
- the company also provides additional financial assistance to such in-houses: it reimburses housing costs, pays one-time financial assistance, and covers other expenses.
Plot 2 (decreased workload):
- almost every third respondent in this group lost their wages at the beginning of the war;
- every fourth respondent in this group had a significant reduction in salary (by more than 50%);
- only one in five respondents had no changes whatsoever;
- notably, these companies provide almost no additional compensation and financial assistance to this group of respondents.
The portrait of these respondents in this plot looks like this:
1) small legal departments (87%);
2) domestic business (87%);
3) the workload of the legal department has significantly decreased (80%);
4) industry: services, FMCG, and construction;
5) the company’s revenue for the last year – up to UAH 1 billion (65%);
6) the business suspended or significantly reduced its activities (74%);
7) those who moved abroad without the possibility of remote work.
It is obvious that in such conditions each in-house counsel personally needs the following support in the first place:
1) assistance in updating knowledge, professional development, and education abroad;
2) assistance with employment and job search;
3) networking (exchange of knowledge, experience, communication with colleagues, assistance in establishing connections, and finding new contacts, in particular abroad).
Despite financial challenges, 76% of in-house counsels support the state and the army financially, 39% participate in information wars, 35% find medicines and safety equipment, and 64% provide free consultations to citizens, NGOs, and charitable foundations.
Direct speech of the respondents:
“I believe that the state should first take care of its sovereignty. We currently have no right to wait for help from the state.”
“End the war and move to a peaceful settlement.”
“Let the state protect the land so that we can return to our places as soon as possible and resume work.”
“Fight against the aggressor on all fronts.”