Since Russia’s illegal invasion of Ukraine, hundreds of the world’s leading companies, from investment banks to consumer goods, have shuttered their Russian operations. But Law firms have been slower to respond. Join us for a discussion with business law expert Robert Daines who has been leading an effort to expose leading American and British law firms about their status of work for Russian interests.
This episode originally aired on SiriusXM on May 7, 2022.
Rich Ford: From Stanford University and SiriusXM, this is Stanford Legal. I’m Rich Ford.
Joe Bankman: And I’m Joe Bankman. Today, we’re talking with Rob Daines, associate Dean of Stanford Law School, about some of the law firms still doing business with Russia as a war with Ukraine continues. Rich, a lot of us face moral dilemmas, large and small every day and one of the ones that’s come up, I think for me and many of us is what should we do about the war in Ukraine? Should we be donating anything, should we be volunteering, should we make our voices heard?
Ford: No, that’s right. I have friends that are doing work in Ukraine and I have donated money to their institutions to try to help refugees in Ukraine and try to help the situation there. And another big moral dilemma involves people who are doing business in Russia and directly or indirectly supporting Putin and the regime that’s causing so much human devastation. So we’ve seen a lot of companies start to divest their business interest in Russia or stop doing business there in order to avoid supporting this war effort.
Bankman: That’s right, Rich. And we’re talking with our colleague Rob Daines about what he’s doing to track what lawyers are doing, given the events in the Ukraine and Russia.
Ford: That’s right. And law firms are facing some distinctive moral dilemmas, they’re distinctive issues involving the practice of law and the way law firms are structured that make those issues perhaps, look a little bit different but nevertheless, they’re in most ways the similar kind of moral dilemmas that we all face with respect to this and that there many other businesses have faced with respect to continuing to do business in Russia.
Bankman: And today we’re talking with Rob Daines, a Pritzker Professor of Law and Business and Associate Dean and a Senior Fellow for the Rock Center on Corporate Governance at Stanford. And Rob, we’re talking about the role of lawyers post Putin’s Russian invasion of Ukraine and can you give us some background on that?
Rob Daines: Sure. I started tracking public statements from law firms about what they were doing for Russian state entities and Russian firms after the invasion. When I noticed that hundreds of big industrial firms and banks and accounting firms had announced that they were going to leave Russia and were no longer going to work for Russian clients and so I’ve been tracking what lawyers do. And the short version is we know something but not a lot. A lot of the British law firms and a lot of US law firms do a lot of work for Russian entities and oligarchs and banks and you see people all over the spectrum, some do it a lot and some do very little and are saying nothing about it.
Bankman: And Rob, you have a list somewhere and we’ll post this list for our viewers and listeners but the list is of the biggest law firms that you’ve polled and you’ve asked them what they’re doing. And as I look at the list, only a very few of the biggest law firms say, “We are willing to say, we’re not working for Russia.”
Daines: That’s right. We’ve tracked whether firms have announced that they no longer will work for Russian clients or won’t work in the future for Russian clients. And right now there are maybe four or five law firms of the top 100 US law firms that are clearly committed to a position like that. And actually, tomorrow we’re going to announce a similar list for the largest British law firms. But you’ll see that maybe 15 law firms have said something pretty clear about their commitment, most are silent. And then there’s about a third of the law firms that have said something that might be described as ambiguous or carefully worded. My kids would call it, some of them weaselly, descriptions of what they plan to do so probably, 10 that have said, “We’re out and here’s the conditions and here’s why.”
Ford: Wow. And of those 10, Rob, do you have any sense of how many or what percentage did business with Russian or that are saying, “Hey, we had this lucrative business with Russia and now we’re going to cut it off,” taking a strong moral stance and how many never did business with Russia anyway or is there a mix there?
Daines: That’s a great distinction. If I’ve never done business with Russia, it’s pretty cheap for me to say, I won’t.
Daines: So there are a couple. A couple firms are like that although, even that’s, I think, valuable for firms to announce, “We’re not going to do business with Russian firms because of our opposition to Putin. We don’t want to support that war effort.” That’s still helpful, I think in forming a norm or exerting some pressure on firms that do. I’d say most are in the category you described but there are a couple, there’s one firm Norton Rose that’s actually made a pretty strong commitment. And they did a lot of business with Russia before and ran into a lot of trouble actually, because they announced what looked like a policy that none of their lawyers were allowed to criticize Russia or talk about Russian sanctions. It was like a gag order is what it looked like to people. And so they were on one far end of the Putin supporting law firms is what it looked like. I mean, people were criticizing them for that but now have taken a pretty strong stand against doing future Russian work. So there are firms that are incurring real costs to show opposition to the Russian war here.
Bankman: There are some firms that are heroes in that they’re incurring real costs and other firms that are helping things along by taking moral stands that might cost some money in the future. But overall, most law firms seem to be not willing to take any stand on this at all if I read your list right. And of the firms that are taking stands, a lot of them aren’t losing very much would suggest that the firms that are doing a lot of business for Russia are probably still doing a lot of business for Russia.
Daines: I think that’s true. I mean, there’s no doubt that the firms that did a lot of business with Russia are going to be doing less from what I can see. But how much of that is, they’re doing less because sanctions forbid them from doing less? And then others are voluntarily walking back their commitment out of a desire to not facilitate the Russian economy. I’ve looked at a lot of these law firm policy disclosures now and initially I read them and I think, “Oh, firm X they’re out of Russia. They’re committed, they’re going to walk away from money to do the right thing.”
And then over time, I would learn to read these with a little more jaundiced eye. I got tips to say, “Law firm X is actually doing a lot of work for Russian bank Y or they’re representing them in litigation.” And I’d go back and I think, “Well, let me reread that disclosure to see if they’re going to stop.” And I would notice, well, that disclosure that gives the impression of backing out actually, carefully preserves their ability to keep representing firm X or Y and so there’s not much there in terms of law firm commitments and I’m sorry to say there’s probably, even less than meets the eye.
Ford: So typical lawyers drafting things very carefully and you’ve got to read the fine print. And this seems to be different than a lot of other American businesses, a lot of other European businesses that have in fact renounced their work with Russia or even big accounting firms that are analogously situated in a lot of ways to law firms that have said they’re pulling out of Russia. Is that right that there are law firms that seem to be in a distinct category of refusing or resisting doing that?
Daines: I think that’s right and I think what is interesting is why? So when presented with an ethical challenge where there’s money over here to be made but you find most of the big Western industrial companies running away from that, running from the ethical challenge, you have Goldman Sachs accused of being the vampire squid on the face of humanity. They leave commercial banks, all leave, accounting firms leave and when you see law firms on the other side of that ethical line, now is with Koch brothers and another set of clients that are just doubling down in Russia, it’s surprising and for me, disappointing. So you have to ask, why are law firms so slow? Rich, I think is part of what you’re saying.
And you could say, “Well, it’s just greed. Law firms are greedy. It’s the lawyers are just reluctant to give up the cash if there’s money to be made.” There’s a little more optimistic story and that maybe law firms are less hierarchical. If the one person at the top of Goldman says, “We’re out,” then everybody has to follow and they’re out. But law firms are maybe loose partnerships and if I’m in Russia making money and you and Joe want to leave but it hurts me, maybe you can’t make me leave as easily. So maybe the law firm is slower to force out or unable to compensate the individual partners who would lose from that decision. That’s a possibility that makes me a little more optimistic maybe.
Bankman: I wonder about, is there any argument and this goes to how sanctions work in general but maybe to the responsibility of lawyers too, that you’re already representing a client and that you have an ethical duty to the client, do we hear that at all and how do you see that? You know of course, of that kind of maxim in lawyerly representation that you have to stick with your client. Usually, lawyers with big institutions don’t even think about that because generally, they’re thrilled to stick with big clients like this. But how do you see, does that cut it all? Does that defend what the lawyers are doing at all?
Daines: Yes, partially. So you might say, “Oh, it’s easy for McDonald’s to leave Moscow. They just pick up and run and you can sell your hamburger somewhere else.” But law firms are different, it’s a noble profession. If I’ve picked up on this client, I just can’t leave them in the lurch, they’ll end up in real trouble. And I think that’s true both as an economic matter, they might need you and as ethical rules might compel you to keep representing your client, there’s no doubt that’s right. So we’ve been trying to take a look at what law firms will do when they’re not bound by that. That is, I have to keep representing you, Joe, but I don’t have to go find new clients from Russia. So I’m perfectly happy to say, “You’ll keep representing X, but A, have you committed not to go get new business?” And very few of the firms that are representing the big current client are promising not to go get new clients so that makes me a little cautious.
The other thing is even if I need to keep… If I’m the big law firm and I’m saying, “I’m not just being greedy. I have to keep working for this client because I’m compelled, my ethical commitments compel me.” Well, there are two things, one is ethical commitments don’t make you keep all the money you earn. If you’re earning profits from this, you could say, “We’re going to give the prophets to Ukrainian refugees,” and then maybe you’re doing the good work.
You’re taking cash from the oligarch and you’re handing it to the… You’re making the money, doing the work and then handing it to Ukrainian refugees, that’s great, that’s good work, we’re happy to cheer for that. Or you could say, “Ethical rules compel me to keep working for this current client but I’m going to try to get out of it over time.” And so we are contacting firms to say if you’re representing with current client let us know if either of these two other things apply, are you willing to get out over time? Are you committing to do anything with the profits? And maybe it’s just because I’m an irrelevant professor but mostly we’re greeted with silence or more ambiguous disclosures.
Bankman: Wow. I’m thinking of the work that people might do for a country like Russia or for Russian companies and maybe just let’s get a deeper feel for what’s happening there. I’m thinking I could be representing maybe Aeroflot, the Russian airline, I assume that’s an arm of the government owned by the government. And I could be about to represent them before some hearing that would probably be a stronger pull for me to make sure they have representation at the hearing. But I might be doing things like drawing up contracts for landing rights that would seem to me less compelling that I couldn’t quit doing that. What are some of the other things that I might be doing if I’m working for Russia or a Russian company?
Daines: Well, we’ve seen a little bit of a variation when law firms answer sometimes in email. And so we’ve tried to keep track of the reasons people give, some of which seem perfectly, valuable and laudable. So one firm sent us a note, they’re saying, “We’re going to keep working in Russia because we have clients that are resisting Putin’s government or we have LGBTQ clients that we want to keep helping.” And we said, “Yeah, great.” And any firm that does that, Joe, we’ve sort of carved out and they still get the gold star certification. They’ll still go in our top category which is so coveted, of course. But if you’re just helping a big Aeroflot or let’s say a big bank, get a better interest rate or access to different capital markets that seems much less a morally compelling case. So we’re just trying to carve out greed versus trying to make the world a better place. Now, sometimes those are perfectly in sync but this is a case where they look like there’s some easy calls to be made.
Ford: We’ll be back with more with Rob Daines, next on SiriusXM Business Radio Channel 132.
Ford: So Rob, one of the things that you’ve been looking at is why law firms might be different than some of the other large businesses that have pulled out of Russia. And you mentioned that law firms have a decentralized decision making structure so it may be hard to pivot quickly. Another thing is the law firms have a decentralized compensation structure in some context, could you talk a little bit about how that might affect the ability of the law firms to exit Russia?
Daines: I think that might be what’s going on. Maybe I’m just a sucker for optimistic stories of that it’s not just craving lawyers slow to exit because grabbing all the money they can find. But I think what happens is most firms compensate lawyers basically, on an eat what you kill contract. So if you have a lot of business say in Russia and I’m doing utility work in Texas, you’re going to make money and you’re going to lose money from the Russian sanctions.
And so I may have strong positions and feeling that we should not be doing business with Russia but that’s easy for me to say because it doesn’t cost me anything and it would, let’s say your practice in this example. So as a result, it might be that you have control over who you’re going to take and you might be slow to want to exit and you can think of some mix of good reasons or bad reasons to keep doing business. And now if you and I are in the same firm, the whole firm will be seen as doing business in Russia when it’s really just you… And sorry, you’re the bad guy in my hypo, I’m the virtuous guy, of course, it’s my hypo. And unless I can pay you to leave, unless I can write you a check to say, “Thanks for giving up your clients,” then we might just keep doing business with the Russians.
Ford: You could see how that could be very tricky because it’s one thing to say, “Look, 5% of your businesses in Russia, give up the 5%,” and that’s a small sacrifice to pay for this humanitarian cause. It may be very different if 90% of my work is in Russia and you’re saying, “Hey, Rich. You give up 90% of your income, maybe indefinitely, maybe for the next several years,” and there’s no structure in place to compensate me so it’s only 5% of the firm’s work but it’s 90% of my work. That’s hard and if there’s no way to make me do it and compensate me then I’m going to stay in Russia, perhaps.
Daines: I think that’s right. Often, in law we think that the people should make decisions who bear all the costs and all feel all the benefits. Those are the people who should make decisions and so if you bear all the costs and benefits then you might want to stay or you bear all the benefits from continued work. Whereas like a Goldman or McDonald’s, maybe there’s some advantages in cases like this from the CEO to be able to say, “No, it’s just the right thing and I’m not going to feel the pain myself but I can announce the firm position or I can take all the costs and benefits into consideration.” I think that’s right.
Ford: So I guess, another thing that might be in play is the lawyers are used to dealing with unpopular clients and there’s a sense in which the culture of lawyers is such that they might even see it as virtuous to take on unpopular clients and that might bleed over even into an area where perhaps, it’s less defensible. It’s one thing to take on an unpopular client, in a trial everyone deserves a defense. It’s another thing to take on an unpopular client in this context where it’s really just a matter of making money and getting some transaction to go forward but it could bleed over, I suppose.
Daines: I think that’s exactly right. We might be a little too quick to wrap ourselves in our professional virtue of, “I protect the downtrodden.” Well, that’s hard to substitute a Russian oligarch or giant bank for the downtrodden or the accused. I think you’re exactly right.
Bankman: Rob, we’re talking about motives and motives of lawyers for wanting to leave or wanting to keep Russian business. How about your motives? How did you get started on this cause which seems like a great cause to me but then I’m not doing it, I wasn’t moved to do it though I’ve thought about what I can do for the Ukraine. I think many of us have, tell us a little bit about your background on this?
Daines: Academically, I do law and finance and corporate governance. So this isn’t right in the core of what I usually do. I paid more attention to this because I have a son who’s now a freshman at Stanford who just returned from living for two years in Ukraine in Moldova. And so I’ve gotten to know a bunch of Ukrainians, I saw their kindness to him during the pandemic. He lived there during the pandemic and I just saw their warmth and creativity and compassion. So I paid attention when bombs started dropping and people started dying and I have this friend who is a member of parliament, who’s eight and a half months pregnant. And when the war starts and she happened to be in Washington, D.C. and she’s running around… Well not running at eight and a half months pregnant, but walking around the hill, trying to lobby for protection to help her country.
And I was so impressed by her hope, this combination of new life into the world at the same time, Ukraine and many people are dying and getting bombed that I thought I ought to be able to do something to help. I’m curious how’s my profession doing and I would like to do something to increase the awareness or some pressure on these giant corporate law firms that are knowingly or not knowingly or for good reasons that Rich pointed out or not, are helping to finance this industrial base that is killing Ukrainians. And so I thought I’ve got to do something. And so I just thought, I contacted a friend, John Coates at Harvard and Ian Ayres at Yale and I said, “Would you guys be interested in tracking this as a research question and maybe it has some public policy payoff?” So I guess, like most things, it’s a personal motivation and I got to know people and so I cared and wanted to try to do something.
Bankman: It’s particularly real for you or the people you know. I mean, is that something that you follow, do you get reports or is their radio silence so to speak?
Daines: There’s been a mix. Most of the people my family knows have fled Kyiv or cities around that and are now in the west of Ukraine, going from place to place, maybe with the grandmas, frankly, and older relatives. And they go radio silent every so often and so far my particular friends have been safe but over the last couple of days it’s gotten a little tougher. So it’s more them dealing with the pain of losing friends and countrymen. So I know friends who have died in the war but it’s just watching a third of their country fled in the last three weeks. Imagine what that would have to be like for a third of the people on Stanford Campus to just run, leave home and friends and family. It’s been really tough. It’s this mix of despair and hope and that’s what the Ukrainians have really managed to teach me a little bit and to try to focus on the hope in a really tough situation.
Bankman: That’s so moving, Rob.
Ford: Well, it’s such a compelling…
Daines: Well, you can end on maybe a positive note. My friend, the woman who was eight and a half months pregnant sent me pictures on Sunday of a brand new little baby girl. And somehow that’s the idea that there’s life and hope she has this amazing family who’s going to create a nice world for her as even as Russian bombs are falling all around her homeland. It’s just this braiding of pain and hope in this really painful way.
Ford: Thank you so much, Rob. That’s such a moving way to end and you’re doing great work to try to keep our profession on the right side of history and on the right side of this important moral issue. So thank you so much for joining us here on Stanford Legal on Sirius XM.
Daines: Thanks for the invitation.
Bankman: Thanks to Rob Daines. I’m Joe Bankman with Rich Ford and this is Stanford Legal on SiriusXM Business Radio Channel 132.