Ukraine: Reliable Partner

Last Updated: 17 October 2017
Article by Alexey Starodubov

Most Read Contributor in Ukraine, October 2017

The issue of Professional Government Relations services is widely discussed as something very relevant for Ukrainian realities. Although sensitive, lots of room remains for discussion about social perception and regulatory issues. Alexey Starodubov, a founder of UA Direct, business partner at Sayenko Kharenko, told us about the challenges and opportunities presented by Ukraine's embryonic and unregulated lobbying services sector.

In July 2017, you joined forces with Sayenko Kharenko as a business partner to strengthen, among others, its Government Relations capacities. What was the thinking behind this partnership?

Alexey Starodubov: Government Relations (GR) is a relatively new concept on the Ukrainian market. It can play a vital role for companies looking to invest in Ukraine or develop a business here. Unfortunately, at present many businesses operating in Ukraine encounter problems when engaging with both local and national government bodies. They often find themselves confronted by ambiguous personalities seeking to act as intermediaries between businesses and official bodies or regulatory bodies, for example. This is a particularly significant concern among international investors. Unfortunately, there is no civilized GR market at present in Ukraine to address this issue. This is why we decided to establish UA Direct. The goal is to work with international investors and businesses in order to develop mutually productive relationships with state authorities.

The art of lobbying is a central feature of mature democracies throughout the West. However, in the Ukrainian context, perceptions of lobbyists continue to suffer from associations with political corruption. What can Ukrainian GR service providers do to improve transparency and market confidence in these kinds of services?

A. S.: There are currently no regulations governing the lobbying industry in Ukraine. In order to remedy this shortcoming, we can look to developed countries such as the UK and Canada where there are clear legal guidelines in place for lobbying and GR work. Given Ukraine's Western- oriented development trajectory, it might be useful to adopt practices that have been shown to work in places like the US and UK. We could use these models as examples and adapt them to our local needs.

How would you define the lobbying services you offer?

A. S.: In essence, we seek to serve as partners of businesses looking to resolve issues with state or government bodies. This is the key difference between legal services and lobbying services. Legal services typically involve specific work on things like contracts and the provision of legal opinions. We are more deeply involved than normal legal services providers would be. We work closely with the client on a day-to-day basis and act as partners in their Ukrainian business. In order to assess the situation correctly and identify both problems and solutions, you need to be on the inside and possess sufficiently detailed knowledge. It is no accident that our slogan is: "Your reliable business partner in Ukraine."

How important is influence as a factor in the provision of successful GR services in today's Ukraine?

A. S.: When you engage in lobbying activity in any country, it is vital to identify your potential partners on the Government side. It is also crucial to have a broad understanding of the tools and mechanisms available. There is currently a wide range of options available to businesses that many people do not know about. There are also significant numbers of officials who are open-minded and welcoming towards investment. It is easy to communicate and cooperate with them. However, many of the business people who come to Ukraine are unaware of the instruments available to them. Naturally, they are unable to take advantage of these tools unless they receive the necessary professional guidance. This is where we see a need for our services. We can help to guide our partners in the right direct and avoid the pitfalls of bureaucracy and corruption.

What do you see as the boundaries governing ethical GR services?

A. S.: The obvious red line in any lobbying activity is bribery. There are also ethical issues raised when former legal industry colleagues occupy positions in Government or the civil service and create opportunities to achieve results through personal connections. This is especially true when the people in question may in future return to private practice and be in a position to benefit from the help they provided during their time in state employment. Many countries have codes of conduct that place restrictions on such contacts. This seems entirely reasonable to me. It is certainly something for Ukraine to consider as it could help bring clarity to what is currently quite a wild and unregulated GR sector.

How would you define the present status of the lobbying industry in Ukraine?

A. S.: I would go so far as to say that there is no such industry in the country today. We have numerous law firms who are trying to offer GR services but we do not have specific and dedicated lobbying companies due to the absence of regulations and legislation. It is possible that some could exploit the current lack of a coherent lobbying sector to make short-term profits by offering to help companies engage in unethical practices. However, there is much more to gain by establishing a professional lobbying sector along Western lines and creating a much more attractive investment climate that will ultimately benefit everyone.

Can the GR industry develop without a regulatory framework?

A. S.: As long as there is a need for these types of services, the industry will continue to develop organically even without a clear regulatory framework in place. There is actually a draft law on lobbying that is currently in process, so we might see movement in this direction.

What different segments can you identify within the lobbying industry?

A. S.: There are three core kinds of lobbying. Watchdogs analyze the situation and provide recommendations to help clients avoid negative outcomes. Advocates seek to contribute to the process of legislative development in order to raise concerns and promote the interests of clients. Policy entrepreneurs are similar to advocates in terms of the services they provide, but their specialty is close relationships with senior policymakers within Government and an ability to build productive relationships. All three spheres are already present in Ukraine to a greater or lesser extent, but this work is currently being carried out within law firms or conducted by GR managers at large multinationals.

Prior to 2014, you headed the Regional Development Agency in Ukraine's Autonomous Republic of Crimea. How can this experience apply to your current role in providing GR and investment support services?

A. S.: My work in Crimea involved cooperation with many major international financial institutions (IFIs), including the EIB and EBRD. This has numerous direct applications for the current business and investment climate in Ukraine, where decentralization has opened up new opportunities for local government but also created new challenges for the authorities that often lack the requisite knowledge and experience to take full advantage of the changing environment. Progress in decentralization has meant more money and more responsibility for regional government. Local authorities now deal directly with institutional investors and IFIs, often for the first time. They can attract significant investment, but in many cases they do not know what steps to take or how to invest resources wisely in order to create the conditions to successfully attract investment. This is an example of where GR services can be a two-way street with GR professionals offering state bodies the kind of advice they need in order to achieve success and attract investment.

Do you think the political will currently exists to create a legislative and regulatory framework for lobbying work in Ukraine?

A. S.: I am not confident that we will have new legislation in the near future. Nevertheless, it should be quite possible for private sector professionals to develop a code of conduct that can lay the groundwork for how to work with members of parliament, state bodies and local government. This code of conduct could serve as a fundamental basis for the development of legislation on lobbying. It would be a helpful process. Everyone understands that you cannot engage in bribery. The same limitations should also apply when it comes to less obvious instruments of corruption, but it is important to create clear guidelines to clarify where the ethical boundaries lie. When people enter the Ukrainian market for the first time, they are not aware of all the market nuances. They need to know how to interact with state bodies. This is in everyone's interests. The Government wants to attract investment, while investors seek to avoid obstacles. GR professionals can serve as guides and facilitators who are capable of representing the best interests of all sides. The existence of this clear and common goal is the basis for my optimism that the GR industry can prosper in Ukraine.

The issue of Professional Government Relations services is widely discussed as something very relevant for Ukrainian realities. Although sensitive, lots of room remains for discussion about social perception and regulatory issues. Alexey Starodubov, a founder of UA Direct, business partner at Sayenko Kharenko, told us about the challenges and opportunities presented by Ukraine's embryonic and unregulated lobbying services sector.

In July 2017, you joined forces with Sayenko Kharenko as a business partner to strengthen, among others, its Government Relations capacities. What was the thinking behind this partnership?

Alexey Starodubov: Government Relations (GR) is a relatively new concept on the Ukrainian market. It can play a vital role for companies looking to invest in Ukraine or develop a business here. Unfortunately, at present many businesses operating in Ukraine encounter problems when engaging with both local and national government bodies. They often find themselves confronted by ambiguous personalities seeking to act as intermediaries between businesses and official bodies or regulatory bodies, for example. This is a particularly significant concern among international investors. Unfortunately, there is no civilized GR market at present in Ukraine to address this issue. This is why we decided to establish UA Direct. The goal is to work with international investors and businesses in order to develop mutually productive relationships with state authorities.

The art of lobbying is a central feature of mature democracies throughout the West. However, in the Ukrainian context, perceptions of lobbyists continue to suffer from associations with political corruption. What can Ukrainian GR service providers do to improve transparency and market confidence in these kinds of services?

A. S.: There are currently no regulations governing the lobbying industry in Ukraine. In order to remedy this shortcoming, we can look to developed countries such as the UK and Canada where there are clear legal guidelines in place for lobbying and GR work. Given Ukraine's Western- oriented development trajectory, it might be useful to adopt practices that have been shown to work in places like the US and UK. We could use these models as examples and adapt them to our local needs.

How would you define the lobbying services you offer?

A. S.: In essence, we seek to serve as partners of businesses looking to resolve issues with state or government bodies. This is the key difference between legal services and lobbying services. Legal services typically involve specific work on things like contracts and the provision of legal opinions. We are more deeply involved than normal legal services providers would be. We work closely with the client on a day-to-day basis and act as partners in their Ukrainian business. In order to assess the situation correctly and identify both problems and solutions, you need to be on the inside and possess sufficiently detailed knowledge. It is no accident that our slogan is: "Your reliable business partner in Ukraine."

How important is influence as a factor in the provision of successful GR services in today's Ukraine?

A. S.: When you engage in lobbying activity in any country, it is vital to identify your potential partners on the Government side. It is also crucial to have a broad understanding of the tools and mechanisms available. There is currently a wide range of options available to businesses that many people do not know about. There are also significant numbers of officials who are open-minded and welcoming towards investment. It is easy to communicate and cooperate with them. However, many of the business people who come to Ukraine are unaware of the instruments available to them. Naturally, they are unable to take advantage of these tools unless they receive the necessary professional guidance. This is where we see a need for our services. We can help to guide our partners in the right direct and avoid the pitfalls of bureaucracy and corruption.

What do you see as the boundaries governing ethical GR services?

A. S.: The obvious red line in any lobbying activity is bribery. There are also ethical issues raised when former legal industry colleagues occupy positions in Government or the civil service and create opportunities to achieve results through personal connections. This is especially true when the people in question may in future return to private practice and be in a position to benefit from the help they provided during their time in state employment. Many countries have codes of conduct that place restrictions on such contacts. This seems entirely reasonable to me. It is certainly something for Ukraine to consider as it could help bring clarity to what is currently quite a wild and unregulated GR sector.

How would you define the present status of the lobbying industry in Ukraine?

A. S.: I would go so far as to say that there is no such industry in the country today. We have numerous law firms who are trying to offer GR services but we do not have specific and dedicated lobbying companies due to the absence of regulations and legislation. It is possible that some could exploit the current lack of a coherent lobbying sector to make short-term profits by offering to help companies engage in unethical practices. However, there is much more to gain by establishing a professional lobbying sector along Western lines and creating a much more attractive investment climate that will ultimately benefit everyone.

Can the GR industry develop without a regulatory framework?

A. S.: As long as there is a need for these types of services, the industry will continue to develop organically even without a clear regulatory framework in place. There is actually a draft law on lobbying that is currently in process, so we might see movement in this direction.

What different segments can you identify within the lobbying industry?

A. S.: There are three core kinds of lobbying. Watchdogs analyze the situation and provide recommendations to help clients avoid negative outcomes. Advocates seek to contribute to the process of legislative development in order to raise concerns and promote the interests of clients. Policy entrepreneurs are similar to advocates in terms of the services they provide, but their specialty is close relationships with senior policymakers within Government and an ability to build productive relationships. All three spheres are already present in Ukraine to a greater or lesser extent, but this work is currently being carried out within law firms or conducted by GR managers at large multinationals.

Prior to 2014, you headed the Regional Development Agency in Ukraine's Autonomous Republic of Crimea. How can this experience apply to your current role in providing GR and investment support services?

A. S.: My work in Crimea involved cooperation with many major international financial institutions (IFIs), including the EIB and EBRD. This has numerous direct applications for the current business and investment climate in Ukraine, where decentralization has opened up new opportunities for local government but also created new challenges for the authorities that often lack the requisite knowledge and experience to take full advantage of the changing environment. Progress in decentralization has meant more money and more responsibility for regional government. Local authorities now deal directly with institutional investors and IFIs, often for the first time. They can attract significant investment, but in many cases they do not know what steps to take or how to invest resources wisely in order to create the conditions to successfully attract investment. This is an example of where GR services can be a two-way street with GR professionals offering state bodies the kind of advice they need in order to achieve success and attract investment.

Do you think the political will currently exists to create a legislative and regulatory framework for lobbying work in Ukraine?

A. S.: I am not confident that we will have new legislation in the near future. Nevertheless, it should be quite possible for private sector professionals to develop a code of conduct that can lay the groundwork for how to work with members of parliament, state bodies and local government. This code of conduct could serve as a fundamental basis for the development of legislation on lobbying. It would be a helpful process. Everyone understands that you cannot engage in bribery. The same limitations should also apply when it comes to less obvious instruments of corruption, but it is important to create clear guidelines to clarify where the ethical boundaries lie. When people enter the Ukrainian market for the first time, they are not aware of all the market nuances. They need to know how to interact with state bodies. This is in everyone's interests. The Government wants to attract investment, while investors seek to avoid obstacles. GR professionals can serve as guides and facilitators who are capable of representing the best interests of all sides. The existence of this clear and common goal is the basis for my optimism that the GR industry can prosper in Ukraine.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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