Pal Jalsovszky is the managing partner of Jalsovszky Law Firm in Budapest, Hungary and a member firm of the International Lawyers Network. In this episode, Lindsay talks to Pal about how to manage your firm and your clients through a major firm transition, what the future of the legal industry may look like, and the secret superpower of being a tax lawyer.
You can listen to the podcast here, or we’ve provided a transcript of the highlights below.…
Lindsay: Hello, and welcome to the Law Firm ILN-telligence Podcast. I’m your host Lindsay Griffiths, Executive Director of the International Lawyers Network. And our guest this week is actually our first guest ever, Pal Jalsovszky of Jalsovszky Law Firm in Budapest, Hungary. Pal, we’re so happy to have you back. Thanks for joining us again.
Pal: All right, it is my pleasure. Thank you for inviting me, Lindsay.
Lindsay: So why don’t you tell us a little bit about yourself and your firm for those that didn’t get the chance to listen to our first podcast?
Pal: Well, actually we are a law firm in Budapest. We have 30 lawyers, which from a US perspective might be considered as a real tiny law firm. In fact, in Budapest, it’s already an upper medium-sized law firm. We are somewhere in number 14 or 15 in the rankings. Well, we provide advice on all areas of commercial law, starting from tax law, actually I’m a tax lawyer, so taxes are a main topic and a main area of law when we started the firm. And since then, we grow up to be a full-size law firm. But the main areas other than tax are mergers and acquisitions, property law, banking and finance, and litigation.
Lindsay: Great. Thank you. So let’s dive in. What would you say is your biggest challenge at the moment, and how are you working to overcome it?
Pal: Well, the biggest challenge at the moment doesn’t relate to the economic environment or anything that is happening around us. It relates to an internal effort of the firm because one of our partners who has been serving us for seven years has just indicated that he would leave, and actually he already left. He left last December. And he was leading our banking and finance department. Banking and finance is not among the cornerstones of the firm. The partner who just left last December has brought our banking and finance practice in the firm seven years ago. And since then, it grown to be a very visible and very reputable sector in our office. And the real question was what we do after the departure. And actually together with him, two of our associates have left, so we were left with one sole associate to build up again the practice.
And it’s always an interesting question when anything like this happens how you react. And that can be two types of reaction wise and wonder, “Okay, then this happened. He brought in the practice, he just took it away.” And this would’ve been a very easy answer. The answer, the way that we selected is just the opposite. We try to build it back the practice. And also it’s important to say that the lady who was left is about to have a baby in June. So in June, the practice will be completely empty. So it is an extremely big challenge, but it also gives a test that how steady your law firm is, how steady the reputation of the firm is in terms of the clientele and in terms of potential requisites.
And we started a recruitment procedure just after the announcement was made by the leaving partner and we hired a headhunter. They tried to find good candidates to lead the group. On the other hand, we started discussions with the key participants of our practice, of our clientele lead to see what their reactions are, would they be happy with rebuilding the practice, would they be happy with us serving them under new conditions and under a new setup? And when you dig into such type of issues, when you test the market, it just reflects what the real strengths of the firm are. And we were happy to get the response from the clients that they were extremely happy with us, and they will be happy to stay with us if we rebuild the practice.
On the other hand, from a banking perspective, the market is not the best, because the interest rates are raising high and there is a lesser demand by banks to lend to enterprises. And also there’s a lot of uncertainty in the market. Therefore, it is just an environment where an older banking lawyer would just say that “I want security. I want to stick at my place.” And in such an environment we could pick up two, three candidates who were extremely interested in the position. And we are in the final round of the selection process.
But all the results were very promising and hopefully we’ll be able to sign a contract with the new candidate to head the group at the end of February. I don’t know when it will come on live, but probably, it’ll be already in the past when this discussion will come on live. But it is a real test to the integrity of our firm also because internally you have to sell it that it’s not the end of the world that a partner leaves the firm. Because the departure of a partner always just shakes up the balance of powers and the feeling of security and safety of our colleagues. But this was a big test and we are challenging it and we are facing with it. And it appears to me at the moment, attach to wood, that we are able to solve it. But we need to invest a lot of effort and a lot of work into it.
Lindsay: Absolutely. Obviously, as you say, something like this is a really big challenge for a firm. But do you think that because in the last several years all of us have seen so many challenges and had to face them head-on, do you think that really prepared you as a firm and in particular you as a leader to address this directly and just say, “We’ve already seen so many challenges that were unexpected that this is just something else that we have to deal with and we’re not afraid to meet this head on”?
Pal: Exactly. And I fully share your view on that. One thing that is steady in life is change. You are faced with changes all the time. Sometimes it’s more regular, sometimes it’s like pregnant. And it is correct that in the last couple of years, we were faced with lots of challenges. And yes, it’s increased the strengths of how to face challenges. It’s not the end of the world if something goes out of the order, out of the trail that you were going in the past. And that you are confident that you can solve these matters.
And for example, just one of the recent challenges two years ago with COVID. And I do remember the first couple of weeks when this whole COVID turned up, that all of us were worried that what is going to happen, whether economically we go on, whether clients will still want legal advice. And all of a sudden the demand for the service of our law firms have dropped significantly. And it was also a type of a situation that you needed to gather information, you needed to keep contact with the clients more regularly, understand what’s happening with them, understand their reaction. And yes, this is in a different pattern, but the same type of exercise that you need to understand the reaction of a certain event in your partners within the group, within the firm, outside, within the client. And to act in a speedy manner, and to act rationally, and to be prudent. We are getting used to the challenges. It is correct.
Lindsay: I wish we could get used to fewer challenges, but I think that’s probably not the case anymore. Speaking of challenges, you did mention the market contractions, can you talk a little bit about the current state of the market and what that means for you as a firm and for your clients?
Pal : Well, probably you will not be surprised that the market is shaken up at the moment. I remember last summer when we were talking about that. “Oh, something will happen in the autumn time. And in the autumn time, everything will been shaken up, we’ll be upside down.” And the autumn came and nothing has really happened. And clients were saying, and this was the general business intelligence, that the crisis will come during the wintertime. And we are in the middle of the wintertime and nothing really has changed at the moment. One thing is present is the unpredictability and uncertainty. And when the prospects are uncertain and expectations are uncertain, this is bad for economy, this is bad for transactions, and this is bad for the lawyer’s job as well.
There are a lot of reasons for uncertainty. There is the war still ongoing and you do not see the end of the war. There is inflation, there is a possible decrease in the demand, there is the split of supply chains, there was the increase of the price, not really the increase, but the unpredictability of the price of raw materials. And all of our clients or most of them have suffered from it. And in such a case when there’s unpredictability, then pricing, for example, in M&A transaction is becoming uncertain. And the buyers have a bigger confidence in their firm by sellers. By purchasers, they see a result, current result, they see an uncertainty, which makes the chance for agreement on the price is lower.
Also, there’s a question to what extent private funds are able to raise money and are able to pull up money from the investors. Also, interest rates have increased, which makes the banking lending frequency much lower. So there are lots of such circumstances and events that are not connected to Hungary that is connected to the entire world. But it has also, it affected Hungary, which makes the future uncertain and which makes our clients a bit worried.
And it does have its effect on the operations of our firm. Which even last year we saw a drop in property transactions. We are seeing a drop at the moment in M&A transactions. We started a lot of M&A deals in the middle of last year, but some of them were suspended, some of them were postponed, and there are fewer transactions, much, much fewer transactions in the pipeline than there were a year ago. So these service lines are a bit dropping in their frequency or in the business.
On the other hand, we are happy to see our other service lines to be very busy. We are the number one firm in tax advisory, and tax advisory is still a product that is very much sought by the client. We have a very steady waste management, a waste planning business line, which is soaring, which is going very, very well. Also, litigation department still has lots of cases to handle. So I would not like to complain and in general our firm is growing steadily. Well, there is definitely a drop in certain types of transaction, but I consider that this is just a temporary drop and they will revive the activity in the second half of the year.
Lindsay: That’s great. That’s good news. You talked about tax still being very important for clients. What would you say is the biggest area related to your practice that you’re curious about at the moment and why? What’s of most interest to you?
Pal: Well, I’m curious about the entire future. I’m curious about the future of the entire world. I’m curious about whether we’ll enter into the third world war. I’m curious about what the global climate change will bring in. So at the moment, I’m curious about lots of things. And I always have in my mind that I would like to be buried and revived in 100 years time, and just read the history books that describe what happened in the 100 years after my demise.
But a very special thing that I’m interested about, it’s linked to our operation, but not very directly linked to our business or activities, is the future of legal technology. Because I believe that, realistically, technology can be used by lawyers very efficiently in many of their practices. Let’s talk about putting together contracts, digging in databases, also answering clients’ questions, putting together memorandum. And I believe in 30 years’ time or 40 years’ time, the legal profession will be changed entirely.
On the other hand, the real question is how we get from now to the situation which I predict in 30 years’ time. It is interesting to see the steps of development or the absence of, still, the massive use of legal technology. Although I know that in certain IT centers in the US, in the UK, law firms are investing massively in legal technology. Well, at least, I would be interested to see is really what type of job is done there. And I would be happy to send our legal technology manager for a year in technology center of a big American law firm to spy, to see what they are doing, and to make the most out of it, and introduce it to our law firm.
But this is a very interesting development that sooner or later will appear in the legal business. But we are talking about on it for 5 years, for 10 years, and few things have really changed that have materially changed our daily practice. But they will come without question. But the interesting thing is how they will, and in what moment, with what rapidity, with what speed they will enter into a daily practice and when.
Lindsay: I agree with you. And I think one of the most sort of interesting developments in the last few months is the new AI ChatGPT.
Lindsay: And how that’s going to impact. I know Jim Flynn from Epstein Becker & Green, our member firm from New York and Washington, just wrote a really interesting blog post and used some of that in his actual post. He had some mixed reviews for using it. But I think that’s going to really impact the legal industry, and I wonder what the impact of that’s going to be?
Pal: And that actually it’s also in the legal industry, but also on anything that we put it to writing. We promoted a partner the beginning of this year, and actually we just played with the idea that when we just announced the promotion, we used this chat functionality. And we just asked the chatbot to provide us an announcement. It was a very, very good wording. At the end we didn’t use it, but we were just curious that if it was not for us to put together announcement, but we left it for the AI, what could be the result. The result was at very high standard. And it’s developing and it’s increasing its capacity day by day. So it will have an impact on everything. Also on writing fictions, on writing articles, on writing legal memorandum, and also making public announcements of the arrival of partner or the promotion of partner.
Lindsay: Absolutely. And I always think of it as having two functions in the legal field, not only the actual impact of potentially writing, as you say, legal memorandums, but then as you say, when it has an impact on other industries, then the legal field will need to know what’s happening in those industries. So that it will then have a say on what the impact is on those industries as to what the legal industry will need to get involved in. And what happens when an AI does something in those industries, what’s the knock-on effect of that have to do then with the legal industry?
Pal: The very question that what will be the role of us human beings. Do we have any role any longer?
Lindsay: Right. And who owns it? I mean it turns… And that becomes very interesting sort of copyright issues because if an AI writes something, who owns the copyright? I know we had that very interesting sort of chimpanzee issue with the photograph that the chimp took, who owned that copyright? So I think we’re going to see some very interesting legal cases coming out of this to watch.
Pal: I fully agree.
Lindsay: So switching gears, tell us something interesting about yourself that most people don’t know.
Pal: Well, to tell to the listeners, you have already posed this question in writing, so I could just have the opportunity to make my reflection on it. But I was just thinking that what would be the most interesting, because I could say that I was an opera singer at the age of 10, and I’m also bridge player, but I believe that the most relevant thing is that at my heart and even as my first profession, I’m not a lawyer, I am an economist. And my first study was at the University of Economics. And I always felt as an alien in the legal business and among lawyers. So I never considered myself as a lawyer.
So it was interesting that when I entered into the UK, probably, it is there at the moment as well. Because when Hungary and the UK were also part of the EU, we didn’t have to fill out any forms, any immigration form. But I remember when I had to fill out immigration form and there was also always a question, what is your occupation? I have never written lawyer. Because I didn’t feel myself as a lawyer, although, I also have my second degree, it was a legal degree. And I was acting as a lawyer for 10 years or 15 years giving legal advice and trying to solve clients’ legal problems.
But what I like most in my life and also in my law firm is not the provision of legal advice, but the management of the law firm and using my knowledge and my capability that I learned as an economist and not the one that I learned as a lawyer. It has lots of faces. Because, for example, I find it a much more interesting and intriguing part of my job to prepare a controlling report on the financials of my firm than to write a legal memo. Probably I’m, not probably, 10 or 15 years ago at my old law firm, I was the only one who could handle an Excel sheet.
And I do remember when all my lawyers were just behind me, when I just added up, I summed up my bills that I had to pay at the post, and I summed up all the 10 figures there in an Excel sheet, which is the simplest use of an Excel sheet. They were looking, what type of program do I use? I feel myself as a bit alien in a legal profession, but it is also my benefit and my key asset, because I can talk to clients not as a lawyer, but I can talk to them at their own language.
I do understand what the expectations are from a lawyer. That they do not want to receive a very big memorandum at the end with really questions that the answer can be yes, the answer can be no, but we do not provide you any clear answer and we do not assume any responsibility. But they would like to get an answer that “Okay, 80% yes, but if you choose yes, then the potential negative outcome is this and this and this.” So I more understand their reasoning, their way of thinking.
And this helped me a lot in also building up the firm, also managing the firm, keeping contact with the client that I don’t feel myself as a lawyer. And also just to take into account that I never felt really good in a company when there are only lawyers present. All my companies, all my friends are coming from my university of economics. And I very much feel like at home when I’m with tax lawyers because tax lawyers, they are a very special kind of animals. They have the same type of strange way of thinking that I have. So I’m very happy to be together with tax lawyers. But as a lawyer, I never felt like really big part of them.
Lindsay: That’s very interesting. And yes, tax lawyers certainly are their own animal. And I’m sure that really has served you well. I mean one of the things that I know we’ve encouraged in the legal profession, the last certainly 10 or so years, is to run it more like a business and less like a law firm. So you are really ahead of the game there. That’s really amazing. So what would you say is the most important lesson you’ve learned over your career?
Pal: Well, I’m talking now as a leader and not as a lawyer. And when you’re a leader and you’re leading 30/40 people, which doesn’t seem to be much, but 30/40 people, are 30/40 different human beings who all of them have emotions, all of them have a special understanding of what I’m interpreting to them. And actually I have a responsibility towards the firm, towards my colleagues. I also have a responsibility as the leader of one of the most prestigious law firm in the society, in the general day-to-day communication. And what is important is that I take care of, really of what I’m saying, how I’m putting together my phrases and phrasing my sentences. Because in the past, I could easily found myself in a way when I offended someone. I didn’t want to offend them.
I try to make a joke, I try to make a very special argument, but with people who are around me, and they do not have the same type of thinking that I do, I have to stay very cautious and very prudent of what I’m saying, and how I’m saying. And it’s important when I do want to make an announcement, I make a preparation of what I’m about to say, and what words I will use. For example, it was an interesting lesson, an interesting example when I announced the departure of my partner. Well, I just written down just word by word my, I wouldn’t say a speech, but the type of message that I want to just address to my colleagues in order to be really clear-cut, to encourage them, to let them know how will we deal with this situation. Because once you make a small mistake and you are not clear enough, you can be misinterpreted, then you may not be able to correct or take back the mistake that you have committed. Correct the mistake. Sorry.
Lindsay: Absolutely. That’s very true. Can you tell us about a mentor that you had who meant a lot to you during your career?
Pal: This is also a question I thought about a lot, but I didn’t find a real good answer for that. I consider myself more a self-made man. And I try to pick up from everyone the thing that I believe he makes right. But I put it together according to my own set of assets. And I do remember one person who very early in my career had a big impression on me and he still has a big impression. I started before my legal career, I was in the insurance industry as a finance person. And then the head of that insurance company was a very characteristic, very strong guy with charisma. And at that time you probably had lots of leaders like that. At the moment, currently there are very few leaders who are really strong personalities.
And I do remember when the head of the insurance company just announce something, there was no question about that. It was the single God, it was such an authority that no one was about to challenge. He had that personality and such type of authority that you very rarely find today. I’m not that type of a guy. I always believe that I have mixed strengths in company management. In certain cases, I’m performing well. In certain cases, I can still study a lot. But he is just such a personality that you imagine for yourself as a leader of an enterprise, and I very much admired his style of leadership.
And also when I was confronted to him, and I do remember that, at that occasion, with that firm, I was the second ranked at the finance department. And there was an elderly lady who was the boss of the department. And you can expect that I was at that time, 27 years old, that the lady was 50 years old, and we had many conflicts against each other. And I always just went to the boss saying that I do not agree with the lady. He always turned me down. He was very straightforward, that what was important to him, that if there is a conflict between me and the head of the department, he was all things giving right to the head, because she was the one who represented the management of the financial service area in that insurance company. And I do remember that in many occasions, I believe, “Why doesn’t he believe me? Why doesn’t he see that with more in details?” But now I see that sometimes you need to simplify your decisions, and you have to have certain ideas, certain principles, and you need to stick to it.
Lindsay: Absolutely. And so wrapping up, what does being a part of the ILN mean to you?
Pal: It’s interesting. When we joined ILN, I had a different expectation that ended up altered. Because when you are in the growing phase of your law firm, you would like to make as much files as much humanly as possible. And you just join an organization saying that, “Hey, they will send me a lot of referrals.” And I do remember that the people joining, I end up, “Oh, they’re a bunch of people from different jurisdictions, most of them will have very interesting efforts concerning Hungary, so within a short period of time, we will have lots of files, lots of cases landing on our desk.”
And later on, it turned out to me that the real strengths of ILN is not that. I wouldn’t say that we do not receive good cases from ILN members, but the real strengths of ILN is that they provide a community, an international community that I feel myself being a part of. I can always just be proud that we are an international law firm in the sense that we have international affiliations. If I have a problem in any part of the world, I do not have to open up a legal 500 directory, but I turn to you or turn to others of your colleagues, even if this is in Belize or in Guatemala. Then I can turn to you Lindsay, and you have someone in Belize, you have someone in Guatemala. And then you turn to me, you drive me to the right advisors, even if it’s not an ILN member that we have, they are on our best friend list.
So ILN provides us a security net that internationally I’m supported, anywhere in the world I can find a reasonable advisor. And on the other hand, I very much appreciate the certain personal connections that I have with ILN members. And it’s always I’m interested in getting to know other people. And in most of the case it’s tax people because they have the same mindset that I have. But also I’m very happy to gather together, and to get together and to meet and get to know people from different countries, different jurisdictions with different mindsets. And all the gatherings that you organize are interesting. It is just the icing on the cake that we also receive a couple of mandates, but it is not any longer the most important part of our membership in the network.
Lindsay: That’s great. I love to hear that. I’m so glad. Well, thank you so much for joining us. I really appreciate your time today. And to all of our listeners, we’ll be back again next week with another guest and we look forward to talking to you all then. Thank you so much.
Pal: Thank you, Lindsay, it was my pleasure to speak to you