Founded by Portuguese businessman José Neves, the English company Farfetch is one of the leading online retailers of luxury goods. As of today, the company`s online platform provides access to more than 2900 brands, including Gucci, Dolce & Gabbana, Manolo Blahnik, Fendi, and Off-White, and delivers goods to more than 190 countries around the world. In September 2018 Farfetch became a public company whose shares are now available on the New York Stock Exchange. To better understand how the IPO impacted the online giant’s business processes Anna Zabrotskaya sat down with the head of the legal department of Farfetch in the Middle East and the CIS, Alexei Myagchenkov,
The company was found in 2008 by José Neves, who created IT products for the fashion industry at the beginning of his career. When he noticed that boutiques were poorly represented on the internet and customers were buying more and more online, he decided to set up Farfetch, a platform that was to be modelled on the marketplace and would serve boutiques as a trading site in exchange for a percentage of sales. Last year the global market of luxury goods was estimated at $ 307 billion. Expectations are that the market will reach $ 446 billion by 2025.
A.Z. Please tell us what the IPO means for the company. Do you think it was a positive change?
A.M. Farfetch is a trailblazer in luxury e-commerce and the IPO has been of great significance for the company. Over the past 10 years our team has come a long way, and the IPO was just a logical step in the company’s development. The transformation from a private company into a public one allows us to grow according to our plans as well as the expectations of our investors and partners.
A.Z. How is the legal service organized at Farfetch: how many lawyers work in the Russian office?
A.M. As of today, the company has 3,200 employees, with 20 lawyers among them. Farfetch has a total of 12 offices worldwide. Our legal service is primarily concentrated in London, the home of the company’s head office and the place where most of our lawyers work, although we also have lawyers working in Portugal, China, the UAE, and Russia. That said, my area of responsibility, aside from Russia, encompasses the CIS and the Middle East.
A.Z. Are the lawyers in the offices divided into different departments?
A.M. We don’t have strict divisions into different departments – our structure is similar to a law firm with practice groups and areas of specialization, and everything that we do is governed by a project-centered approach. We don’t have departments assigned to certain functions. The company as a whole is characterized by a loose structure in which titles are of less importance than in Germany or Russia. We certainly have management levels /gradations, but that’s intended more for determining the sphere of responsibility of the relevant employees than it is for any rigid hierarchy. We often involve law firms in our projects, which is why our department is relatively small, quantitatively speaking. For example, there are only two of us in Russia, so it makes sense for us to outsource the bulk of our legal work.
A.Z. Does the company have any policies and procedure for choosing consultants?
A.M. Like any other company, we have certain procedures in place. However, the IPO doesn’t require you to have any procurement procedures per se. We definitely have anticorruption policies and a code of conduct, as well as other policies which we have to comply with, among other things, when working with consultants.
A.Z. How did the Russian legal department participate in preparing for the IPO?
A.M. In Russia Farfetch is represented by a branch, and our role is to provide support for the business. So here the legal side of preparing for the IPO was to gather information about the company`s activity in Russia. My primary role has always been focused on the company`s global compliance. I was responsible for the development, implementation and automation of our compliance program. In particular, before the IPO we prepared the code of conduct, the anticorruption policy and the insider trading policy. Subsequently all these documents were “localized“ in regions where the company has offices, including in Russia. That part of the work was quite manageable, since in general Russian anticorruption legislation is in line with world trends and it mirrors anticorruption legislation in the UK and the US.
A.Z. How did your work processes change after the company’s IPO? What was added to the work of the legal service?
A.M. Any company going public has to undergo the formalization of its processes. At the same time there’s probably nothing fundamentally new from the legal-function standpoint in a public company as opposed to a private one. Private companies have to obey the same laws and implement certain internal procedures. Nowadays, having compliance procedures is no longer uncommon for them. If we speak about Russia, this primarily involves compliance with the relevant anticorruption regulation, including the Law on Countering Corruption, the relevant instructions from the Ministry of Labor, and so forth.
A.Z. The company probably had certain anticorruption provisions in place even prior to the IPO. Has something new been added to the compliance function?
A.M. While getting ready for the IPO, we were trying to predict how life in the company would be after the event. If we’re talking about what’s going to come into force for the company once it goes public, then it’s obviously associated with the stock market and insider trading. It’s what becomes new in general for the whole company, not just the legal department.
A.Z. How are these issues handled at Farfetch?
A.M. They are regulated by the insider trading policy and by training. While drafting our policies, we wanted people to actually read them. No matter how elegant you make the document from the legal standpoint, you have to bear in mind that it will still be rather difficult to read for other people who are not lawyers. We had a copywriter team that “translated” these policies from legalese into layman’s terms. So, the procedure went something like this: first legal English, then plain English – with the understanding that we have an entire English-language team tasked with making our internal policies plain and easily understandable. The company has what we call the Farfetch tone of voice – it’s the “intonation” of our documents, and the company’s employees are accustomed to it. And even that isn’t enough. If you have the goal of being effective in terms of a certain policy, you have to distill the policy down as much as possible, emphasizing all the DOs and DON'Ts to highlight what’s allowed and what’s prohibited. We boiled this down into a presentation and gave every policy an accompanying user-friendly document in our corporate style so people are likely to make use of it.
A.Z. In the same vein I wanted to ask about the company’s use of legal design, because it’s still something new for the Russian market.
A.M. In my view, using legal design is the logical extension of the legal function. Even today, many employees in legal departments in Russia – and beyond – are still perched in their ivory towers like the scholarly keepers of secret knowledge that remains inaccessible and therefore poorly understood by everyone else. For me, legal design is a necessary direction for a company to take, since the goal is not merely to draft a detailed and sophisticated ten-page policy that no one will end up reading, but rather to ensure that it is actually carried out. You have to be able to convey the main point to people.
An excellent way to achieve this goal is to digitalize one’s policies, for example by creating a dedicated internal portal where the policies are posted, with a FAQ section and advice on combating conflicts of interest, countering harassment, permissible gifts and corporate expenses. The portal lets you have an online consultation with a lawyer on the practical application of the policies. It’s much more effective than just issuing a document and sending it by email.
We’re also preparing for the launch of online training within the company in the form of internal training modules. This area isn’t anything new – there are lots of turnkey solutions on the market – but we’re trying to tailor the modules specifically for ourselves. It is very important for us that the training sessions take into account our values, and that the modules are in line with the brand’s standards in terms of design, font and language.
A.Z. Which project are you working on now?
A.M. We are launching global compliance, including the internal platform that I was just mentioning. Compliance is critically dependent on self-reflection, in the framework of which existing policies and processes are regularly evaluated and updated when needed. The creation of a particular database will promote personal development while keeping track of the market’s best practices and emerging trends.
A.Z. Could you give an example of best practice in the area of compliance?
A.M. That is, without doubt, the automation of procedures. On our compliance platform users can not only find up-to-date versions of the main policies, but can also ask question, report a violation, disclose a conflict of interests, report a received or planned gift, undergo training or use an electronic signature to certify having been familiarized with a certain policy.
Apart from that, we have certain standards in compliance. There are, for example, different methods for resolving conflicts of interest. For instance, if I were the co-founder of a law firm participating in the bidding to be the company’s legal services provider, I’d have to disclose an existing conflict of interest and refrain from participating in procurement procedures and payment of the firm’s subsequent invoices, and so on.
We also have set standards with regard to gifts and participation in events. For example, an employee might be invited to an important conference that requires a hotel stay, having dinners, going on excursions and the like. Sometime later, the company begins to work with the counterparty which organized and paid for that expensive event. Even if these two events are unrelated, such conduct could somewhat tarnish the transaction, especially if the decision to work with that counterparty is taken by the employee who participated in the conference So, compliance practices prevent not only a violation, but even the appearance of one. The company’s standards of integrity today are rather high.
A.Z. Do you have any procedure for doing due diligence on the counterparties you connect to the Farfetch platform?
A.M. We have procedures for connection to the platform –in terms of the observance of intellectual property rights and with respect to sustainability.
A.Z. And what do you do if one of your current suppliers commits a violation or winds up involved in a high-profile public conflict?
A.M. Most of our contracts are structured according to common law principles. This presupposes the existence of certain representations and warranties of which a material breach allows for the termination of contractual relations with that partner. As far as public scandals are concerned, we view this as a crisis of one of our suppliers and we try not to become involved. We’re always geared towards end-consumers, closely following feedback and suggestions and trying to prevent situations that could cause our clients negative emotions.
The interview took place at the Farfetch office at Stoleshnikov Pereulok in Moscow. The meeting rooms in the company’s offices all over the world are designed identically.