Cliffe Dekker Hofmeyr: Serving the Legal Needs of Businesses in Africa

Interview with Gasant Orrie, Cape Managing Partner at Cliffe Dekker Hofmeyr

First of all, Cliffe Dekker has a strong reputation in the commercial M&A and project space in many affluent jurisdictions. To what extent is the overall strategic objective developing a legal platform in Africa that is better able to service clients who have strategic aspirations to enter and grow into the continent and emerging markets?

That is really critical to our strategy. Africa as we know has shown significant and rapid growth and expansion over the past decade or so. Not only are there foreign multinationals investing in other parts of Africa but locally based South African companies are also using South Africa as a platform to expand into other parts of Africa. I think it was led initially by some of our retail players from our retail sector, particularly in the food line but also in fashion. Over the past few years we have seen significant interest from financial services companies, private equity players, venture capitalists that are South African based and that are prepared to foray into Africa. We know Africa is rich in mineral resources and so in addition to South African companies expanding their Southern African operations into other parts of Africa, we have also seen that multinational clients are using South Africa as a base to grow and expand into other parts of Africa. While some may not have their operations as such or their activities in South Africa, they are using it as a base because of the fact that we have had until fairly recently, a stable financial system with a good banking system and a fairly reliable telecoms system and transport system. Thus foreign multinationals find South Africa attractive for those reasons. That has encouraged a lot of growth out of southern Africa and into other parts of Africa.

The firm has appointed a new head of cross border M&A for Africa. To what extent is the aim now to focus on the growth cities and the increasing diversification of the African economy?

The firm is organised internally like most professional services firms. However that doesn’t speak to the client; it is pointless telling your client that we have a litigation department or a corporate department. What a food sector client wants to know is that we have a team that cuts across all of the disciplines within the firm that are for example highly specialised and experienced in the food sector. What we found particularly because the firm is strong on cross border activity was that we needed somebody that brings all of these disciplines together and that would spearhead the firm’s activities when it comes to cross border M&A. We have appointed Deepa Vallabh as the head of cross border M&A. She is a highly experienced, specialised cross border M&A lawyer and she joined us just under a year ago. She will spearhead those activities. It doesn’t mean that she is the only one involved but she will draw on specialists within the certain disciplines across the firm that will be involved in our cross border activities.

Being one of the larger firms, one of the Big Five in South Africa, we obviously have depth of experience, expertise and specialisation within the firm so it is a big firm with a large number of lawyers.

Obviously the complexity of Africa requires knowledge of the local laws and regulations; that goes without saying, and those must be coordinated along strict deadlines and across vast distances as well as across a range of sectors such as mining, infrastructure, financial services, telecoms etc. What can Cliffe Dekker offer in Africa that other firms cannot?

First of all being one of the larger firms, one of the Big Five in South Africa, we obviously have depth of experience, expertise and specialisation within the firm so it is a big firm with a large number of lawyers. We have roughly 350 lawyers in our firm which is not the biggest in the country but it is certainly in the top 3 in terms of size, capability and resources. Secondly, we encourage people to specialise. Sometimes it is difficult to have specialists in certain areas but we do encourage people to specialise so we have the depth of expertise and specialisation within the firm. We have a fairly extensive Africa footprint. We were part of a global firm until fairly recently which allowed us to tap into that global firm’s Africa network. It was called the DLA Piper. It is widely known and it is public knowledge that we terminated the formal relationship with DLA Piper around November of last year. We still have the working relationship with the former DLA Piper group firms and in addition we have firms that we have worked with over very many years in a number of jurisdictions. We have as extensive a network as any of the other South African firms and certainly a more extensive network than most of the global firms. That network has been built up over many years and it is not a case of simply picking a correspondent firm in a particular jurisdiction whose name you get in a little booklet. These are people that we know and that we work with. We have put a face to a name, we have met them, done training with them, worked on deals with them. It is a very close relationship that we have developed over many years. We know what those firms are capable of, we know what their resources are, we know what specialisations they have and we know whether they are reliable or not. We have worked on some of the largest cross border M&A deals where we have involved a very many of these firms very successfully.

What we are set up to highlight is FDI opportunities and what is often said to us particularly in Africa is that foreign investors are looking for certainty on structuring and new ways to manage legal risk, are you able to offer that platform?

Yes I believe we are well placed to do that. One of the biggest challenges for law firms, and in particular South African law firms, is to offer clients more tailor made solution orientated options for doing and structuring deals. Clients are no longer interested in you simply telling them what the law is or telling them about the red tape that exists in a particular jurisdiction. They assume that you know that and when they come to a professional services provider in particular a legal advisor, they expect that you would have assessed those risks and that you will present them with practical solutions that achieve their objectives for any particular transaction. In addition to that we have seen that with the cost pressures that clients themselves have internally, I am talking of some of the largest companies in South Africa and multinationals, even if they are very profitable they are still cost conscious and so some of them have been very reluctant to grow their internal legal resource capability. Contrary to what one might think, they have become more reliant on external legal service providers as an example. They have outsourced and in that way they have de-risked aspects of a particular transaction. Obviously it places a considerably great onus and burden on the lawyer or the other professional service provider that is involved but it does mean that as lawyers we have to be more practical, more proactive and we need to make sure that not only do we have our professional indemnity insurance in place but that the advice that we give and the solutions that we present clients with are the best available.

To what extent is uniformity and consistency the key to achieving that, particularly in emerging markets?

I think it is terribly important but one can’t ignore the fact that we have a very diverse and disparate, even perhaps fragmented in parts of Africa, legal regulatory system. I suppose one could say that it is almost impossible in some areas to have consistency or uniformity. Obviously there are parts of the continent, East Africa perhaps Central West Africa and in Southern Africa that are fairly similar in terms of their legal and regulatory framework. For example the company legislation is pretty similar; it is built on English common law but there are jurisdictions where it is very different. I suppose that is why a large South African company wishing to expand into other parts of Africa or maybe a foreign multinational wanting to grow into other parts of Africa can use South Africa as a platform because they use the South African service providers and in particular the lawyers, almost in a sense to project manage those transactions. We have seen it where rather than the companies or the clients employing large teams of people internally to do that kind of thing, they outsource it. Because they are as cost conscious as they are, and they have necessarily become so, it just places a greater onus on the lawyers to make sure that we are delivering what the client expects and value for money.

A stream of international law firms have opened up offices in South Africa recently. Have there been any concerns that perhaps the market is becoming overly lawyered given its recent popularity?

Even before the entry of the international firms or the global firms there has been a view that perhaps there are too many lawyers. There probably is a need for at least one more fairly significant consolidation in the market. The entry of the global firms certainly has made it much more challenging for South African firms to operate and compete but it has also presented both challenges and opportunities for the law firms. The biggest threat to South African firms is perhaps not the global law firms but more so the audit firms that have significantly larger internal legal capability than we think. Organisations like Deloitte and PWC probably are the largest law firms in reality, certainly with the largest number of lawyers, more than any of the large global firms. With the audit firms having stated quite publicly that they intend to grow their legal capability and with the entry of the global law firms into the South African market, South African firms have obviously had a bit of a wakeup call.

Is there nervousness about these firms encroaching on the market?

We are not overly concerned about it. If you really look at the entrances to the market, they have been relatively small ventures. Clyde & Co for example are much more targeted and focused on particular niche practice areas, perhaps M&A, banking and finance, projects etc. but none of them as far as we know have indicated a desire or intention to establish a full service firm in the sense of any of the existing Big Five. They are fairly niche, and focused on a particular practice area. The other firms that are in the market, such as Norton Rose, Hogan Lovells and Fulbright, as far as we know are actually not new entries to the market, they are there in the form of a franchise or branding arrangement so it is the old south African law firms that have taken on the branding of a global firm. If you look at what have been real new entrants to the market, they have been relatively small scale, focused and niche, with the exception of Baker & McKenzie. Of course they are I think the second or the third largest firm in the world. It is a big threat but it is a wakeup call and I think there are as many opportunities as there are challenges.

The recent trends are showing that the legal sector is growing in South Africa. There have been concerns raised as to how inclusive this process is and regarding the transformation of the legal profession which have been more acute in recent years. Do you think stakeholders will become worried about declining standards in South African law? Do you think there is a need for a genuine post graduate LLB degree to be brought back?

I have never been a big fan of the undergraduate LLB program. I am quite involved in recruitment at the firm and it is not because the program in itself is of a lower standard or necessarily designed to deliver a lower calibre of student, I just think that law being what it is, requires a certain minimum period of time for people to be exposed first to the theory of law and then secondly to the practice of law. I really just don’t think, and this is a personal viewpoint, that an undergraduate degree of four years is sufficient to expose a student of law to sufficient aspects of the law in sufficient detail as to prepare that student for the practice of law. As it is, we find in practice that very often the two year program of training Articles of Craftship that we have, often is not sufficient. In the past we used to have students doing a five year degree at university, so an undergraduate plus a post graduate LLB and then they did two years of training. Even after that period you often require more time; while you are qualified to practice at law it is not easy to really operate as a practitioner in the way that you ought to in order to satisfy client demands and expectations, particularly of the large corporates.

But you wouldn’t say that standards have slipped?

Definitely not. We are a fairly transformed firm, probably of the Big Five firms we are probably the most transformed. I don’t believe for one second that we have let standards slip. Obviously one needs to have checks and balances and processes in place to ensure that in fact is the case. But they wouldn’t be aimed at checking whether our transformation efforts are resulting in a lowering of standards but rather just the nature of practice and the types of outputs and deliverables and ensuring the levels at which people need to perform are such that if you are a poor performer it is very obvious from the outset whether you are black or white, male or female. I don’t believe that the transformation efforts per say result in a lowering of standards, certainly in our firm that hasn’t been the case. There is a risk that if we don’t ensure that people at a tertiary level receive the correct theoretical training, and to my mind that requires a five year undergraduate program, and that coupled with a very intensive program of training of a minimum of two years, then we might be found lacking. That would be irrespective of transformation efforts. That would be the case in any event.

There have also been some concerns about the legal practice act which was signed by President Zuma in 2014. How will this piece of legislation affect the legal profession with all of the lawyers, advocates, attorneys now falling under a single regulatory body?

It will change radically or it has the potential for changing very radically the way we practice law in a way that we never realised. There is obviously always a risk, and for many lawyers the issue of independence is paramount, that somehow lawyers will lose their independence by virtue of being part of one combined legal practitioner profession if you like. It is clearly very early days; there are lots of details still to be worked out. I do think that in the fullness of time, if practitioners don’t get up to speed with what the act says and requires of lawyers and don’t start preparing now to practice differently we will be found lacking and wanting. It is anybody’s guess when government and the other bodies involved will get their act together to ensure that the legislation is fully implemented. Obviously there are aspects of it that are already in force but it is not yet being felt in practice because it hasn’t filtered down. That is because there are details left to be worked out. However I do think it will change radically the way we operate as lawyers.

Lastly, can you comment on the implementation of the State’s Promotion and Protection of Investment bill? This was passed despite a significant degree of opposition especially over the clauses scrapping international arbitration of trade and investment disputes giving the government what it calls the right to regulate. To what extent does this legislation contain concern for foreign investors?

There are two factors when it comes to foreign investors and FDI. They both revolve around certainty or uncertainty if you look at it in terms of the market or the sector wherever they are seeking to make the investment. Obviously there is always the currency issue but the currency issue counts in our favour because it is just so much cheaper for people to invest here. The second thing is the potential for a sovereign rating downgrade that we know is being plastered all over the papers every day. It boils down to uncertainty. Ultimately what I think investors want is a fair amount of certainty about a number of things in terms of the legal and regulatory framework that they aim to operate in. The more certainty there is around arbitration and settlement of disputes the better, for example investors want to know that even if there is a problem that crops up, there is a fair level of certainty in terms of a process to be followed, a timeframe in which a potential dispute will be resolved etc. Certainty lends itself to the kind of positivism that we need to create to encourage FDI. We check probably all of the boxes in terms of the attractiveness of South Africa for FDI but the uncertainty comes primarily around lack of clarity on clear policy statements and decisions for certain things. Where we can have legislation, I am not an expert on international trade as an example, but I think that if there is legislation that promotes certainty in terms of spelling out very clearly to potential investors what a particular process to be followed for arbitration and settlement of disputes is, it will encourage investors to come here. Generally lack of clear policy decisions and direction from government and other stakeholders on legislative interventions or anything of that nature is not desirable or good for investment.

Would you say this recent law is a let or a hindrance?

To the extent that it introduces red tape, it is a hindrance but generally it promotes investment. Clearly the intention is there to promote investment. Whether in practice it achieves that is altogether a different thing.

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