LEGAL GUARDIANS - JSE MAGAZINE

LEGAL GUARDIANS

Nowadays, lawyers have more to offer businesses than just regulatory advice – they have also become collaborators in important decision-making

LEGAL GUARDIANS

It’s no longer enough for lawyers to keep their clients out of trouble – they now also need to be able to direct them in strategic business decisions. The corporate lawyer has evolved from someone who controls costs and risks to a strategic partner who identifies business opportunities and sometimes even drives innovation.

The image of the corporate legal department as ‘naysayers, deal-stoppers and folks with poor business acumen’ is changing, according to an article by Thomson Reuters. In fact, the profession is moving from ‘cost centre to collaborator’, which was also the title of an expert panel that looked into ‘aligning legal department functions with the greater enterprise’ at a corporate counsel leadership forum in the US.

In the complex and sometimes murky minefield of regulations and laws, business executives need legal astuteness to locate the best path to long-term profitability.

David Hertz, chairman of Werksmans Attorneys, puts it like this: ‘Great dealmaking is the confluence of sound advice on the regulatory, tax, political and of course the legal framework. That’s what in-house legal teams most want when they engage a law firm to help them navigate and streamline what is often a long and complex process.’

Only a handful of JSE-listed companies have or had CEOs with a legal background. Sim Tshabalala (Standard Bank), Sipho Maseko (Telkom), Patrice Motsepe (African Rainbow Minerals), Koos Bekker (Naspers) and Christo Wiese (Shoprite) all hold LLB degrees, although Wiese and Motsepe are among the very few who have actually practised law. Wiese was registered with the Cape Bar before joining Pepkor, and Motsepe became a partner in the law firm Bowman Gilfillan in 1994.

‘CEOs do not have to be legally qualified but, in our view, they should spend more time in strategic discussion with their preferred external legal services provider,’ says Lydia Shadrach-Razzino, a corporate commercial director at ENSafrica.

‘We say “external” because it may be difficult for in-house counsel to form an industry or sector-wide view of current or future regulatory and other legal trends. It may also be difficult for in-house counsel to see a different perspective, which in most cases can be enlightening and bring an edge. They only advise or interact with one corporate group and executive management team.

‘If they are good, external counsel are often required to advise a number of industry participants in relation to identical or similar issues, and are therefore better placed to advise on alternative options. External counsel are ideally placed to offer both general and specific advice to senior management, including in-house counsel, and assist them with legal astuteness.’

Her colleague, Koos Pretorius, director and joint head of ENSafrica’s corporate commercial department, explains that any area that informs or facilitates current or future corporate strategy requires such legal astuteness.

‘Typically, this would be in areas that experience intensive regulatory scrutiny and supervision, such as anti-trust or competition regulation, financial services oversight, national credit regulation, black economic empowerment regulation, mining regulation and gaming regulation,’ he says. ‘But it could also be in the context of significant corporate action, even if the transaction is lightly regulated, for example a hostile take-over bid or a material acquisition in a key – but relatively unregulated – industry sector or key market. Some transactions, by their sheer scale or complexity, also require legal astuteness even if only to contain risk. The more legally astute one is, the better advan-tage one would have in a competitive environment.’

If a management team can acquire legal astuteness through capable in-house and external lawyers, how do the legal experts earn the necessary business acumen?

The most obvious way is to specialise at law school. SA universities teach a wide range of courses at LLB and LLM level, and in executive short courses. For example, the University of Cape Town offers postgrad programmes for a degree or diploma in marine law, shipping law, labour law, comparative law in Africa, intellectual property law and tax law. According to UCT’s commercial law department, these courses attract postgrad students from Africa and the rest of the world, as well as prac-titioners who enrol on a part-time basis.

However, the best way to gather knowledge of a specific business or industry is through first-hand experience, by actually working ‘in the trenches’, says Alison Lee, who is the long-standing CEO of the Corporate Counsel Association of South Africa (CCASA), which represents the country’s in-house legal profession.

‘As a corporate counsel or in-house lawyer, you are employed by one company, so you’re working with your legal hat on while simultaneously applying your knowledge to an operational business environment.

‘You need to interface with every single department to find out how your employer operates. In a manufacturing company, this means spending time on the factory floor with the workers, riding on the trucks when they make deliveries, sitting with the finance department and observing the sales team to see how they market the product. You also have to get insights into how the board operates. All in all, it takes a junior lawyer about a year to fully understand what makes the business tick.’

It can then take another 15 years or more for those who manage to climb to the top of the career ladder as head of the legal department. Officially the top job is called ‘general counsel’ (GC), although it has variations such as ‘general manager: legal’ and ‘chief legal officer’ (CLO). In addition to leading their department, GCs contribute to business decisions as part of the executive team and use the law to advance corporate strategic goals.

And then there’s the issue of integrity. An adviser to the Washington-based Association of Corporate Counsel writes: ‘A GC must perform a delicate balancing act between being trusted and active members of the management team, that is being a business partner while concurrently serving as the guardian of the company’s integrity and reputation. Sadly, in recent years, we have seen several scandals that provide examples of GCs and CLOs who failed in their guardian responsibility leading the media and sometimes regulators to ask the question “where were the lawyers?”.’

Lee explains that corporate counsel are generalists whereas law firms are experts in a specific area. ‘We’re like a family doctor – the GP of the legal field – who gives referrals to the medical specialist when necessary.’

Corporate legal departments have also been described as operating similarly to an air-traffic control system, which ensures everything stays on the correct flight path.

‘The dynamics [of] in-house counsel and practising attorneys are very different. We don’t fight cases in court but focus on strategy, on how to best make money for the company shareholders. We are trusted corporate advisers.’

In March 2017, the country’s in-house legal sector achieved a victory when it was formally recognised as part of the legal profession by the South African Qualifications Association. For the past 35 years, CCASA had been lobbying for this recognition.

‘Currently, when a person decides to become a corporate counsel, if registered with the Law Society of South Africa as a practising attorney, he or she is required to advise the Law Society, which will then transfer that person’s name onto the non-practising roll. That person will no longer be managed or regulated by the Law Society. Corporate counsel are now recognised as part of the legal profession, and will have to adhere to certain standards set by CCASA,’ says Lee.

The association has about 800 members who are employed by auditors, legal consultants and other companies in various jobs including legal counsel, company secretaries, compliance officers, risk managers, paralegals and in-house lawyers. Lee estimates that there could be as many as 4 000 such professionals in SA. After all, listed companies have their own legal departments and she says that each of the big banks employs about 200 to 300 people in their legal department.

The in-house teams work closely with law firms to turn regulatory hurdles into business opportunities. Pretorius offers an example…

‘We advised Vodacom on its acquisition of an indirect stake in Safaricom and worked closely with in-house counsel and senior management to negotiate a complex, high-value transaction in Kenya. While local Kenyan counsel advised on issues of local law, the team working on the matter had to upskill in Kenyan law so that we could provide the best possible advice and assistance to our client.’

As the legal landscape continues to grow even more complex and companies expand across SA’s borders, additional legal advisers may be required to provide the executive teams with legal astuteness and ensure their operations flourish.

By Silke Colquhoun
Image: Andreas Eiselen/HMimages