Black economic empowerment still dominates the agenda at South Africa's largest law firms. Do or die is the message, reinforced by the prospect of a controversial legal services charter that is looming. Sophie Evans reports from Johannesburg

Four years after passing the Broad-Based Black Economic Empowerment (BEE) Act 2003, this landmark legislation sits at the heart of what drives South Africa's law firms. The transformation of the country's companies, driven by the Government's power to hand out work to companies that contribute to BEE, is taking hold at a time when demand for South Africa's natural resources is at an all-time high – every business-class seat on a Johannesburg-bound plane is full nowadays, usually with people visiting in order to strike mining deals.

For South Africa's legal sector, the robust economy means lucrative times. But the fact that BEE drives virtually every domestic deal they do, (whether this is because the Government is instructing counsel on one of the many vast infrastructure projects being undertaken or because a client has asked them to advise on a BEE-related deal) means the country's largest law firms have to get their own houses in order to secure their future at the top of the profession. BEE is going to be an issue for many years to come.

As Michael Hart, chairman of Deneys Reitz, puts it: "The legislation is in place, there is an ongoing social imperative, and it will be years before an effective transfer of control and shareholding in South African companies is achieved. The importance of BEE, merely as a source of work for law firms here, will last beyond the medium term."

Clearly, those law firms that ignore the implications of BEE for their own futures do so at their peril.

Many of Johannesburg's largest law firms have taken great strides in increasing the number of black lawyers they employ at all levels. For seven or eight years, South Africa's small, black-owned firms have been exposed to major deals that make the best of them an attractive merger prospect for the larger, white-dominated firms. Whether the desire to merge is driven purely by the larger firms' business needs or by a more altruistic desire to see South Africa transformed is difficult to tell, but the strategies law firms are taking to bring in more black lawyers go some way towards answering this question.

First mover advantage

One of the first of Johannesburg's leading commercial firms to hand a black lawyer a high-profile position was Routledge Modise. Respected labour specialist Lavery Modise joined the firm in 1998, when his firm Mlambo & Modise merged with Routledges. Including Modise in the firm's new name was a bold move at the time, when such gestures were not yet politically en vogue.

Continuing this trend, the firm recently recruited City Serobe as a partner, who joined the firm in February. Serobe was a name partner in the first black practice to merge with a white firm, Van Wyn De Vries, in 1996 and is a prominent member of the Black Lawyers Association, which promotes the development of young black lawyers. Associate Anne Wilson also joined the firm this year, from Werksmans – evidence of the firm's strategy of laterally hiring talented black lawyers, while also nurturing their own young talent.

However, since Lavery Modise and his team joined Routledges, subsequent mini-mergers or takeovers of small black firms, of which there have been quite a few, have seen no such high-profile examples of firms including the black firm's names in the merged entity – a fact that contributes to the feeling that some of the larger law firms are simply looking to put a few black surnames on the firm's letterhead for the sake of appearances.

Bowman Gilfillan, one of the largest firms in the market, has opted not to go down the route of mergers with black-owned firms. "Our policy has been to hire young, black candidate attorneys out of university and to train them up while going for lateral hires for more senior roles," says Cape Town-based partner Jonathan Lang and head of the firm's Africa group. Those firms that have been following this strategy since the early days of BEE now have a significant body of experienced, black directors, negating the need for mergers; like many of the leading firms, Bowmans boasts an 'A' empowerment rating. Edward Nathan Sonnenbergs deputy chief executive Mzi Mgudlwa has been with the firm since serving his articles – some 13 years – his position as number three in the firm is evidence that organic growth, for those firms that started early, is a viable way of transforming a business.

The controversial charter

Nine years since Routledge Modise was formed, the reasons for wanting a more racially diverse law firm have changed. South Africa's Department of Justice (DoJ) is pushing ahead – albeit slowly – with its Legal Services Charter, which will require the country's law firms (at least those above a certain size) to comply with quotas on the number of black, female or disabled lawyers in a firm's equity (see box, page 25).

The charter is not yet in force, but many firms have anticipated its requirements by taking action in the last two years. The second draft of the charter was published in July this year, significantly behind the DoJ's self-imposed schedule. The department's chief director for policy Bonisiwe Makhene said last year that the department was aiming to launch the charter in April this year. And in August last year, he told a conference held in Sandton, Johannesburg – home to the vast majority of South Africa's largest law firms – that the deadlines for finalising and bringing the charter into effect were "yesterday". "There is great urgency, this should have been in place long ago. It is long overdue," he says.

The reason for the delay seems to be the scope of the charter, which is more wide-ranging than the financial sector charter – widely regarded as the exemplar for other sectors to base their own charters on (the financial community's charter took under 18 months to set in stone, and came into effect in January 2004). While other professions' charters are broad-based codes drawing on the BEE Act of 2003, the DoJ has opted to frame the charter under the Promotion of Equality and Prevention of Unfair Discrimination Act, going beyond the provisions of the 2003 Act. And while the profession is being bogged down in the detail of drafting, many large law firms are pressing ahead with their own transformation programmes – meaning many will have already met the ownership requirements that the charter will most likely set out, when it eventually comes into force.

What is more, BEE policy is maturing and evolving, arguably making the charter's provisions look outdated even before they come into effect. A body of opinion within the Government is beginning to form, dismissing the need for sector-specific charters and bolstering criticism within the profession of the Legal Services Charter and its stated aims.

The original emphasis on transferring ownership to black companies has now shifted to focusing on the transfer of skills and training, in recognition of the danger that ownership was being transferred from a white elite to a black elite. This shift in thinking is reflected in the codes of good practice which were released in February this year. Rather than gauging a company's commitment to BEE solely on ownership criteria, there now exists a n empowerment score which is based on seven elements: ownership (20 points); management control (10 points); employment equity (15 points); skills development (15 points); preferential procurement (20 points), enterprise development (15 points) and socioeconomic development (5 points). From a law firm's perspective, ownership and procurement are intimately linked to the BEE strategies each managing partner or chairman is drawing up. The more black directors and associates a firm has, the more work a firm will get – especially from Government and state-linked organisations.

The merger route

From a black firm's perspective, however, what are the reasons to join forces with a large firm? Six-lawyer practice Jeftha Twala merged with DLA Piper ally Cliffe Dekker in July last year, joining the firm's Cape Town office. The merger was one of several that Cliffe Dekker has undertaken in the past four years, with Y Ebrahim & Co joining in 2003 and Rekha Jaga and Associates joining in early 2006. Cliffe Dekker chairman Chris Ewing says the firm developed relationships with these firms over time, and admits that the firm's strategy is "a bit of a trend" among South Africa's legal elite. But he adds that the mergers "complement a number of wide-ranging diversity awareness and training initiatives". For his part, former name partner Alan Jeftha says he was "impressed by Cliffe Dekker's transformation policy and genuine steps to implement that policy."

Top firm Werksmans also merged with a small, black-owned practice in April last year, teaming up with respected lawyer Joe Nalane (pictured left) and the three other directors of Nalane Manaka Attorneys. The two firms had worked together on the Telkom initial public offering in 2002; merger discussions subsequently kicked off.

Werksmans chairman Des Williams says he hopes to be able to use the Nalane Manaka merger as a model for similar unions in the future. "Looking ahead, we want to repeat that kind of exercise with the right people – the issue of transformation and developing young black lawyers is very important," says Williams. Werksmans' most recent intake of candidate attorneys was 70% black, but as Williams concedes: "This does not deal with transformation at a more senior level."

Webber Wentzel Bowens (WWB), one of Johannesburg's elite group of commercial firms, is also planning a merger with a black-owned firm early next year – further evidence that the spectre of the Legal Services Charter is driving managing partners' thinking. With more than 70 black lawyers working at the firm, WWB already has good empowerment credentials – as do most of its competitors. Senior partner David Lancaster (pictured right) says the legal sector is in an "interesting phase" right now. "There will be a shake-out in the next two years," he predicts. Once the large firms are empowered, the smaller firms lose their main advantage in winning work and could become vulnerable. If two firms' empowerment credentials are the same, the firm that wins the work will be the one with the capacity and the best skills – and it is the larger firms that have the infrastructure and resources to train their lawyers to have the best skills.

That said, for many partners at small black firms, the immediate financial incentive to merge with a substantial, largely white-owned firm is not necessarily compelling. BEE has meant that many small firms of ambitious, often young, black lawyers have been formed and they are winning instructions and clients aplenty, thanks in part to being 100% empowered. A merger with a big firm would mean they forego independence and risk being subsumed and losing their identity. As one partner at a top firm says, "it is a difficult proposition".

However, the big deals can elude the smaller firms simply because they do not have the manpower to work on them. In this case, twinning with a larger practice on a transactional is standard practice. But as the large firms train and hire more black lawyers, the smaller firms risk losing out and could ultimately be forced to join forces with other small firms – or be taken over. Nalane says of his firm's merger with Werksmans: "The firm realised that it needed to be part of a larger, more established practice for the kind of transactions and client base that it had in sight". A decision not to merge with a larger firm could ultimately inhibit the professional growth of lawyers at small, black-owned firms.

International firms' contributions

And professional growth is what many established law firms are now offering. For the international firms present in the country, who will not be subject to the Legal Services Charter's provisions (a bone of contention among South African law firms, who claim the Government has ducked the issue), skills transfer – one of the seven tenets of the BEE codes of good practice – is how they are contributing to BEE. Dewey & LeBoeuf's Johannesburg arm recently held a conference, together with the national electricity public utility Eskom, for 450 projects lawyers. The conference was designed as a skills transfer exercise and was an interactive lecture drawing on Dewey & LeBoeuf's significant project finance and energy experience in South Africa and the wider region. Eskom itself is recognised for its energetic approach to empowerment – in procuring legal services, it asks international firms to twin with small, local firms and is recognised as having set the bar on how large firms should work with small, black-owned firms to transfer skills.

It is rare – whatever the jurisdiction – for a group of small, young law firms to join forces to create a large firm, because of the difficulty of striking multiple deals and reaching a strategy consensus. Rumours in Johannesburg that several black-owned law firms had been in talks to create a large firm are once again rife but, as yet, no evidence has emerged that this will happen. And perhaps the fact that the large firms' partnerships are becoming increasingly black, means that the empowerment issue is gradually becoming less polarised.

Werksmans' Williams thinks so: "There has been an important breakthrough in South Africa. Even two years ago, black lawyers were saying they do not want to become part of a bigger firm because they will lose their identity as black lawyers. That is still an issue, but more are coming to the conclusion that they are better off in bigger firms."

He argues that the labels that South Africa's firms have had in the past – Afrikaans, WASP, Jewish – have gone, making it possible for them to attract a greater diversity of lawyer. That may not be the perception that many consumers of South African legal services have – the wider business world regards law firms as behind the financial sector in terms of empowerment – but the past two years have certainly seen progress being made by law firms, without the framework of the Legal Services Charter to guide them. It may be the case that by the time the charter comes into force, it is redundant, for its provisions will probably have been met by most large law firms – but then the prospect of it coming into effect may have been enough to gird South Africa's law firms into meaningful action.

This change is likely to be most keenly felt by the country's small, black-owned law firms, which as a result of the large firms becoming more empowered, will have to make the decision to join them, to focus on a particular niche, or to join forces. The next two years will be very interesting for South Africa market-watchers.

The Legal Services Charter – a history

The process of drafting a legal services charter for South Africa's legal profession began in December 2004, when minister for justice and constitutional development Sylvia Brigitte Mabandla announced the project. In July 2005, a cabinet meeting approved the principle for the development of the charter, with the conceptual framework for the charter developed later that year by a DoJ reference group.

In January last year, a 13-member steering committee was appointed by the minister with the aim of developing a draft charter and to engage with stakeholders across the country. Members of the committee range from Government ministers to practising attorneys and advocates and association representatives. Within the steering committee, a drafting team was set up in March last year, producing the first draft charter. The membership of the steering committee, while the usual mix of practising lawyers and academics that is typical of such groups, is clearly lacking in representatives from the largest commercial law firms. With the exception of Cliffe Dekker director Kevin Lester, there are no other representatives from the largest and most influential section of the legal sector in South Africa. While the commercial law firms' failure to engage in policy issues is not unique to South Africa – England's Law Society has suffered from similar representation problems – the importance of being seen to engage in this crucial policy change does raise the question of why more big-hitters are not involved.

The draft has been shared with members of the profession across the country by carrying out provincial roadshows in major towns, allowing those who had not been able to attend the national Indaba (conference) to have a say.

The second draft is currently open to comments from members of the profession – the co-chairs of the Law Society of South Africa, David Gush and Henry Msimang, recently called on all lawyers to comment on the new draft, so the Society's submissions can be "as meaningful and representative as possible".

The key changes in the new draft are a drop in the quotas that law firms will be required to meet – quotas are proving to be the sticking point in the charter, despite general agreement on the pressing need for transformation of the profession. The first draft proposed 35% black ownership, with at least 50% women and 4% disabled people, while the second has dropped the percentage of a firm's equity required to be held by black lawyers to 25% within five years.

The charter is currently expected to be in its final form in March next year, according to the latest timetable issued by the DoJ, although when it will actually come into force may be some months after that.

The Legal Services Charter- steering committee members

- Chairperson – advocate Menzi Simelane, director-general, DoJ

- Deputy chairperson – Bonisiwe Makhene, chief director of policy, DoJ

- Chairperson of drafting committee – Brenda Madumisa, Black Women Lawyers Association

- Kevin Lester, director, Cliffe Dekker and Law Societies of South Africa representative

- Ashoek Adhikari, vice president, Dixon Attorneys and Law Society of South Africa representative

- Advocate McCaps Motimele SC, Advocates for Transformation

- Advocate Mark Hawyes, Independent Association of Advocates

- Nano Matlala, Maluleke Seriti Makume Matlala Attornys and representative of the Black Lawyers Association

- Professor Shadrack Gutto, director of the Centre for African Renaissance Studies at the University of South Africa

- Professor Cathi Albertyn, associate professor and head of the gender research project at the Centre for Applied Legal Studies, University of the Witwatersrand

- Professor Engela Schlemmer, the Society of Law Teachers of Southern Africa

- Thuli Madonsela, Waweth Research Agency

- Motlai Mashiloane, Association of Paralegals

The Legal Services Charter – KEY CONCERNS

- Quality and affordable delivery of legal services to the public

- Accessibility of legal services to communities

- Entry requirements to the legal profession

- Equal opportunities of legal services among legal practitioners

- Access to legal work including state and state-linked contracts by black legal practitioners

- The role of the legal profession in promoting equality in the judiciary

- Transformation of governance structures of the legal profession

- A unified regulatory framework for the legal profession

- Economic empowerment of historically disadvantaged black legal practitioners

- Skills development, employment equity, ownership and management within the legal profession

Source: Department of Justice, South Africa